APLA ’23: Brazil’s residential, fertilizers gas needs to put petchems at back of queue – Indorama exec

SAO PAULO (ICIS)–Brazil’s natural gas needs for residential use and its lack of significant fertilizers production would put the petrochemicals sector at the back of the priorities list, according to an executive at Indorama.

Joao Parolin, CEO of Indorama’s Integrated Oxides and Derivatives (IOD) business for South America, added that Brazil’s “very big, unmet” natural gas demand could partly be met by domestic production, but the infrastructure is not there yet, and regulations are playing catch-up.

The executive said that Argentina’s Vaca Muerta gas fields could also meet some of Brazil’s gas needs but, once again, a lot of infrastructure still needs to be in place for exports to ramp up, and for that potential investors would need a “stable regulatory environment” not in place currently.

Parolin added that Brazil could have its own version of the US’s Inflation Reduction Act (IRA) that has propped up green investments, but many investments for that would come from abroad and said he is worried about the sharp fall in foreign direct investment (FID) during 2023.

The executive spoke to ICIS on the sidelines of the annual meeting of the Latin American Petrochemical and Chemical Association (APLA).

STOVES FIRST
Brazil is a large country of 220m residents where gas is key in residential use – stoves’ natural gas liquids (NGLs) needs as well as the deficit for industrial use makes the country a net importer.

“We have a very big, unmet demand for natural gas, so we are a very large importer of C1 chain. To mention just one example: all of Brazil’s methanol producers shut down, so we must import all of it as it is used for our big biodiesel production,” said Parolin.

“The other part for which we would need natural gas is the [fertilizers] urea and ammonia plants. So, even if we started seeing more natural gas supplies, we first must meet domestic consumption, which is very big, and then you have the industrial consumption, with methanol and fertilizers being priorities.”

Parolin went to say that, once those needs are covered, Brazil could start thinking about NGLs for petrochemicals production and C2 chain.

However, for that to happen many years will need to pass, and the urgencies are here and now. Parolin mentioned the situation of petrochemicals and fertilizers producer Unigel, for whom high natural gas prices have been a financial drag in 2023, which led to the decision to shut down its large fertilizers plant in Camacari, state of Bahia.

BRAZILIAN GAS
It is paradoxical that Brazil is a natural gas importer, when the country holds large natural gas reserves. However, the infrastructure to take advantage of those reserves is not there yet and the country’s state-owned energy major Petrobras has always had its focus on crude oil instead.

“Increasing Brazilian supply is tricky, because it involves some infrastructure that is not there. The main producer is Petrobras but currently we reinject the majority of gas extracted offshore. To bring that onshore, you have to invest, but even then when you reach the shore, the infrastructure belongs to Petrobras,” said Parolin.

“The government is trying to implement rules to allow international companies to sell their natural gas locally, because what currently happens is that they sell the gas to Petrobras, and Petrobras resells it. Prices in Brazil are at around $12/MMBtu, which is very high compared with the US and other countries.”

The executive went on to say that, when those regulations are fully implemented, Brazil could take more advantage of its own natural gas but conceded that may still take years to occur.

In fact, he said that the company has taken the decision to electrify some operations in Brazil in anticipation that natural gas prices will remain higher in the country for the foreseeable future.

He said the company has done research about natural gas trends, trying to foresee future pricing, and concluded that prices would remain much higher than in the US, where currently they are hovering at around $3/MMBtu.

Asked where the research forecast prices to be, he would not say, but added the company had concluded they would never go below “a certain” threshold.

– Is that threshold, say, $6/MMTbu?

– It was higher than that, Parolin replied.

ARGENTINA POTENTIAL, INVESTOR SKEPTICISM
At this year’s APLA, a lot has been spoken about Argentina’s Vaca Muerta fields in the Patagonia and how increased supply of NGLs from there could help the petrochemicals sector reduce its dependence on overseas-sourced feedstock.

However, Argentina’s potential is heavily curtailed by the deep financial crisis the country is going through. Years of mismanagement and a few defaults have made potential investors in Argentina’s fossil fuels industry rare.

“It goes without saying, Argentina has trouble in attracting investment, given the wide range of issues they must deal with. They are on the verge of this political change [Argentina is to choose a new president on Sunday, November 19], so let’s see what happens,” said Parolin.

“Obviously, investors want a stable set of rules to get returns on their investments, and I don’t really know how they are feeling about Argentina right now: there is clearly an issue there.”

A BRAZILIAN IRA
The world – and the EU especially – watched how the US’s IRA unleashed a wave of green investments in the country which, the most optimistic say, could propel a new industrial revolution and keep the US at the top of the industrial superpowers.

The new administration under Luiz Inacio Lula da Silva – in office since January – insists it wants to revive industry to create manufacturing jobs.

Brazil’s industrial prowess in the 1960s and 1970s – when manufacturing accounted for more than 20% of GDP – was sharply reduced in the following decades to get to the current situation, where industry accounts for around 10% of GDP.

Agriculture – which is not as employment-intensive as industry – and services now conform the Brazilian economy.

– Could a version of the IRA be implemented in Brazil to prop up industrial investments?

– The short answer is yes. However, if you look at FID figures this year, it has been reduced by more than 40%, year on year, which is worrying. However, I do think Brazil could attract more green investments, but for that to happen we have to put the right tools on the table.

The 43rd APLA annual meeting takes place on 11-14 November in Sao Paulo, Brazil.

Interview article by Jonathan Lopez

Thumbnail ssource: Fernando Bizerra Jr/EPA/REX/Shutterstock