Commentary: What next after Mexico’s Ethylene XXI?

After Braskem Idesa’s Ethylene XXI project starts up in Mexico in December 2015, there will be no new crackers built in Latin America for at least the rest of the decade. That much was clear at the 35th annual Latin American Petrochemical Association (APLA) conference in Cancun, Mexico.

That’s too bad, as it’s a hydrocarbon rich and demand growth region which has to import petrochemicals and polymers, not to mention gasoline. As one consultant put it, it doesn’t make sense to export low value oil, and import higher value gasoline and petrochemicals.

Clearly underinvestment, in many cases exacerbated by government price control and other business unfriendly practices, have taken a toll. Price controls on fuel for transport and heating choke off new investment in exploration and development, and refining, which in turn limits feedstocks for petrochemicals.

Expropriation of assets by governments also causes private companies to tread cautiously when it comes to large, or any investments.

The main issue today is feedstock – ethane in particular where the economics would make more sense.

Mexico’s Ethylene XXI cracker, when it starts up in December 2015, will consume just about all the country’s excess ethane to make 1.05m tonnes/year of ethylene, 750,000 tonnes/year of high density polyethylene (HDPE) and 300,000 tonnes/year of low density PE (LDPE).

Other countries don’t have the ethane yet to support a world-scale cracker. Yet two countries are worth watching, as they reboot their energy sectors.

Mexico’s reforms are geared towards attracting private companies and technologies to better develop its hydrocarbon resources than state oil and gas company Pemex.

Pemex itself is undergoing a multi-year transformation in culture and practice, to make it an efficient commercial operator of energy, refining and petrochemical assets.

Pemex is mandated to create partnerships, especially on the petrochemical side, to not only maintain, but grow production as growing local demand requires. Look for Pemex to take minority stakes in petrochemical joint ventures.

Mexico could have enough ethane by around 2024 to support another new world-scale cracker, said Eduardo de Tijeras, general director of Mexico-based consultancy Grupo Texne at APLA.

The Ethylene XXI project itself, a 75/25 joint venture between Brazil’s Braskem and Mexico’s Grupo Idesa, is a huge achievement for Mexico’s petrochemical industry and will help reduce its PE trade deficit of around 1.5m tonnes/year, said Idesa CEO Jose Luis Uriegas at APLA. However, around 40-50% will be exported initially.

“The impact of Ethylene XXI on the local market will be felt immediately. But most of the companies already bringing PE into Mexico from the US are willing to give it a good fight,” said George Martin, senior consultant at ICIS Consulting.

“They won’t roll over just because Braskem Idesa comes online. They will fight – on price, service and anything they can to retain share in Mexico,” he added.

INVESTING IN VACA MUERTA SHALE

Argentina, after the expropriation of Repsol’s oil and gas assets in 2012, is investing in its Vaca Muerta shale gas formation.

State oil and gas company YPF has partnered with Chevron and Dow Chemical, along with others, to explore and produce from this region, and initial results have been promising, yielding more ethane than expected.

Dow clearly has plans on the table to build a new cracker at its Bahia Blanca petrochemical complex in Argentina one day, aiming to boost ethylene capacity to around 2m tonnes/year.

It already operates two small crackers In Bahia Blanca with capacities of 475,000 tonnes/year and 275,000 tonnes/year, HDPE units of 150,000 tonnes/year and 120,000 tonnes/year, a linear low density (LLDPE) unit of 290,000 tonnes/year, and an LDPE unit of 90,000 tonnes/year, according to the ICIS plants & products database.

“Bahia Blanca has a great opportunity to become the third big expansion area for Dow,” said Fabian Gil, Latin America commercial vice president for Dow Performance Plastics, at APLA.

Jorge Buhler-Vidal, president of Polyolefins Consulting, puts his bet on Dow’s Bahia Blanca complex as the next major petrochemical project venue in Latin America.

However, any company willing to invest billions of dollars in a new cracker would have to be supremely confident that ethane feedstock production is well on its way to support the project once completed.