APLA: Projects pressured by US shale gas

15 November 2013 13:04 Source:ICIS Chemical Business

Braskem Idesa’s Ethylene XXI project in Mexico is the only major cracker project currently under construction in Latin America, but Comperj in Brazil could be next

 Mexico’s Ethylene XXI Project is well under construction

Copyright: Braskem

The development of US shale gas has caused a huge shift in the Latin American petrochemical sector. With a coming flood of ethylene and derivatives capacity from seven planned new ­crackers and other expansions in the US based on cheap shale gas feedstock, players in Latin America are now focusing solely on gas-based projects – those that can compete on a cost basis.

Yet the sector has clearly lost the momentum it had in years past when a number of ambitious projects were being planned. “US shale gas and political issues are hindering some projects in Latin America as US companies are basically saying their domain for low-cost, shale driven exports is Latin America,” says Bob Bauman, president of Polymer Consulting International.

“US shale gas certainly makes it very difficult for any project predicated on exporting to the US, such as the ones that were planned in Venezuela and Trinidad & Tobago, adds Jorge Buhler-Vidal, president of Polyolefins Consulting. “Projects elsewhere should still be feasible, as long as raw materials are available at reasonably competitive prices.”

The first of these projects will be Ethylene XXI being built in Coatzacoalcos, Mexico, by Braskem Idesa. The project includes a 1.05m tonne/year ethane cracker; two high density polyethylene (HDPE) plants with capacities of 350,000 tonnes/year and 400,000 tonnes/year; and one 300,000 tonne/year low density polyethylene (LDPE) plant.

Ethylene XXI, being built by a 75:25 joint venture between Brazil’s Braskem and Mexico’s Grupo Idesa, is scheduled for start-up in the second half of 2015. As of 5 September, the project was 45% complete, according to Braskem.

The project’s price formula for ethane feedstock from state-owned oil company Pemex is based on US ethane prices at Mont Belvieu. The Ethylene XXI project will go a long way in reducing Mexico’s polyethylene (PE) imports.

In 2012, Mexico’s apparent PE consumption totalled 2.03m tonnes, consisting of 580,000 tonnes of LDPE, 928,000 tonnes of HDPE and 522,000 tonnes of linear low density PE (LLDPE), according to Mexican plastics association ANIPAC. “The current installed capacity is 1.078m tonnes/year and when the Braskem Idesa project is in operation in 2015, it will add 1.05m tonnes/year of HDPE and LDPE/EVA (ethylene vinyl acetate),” notes Buhler-Vidal.

“By 2015, Mexico will have about 2.2m tonnes/year of apparent consumption for all PE types. HDPE and LDPE/EVA would be substantially covered, but there would still be an LLDPE deficit of about 300,000-400,000 tonnes/year,” he adds.

It is important to put major Latin America petrochemical projects such as Ethylene XXI in historical context, as it often takes many years for these to finally come to fruition. Delays are unfortunately characteristic of major petrochemical projects in the region.

Ethylene XXI is actually a revival of the Phoenix Project which was conceived in the late 1990s by Pemex, and which attracted downstream partners NOVA Chemicals and Grupo Idesa before being scrapped in 2007 on the lack of a feedstock agreement between the parties. The concept for Ethylene XXI was revived in 2008 without Pemex as an equity partner in the project, but rather as only a supplier of feedstock.

While one worldscale cracker is being built in Mexico, some players are looking ahead to the next project, which will require more ethane supply. The country’s planned dramatic energy reforms under new president Enrique Peña Nieto are giving hope that hydrocarbon production will eventually rise.

“Assuming the reforms take place and investments come into Mexico, it will still be a few years until ethane is available, perhaps by 2018,” says Buhler-Vidal. “However new PE capacities are not likely to firm up until there is a certainty that additional natural gas and ethane will be available, at attractive prices,” he adds.

 The Ethylene XXI project is underway

Copyright: Braskem

The other major potential project in Latin America is the petrochemical portion of Comperj in Brazil. Originally planned for start-up in 2011, this project – slated to be the largest in Latin America – has faced multiple delays. If it does get built, start-up may not happen until 2018-2020.

“I fully expect the petrochemical portion of Comperj to be built. At this time, a 2018 start up would seem the earliest possible, based on a reasonable schedule,” says Buhler-Vidal.

