Naphtha

LONDON (ICIS)–Underlying demand for European recycled agglomerates has increased throughout 2024, and is expected to rise sharply as pyrolysis-based chemical recycling scales. The majority of recycled polyolefin agglomerates are currently used by mechanical recyclers. Nevertheless, pyrolysis based chemical recyclers are increasingly targeting agglomerates as a feedstock. While chemical recycling can process waste types that it would be difficult or impossible for mechanical recyclers to use, though, it is a myth that there is no link between the input waste quality and output quality of chemical recyclers, and that chemical recyclers can use any form of waste. Take pyrolysis-based chemical recycling as an example. Pyrolysis-based plants targeting mixed plastic waste as feedstock – with a focus on polyolefins – currently account for ~60% of all operating chemical recycling capacity in Europe according to ICIS Recycling Supply Tracker – Chemical. Typically, pyrolysis-based processes aim to limit chlorine content in bales- due to corrosion risks –  polyethylene terephthalate (PET) content in bales – because it doesn’t pyrolyse and it creates oxygenation – nylon and flame retardants – which also oxygenates the process. They also typically aim to minimise moisture content, because loose water molecules in the reactor can cause changes to pressure values. The production of pyrolysis oil requires an inert atmosphere (i.e. heating in the absence of oxygen). The quality of input waste is one of the largest dictators of output quality across pyrolysis oil grades, dictating the type of impurities and boiling point. Boiling point, chlorine, sulphur, fluorine, nitrogen and oxygen contents are among the key determiners of pyrolysis oil prices – with an average spread of €1,150/tonne currently being seen between the lowest value (tyre-derived) and highest value (naphtha substitute) grades of pyrolysis oil that ICIS prices. Any sorting that needs to be done to remove the presence of these materials in the input bale adds additional cost and slows throughput. Pyrolysis oil can be – and often is – run through an upgrader or purifier to enhance its properties, but the quality of input waste has an impact both on yield and quality – and, therefore, profitability. This is one of the reasons the environmental impact of pyrolysis oil remains unclear and varies from producer to producer. While pyrolysis oil producers continue to test with a wide-range of waste input qualities, many producers are turning to agglomerations of polyolefins, and it is expected to become a leading feedstock for pyrolysis-based chemical recycling in the mid-term. This is in response to some of the challenges chemical recyclers have found with pre-treatment and sorting on site. This is particularly connected to the need to adapt processes continuously to account for continually shifting feedstock mixes. Pre-treating and sorting at waste manager level creates economies of scale and prevents the slowdown in throughput sometimes associated with chemical recyclers sorting on site. The use of agglomerates helps pyrolysis oil producers: Limit impurities such as sulphur, fluoride, oxygen, chlorine and nitrogen in finished pyrolysis oil – which typically results in a higher realizable price for that pyrolysis oil, and greater feasibility for use in a cracker Enable placing feedstock straight into the reactor and thereby save on capital expenditure Ensure a more consistent feedstock, with pre-treatment handled at waste managers which benefit from economies of scale and long-standing technical know-how Avoid slowing throughput and the expense of onsite sorting Avoid degradation and allow players to stockpile material ahead of plant scale-ups Target specific waste input mixed (although this can result in additional cost premiums) In response to the growing interest in recycled polyolefin agglomerates, ICIS has launched a new recycled agglomerates price index as part of its mixed plastic waste and pyrolysis oil (Europe) pricing service. The new index is for spot prices of agglomerated forms of mixed polyolefin material containing at least 95% polyolefin content and a maximum moisture content of 3%. It is assessed weekly on an ex-works Europe basis. The mixed plastic waste and pyrolysis oil (Europe) pricing service also offers pricing for mixed polyolefin bales, high plastic content refuse derived fuel (RDF) bales, reject unsorted plastic waste bales from municipal recover facilities (MRFs), and 3 spot price series for pyrolysis oil (tyre derived, non-upgraded, and naphtha substitute). For more information on these new series, or to share feedback, please contact Mark Victory at mark.victory@icis.com.

