APLA: Challenges mount for Latin America

15 November 2013 13:04 Source:ICIS Chemical Business

Juan Enrique Gonzalez Sierra, managing director and CEO of Methanex Chile, is the new chairman of the Latin American Petrochemical and Chemical Association, APLA. Here he answers questions from ICIS about the outlook for the chemical industry in Latin America

What do you think APLA’s priorities should be during the next year; what do you see as the major issues facing the petrochemical industry in latin america?

The most relevant challenges the petrochemical industry is facing in Latin America are raw materials and the competitiveness of the industry. With respect to raw materials, there have been challenges in either the decline of the reserves or costs in comparison with other markets, especially in comparison to the market in the US.

Other challenges include logistical costs, which are currently very high in the region in comparison with other markets. The lack of investment in infrastructure has also generated a reduction in competitiveness in logistics and transportation.

APLA’s mission is to be a centre that facilitates business development in the region. We need to have the capability to anticipate industry challenges and articulate and advocate for solutions.

Both matters will be part of the agenda of upcoming APLA meetings. At the 33rd 
Annual Meeting in Cartagena, Colombia, there will be presentations about the competitiveness in the region and shale gas. At the APLA Logistics meeting taking place in Buenos Aires next year, we will discuss the region’s challenges.

At last year’s APLA, the chief consideration appeared to be figuring out how to compete with cheap US shale gas. Are chemical producers in Latin America any closer to answering that question this year? Or is there now another bigger challenge than that of the US’s feedstock advantage?

The petrochemical projects in the US add and represent an additional challenge to our region, which is now seen as an attractive (and frequent) market for exports from the US. This situation will push productive companies in Latin America to develop strategies to enhance their competitiveness. We also need to understand how the US will face its role as exporter (market share and impact on prices).

The wave of plant construction in the US suggests strongly that within a few years, Latin America will no longer be able to look at the US as a viable export market. How will Latin America compete with the US for export markets?

Latin America needs to continue developing differentiating conditions in order to achieve the competitive levels to face this new market environment. Most of these conditions are common to different countries. This is the reason we expect coordinated actions to come from Mercosur or the Pacific Alliance in order to make the region more competitive to face the new challenges that the North American petrochemical industry is imposing on our region, due to the shale gas evolution.

The world will be watching Brazil next year as the World Cup kicks off – has Brazil made any headway this year on lowering the cost of doing business there? Brazil’s bureaucracy, logistics problems, taxes and other costs of doing business there have been major complaints for years.

Brazil did not experience significant growth in 2013. We are hoping to see the government focus on strengthening labour laws, reducing the size of government and to modernise the public sector pension system. We would also like to see continued government support for private market initiatives.

Do you see the World Cup as providing a great boost for Brazil’s economy or just a modest shot in the arm for its tourism?

With respect to the impact the 2014 World Cup could bring to Brazil, it will likely result in some economic stimulus and investments in public transportation. Most of the public works investment so far has been towards sports infrastructure projects.

Biodiesel producers in Argentina and methanol producers in Venezuela are worried about higher anti-dumping tariffs proposed by the European Commission. Is there any solution to this problem other than getting an exemption from the EU on the tariffs?

A final decision is expected by the end of November 2013. If the request of the European Commission for higher tariffs is granted, it could have a negative impact on Argentinean biodiesel exports. Argentina is currently the biggest biodiesel producer in the world, with Europe as its main export destination (90% of the exports and over 1,500m tonnes/year). A situation like this will force the industry to look for new markets and it should also increase the use of biodiesel in the Argentinean domestic energy matrix.

Your company, Methanex, is moving two idle methanol plants in Chile to the US. Are there other markets in Latin America that show this same kind of plant migration?

The low cost of raw materials in the US is generating attraction and interest to opportunities that market brings to the industry.

The International Monetary Fund said in September that Latin America should expect one of its slowest economic growth rates in a decade this year. Does this mean the petrochemical industry must expect declining volumes or can the strong expansion of the past decade be maintained?

It appears difficult to maintain the strong expansion achieved in the past decade, especially when Latin America is facing important challenges such as the high costs of energy and labour.

Argentina and Mexico have shale gas reserves – can Latin America develop its own feedstock advantage through fracking?

Both countries are currently making decisions and important changes that may impact the shale gas development in the region. Mexico has proposed a constitutional reform that will allow the state owned company Pemex, to partner privates to attract investments and develop non-conventional gas reserves. In Argentina, YPF has already signed significant agreements with private companies to explode non-conventional gas reserves in the Vaca Muerta field.

In both cases, due to the time and investments required, there are not going to be results in the short term and energy imports, especially through LNG [liquefied natural gas], will still be required for some time. The potential of the shale gas reserves is so large that if the investment plans are maintained and the rules for business are clear, in the next decade Latin America might be in a condition to use its own resources as a competitive advantage.

Argentina’s shale gas reserves are among the highest in the world, yet the country’s energy production has declined and is a big reason why Methanex is moving plants to the US. Do you see the country becoming a net gas exporter again anytime soon?

Argentina is currently developing shale gas reserves and significant investment and technology is still required. The country also needs to set up clear rules for business to attract investment. It may be a while until 
Argentina can become an energy exporter.

By Lane Kelley