The Comperj refinery project being built by Brazil state energy company Petrobras is proceeding and set for completion in 2016. But the petrochemical portion which would be built by Braskem has yet to get the go-ahead. This would include a worldscale cracker and downstream PE, polypropylene (PP) and polyvinyl chloride (PVC) facilities.

Originally expected to use naphtha feedstock, now the Comperj project – if it moves forward – will use ethane from the massive offshore pre-salt oil and gas formation that Brazil’s state energy company Petrobras is developing. Braskem has been negotiating with Petrobras on the ethane supply and also a price formula before it commits to the project.

A September press report in Brazil by newspaper Valor Economico had Petrobras willing to supply Braskem ethane for the Comperj petrochemical project at US prices. In the report, Braskem CEO Carlos Fadigas said the company would have to invest $5bn (€3.7bn) in the project, and that it required ethane feedstock for the cracker based on US price levels rather than price levels in Brazil which would be higher.

And Petrobras appeared to be willing to provide such a supply arrangement. “The natural gas price, specifically the ethane price, will be exactly coupled to Mont Belvieu,” said Petrobras CEO Maria das Gracas Foster in the interview with Valor Economico. “If it depends only and exclusively on the gas price, then Comperj will be operational. I am now aiming to sell Braskem the ethane,” she added.

“The delaying factor seemed to be the availability and pricing of ethane. If that is resolved satisfactorily, there is no reason for any further delay,” says Buhler-Vidal. “Comperj is the only PE project currently on the books for Brazil – the demand will be there,” he adds.

While Comperj using ethane based on US prices could work, Brazil has another three crackers based on high cost naphtha. A conversion of those crackers to using ethane would be one alternative to building Comperj. “In Brazil, Comperj based on ethane indexed off the US Gulf coast would likely be economically viable. However, this does not address the competitive position of the three naphtha crackers,” says Bauman of Polymer Consulting International.

“US ethylene derivative exports have captured a sizable market share leading to increased protective measures by the government. Comperj could increase this pressure. While there are logistical challenges, a potential alternative could be to convert some naphtha crackers to use the pre-salt ethane,” Bauman adds.

Aside from ethylene and derivative projects in Brazil, Germany-based Styrolution and Braskem have signed a memorandum of ­understanding (MoU) for a 100,000 tonne/year styrenics joint venture. Styrolution would own 70% of the venture with Braskem holding 30%.

The plant would supply specialty styrenics, acrylonitrile butadiene styrene (ABS) and styrene acrylonitrile (SAN) copolymers in Brazil and throughout South America.

Ground may be broken for the facility as early as 2015 and the plant is likely to start up in 2017.

“The proposed partnership would be an important step towards strengthening the ­petrochemical sector in Brazil,” says Braskem CEO Carlos Fadigas. “It would also aid in the development of domestic business opportunities in areas such as ABS, where our country is currently dependent upon imports, ­attracting new investments to the derived value chains.”

And in Mexico, Mexichem finalised its joint venture with Pemex in September 2013 to boost vinyl chloride monomer (VCM) capacity at the Pajaritos petrochemical complex near Coatzacoalcos, Mexico, for PVC production. The joint venture deal includes cash investments and asset contributions of up to $518m. Pemex will kick in $228m in assets. Mexichem put in $90m in assets and $200m in cash to modernise the Pajaritos petrochemical complex.

In the first year, the Pajaritos complex is expected to produce 24,000 additional tonnes of VCM, 146,000 tonnes in the second year, and 217,000 tonnes in the third year, reaching a capacity of 400,000 tonnes/year.

The joint venture also includes a 200,000 tonne/year ethane cracker and a chlor-alkali plant at Pajaritos. Pemex’s other two crackers in Morelos and Cangrejera are expected to supply additional ethylene for the joint ­venture.

The deal was first announced in June 2011 and had been waiting for Pemex board backing since it secured antitrust approval in October 2012. Mexichem actually said it would scrap the deal in November 2012, expressing frustration on the delay by Pemex.

Bolivia’s olefins and polyolefins project now appears to be progressing after a slow start. Bolivian state energy firm YPFB plans to build an ethane cracker with capacity of up to 1m tonnes/year, along with PE and possibly polypropylene (PP) plants, notes Polyolefins Consulting’s Buhler-Vidal. Tecnimont is carrying out the conceptual engineering study.

