APLA: Mexico leads the wave

Braskem-Idesa’s Ethylene XXI cracker in Mexico will be the first of the new wave of ethane-fed crackers to come on stream in North America, giving it a prime advantage

Mexico’s Ethylene XXI project will be the first in a wave of new polyethylene (PE) plants being built in North America, all of which use low-cost ethane as a feedstock. The $3.2bn project is being built in Coatzacoalcos, Veracruz, by a joint venture between Brazil’s Braskem and Idesa of Mexico.

Although Mexican state-owned energy producer Pemex is supplying the ethane, the cost of the feedstock will be based on US reference prices in Mont Belvieu, Texas. As a result, Mexico’s Ethylene XXI project will be the first new PE plant to take advantage of low-cost US ethane.

Production is on track to start in the second half of 2015. Pre-marketing of PE grades has already started, with Braskem selling PE in Mexico that was made at its plants in Brazil.

When completed, Ethylene XXI will produce 1.05m tonnes/year of PE. Of this total, two high-density polyethylene (HDPE) plants will produce 350,000 tonnes/year and 400,000 tonnes/year, respectively. A low-density polyethylene (LDPE) plant will produce 300,000 tonnes/year. The HDPE plants will use INEOS’ Innovene technology, while the LDPE plant will use LyondellBasell’s Lupotech technology.

Discussions on the Ethylene XXI project first begun in 2008. At that time, the companies involved were Grupo Idesa, Mexichem and Alpek. A year later, the make-up changed, with just Grupo Idesa and Braskem involved. In 2009, they signed a contract with Pemex, under which the state-owned energy producer would supply the complex with 66,000 bbl/day of ethane.

In 2009, the start-up date for the project was given as 2015. Remarkably, that date has not changed, although Braskem has increased its stake in the joint venture to 75%. Ethylene XXI’s start-up date will give it a head start against the other new units being built in North America.

The next new North American units will not begin production until 2016, starting with the 470,000 tonnes/year of capacity that Sasol plans to start up by itself and another 470,000 tonnes/year it will start up in a joint venture with INEOS.

ExxonMobil Chemical’s 1.3m tonne/year PE production is not expected to start until late 2016. Braskem is building an ultra-high molecular weight PE (UHMWPE) plant in Texas that will also start up in 2016.

Another batch of plants is expected to start in 2017 − if cost overruns and delays do not intervene. Some producers have already pushed back their start-up dates because of labour shortages.

Ethylene XXI’s early start allowed it to avoid some of these cost run-ups and start-up delays, says Jorge Bühler-Vidal, director of Polyolefins Consulting. Ethylene XXI will have another advantage, he adds. Once the new US PE plants start production, Ethylene XXI will already be established. That should help it compete against imports from these new plants.

Those PE imports should continue flowing into Mexico, because Ethylene XXI will not produce enough to alleviate Mexico’s persistent and substantial polymer deficit, which could worsen if GDP growth forecasts hold true for Mexico. Many expect that the nation’s recently adopted economic reforms could ultimately add up to two percentage points in GDP growth.

In addition, the neighbouring US is expected to grow and that should also boost Mexico’s economy. Mexican GDP growth should rise from 1.1% in 2013 to 2.4% in 2014 and 3.5% in 2015, according to the International Monetary Fund (IMF).

Bühler-Vidal does not expect Mexico to rely solely on exports to meet domestic demand. Instead, he envisions more PE plants being built.

In the past, supplies of ethane have been one of the biggest constraints to expanding ethane capacity in Mexico. And, once Ethylene XXI is completed, Mexico will again not have enough ethane to build a another new cracker. At most, it could expand one of its existing ethylene plants by 300,000 tonnes/year, an official at Pemex said during last year’s APLA conference in Cartagena, Colombia.

However, this could change with Mexico’s recent energy reforms, which removed Pemex’s monopoly on oil, gas and natural gas liquids (NGLs) production. The new regulations should attract more money to develop Mexico’s natural gas reserves and build the necessary NGL infrastructure − allowing Mexico to produce enough ethane to build more PE plants.

No one, though, has announced any plans to build another PE plant. Bühler-Vidal cautions that any talk about another PE plant at this stage would be pure speculation.

And, if Mexico does expand ethylene capacity then it may use the material for other derivatives, such as ethylene oxide (EO).

Oxiteno discussed such a possibility during an earnings conference call recently. The Brazilian company noted that the reforms could result in a larger supply of EO, allowing the company to have a larger production base in Mexico.

Mexico is not the only country considering ethane-based ethylene capacity. Other countries are also choosing ethane, often because the gas is the most practical feedstock, Bühler-Vidal explains.

Bolivia is building NGL separation plants that will supply the feedstock for a planned polyolefins complex there. Peru has plans for an ethane-based PE plant in the southern part of the country. This would be fed by a pipeline connected to the Camisea fields in central Peru.

In Brazil, Braskem is in the midst of NGL discussions with Petrobras for its portion of the Comperj project in Rio de Janeiro. Petrobras will build two refineries, while Braskem would develop the cracker and derivative units.

Argentina already has ethane crackers as well as some of the world’s largest reserves of shale gas. However, obstacles such as foreign exchange controls and price caps could delay the development of the fields. As it stands, Argentina is still importing large amounts of liquefied natural gas (LNG).

Latin American producers are not limited to using domestic NGLs. Some are building petrochemical plants in the US to take advantage of the nation’s cost advantage. Odebrecht is evaluating a PE complex in West Virginia, which will use ethane produced from the Marcellus and Utica shales. If built, it will be operated by Braskem and it may approach the scope of Ethylene XXI.

Oxiteno has acquired a plant in Pasadena, Texas, and is expanding capacity at the site.

Mexichem has created a joint venture with Occidental Chemical (OxyChem) to build an ethane cracker in Texas. The ethylene from the cracker will be used to make vinyl chloride monomer (VCM) nearby.

However, Bühler-Vidal does not think this will be a model widely copied by other producers. “For OxyChem, it is relatively simple because it is close,” he says. Such a plan would not work for a country as far from the US as Brazil.

On the other hand, ethane shipments might. The US is building the capacity to export ethane overseas. Sunoco Logistics has a terminal at its Marcus Hook Industrial Complex, near Philadelphia, Pennsylvania. This is near the Marcellus and Utica shale in the northeast US.

Marcus Hook is outfitted for exports as soon as ethane starts arriving. By mid-2015, ethane and propane should start arriving at the complex through a 70,000 bbl/day pipeline.

Enterprise Products plans to complete its ethane terminal on the US Gulf coast in the third quarter of 2016. The terminal will have a capacity to export up to 240,000 bbl/day of ethane. The company is considering a further expansion of its ethane export capacity, although it has not provided further details.

So far, no Latin American producer has announced plans to import ethane from the US. Even if a Latin American producer does seek to import ethane from overseas, the cracker will need storage, pipelines and other infrastructure to allow it to accept the shipments. The cracker itself will need work if it currently uses naphtha as a feedstock.

One type of US export will be a given in the upcoming years. With all of the PE plants being built, US supplies will initially exceed domestic demand. Bühler-Vidal says that imbalance should shrink, but until then, US producers will seek to sell the excess supply to foreign markets.

Latin America still remains the prime destination for that material.