02-Oct-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. We now have 32 months of trade and pricing data since the end of the 1992-2021 Chemicals Supercycle and so it is worth taking stock of what the numbers are telling us. And as we have 32 months of information to draw on since the end of the Supercycle, which is from January 2022 until August 2024, it is worth making like-for-like comparisons with the 32-month period immediately before the end of the Supercycle – May 2019 until December 2021. Focusing just on polypropylene (PP) with the story the same in many other products: South Korea and Taiwan saw declines in PP sales turnover in China of $1.1 billion and $694 million respectively when this two 3-month periods are compared. Despite its feedstock advantages, Saudi Arabia saw its turnover fall by $681m followed by Singapore at $633m and Thailand at $613 million . Losses across China’s top ten trading partners totalled $4.6bn. The only winner was, not surprisingly, the Russian Federation with a turnover gain of $102 million. Another symptom of a chronically oversupplied market has been a collapse in margins as another chart in today’s post illustrates: In May 2019-December, the average of both naphtha and PDH-based PP margins was $281/tonne, but this fell to just $12/tonne in January 2022-September 2024. And this latter period has involved many weeks of negative margins. A pivotal turning point in global chemicals markets, the most important since 1992, was the Evergrande Moment. And yet far are too few references to this essential context. China’s debts and its demographics told us from as early as 2011 that a steep fall in economic growth had to happen. We also knew from 2014 onwards, thanks to a shift in government policy, that much-greater chemicals self-sufficiency was on the way. This gave producers plenty of time to build strategies that reduced their dependence on China. But how many companies took note of what the demographic and debt trends were telling us? How many took note of the threat to China’s exports from 2018 onwards as the geopolitical environment deteriorated? My suspicion is that far too few companies were ready for the changes now well underway, which are reflected in the above demand, supply, sales turnover and margins data. This was because people chose to believe misleading nonsense about the “rise of China’s middle class” when the numbers on China’s per capita incomes, the country’s birthrate and the rise in its debts exposed the myth. The chemicals industry is science and data driven except, seemingly, in one critical area:  Macroeconomics. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

02-Oct-2024

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson: Last week’s launch of a new “stimulus bazooka” by the Chinese government might lead to a rally in chemicals and polymer pricing. But so what if prices go up over the next few weeks? The price rises will be of little long-term consequence unless we see big shifts in spreads and margins in the key polyethylene (PE) market. Between January 2014 and December 2021, northeast Asia integrated variable cost naphtha-based PE margins averaged $451/tonne; from January 2022 until the third week of September, they averaged just $2/tonne. In late 2019/early 2020, northeast Asia PE margins briefly turned negative as oversupply increased. But the full downturn was delayed by reduced feedstock availability and a surge in PE demand resulting from the pandemic. Then came the Evergrande Moment Average CFR China PE price spreads over CFR Japan naphtha costs are at just $280/tonne so far this year, the lowest since our price assessments began in 1993. We have seen three consecutive years of new record-low spreads. It is of course no coincidence that the three years have followed the Evergrande Moment. HDPE spreads would have to rebound by 129%, LDPE spreads by 48% and LLDPE spreads by 88% to see a return to the old market conditions. Average PE spreads would thus have to rise by 80%. Follow the ICIS PE spread and margin data every week to discover whether a recovery is really happening in China. My view, as you know, is that China’s economy faces deep long-term challenges resulting from the end of the real-estate bubble and an ageing population. The extent to which it can maintain its dominant role in global exports is also in question because of a much more difficult geopolitical environment. I don’t believe that any amount of likely economic stimulus in China (there are political and economic limitations on stimulus) can fully address these challenges. It is what it is. We need to get used to a Chinese chemicals market where demand growth for some products might even go negative. You may disagree. But what we can and should agree on is the story that’s been consistently told by PE spreads and margins since January 2022. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

