Commentary: Sense of urgency strikes Latin America petrochemical industry at APLA

Mexico’s energy reforms and a petrochemical renaissance, plus intense competition from US shale gas-based production puts the pressure on, and opens the door for Brazil and Argentina

Juan Enrique Gonzales Sierra closes the APLA meeting Copyright: ICIS

A sense of urgency, concern and optimism flowed through the 34th annual meeting of the Latin American Petrochemical Association (APLA) in Rio de Janeiro, Brazil. Increased competition from US shale gas-based petrochemical and polymers production is only expected to intensify in the years ahead as new capacities come online with a bull’s-eye on Latin American markets.

But the first major project in the Americas to start up in the olefins space will be Mexico’s Ethylene XXI by Braskem Idesa, comprising a 1.05m tonne/year cracker and polyethylene (PE) units set to commence commercial operations near the fourth quarter of 2015.

Ethylene XXI was hailed as the “most important project in Mexico in 40 years”, according to Jordy Herrera Flores, the former energy secretary of Mexico.

And Mexico’s energy reforms, the positive implications for increased hydrocarbon production and resulting boom in feedstocks for the petrochemical sector provided fuel for optimism throughout the meeting.

Indeed, just about every new petrochemical project divulged at the APLA meeting is taking place in Mexico. This includes Alpek’s planned on-purpose propylene plant of 400,000 to 500,000 tonnes/year, using either propane dehydrogenation (PDH) or methane-to-propylene (MTP) technology – both based on local natural gas.

Alpek is also planning a 750,000 tonne/year ethylene glycol (EG) project in Mexico, while Pemex plans to expand its ethylene oxide (EO)/EG facility by 80,000 tonnes/year and build a new 500,000 tonne/year paraxylene project in the country.

Meanwhile, Mexico’s Idesa is aiming to more than double ethanolamines production by 50,000 tonnes/year at Coatzacoalcos.

All this expansion activity requires confidence – a degree of certainty that first, the feedstocks will be available and at competitive prices. That has received a shot in the arm from Mexico’s energy reforms, which opens up the industry to investment from the private sector and foreign companies for the first time since 1938.

Mexico’s burgeoning success is shining the light for other countries to succeed, especially the ones rich in resources – namely Brazil and Argentina.

Argentina, after nationalizing the oil and gas producer YPF in 2012, is renewing investment upstream. Hopes are high that it can tap into its vast shale oil and gas reserves in the Vaca Muerta and other shale formations. Yet meaningful expansion in petrochemicals is clearly many years away.

And Brazil’s hydrocarbon rich, offshore pre-salt potential has yet to translate into major benefits for its petrochemical sector. Leading player Braskem, after many years, is still seeking to find the conditions to expand with its Comperj petrochemical project. While still on the table, it will depend on the competitiveness and timing of ethane/propane feedstock from state-operated oil and gas company Petrobras.

Braskem CEO Carlos Fadigas implored the government for cooperation in the energy and petrochemical sector – much as Mexico has benefited from.

Brazil’s economy has been suffering from a major slowdown, while electricity prices for industrial sectors are expected to rise further in 2015 from drought (impacting hydroelectric power) and lack of investment.

So what’s a petrochemical company facing such a situation to do? Not only is Braskem investing in cost advantaged regions with friendly policies – Mexico via Ethylene XXI and the US through the potential Ascent project in West Virginia – but it is also considering importing US ethane feedstock to Brazil, noted Luciano Guidolin, executive vice president at Braskem.

Meanwhile, Latin America’s energy and petrochemical baton is being passed to Mexico. Fittingly, the next APLA annual meeting will take place in Cancun, Mexico, from 7-10 November 2015.