“The next step is to find an engineering company to build the project. This could take until mid-2014, and you could see the cracker on line by around 2018. Things seem to be moving in the right direction.”

YPFB would extract the ethane from the gas being sent via pipeline from Bolivia to Argentina, Buhler-Vidal notes. “The liquids separation plant project is already under way.”

Bolivia’s EBIH, a downstream subsidiary of YPFB, plans to invest $2.73bn over the next four years to build seven new industrial complexes that will “kick-start the development of the country’s petrochemical sector”, it said.

Around $450m will be spent on a methanol petrochemical complex and subsequent production facilities for dimethyl ether (DME), methyl tertiary butyl ether (MTBE), formaldehyde and acetic acid. EBIH has invited firms to join its database for the conceptual engineering studies of the 500,000 tonne/year facility.

Other projects in the pipeline include a PVC plant; a benzene, toluene and xylene (BTX) plant; and an ethylene oxide (EO) and ethylene glycol (EG) plant, the company said.

Meanwhile, in Peru, the planned joint venture project between Braskem and PetroPeru appears to be on hold, says Buhler-Vidal.

PetroPeru and Braskem signed a memorandum of understanding to analyse the technical and economic viability of a 1.2m tonne/year PE plant in November 2011. This would rely on local ethane.

“A few years ago, it looked like Peru’s project was better off, but now it looks like Bolivia is taking off. Either one of those projects could meet the entire demand in the area. Both could co-exist, but really there is only easy justification for one,” says Buhler-Vidal.

Peru would face greater competition than Bolivia from imported polymers based on US shale gas because of its coastline.

“All the Pacific Coast countries like Peru, Colombia, Ecuador and Chile are used to receiving material from the US, and you’ll see the US shale gas PE going south. But Bolivia is a landlocked market and can also serve other countries such as Paraguay, western Brazil, as well as the northern part of Argentina,” Buhler-Vidal points out.

In Argentina, where there is renewed interest in shale gas reserves, any meaningful petrochemical projects could still be many years away.

US-based Dow Chemical’s agreement in September 2013 to jointly fund drilling for shale gas in Argentina with state energy company YPF is an interesting move to secure low-cost feedstock for its petrochemical and polymers production in the country.

The $188m deal to develop the 45 sq km (17 sq mile) El Orejano block in Argentina’s Neuquen basin follows a memorandum of understanding signed by both parties in March. The companies will also work to identify new petrochemical projects, according to YPF.

“Right now Dow and YPF are making rather small investments to secure areas for preliminary exploration, but you are not likely to see serious investments until this government is out of power in 2015,” says Polyolefins Consulting’s Buhler-Vidal.

And once intensive shale gas exploration starts to take place, it would take around five years to see a meaningful benefit, he notes.

And in Venezuela, once ambitious projects have fallen by the wayside in the past several years. The latest was announced in September 2013 by state petrochemical company Pequiven to invest $4bn in a string of construction projects.

Projects in the pipeline include the construction of the 800,000 tonne/year Olefins III plant, a 300,000 tonne/year HDPE plant and a 300,000 tonne/year LDPE plant. Other proposals include a 37,000 tonne/year biaxially oriented polypropylene (BOPP) plant, a 240,000 tonne/year polyethylene terephthalate (PET) plant and a 460,000 tonne/year homopolymer and copolymer plant.

However, Buhler-Vidal remains sceptical on the projects as no timings were announced. Overall, while select gas-based projects will proceed, the Latin America petrochemical sector has lost the momentum it had in past years, in part because of the competitive threat of US shale gas.

“This is dangerous because if you don’t do anything and the flood of US capacity comes in, it will become harder and harder to justify building in the future. You would have to displace US imports which will become more established in the market,” says Buhler-Vidal.

The timing of Mexico’s Ethylene XXI project for 2015 is very fortunate as this will come on before the wave of new US capacity in 2017, he notes.

It still makes sense for a country with the feedstock resources to build petrochemical plants, as it should still have an advantage over imports in its local market, said the consultant.

“If you’re Chile and have no raw materials, it’s understandable not to build – what can you do? But Peru is selling natural gas and then having to buy back petrochemicals at a higher price. It should try to capture the added value,” says Buhler-Vidal.

By Joe Chang