30-Sep-2024

SINGAPORE (ICIS)–India is expected be a major driver of global long-term oil demand growth through to 2050, alongside the Middle East and Africa, OPEC said in a report. Global oil demand to reach 120.1 million barrels/day in 2050 Petrochemical, road transportation sectors to be key demand drivers Annual average world GDP growth of 2.9% projected for 2023-2050 These regions were identified as the “key sources of incremental [oil] demand in the coming years”, OPEC said in its 2024 World Oil Outlook report released on 24 September. “India alone will add 8 million barrels/day to its oil demand during the forecast period [2023-2050].” OPEC comprises 13 oil producing countries led by Saudi Arabia, which is the world’s biggest crude oil exporter. Global oil demand is expected to increase by almost 18 million barrels/day, or by 17.5%, from 102.2 million barrels/day in 2023 to 120.1 million barrels/day in 2050. While non-Organisation for Economic Co-operation and Development (OECD) demand is projected to increase by 28 million barrels/day between 2023 and 2050, OECD demand is set to witness a decline. OECD refers to a group of 38 highly industrialized economies. The strong projected demand growth in the petrochemical sector, especially in Asia, will raise oil demand from naphtha production by 2.8 million barrels/day by 2050. The largest incremental demand during the forecast period is projected for the petrochemicals, road transportation and aviation sectors. Oil demand in these sectors in the long term is set to increase by 4.9 million barrels/day; 4.6 million barrels/day; and 4.2 million barrels/day, respectively. “Demand projections in the road transportation sector indicate strong growth over the current decade before stabilizing at levels above 50 million barrels/day for the rest of the forecast period,” OPEC said. “By then, the penetration of EVs [electric vehicles] is set to increasingly play a role.” The global vehicle fleet is projected to surge by about 71% from 1.7 billion in 2023 to 2.9 billion in 2050 with the fastest growth expected in the EVs segment. As for refined products, strong long-term demand growth is expected for ethane/liquefied petroleum gas (LPG). “The larger part of this demand growth relates to the use of ethane as a petrochemical feedstock, mainly in OECD Americas and the Middle East,” OPEC added. GLOBAL ECONOMIC GROWTH REMAINS ROBUST Global GDP is projected by OPEC to grow at an average rate of 2.9% per year between 2023 and 2050. Non-OECD countries are set to lead this growth, expanding at an annual rate of 3.7%, while OECD nations will experience more modest annual growth at 1.6%. As a result, in absolute terms the global economy is expected to more than double in size from $165 trillion in 2023 to $358 trillion in 2050. Focus article by Nurluqman Suratman Thumbnail image: Crude oil tanker Njord DF, 250m length, 44m height, flag Greece, Baltic Sea, 31 August 2024 (Olaf Krüger/imageBROKER/Shutterstock)

25-Sep-2024

SAO PAULO (ICIS)–The Mexican government has amended for the third time the decree regulating import and export permit requirements for several chemicals as well as fuel products and re-opened the door for 20-year permits. Among others, there were amendments published for permits to import key building blocks within the petrochemical industry, such as naphtha; products within the aromatics chain such as benzene and toluene; or within olefins such as ethylene, propylene and butadiene (BD). Within fuels, import permits for jet kerosene or biodiesel were amended, as well as those for feedstocks such as methyl tert-butyl ether (MTBE). Read the list of products in the decree’s annexes (see here, in Spanish). The government said it was aiming to simplify the procedures by providing greater legal certainty and clarity to interested parties, seeking to facilitate compliance with obligations by considering the type of merchandise, its use, and the quantities requested. These import and export permits apply when the product is related to the energy industry or derives or is produced from hydrocarbons. For lubricants and additives, recent regulatory amendments have made it necessary to obtain a Permit for the import of such products, when classified under certain specific tariff codes. Some of the updates referred to the term of the permits for import and export, an aspect in which the government is backtracking its earlier decision from 2020 to withdraw 20-year permits existent at the time, according to a note to customers by the Mexican office of law firm Holland & Knight. “Permits are granted for different validity periods that vary based on the nature of the merchandise and its intended use. For merchandise intended for sporting events and research trials, both for import and export, the validity is sixty days. Standard permits for one year and five years may also be requested,” said Gabriel Ruiz, partner at the law firm. “Furthermore, permits for export may be granted for periods exceeding five to twenty years, provided the need for such permits is justified in the interest of social and economic benefit, subject to approval by the Ministry of Energy (SENER).” The decree also establishes specific requirements for obtaining prior import and export permits, differentiating the requirements based on the validity of each type of permit. Regarding renewals, permits granted for one year may be renewed up to two times for the same validity, while five-year permits may be renewed once for the same duration. For permits exceeding five years intended for export, the renewal will be singular and may extend up to half of the original validity; in the case of twenty-year permits, the renewal will be limited to the same proportion. The new rules published on 18 September came to amend a decree originally issued in December 2020, later amended in November 2022 and November 2023. These amendments were part of wider changes included in the Energy Reform passed in 2013, which sought to liberalize Mexico’s energy sector. The current Administration’s approach, however, has been keeping the state-owned energy companies – crude major Pemex or utility CFE are two of them – at the center of the country’s energy landscape. Front page picture source: Shutterstock

