Staying power: New downstream capacity can help reduce petrochemical imports

The liberalisation of energy is set to open up vast opportunities in Mexico’s downstream petrochemicals segment. The 2016 commissioning of the Etileno XXI petrochemicals complex in Veracruz state, a $5.2bn joint venture between Brazil’s Braskem (75%) and Mexico’s Grupo Idesa (25%), was a crucial milestone for the much-delayed expansion of the industry. The project’s cracker will allow Mexico to curb its polyethylene imports by an estimated 35-40%, cutting the trade deficit by $1bn-2bn. It will also provide vital feedstock for downstream producers of plastics and polymers.

“The Mexican chemical industry has enormous potential,” Armando Cortés Galicia, executive director of the automotive and aerospace industry for ProMé xico, the national investment promotion agency, told OBG. “Studies show that each $1 invested in a cracker complex can result in $70 at the tier-5 producer level.”

No More Monopoly

The commissioning of Etileno XXI represents the end of the monopoly of state-owned Petróleos Mexicano (Pemex) over the Mexican petrochemicals industry. In the 1980s the oil giant built two steam crackers in Morelos and El Cangrejero, each with a capacity of 500,000 tonnes per annum (tpa) of ethylene. In the 1990s and 2000s, however, Pemex’s focus shifted towards exploration and production.

In 2004 Pemex announced a $2.6bn investment in Project Fénix, a petrochemicals project; however, this initiative was later abandoned in 2007 when the firm failed to agree with the Mexican government on the price of ethane, the key raw material for crackers. In 2008 the Mexican government took a different approach, auctioning ethane feedstock on a 20-year, 60,000-barrel-per-day contract. In November 2009 Braskem was awarded the contract, with the ethane coming from Pemex’s fields in the south-east of the country via a 170-km pipeline.

Record Breaker

Etileno XXI has set a number of benchmarks. It is simultaneously the largest ever Brazilian investment in Mexico, and the biggest petrochemicals investment in Latin America in 25 years. The complex consists of two high-density polyethylene plants of 400,000 tpa and 350,000 tpa, as well as a 300,000-tpa, low-density polyethylene plant. “Etileno XXI is a large-scale project with modern technology, competitive feedstock and a large domestic market,” Cleantho de Paiva Leite, director of institutional relations and business development at Braskem-Idesa, told OBG. “In 2017 we expect 60% of our production to go to domestic consumers, with 40% destined for export.”

In The Pipeline

In recent years the North American petrochemicals industry has enjoyed a renaissance thanks to cheap feedstock from the shale gas boom. In 2016 two new crackers with capacities of just under 500,000 tpa of ethylene were commissioned in Texas and Alberta. Four more, including ExxonMobil’s 1.3m-tonne project in Mont Belvieu, Texas, are expected to come on-line in 2017. In 2015 Mexico was the second-biggest importer of US chemical products, but by the second half of 2016 Braskem-Idesa’s production forced US polyethylene exporters to look elsewhere. According to figures from the US International Trade Commission, the US exported 76,196 tonnes of polyethylene to Mexico in October 2016, a 21.8% yearon-year drop. Etileno XXI is also expected to compete for market share in Latin America and the Caribbean.

While Etileno XXI is likely to be the only project of its size for the foreseeable future, it is nonetheless expected to significantly boost the local downstream petrochemicals industry. “There will not be sufficient feedstock for another gas-fed cracker in Mexico until new discoveries are brought on-line, perhaps in six to eight years’ time,” said De Paiva. “However, the introduction of a local and competitive polyethylene supply presents opportunities for associated industries. Mexico has an annual deficit of $18bn-20bn in the chemicals sector. There is still a deficit in ammonia, PVC, polypropylene, benzene and many smaller derivatives. Those are the big opportunities for the future.”