INSIGHT: Latin American petchem projects hit by US shale gas wave

20 November 2012 17:20  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS)--Ripples from the US shale gas phenomenon are expanding outwards. And no market will feel the impact more than major trading partner Latin America.

As new US crackers using cheap ethane come on line in the years ahead, along with expansions to existing crackers, and restarts due to arrive even sooner, expect greater volumes of US exports of polymers to Latin America.

Even before all this happens, expect many Latin American projects to be scaled back or cancelled.

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.

All the buzz at the Latin American Petrochemical Association (APLA) annual meeting in Rio de Janeiro, Brazil, in mid-November was about US shale gas and its impact.

Nothing sharpens the mind more than extreme competitive pressure – or a hanging, as the saying goes.

The jolt provided to the global petrochemical market by the development of US shale gas has everyone re-evaluating projects.

“To be competitive with the US petrochemical industry is the number one challenge,” said Pedro Wongtschowski, president of APLA, at the meeting.

“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,” he added.

In Latin America, large-scale petrochemical projects based on gas, such as Mexico’s Ethylene XXI by Braskem Idesa, are the most likely to be built.

That project’s price formula for ethane feedstock from state-owned oil company Pemex is based on US ethane prices at Mont Belvieu.

“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%.

The project, estimated to cost $3.7bn (€2.9bn) and come on stream in July 2015, includes a 1.05m tonne/year ethane cracker and polyethylene (PE) plants with the same combined capacity.

Ethylene XXI 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.

It is questionable whether such a formula could work for the Comperj project in Brazil, which is planned by Braskem using gas feedstock from state-operated oil company Petrobras.

The two companies, along with government officials, are in negotiations about the details of the project, believed by many years ago, to be the largest ever in Latin America.

But a Petrobras executive noted at APLA that the parties are trying to find a solution “beyond the price of inputs”. Not simple, he said.

The cracker is likely to be 1.2m tonnes/year, and could be completed by 2017-2018, said a source involved in the Comperj project.

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,” he added.

The Comperj project in Rio de Janeiro will include a world-scale ethane cracker, along with downstream 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.

Ethane feedstock for the cracker will come from associated gas from Brazil's pre-salt oil formations offshore.

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,” he added.

While other projects in Latin America will be scaled down or even cancelled because of the threat of greater US competitiveness, there is still scope for projects to serve the fast-growing local markets in the region.

Players at APLA said Brazil’s GDP growth is expected to rebound to between 3.5-4% in 2013 after showing disappointing estimated growth of around 1.5% in 2012.

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

Additional reporting by Al Greenwood

($ = €0.78)


By: Joseph Chang
+1 713 525 2653



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