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Analysis

Importance of the Private Sector in the Future of Petrochemicals

Tue, 01/22/2013 - 16:45

The petrochemicals branch is not considered part of Pemex’s core business, something that is reflected in the amount of investment that the petrochemical division receives: in 2013, Pemex will allocate just 2% of its total investment budget to its petrochemicals division. “The petrochemicals segment has always been given the lowest proportion of investment by Pemex,” says Emiliano Pescador Asaf, Director General and Mexico Country Manager at Technip. “If you compare the investment Pemex allocates to its petrochemicals subsidiary to what it allots to its Refining and Exploration & Production subsidiaries, you will see how small the investment for this segment really is.” For 2013, Pemex Gas and Basic Petrochemicals and Pemex Petrochemicals together will just receive 4% of Pemex’s total budget.

The private sector is expected to play an important role in the reactivation of the Mexican petrochemical industry. Brazilian company Braskem, owned by Odebrecht and Petrobras, joined the Mexican company Grupo Idesa in a shared investment project to develop the petrochemical complex Etileno XXI. “This project represents the largest ever investment of a Brazilian company in Mexico, at US$3.2 million,” explains Robert Bischo†, Director General of the Braskem-Idesa consortium. “This huge investment represents a new age of sorts for the Mexican petrochemical industry, where the key objective is to guarantee enough volume of additional feedstock to launch new projects.”

The objective of Etileno XXI is to provide ethane as the feedstock for plastics production, rather than having a naphtha-based production. At the same time, the plant will reduce polyethylene imports from other countries, such as the US. “Important financial institutions such as the International Finance Corporation, Inter-American Development Bank, and Bancomext, as well as export agencies from Canada and Italy, and several commercial banks are all involved in the financing of the project,” says José Luis Uriegas, CEO of Grupo Idesa. “We get this kind of support for the project because the conditions in the country and the petrochemical sector are right. It also confirms that private investment and Pemex can work together.”

Located not far from Etileno XXI, also in Coatzacoalcos, the Pajaritos petrochemical complex will receive a capital injection of US$556 million from Mexichem production of vinyl chloride. This joint venture between Mexichem and Pemex is expected to reduce imports of this type of petrochemical from the US. Mexichem’s involvement in Pajaritos, with a controlling share of 58.46%, will also generate an increase in the production of vinyl chloride from 200,000 tonnes to 417,000 tonnes, based on an increase of 24,000 tonnes in the first year and 146,000 tonnes in the second. Ultimately, Mexichem is planning to increase vinyl chloride production to a level where it not only satisfies domestic demand, but also allows for exports to the US and South America.

The Etileno XXI and the Pajaritos projects highlight that private investment in the petrochemical industry is finally starting to compensate for the lack of investment from Pemex. “The investment injection that private companies are providing to the Mexican petrochemical industry will most definitely bring change,” Pescador Asaf states. “Private investment will generate a gradual increase in production and profitability of petrochemical activities. These joint efforts from the public and private sector hint at a brighter future for the Mexican petrochemical industry.”