24-Sep-2024

SINGAPORE (ICIS)–Here are the top stories from ICIS News Asia and the Middle East for the week ended 20 September 2024. India LAB market mired in soft demand, ample supply By Clive Ong 20-Sep-24 13:47 SINGAPORE (ICIS)–India’s linear alkylbenzene (LAB) market remains mired in tepid demand and ample availability of spot cargoes. Weak demand pick-up in China weighs on Asia petrochemicals By Nurluqman Suratman 16-Sep-24 14:21 SINGAPORE (ICIS)–Demand in bellwether market China has not picked up as expected ahead of its week-long holiday in October, further dimming recovery prospects for Asia’s petrochemical markets for the rest of year. India's BPA import price nears five-month low amid ample supply By Li Peng Seng 18-Sep-24 10:26 SINGAPORE (ICIS)–India's bisphenol A (BPA) import prices on 13 September extended their downward trend for the sixth straight week, weighed down by abundant supplies, slow demand and easing ocean freight rates. INSIGHT: Asia needs carbon credits, financing to accelerate energy transition By Bee Lin Chow 17-Sep-24 17:11 SINGAPORE (ICIS)–Asian countries need high integrity carbon credits and credible financing mechanisms to keep pace with their energy transition commitments in line with the Paris Agreement. Thai SCG to run Vietnam petrochemical complex on US ethane By Nurluqman Suratman 19-Sep-24 13:18 SINGAPORE (ICIS)–Thai conglomerate Siam Cement Group (SCG) plans to use ethane imported from the US as feedstock for its Long Son Petrochemical (LSP) complex in Vietnam to boost the project’s long-term competitiveness. INSIGHT: Asia petrochemical price pressure continues in September on weaker crude pricing By Jimmy Zhang 19-Sep-24 18:01 SINGAPORE (ICIS)–A significant portion of Asia petrochemical prices are expected to continue decreasing in September, driven largely by the decline in crude values during the month, with market sentiment bearish. Asia naphtha market may firm on supply constraints By Li Peng Seng 16-Sep-24 12:03 SINGAPORE (ICIS)–Asia's naphtha market has held steady over the past week, but could strengthen in the short term due to fewer cracker maintenance and lower-than-usual arbitrage cargo arrivals expected from the west in October.

23-Sep-2024

SINGAPORE (ICIS)–Thai conglomerate Siam Cement Group (SCG) plans to use ethane imported from the US as feedstock for its Long Son Petrochemical (LSP) complex in Vietnam to boost the project’s long-term competitiveness. Storage, supporting facilities for ethane to be built on site Ethane targeted as major feedstock for LSP cracker; C2 market “turbulence” expected LSP commercial operations start October SCG is in talks with a contractor for the new ethane storage project, with construction of the facilities expected to take about three years to complete, the company said in roadshow presentation on 16 September. “The site is equipped with a central utility system, ready for the installation of ethane gas storage tanks and pipelines,” the company said in a separate statement on 16 September. SCG has yet to finalize the capital expenditure for the project, and the prospective US ethane supplier for LSP was not disclosed. The $5.4bn LSP project in Ba Ria-Vung Tao province is Vietnam’s first integrated petrochemical complex and is 100%-owned by Thai conglomerate SCG. The mixed-feed cracker at the site currently uses propane and naphtha feedstocks imported from Qatar under a long-term supply deal. The cracker can produce 950,000 tonnes/year of ethylene; 400,000 tonnes/year of propylene; and 100,000 tonnes/year of butadiene (BD). SCG said that LSP is already operating flexible gas cracker which can use a variety of feedstocks, including ethane, propane, and naphtha. Ethane imported from the US is currently cheaper by $200-400/tonne than existing feedstock, SCG said, noting that the average price of ethane has been around 40% lower than that of naphtha and propane over the past three years. The feedstock derived from shale gas also provides greater price stability as it is linked to US natural gas prices, unlike naphtha, which is influenced by oil price fluctuations. FEEDSTOCK DIVERSIFICATION The enhancement to LSP's feedstock flexibility is part of SCG's efforts to bolster its chemicals business in the face of global oversupply, low demand and oil price volatility, SCG said. For ethylene (C2), the company expects "future turbulence" in the market, especially in 2027-2028 amid a wave of new global cracker additions, especially in China. Global ethylene supply is projected by SCG to grow at a slower average rate of around 3-4% in 2025-2030, compared with 5% in 2019-2024. China will comprise around 53% of new ethylene supply additions in 2025-2030, it noted. SCG expects an "extended chemicals trough with low margin" in 2025-2030 amid continued naphtha price volatility. “The current global situation and the future outlook over the next 2-5 years will be marked by increased volatility,” SCG CEO and president Thammasak Sethaudom said on 16 September. “All SCG businesses are moving forward with strategies that align with these dynamics while also reducing carbon dioxide emissions…to ensure long-term competitiveness.” LSP COMMERCIAL OPERATIONS START OCTOBER The LSP complex has completed performance test runs in September and is on track to start commercial operations next month, according to SCG. Its utilization rate following start-up will be "determined by global demand dynamics", it said. LSP’s downstream plants include a 500,000 tonne/year high density polyethylene (HDPE) unit; a linear low density PE (LLDPE) unit of the same capacity; and a 400,000 tonne/year polypropylene (PP) unit. The cracker had an outage in February due to a technical issue and resumed normal operations in August. It had declared a force majeure in February due to issues at the cracker that also shut its downstream PE and PP units. Credit ratings agency Fitch Ratings in a note on 17 September said that it expects LSP to ramp up its utilization rate to 70-80% in 2025, “supported by its cost competitiveness versus imports and the flexibility to use both propane and naphtha as feedstock”. Imports currently fulfil nearly all of Vietnam's petrochemical requirements. Focus article by Nurluqman Suratman Thumbnail photo: Aerial view of SCG's Long Son Petrochemical Complex in Vietnam (Source: SCG)

