News Focus: Latin America petrochemicals face challenge from US shale gas

16 November 2012 09:26  [Source: ICB]

At the APLA annual meeting in Rio, the buzz was on how to compete in a new world with cheap US shale gas

US shale gas is causing a major shift in Latin America's petrochemical sector as it re-evaluates its competitiveness. Large-scale projects in the region will be gas-based, while others will be scaled back or cancelled.


Petrochemical chiefs at the APLA forum called for greater efficiency

Copyright: BillyPix

"To be competitive with the US petrochemical industry is the number one challenge," said Pedro Wongtschowski, president of the Latin American Petrochemical Association (APLA). "In Brazil, there are generally high costs - from raw materials to energy, to labour and logistics. Companies need to be more efficient at the plant operation level."

US shale gas has made US petrochemical and polymers production more competitive because of cheap ethane feedstock. Much of the rest of the world - with the exception of the Middle East - uses naphtha feedstock, which is based on oil.

The wave of announced US ethylene and derivative capacity additions (see page 13) will not only create a greater competitive force in exports, but also largely take away the US market for additional Latin American exports, said Raul Arias, senior consultant at Nexant.

"While few companies have said it directly, many of these Latin American projects were targeting the North American market for exports," said Arias. "The ones that remain will have to be resized to reflect the new realities of the market."

One gas-based project that is moving full speed ahead for start-up in July 2015, however, is Mexico's Ethylene XXI.

"The project is progressing well," said Jose Luis Uriegas, CEO of Grupo Idesa. "Site preparation is complete and basic engineering finished. We have also made orders to procure around 50% of all the equipment."

Mexico-based Idesa owns 35% of Braskem Idesa, the joint venture building Ethylene XXI, with Brazil's Braskem owning 65%. It includes a 1.05m tonne/year ethane cracker and polyethylene (PE) plants with the same combined capacity.

The $3.2bn (€2.5bn) financing package for the project is expected to close on 30 November, said Uriegas. This represents around 70% of the total cost of $4.5bn, which includes construction costs of $3.7bn, plus working capital and interest.

The project is expected to make a substantial dent in Mexico's current PE deficit of 1.2m tonnes/year and projected deficit of 1.7m tonnes/year by 2015, Uriegas said.

"Mexico has competitive raw materials, along with a new president who has indicated he wants to solve energy issues that have restrained growth in the chemical industry," said APLA president Wongtschowski.

Meanwhile, Braskem plans to make a final decision on the petrochemical portion of the Comperj project by 2014. "This is a priority for Braskem," said Luciano Guidolin, executive vice president, polyolefins and renewables. "We are moving through the process and expect to provide clarity on capacities by early 2013. That puts us in a position to make a final decision by the first half of 2014."

The project in Rio de Janeiro will include a world-scale ethane cracker, along with downstream polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC) units. The PE and PP will be sold primarily in the Brazil and wider Latin America markets, while the PVC will mostly be consumed in Brazil as the country is a net importer, he noted.

A world-scale PVC plant, as Braskem is planning, typically has a capacity of 300,000-500,000 tonnes/year, said Guidolin. It is analysing back-integration at the site all the way back to chlorine production.

Ethane feedstock for the cracker will come from associated gas from Brazil's pre-salt oil formations offshore. "The advent of US shale gas did not change the focus of Comperj," said Guidolin. "This will be a very competitive project."

Braskem is in negotiations with Brazil's state-owned energy firm Petrobras on the feedstock supply. The cracker is likely to be 1.2m tonnes/year, and could be completed by 2017-2018, said a source involved in the project.

"There is a clear advantage for US companies currently because of shale gas, said Rui Chammas, executive vice president, basic chemicals. In response, Braskem is focusing on its gas-based projects and optimising co-products from existing naphtha crackers, said Chammas. It started up its 103,000 tonne/year butadiene (BD) extraction unit at Triunfo, in Rio Grande do Sul, Brazil, in June 2012.

Colombia-based Ecopetrol was the first Latin American company to say explicitly it could scale down projects because of US shale gas.

"We had initially planned on 1m tonnes/year of PE, but because of US shale gas, we are evaluating lower capacity of around 250,000 tonnes/year," said Fernando Cubillos Guzman, marketing and strategy leader for petrochemical and industrial products.

Ecopetrol's naphtha cracker in Cartagena is on track to be completed by early 2014, with the ethylene feeding into PE production and propylene for PP production at subsidiary Propilco at the site, he said.

Ecopetrol is also planning to build a propane dehydrogenation (PDH) plant for the production of propylene in Cartagena by mid-2016, an official said in August.

Propilco has 500,000 tonnes/year of PP capacity, but is importing two-thirds of its propylene needs from the US, said Cubillos Guzman. "We hope to get enough propylene to not have to import from the US."

The APLA annual meeting in 2013 will take place in Cartagena, Colombia on 16-19 November.

By: Joseph Chang
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