APLA: Shale gas hits project progress

09 November 2012 11:34  [Source: ICB]

Proposed new olefins projects in Latin America are becoming increasingly uncertain, as a result of the improved, competitive position of US investments. While many projects are progressing slowly or remain on hold, one project - Braskem Idesa's complex in Mexico - is firmly on track.


Excitement over new cracker projects has shifted north to the US

Copyright: Rex Features

Braskem Idesa, a joint venture between Brazil-based Braskem and Mexico's Idesa, plans to start up its Ethylene XXI ethylene and polyethylene (PE) project in the Nanchital region ofMexico'sVeracruzstate in mid-2015. Signalling that the project is making good progress, the company announced in October that it has selected an engineering, procurement and construction (EPC) contractor. It awarded the $2.7bn (€2.1bn) EPC contract to a consortium of Odebrecht, Technip and ICA Fluor.

The cracker will be based on Technip technology and have a 1.05m tonne/year capacity. Planned downstream production includes two high density polyethylene (HDPE) plants with capacities of 350,000 tonnes/year and 400,000 tonnes/year, and one 300,000 tonne/year low density polyethylene (LDPE) plant. INEOS is providing the HDPE technology, while LyondellBasell is providing the LDPE technology.

Other regional olefins projects are being considered in Brazil, Peru, Bolivia and Trinidad and Tobago. Braskem is a partner in many of them. The new wave of ethylene capacity planned in the US, based on low-cost ethane from shale gas, is expected to have the greatest impact on Latin American projects that were predicated on exports, such as those in Venezuela, as well as Trinidad and Tobago, says Jorge Buehler-Vidal, director of US-based Polyolefins Consulting.

The Mexican project, on the other hand, will supply the growing Mexican PE market, currently estimated at 1.9m tonnes/year, of which 70% is met by imports. The project could also benefit from low-cost feedstock, depending on the pricing agreement with feedstock provider Pemex Gas, suggests RaulArias, senior consultant at Nexant.

Pemex Gas will provide ethane feedstock under a 20-year long-term contract, based on Mont Belvieu reference prices. Further details on the agreement have been kept secret.

It is possible to speculate that if the pricing formula was agreed before the US shale-gas boom started, the project would capture the benefit of the new cost advantage of US natural gas, says Arias. "If the price formula that they have in place is indexed, at least partially, to the natural gas price in the US, falling prices in the US would result in lower transfer prices for the project," he explains.

If the project does benefit from such a pricing formula, "the project will be almost as competitive as the ones that have been announced north the Rio Bravo," he suggests.

"I do not see any other Latin American projects being reactivated soon - not in the initially intended dimension or shape," says Arias. "More so as long as the global economic environment continues to limit access to credit and continues to cause demand deceleration in key regions of the world."

In Venezuela, Braskem and Venezuela's state-owned chemical producer Pequiven were planning a joint venture cracker and PE project and a separate polypropylene (PP) project. While the cracker and PE project looks like it has stalled, the companies are continuing to study a 300,000 tonne/year PP project, based on propylene from PDVSA's refinery complex in Paraguana.

Braskem has said it could analyse the possibility of returning to the cracker and PE project, if Venezuela's state-owned energy group PDVSA presented competitive raw material options. "The Venezuela projects seem to be on hold, due to natural gas availability, and perhaps an overambitious series of PDVSA activities which are complicating financing," Buehler-Vidal remarks.

In Trinidad and Tobago, Saudi Arabian producer SABIC and China's state-owned Sinopec are studying a methanol-to-olefins (MTO) and polyolefins project. But the proposed project is unlikely to proceed, says Buehler-Vidal, because it is based on exports and because there seems to be a problem with natural gas availability in the country. The partners announced the proposed project, located in Point Lisas, in February this year.

In Brazil, state-owned energy group Petrobras says it is continuing its Comperj (Rio de Janeiro Petrochemicals Complex) project in Itaborai. Under the current plans, the project would comprise two refineries plus an integrated ethylene and derivatives complex. But there are suggestions that the petrochemicals part of the project might be reduced in scale or even eliminated.

Graca Foster, Petrobras's president, responded to the suggestions by insisting that the project will go ahead. "The project includes two parts, a refinery and a petrochemicals plant. It makes economic sense when it is treated as integrated," she said. "We have urgent need for these two refinery trains and it makes perfect sense for us to complete the Rio de Janeiro Petrochemicals Complex."

