Latin American petrochemical executives are bullish on regional and global demand growth, if feedstock availability issues can be resolved, executives said Monday during a panel discussion at the 37th annual Latin American Petrochemical Meeting in Rio de Janeiro.
"After two years of recession [in Brazil] we're seeing some recovery -- local demand will be key," said Fernando Musa, CEO of Brazilian petchems giant Braskem. "However, availability of feedstock has been a challenge in Brazil."
The issue of reliable, consistent and competitively priced feedstocks has been at the core of Braskem's investment and expansions in recent years.
"Braskem has a Brazil-first strategy, focusing on domestic demand while diversifying feedstock risks," a Braskem analyst said. "[Braskem] invested in Mexico because it has more competitive feedstock. We are a capital-intensive industry with sharp cycles and have to diversify our feedstock depending on economics. Naphtha was uncompetitive at the time we invested, but now naphtha is much cheaper."
Other hurdles to petrochemical investment in Brazil include bureaucratic barriers, labor costs and taxes, which are all higher compared with the US and China, the analyst added.
Braskem and Mexico's Grupo Idesa have developed a joint venture, the Ethylene XXI complex in Mexico's southern Veracruz state, with a nameplate capacity of 1.05 million mt/year of polyethylene. The complex also houses a gas-fed steam cracker with a nameplate capacity of 1 million mt/year of ethylene.
"The world is going through a good economic moment," said Jose Luis Uriegas, CEO of Grupo Idesa. "The developing economies are growing more than we would have expected five years ago, especially now that China's economy appears on firmer footing.
"We are exporting [PE] to 43 countries right now -- [across the] US, Europe, Asia, South America -- and results have been good," Uriegas said, adding that global consumption of chemical products was growing faster than GDP growth.
"This, of course, depends on having feedstock. Pemex has been working very hard to supply us with feedstock," he added.
FEEDSTOCK IMPORTS AN OPTION
This year saw Etileno XXI's PE plants operate at 87% of capacity in the third quarter, up 4 percentage points from Q2, Braskem said during its most recent earnings call.
Alternatively, some of Idesa's future feedstock needs may be met by US imports or regional development, he said, adding, "if we have to import, we'll import."
"We are happy to see Argentina developing resources in Vaca Muerta -- five or six years ago we never spoke of these resources," Uriegas said.
In Argentina, the government has been eyeing external investments as it aims to rebuild oil and gas output following years of shortages and a surge in imports.
Enter Vaca Muerta, which has drawn comparisons to the US' Eagle Ford play for its vast potential. Argentina's YPF has been joined by Chevron, ExxonMobil, Shell and others in testing the play or bringing production online.
The government, meanwhile, is banking on Vaca Muerta's development to help boost gas output to 185 million cu m/d in 2025 from 122 million cu m/d in the current year.
"Maybe we have the room for one to two crackers in the region," said Santiago Martinez Tanoira, Argentina-based YPF's downstream executive vice president. "We want to create flexible crackers -- to use ethane, other feedstocks such as propane or butane, for the crackers. The big challenge is to have a long-term vision from the government, to have the certainty to embark on long-term projects."
