Commentary: Latin America petrochemical capacity outlook dims with dropping of Comperj

While Braskem will seek to double the size of its existing Rio cracker rather than 
embark on the Comperj project, the scale of the expansion will be much smaller

Prospects for additional major capacity in Latin America’s petrochemical sector have dimmed with the scrapping of the Comperj petrochemical project in Brazil. What was once envisioned as the largest project in the region with a world-scale cracker and downstream facilities, is now gone.

Braskem will seek to double capacity at its cracker in Duque de Caxias, in Rio de Janeiro, Brazil Copyright: Braskem

For years, Brazil-based petrochemical and polymers company Braskem had been unable to reach a feedstock agreement with state operated oil and gas giant Petrobras for the large-scale project. Braskem is finally dropping the project, according to a source familiar with the situation (see page 9).

The ethane/propane feedstock for the new gas-based cracker of Comperj would have come from Brazil’s vast offshore pre-salt hydrocarbon formations.

Instead, Braskem is pivoting to another project that would double the size of its existing 540,000 tonne/year gas cracker in Duque de Caxias, Rio de Janeiro state. It is the only gas cracker in Brazil – the other three are naphtha-based and also owned by Braskem.

The scale of this project is likely about a third of what would have been built with Comperj, assuming a world-scale 1.5m tonne/year cracker.

And timing is uncertain, as Braskem would need a supply agreement on ethane/propane feedstock before proceeding with any expansion of the Rio cracker.

The Rio cracker is currently running at reduced rates on lack of feedstock. Braskem executive vice president Luciano Guidolin in November 2014 said the company was analysing US ethane/propane imports for the cracker, as capacity utilisation was around 80% at the time.

Local naphtha feedstock is also insufficient for the other three crackers. Brazil imports around 30% of its naphtha requirements for its three naphtha crackers, according to Braskem.

It’s a constant struggle to secure local naphtha feedstock for petrochemicals, as Petrobras uses it to produce gasoline, which is also in short supply in Brazil, noted ChemVision.

If Braskem wants to source local ethane/propane, it would have to come from the offshore pre-salt formations being developed by Petrobras.

Yet Petrobras is embroiled in its own issues – a widening corruption scandal that is crimping its ability to raise funds for its ambitious $221bn capital spending programme in the period 2014-2018, along with the collapse in crude oil prices. The company already is heavily in debt and has delayed filing audited financial statements in the midst of the corruption investigation.

All the oil majors are slashing capital budgets – you would expect no less from a beleaguered Petrobras. That would slow development of the oil fields from which the much needed feedstock would be sourced.

The only major petrochemical project coming up in Latin America is Ethylene XXI in Mexico – a joint venture between Braskem and Mexico-based Idesa. The 1.05m tonne/year cracker and derivative polyethylene (PE) plants are set to start up in Q4 2015.

Braskem and Brazil-based industrial conglomerate Odebrecht are also evaluating a world-scale cracker in West Virginia, US. The fact that Braskem would rather put major capital investment in Mexico and the US versus its own backyard speaks volumes about the feedstock situation and business climate in Brazil.