South America’s Chemical Growth

For many years the potential for Latin America’s petrochemical players to rank among the world’s leaders has been thwarted by seemingly complex and impenetrable rules and political uncertainty. This has made it difficult for producers – both local and those from outside the region – to develop meaningful and cost-effective production facilities. However, in recent years political and economic stability has come to many of the regions’ countries, and with that a desire to develop industries and generate wealth.

Brazil is considered to be the Latin American country setting the pace in terms of the development of petrochemical capacity and new international alliances. New oil and gas discoveries have put the petrochemical sector and the country on a path toward strong growth and development.

According to a study published by Business Monitor International (BMI), called “Brazil Petrochemical Report Q2 2010”, the strong performance of private consumption throughout the downturn has helped Brazil’s petrochemical market.

According to the report: “A government stimulus plan aimed at the automotive, construction and consumer goods sector has mitigated the effects of the external market downturn. BMI believes that restocking and a modest recovery in demand both domestic and external markets should help lift [the] capacity utilisation rate to 90% during 2010, raising output by around 10% compared with an estimated -5% in 2009.

“But uncertainties remain and margins will be placed under pressure by increased global capacities as new plants start up in the Middle East and Asia.”

There maybe uncertainty, but Brazil is not holding back on developing its petrochemical sector. During 2008 local company Petrobras announced it was building a petrochemical complex in the nation.

The project is said to be the single largest petrochemical investment in the company’s history. Known as Comperj (Complexo Petroquimico do Rio de Janeiro), the planned facilities are set to produce 1.3mtpa of ethylene, 880,000tpa propane, 600,000tpa benzene, 700,000tpa paraxylene and 157,000tpa butadiene. Downstream units will also produce a range of materials including 500,000tpa styrene, 600,000tpa ethylene glycol, 800,000tpa polyethylene and 600,000tpa of polyethylene terephthalate.

The $8.5bn complex is slated for completion during 2013.

Petrobras says that with the Comperj in place, Brazil will be able to reduce its import requirements, saving the country some $2bn in foreign exchange and $200m in taxes.

Brazil goes international

As well as developing domestic capacity Brazil’s petrochemical majors have also been expanding their presence beyond their borders. During the first quarter of 2010, Braskem, said to be the largest producer of thermoplastic resins in the Americas, completed the acquisition of US-based Sunoco Chemicals’ polypropylene division.

Braskem says it has invested $350m in the operation as part of its strategy to establish an industrial base in the US. This base will function as an “important platform for the future expansion of the international business”.

The completion of the acquisition came just days after Braskem announced it was merging with Quattor Participacoes, a joint-venture company established during 2007 between petrochemical holding company Unipar and Petrobras. These investments, along with plans to develop new capacity in Bolivia, Peru and Venezuela, are all part of the companies’ commitment to establishing a global presence.

Brazil is also tapping into Mexico’s petrochemical sector having established a partnership with Mexico’s Idesa to build a complex producing 1mtpa of ethylene and downstream units. Plans to develop the project were made public in November 2009.

The complex, which will be located in the Mexican state of Veracruz, at the Coatzacoalcos Petrochemical Complex, will source feedstock from Mexico’s Pemex (Petroleos Mexicanos). Start up of the so-called Ethylene XXI project is scheduled for 2015 and investment costs are put at $2.5bn.

For a number of years Mexico has been seeking to develop a major petrochemical complex that will help to reduce its dependency on imports as well as exploit is geographical position as a supplier into the US.

South America follows the petrochem trend

While Brazil’s producers are leading the way, petrochemical producers and governments across the Americas are preparing for growth.

The government of Venezuela, being convinced of the importance of the petrochemical sector for the country’s economic development, put in place a law during 2009 that means private sector chemical producers can only become minority partners in joint ventures with state petrochemical companies. While this will not impact existing agreements, many commentators and analysts have cautioned that this could deter any new investors.

In the meantime, development of the Jose Petrochemical Complex, located in Anzoategui state, Venezuela, is being re-evaluated. The complex, set to include a 1.3mtpa ethylene plant, is a joint venture between Braskem and Pequiven, each holding a 49% stake.

At the end of April 2009 the partners said they were looking at “new models” for the project, and issued the following statement: “In view of the contraction in international credit markets since the onset of the [financial] crisis in early 2008, and the high costs of the original project, which are estimated at $1bn, in December 2009, the Venezuelan state-owned oil company PDVSA presented an alternative feedstock source, the Paraguana Refinery Complex in the State of Flacon. In view of the proposal, Pequiven and Braskem agreed to evaluate changing the site of the polypropylene plant.”

The new plans will lead to a cut investment costs. Start up of the facility is slated for 2013.

Internationals entering South America

With consumer demand rising and the need for polymers increasing, Germany-based chemical major BASF is expanding its global service and production network by setting up a polyurethane solutions system house in Cartagena, Colombia. The company, which announced its plans during April 2010, has said the facility will be fully operational by the first quarter of 2011.

As well as meeting local demand it will meet the needs of consumers in Venezuela and Ecuador. BASF says there were “attractive business opportunities” in industries such as appliances, transportation, construction and footwear.

Commenting, Anton Traunfellner, managing director of BASF polyurethanes in South America, says: “We expected the market for polyurethane systems in the Andean region to grow in the decade by 6%.”

Fuelling even more growth

Colombia’s domestic oil producer, Ecopetrol, is also preparing for rising demand having acquired Polipropileno del Caribe (Propilco) during 2007. Ecopetrol said the acquisition was part of its new strategy for growth, which included plans to transform oil and gas into products with higher added value and with higher prices such as polypropylene. Propilco is the main producer of polypropylene in Colombia.

Meanwhile, a desire to cut the reliance on imported feedstock has prompted Canada-based methanol producer Methanex Corporation to participate in the Tranquilo Exploration Block, located in southern Chile.

Methanex, which has invested more that $1bn in its Chilean methanol production facilities over a number of years, says that participating in the exploration project “represents another opportunity to increase gas supply to our plants”. Indeed, it has been the lack of feedstock that has put a brake on Chile’s desire to develop domestic oil, gas and downstream supplies.

Uncertainty over the supply of feedstock is also slowing the rate of development of Argentina’s petrochemical industry. One of the major overseas investors in the country is Solvay Indupa, which has petrochemical facilities in Bahia Blanca, producing 210,000tpa of polyvinyl chloride and 180,000tpa of sodium hydroxide each year. Plans are underway to develop power plants that will address power shortages in the country.

Arguably, Latin America’s biggest potential for growth lies in Peru, which has in excess of 304bn cubic metres of natural gas reserves in the Camisea Basin. Tapping this potential could put the country among the leading global petrochemical producers.

Plans are ongoing to exploit this potential with Brazilian companies Braskem and Petrobras partnering with Peru’s PetroPeru to build a complex producing 1.2mtpa of polyethylene. The complex was provisionally slated to become operational during 2014, but delays in bringing the feedstock online mean that this time frame has slipped, with commentators not anticipating start up until 2016.