19-Sep-2024

HOUSTON (ICIS)–The Federal Reserve lowered its benchmark interest rate by a half point to 4.75-5.00% on Wednesday, and the central bank could lower it by an additional half point by the end of the year. The following table summarizes the current and past forecasts for rates, inflation and GDP by members of the Federal Reserve. 2024 2025 2026 Fed funds 4.4% 3.4% 2.9% June forecast 5.1% 4.1% 3.1% GDP 2.0% 2.0% 2.0% June forecast 2.1% 2.0% 2.0% Core PCE Inflation 2.6% 2.2% 2.0% June forecast 2.8% 2.3% 2.0% Source: Fed If the forecasts hold true, the US economy will achieve a soft landing, with inflation falling to the Fed's long-term goal of 2% without triggering a recession. FED NOTES WEAKER JOB MARKET, INFLATIONThe Fed said that the job market had slowed since the last time it voted on rates at the end of July. Inflation has moved closer to the Fed's goal but remains somewhat elevated. Unlike its previous statement in July, the Fed said it "has gained greater confidence that inflation is moving sustainably toward 2%". In addition, the Fed stressed its commitment to support maximum employment. Its last statement in July lacked such a statement. CHEMS WILL WAIT BEFORE RATES TRIGGER RECOVERY IN DURABLESChemical producers will have to wait before lower rates cause a recovery for demand in durable goods and housing. Both are key end markets for polymers such as polypropylene (PP), nylon, acrylonitrile butadiene styrene (ABS) as well as chemicals used to make polyurethanes, such as isocyanates, polyols and propylene oxide (PO). Huntsman said the lag is typically about two quarters. Ultimately, mortgage rates will need to approach 5% before markets for homes and durable goods can recover, according to Dow. Higher rates had made housing and durable goods like furniture and appliances less affordable. Because fewer consumers are buying homes and moving, they are purchasing fewer durable goods. LOWER RATES TEND TO BOOST OIL, CHEM PRICESTypically, prices for oil and other dollar-denominated commodities tend to rise as US interest rates fall. A rise in oil prices typically causes those for petrochemicals to increase. Margins for US-based producers benefit from higher oil prices because their plants predominantly rely on gas-based feedstock. By contrast, much of the world relies on oil-based naphtha, giving US producers a cost advantage. FIRST CUT IN MORE THAN FOUR YEARSThe last time the Federal Reserve lowered interest rates was in March 2020, during the COVID-19 pandemic. Lockdowns, government stimulus and recovery caused a surge in inflation, which led the Federal Reserve to begin raising the benchmark rate two years later in what became the most aggressive tightening campaign in more than 40 years. The Fed stopped raising the rate in July 2023. A year later, inflation started showing signs of approaching the Fed's target of 2%. At the same time, the labor market began cooling off and returning to more normal levels. Focus article by Al Greenwood Thumbnail shows money. Image by ICIS.

