Reform Trickles down to Petrochemical SectorWed, 01/21/2015 - 14:33
Although the restructure of the NOC is not yet complete, PEMEX is establishing a new relationship with the market, giving most players in the oil and gas sector an idea of the direction the oil company will take in the wake of the Energy Reform. PEMEX, just as any other oil company in the world, requires many chemicals to extract oil. Grupo Petroquímico Beta specializes in ethylene oxide and propylene oxide and is developing technologies to replace the many imports that enter Mexico. “We are looking at the products being imported and deciding which technologies we are going to develop and which existing technologies we are going to use,” says Raúl Baz Harvill, CEO of Grupo Petroquímico Beta. He identifies adapting to new circumstances as the first challenge the petrochemical industry faces today in Mexico. One of the necessary steps to address this challenge is to enable the creation of Mexican suppliers of petrochemical commodities. Baz Harvill points to the example of Alpek, a Mexican multinational corporation that produces PET, an important polyester in the oil and gas industry. Most of Alpek’s competitors are foreign companies that have their own technology, posing a significant challenge to the national industry which must develop the right technology to catch up. For Baz Harvill, stepping up to this challenge will not depend on the size of a company but on making the right R&D decisions. As a company that invests around 5% of its revenues in R&D, Grupo Petroquímico Beta is ready to assume the challenge. For example, one of Grupo Petroquímica Beta’s most important applications is used in cementing, a process which involves building a concrete tube around the well. The challenge lies in injecting the cement slurry down to the depths reached by wells. To help in this process, hydroxyethyl cellulose can be used to help the cement solidify once it reaches the targeted depth. “We have concentrated on the application of hydroxyethyl cellulose and our products provide a significant technological advantage, as they can reach greater depth,” explains Baz Harvill, adding that the development of hydroxyethyl cellulose in Mexico is going very well.
The success of Grupo Petroquímica Beta’s growth has largely mirrored national demand, with Alpek also leading the way. “The market is in the process of consolidation under one central player, Alpek. Once it fully consolidates, we will be indirect exporters. We will sell to Alpek and then this company will ship our products to places it deems convenient. I expect 40% of our production to go down this path,” comments Baz Harvill. Currently, Grupo Petroquímica Beta exports around 25% of its production, with 90% of those exports consisting of ethoxylated products. Furthermore, the group has begun exporting light hydrocarbons and Baz Harvill expects his firm to consolidate in some South American markets. “We are the only manufacturers of light hydrocarbons in Latin America, so we do expect our export market to continue growing.”
While the Energy Reform will benefit many, Baz Harvill stresses that it was not designed to directly favor the petrochemical industry, but it will generate important demand for petrochemical products and services. “Petrochemistry’s role in the oil and gas sector is to support larger processes. Pipes need friction eliminators and antioxidants because water extracted with the oil eventually causes the pipes to rust,” he explains. The rise in demand for such services is sure to benefit the company. However, Baz Harvill is concerned that the plans for national content requirements might end up hurting Mexican companies. “I believe we should start with a low national content requirement that will gradually increase in response to the market. Look at Brazil, where a national content percentage was established in advance and this resulted in lower quality integration.” This is linked to one of the CEO’s major concerns. If the national oil and gas sector wants to be truly integrated, Mexico’s petrochemical industry must be strengthened; otherwise, the country will maintain its dependence on imported products. However, a lack of raw materials in Mexico may make companies question the value of making petrochemical investments in the country, although Etileno XXI should begin to compensate for this in years to come. “There are two principles that are usually valid when companies are deciding on whether to make such an investment; either the potential site is close to raw materials or it is close to the market. In the case of petrochemicals, it is more valuable to be close to the raw materials, as the final products can travel fairly easily. Therefore, we expect the Energy Reform to help improve access to raw materials for private companies,” says Baz Harvill.
The two main petrochemicals that support the development of the oil and gas industry are ethylene oxide and propylene oxide. Ethylene oxide is made with ethylene, which traditionally comes from ethane. PEMEX has ethylene oxide plants but there are no propylene oxide plants in Mexico. “Etileno XXI is basically exhausting the capability of the southern region of Mexico to produce ethane,” comments Baz Harvill. “To build a plant with the capacity to produce 300,000 tonnes of ethylene oxide requires 240,000 tonnes of ethane, which is very hard to obtain.” A possible solution for this lack of raw materials could come from new technologies that allow producers to build an ethane plant with a steady gas supply and convert methanol to olefins. “It would be desirable for someone to come to Mexico and install these technologies, as that would alleviate the supply side of the process.” The expansion of the pipeline system throughout Mexico will allow petrochemical companies to consider more sites to build their plants. Despite these potential challenges, Grupo Petroquímica Beta enjoys the benefit of having an established name in the petrochemical industry. In addition to having a higher level of specialization for hydroxyethyl cellulose, the company is looking at future opportunities related to Mexico’s shale resources. “The development of shale gas requires crucial infrastructure which is much more complicated than just drilling a well and extracting the gas. There is a great deal of infrastructure for the extraction of oil in Mexico, but the same cannot be said about shale gas,” says Baz Harvill, explaining that this will become a priority for Grupo Petroquímica Beta.