Braskem, 25% of which is owned by Petrobras, is expected to implement the cracker and polyolefins projects within Comperj. "Together with the government, Petrobras and Braskem will find a solution," Foster said. "We will work hard to maintain the project as it was originally conceived."

Bolivian state-owned oil and gas company Yacimientos Petroliferos Fiscales Bolivianos (YPFB) is studying an ethylene and PE project in Yacuiba, in Bolivia's Gran Chaco province. The project is expected to include 1.05m tonnes/year of PE and is scheduled to start up in 2016. Ethane feedstock will be obtained from a planned liquid separation plant, which will remove the ethane from the natural gas exported to Argentina.

This project has had various false starts. In a third call for bids to carry out conceptual engineering work for the ethylene and PE plants, only Tecnimont qualified. The first two bids were declared void and there are some indications that the process might be voided yet once more, says Buehler-Vidal. "Apparently the new objective is to bid for conceptual engineering and construction at the same time," he explains.The project is dependent on the completion of the Yacuiba liquids separation plant, expected in 2014.

It is estimated that initially there will be sufficient ethane to produce approximately 600,000 tonnes/year of PE, with supplies increasing to allow the production of 1.05m tonnes/year of PE in 2021, Buehler-Vidal says.

However, most informal references indicate the former capacity of PE, without explaining whether that refers just to the initial production, or whether the remaining ethane would be added to the ethylene/PE production or used for another purpose, he notes.

Also in Bolivia, Braskem has been studying a bi-national ethylene and PE project located in the border area between Bolivia and Brazil, and also based on Bolivian gas.

Braskem is also in talks to build a cracker and PE complex in Ilo, Peru, based on ethane from the natural gas reserves in Peru's Las Malvinas region. The project would supply the local and regional market. The Peruvian project "is proceeding in a disciplined and deliberate way", says Buehler-Vidal, but could be delayed as a result of competing gas pipeline proposals, as well as discussions about available reserves.

Meanwhile, companies are continuing to plan olefins projects in the US, based on low-cost ethane from the growing shale gas output. Projects that appear to be progressing include those of ExxonMobil, ChevronPhillips Chemical (CPChem), Dow Chemical and a joint venture between Occidental Chemical (Oxy-Chem) and Mexico's Mexichem. Braskem, too, has said it is watching the state of play regarding shale gas in the US, and is evaluating the construction of a new world-scale cracker in the country. The new US capacities are expected to come on stream in 2016-2017.

For Mexichem, an integrated producer of polyvinyl chloride (PVC) compounds, a US investment with OxyChem would provide a guaranteed supply of the vinyl chloride monomer (VCM) feedstock it needs to operate its PVC plants in Mexico and Colombia. Output from the joint venture cracker would be used by OxyChem to produce VCM in the US, which would then be supplied to Mexichem.

The excitement about new cracker projects in Latin America that existed before the global economic crisis in 2008-2009 has now transferred to North America. Latin American countries will struggle. Apart from Mexico, with its Ethylene XXI project, "Latin America does not have the cost-advantaged feedstock for petrochemicals development," Arias concludes.

Major investments that have recently been completed in the region include Braskem's polyvinyl chloride (PVC) and butadiene (BD) projects and a synthetic rubber expansion by LANXESS.

Located in Marechal Deodoro in Brazil's northeastern state of Alagoas, the PVC plant is the largest in Latin America, with a 200,000 tonne/year capacity.

"The inauguration of this unit is fundamental for meeting demand from our clients throughout Brazil, operating in strategic sectors of the economy such home building, sanitation and infrastructure," said Carlos Fadigas, Braskem's CEO, at August's inauguration ceremony.

The new 103,000 tonne/year BD plant is located at Braskem's Triunfo complex in Rio Grande do Sul, southern Brazil. The reais 300m ($148m, €113m) project is the fourth plant Braskem has started up in Brazil over the last four years.

Despite the challenges presented by the global economic downturn, Fadigas said the company commissioned a polypropylene (PP) project in Paulinia, Sao Paulo in 2008, a "green" ethanol-based ethylene and polyethylene (PE) plant in Triunfo in 2010, plus the PVC plant in Alagoas in August.

LANXESS has doubled its production of neodymium polybutadiene rubber (Nd-PBR) at its Cabo de Santo Agostinho complex in Pernambuco, Brazil. The plant now produces 40,000 tonnes/year of Nd-PBR, which is used to produce high performance tyres.

By: Anna Jagger
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