18-Sep-2024

HOUSTON (ICIS)–Gevo has received a patent for its process that converts ethanol into olefins in a single step, providing another way to make propylene from renewable feedstock, the US-based renewable chemicals producer said on Monday. The patent, No 12,043,587 B2, addresses the company's process that relies on catalyst combinations for the process, which can make propylene and butylenes, which are also known as butenes. Gevo had licensed the technology to LG Chem. Chemical companies have had limited ways to produce propylene or butylenes from renewable feedstock. Technology already exists to dehydrate ethanol to produce ethylene. Companies could then convert the ethylene to propylene through a metathesis unit, but that would require an additional step and another plant, which would increase costs. Another route is to hydrotreat natural oils and used cooking grease to produce renewable naphtha. That naphtha could then be cracked in traditional ethylene plants to produce olefins and aromatics. This process faces possible feedstock constraints if companies wish to use nonfood feedstocks. Already, oleochemical producers that rely on tall oil have had to compete with renewable diesel producers for feedstock. Gevo did not compare the costs of its process to these existing ways to make propylene and butylenes from renewable sources.

16-Sep-2024

SAO PAULO (ICIS)–The Brazilian government’s decree changing natural gas regulations could potentially overhaul the market and, along the way, benefit the chemicals industry by providing it with cheaper energy and eventually with ethane-based feedstocks. The job of a lobbyist may be well paid, but it must be a hard one most of the time. For years, Brazil’s chemicals trade group Abiquim had been lobbying for the government to pass regulations which would allow the natural gas which comes as a byproduct from crude oil production to stay within the economy, and not be just reinjected into the ground again. To make common cause on that lobbying, Brazil’s polymers major Braskem has also been saying for years that it stands ready to expand its Duque de Caxias facilities, in the state of Rio de Janeiro, as soon as the necessary gas and derivatives were available. For years, those demands had fallen in deaf ears. Until 26 August, when the cabinet presided by Luiz Inacio Lula da Silva passed a decree contemplating, among other measures, higher powers for the oil and gas regulator ANP to set up the amount of gas which is reinjected into the system, for instance. If fully implemented, the decree could completely change the natural gas market in Brazil, and ultimately benefit the chemicals industry via lower energy costs and, potentially, having more ethane, rather than crude-based naphtha, as a raw material. In a written response to ICIS, Abiquim’s director general Andre Passos celebrated the decree and did not share the fears of some analysts, who see in giving regulators more power than traditional willingness to basically intervene the market. REINJECT OR NOT TO REINJECT – AND WHO PAYS THE BILLActing on natural gas in Brazil had almost become an imperative since the US shale gas revolution changed that country’s energy landscape, making it again a net exporter and reviving the petrochemicals industry to an extent no-one could imagine just two decades ago. In the US and Brazil, the two largest chemicals producers in the Americas, the contrast is stark: natural gas prices in the southern neighbor are around four times higher than in the US. However, some analysts have said they are concerned about the type of action taken, arguing that giving regulators such as the ANP more power could lead to more government interventionism in the oil and gas sector, potentially denting Brazil’s crude sector attractiveness to invest. However, lest not forget that Brazil’s crude sector is mostly dominated by one player, Petrobras, and this player is majority owned by the state: its CEO is appointed or dismissed as the President sees fit, and the crude major is effectively one more arm of the cabinet – a ministry of energy bis, so to speak. Still, Brazil’s crude sector was meant to go towards more liberalization, not less. And this is where the decree on natural gas passed in August overreaches, according to critics, the scope of what a government should do or should not do to encourage certain economic activity. According to the decree, the ANP will be able to mandate to crude oil players the levels of natural gas they can reinject back into the system during their crude oil extraction operations, and how much they should make available for companies and households. In simpler words: crude producers will have to go from reinjecting most of the gas – at a very low cost – to create an infrastructure to transport that gas onshore. For now, crude oil majors operating in Brazil have, for the most part, kept quiet about the decree. In a written response to ICIS on 29 August, Shell said it was “analyzing” the decree, without any further comment, a response it has not updated as of 3 September. Petrobras and Equinor had not responded to a request for comment at the time of writing. Equally, Braskem did not respond either to questions about potential petrochemicals expansions or how the decree could affect investments in crude oil