APLA '13: Brazilian chemicals face weak cost position – consultant

18 November 2013 22:36 Source:ICIS News

CARTAGENA, Colombia (ICIS)--Brazil's naphtha-based crackers are putting the nation's petrochemical industry at a cost disadvantage against US producers, leading to record high imports of polyethylene (PE) and polyvinyl chloride (PVC), a consultant said on Monday.

Brazil has three naphtha crackers and one ethane cracker. Naphtha-based products, however, are at a cost disadvantage against those based on ethane.

In the US, the advent of shale gas has substantially increased supplies of ethane, giving the nation's petrochemical producers a cost advantage against much of the world.

Latin America is a natural market for US petrochemicals, and those exports should grow as the nation greatly expands PE production in the upcoming years.

"Brazil is obviously concerned," said Bob Bauman, president of US-based Polymers Consulting International. He made his comments on the sidelines of the annual meeting of the Latin American Petrochemical Association (APLA).

"They are in a very bad cost position on their naphtha crackers," Bauman said.

Already, Brazil has imported record amounts of PE and PVC, he said.

Brazil's cost position could improve if it builds an ethane cracker at the Complexo Petroquimico do Rio de Janeiro (Comperj).

Braskem will develop several chemical units, including a world-scale ethane cracker. Brazilian state-owned energy producer Petrobras will build two refineries.

Braskem is still negotiating the scope of its participation in Comperj as well as the prices for the feedstock, an executive said. Nonetheless, Comperj remains a priority for the company.

Bauman said the feedstock could make or break the Comperj project, since raw materials are responsible for 70% of the cost of a project.

The feasibility of the petrochemical portion of Comperj will depend on the cost of the feedstock and the composition of the gas that will come from Brazil's offshore wells, Bauman said. Those wells would be the source of the raw materials for Comperj.

For the ethane cracker at Comperj to be successful, the feedstock would have to be priced at a discount to US natural gas liquids (NGLs), Bauman said. The discount is necessary to offset the higher costs of doing business in Brazil.

Ideally, Brazil would use the offshore ethane at its existing crackers, which would have to be retrofitted to consumer gas instead of liquid feedstock, Bauman said.

By adopting such a strategy, Brazil would eliminate the crackers' cost disadvantage against the ethane crackers in the US, he said.

However, Comperj is very much a political priority, Bauman said. Brazil's popular president Lula da Silva had announced the project during his second term.

The APLA conference runs through Tuesday.

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By Al Greenwood