and, ultimately, affect the industrial sectors if that was to happen. Petrobras’ CEO, Magda Chambriard, said, however, the company would do “everything possible” to reinject as much gas as it is able to, but also reminded how this reinjection will only be possible in the production platforms to be started up in the future. “On the platforms that are already there [in operation] and on those that are already being delivered, this [reinjecting more gas] will not be possible," said Chambriard, quoted by specialized publication Offshore Energy. Abiquim’s Passos is not concerned at all and said that the powers given to ANP is a natural step for “an aspect of oil and gas production” that was not previously covered by the regulators. “The power to regulate will be used considering the interests of producers, consumers, and the state and, obviously, without implying a disincentive or a halt to new investments. In any case, given the magnitude of investments in oil, new investments specifically for gas would not significantly alter the competitiveness of oil exploration and production (E&P) in Brazil,” said Passos. “Abiquim is confident that the costs associated with E&P in Brazil's oil sector are sufficiently low to cover any additional costs that may arise.” And to the fears about higher intervention from the government, Passos said it was a “global characteristic” of the crude oil and gas sectors to be highly regulated. CHEMICALS CHEERS, FINALLYAbiquim’s Passos is well aware of Petrobras’ CEO warning about the slowness in the natural gas market, and how it may take years for the changes benefiting chemicals to take place. But, after years of unsuccessful lobbying, Passos is a happy man who says the authorities have finally a vision of what chemicals should be and what its problems are. With that, he is ready to wait. “Nothing will be immediate. However, there is a compatibility between the time needed for greater availability of natural gas, improving the competitiveness of this raw material in Brazil, and the time required for petrochemical projects to mature – we should consider that this is a structural action with medium- and long-term impacts,” said Passos. However, after years of lobbying for a decree like the one just passed, the trade group was understandably exultant, not least because this comes just two months after another success. In June, Abiquim and Passos as its representative were part of Lula’s entourage when he went on a state visit to gas-rich Bolivia in June. During the visit, Brazil and Bolivia signed agreements to expand natural gas supplies, in a long-running business relationship which has made Bolivia the key supplier to the Brazil’s most populous, industrious and wealthiest states in the south via the pipeline Gasbol, the longest natural gas pipeline in South America at 3,150 kilometers (1,960 miles). At the time, Abiquim described the agreements inked in Bolivia as a “historic” step for Brazil’s chemicals and which, together with the latest natural gas moves, could pave the way for a truly competitive sector in the global stage, said the trade group. Agreements on fertilizers were also signed as Brazil, already one of the world’s bread baskets, continues to post a large trade deficit in that field. According to Brazil’s government, the deals in Bolivia and the decree on the regulatory environment for natural gas could unleash investments of Brazilian reais (R) 96 billion ($17 billion) in natural gas, biomethane, and fertilizer plants, as cited by Abiquim in its statement following the decree’s passing. SEVERAL DEALS, LITTLE RESULTSAbiquim’s lobbying has been directed where it could make the most difference: the government and Petrobras, admittedly achieving more success with the former than the later. In its quest for expanding natural gas supplies and lower prices, Abiquim knocked on Petrobras’ door in 2023 and formed a working group to explore solutions to the “critical situation” the chemicals industry was in. Nothing was heard about that working group, so this year the two parties gave it another shot and singed a memorandum of understanding (MoU) aiming for the same: to find ways of making the petrochemicals industry more competitive. So far, nothing concrete has been communicated, while chemicals remains with its operating rates at record lows as imports continue flooding Brazil and the wider Latin America, with an increase in import tariffs later this year one of the elements which, according to Abiquim, could start fixing the beleaguered Brazilian domestic chemicals production. “Over the last few months, both teams (Petrobras and Abiquim) have been concerned about handling anonymized data from the sector. Creating a safe environment for members to access competitive natural gas is Abiquim's focus,” said Passos. “The high volume of natural gas consumption for the sector justifies the continuation of the negotiations. We are very pleased with the technical capacity and fairness of the process and how it has been handled by both parties.” Front page picture: Abiquim's director general Andre Passos (second from the right) in Brasilia on 26 August, when the new national energy and natural gas policies were signed  Picture source: Brazil's Ministry of Mines and Energy  ($1 = R5.64) Insight by Jonathan Lopez

03-Sep-2024