Braskem-IDESA Consortium Wins Ethane Feedstock Auction for Mexican Ethylene Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Braskem SA (NYSE:BAK) (Camacari, Brazil) and Mexican state-owned enterprise, Grupo Idesa SA de CV (Mexico City, Mexico), have secured ethane feed for Project Ethylene XXI, the proposed integrated petrochemicals plant in Mexico. The consortium secured feedstock by winning an auction conducted by state-controlled Pemex Gas y Petroquímica Básica (PEMEX Gas) (Mexico City, Mexico). The ethylene project will acquire 66,000 barrels per day of ethane from PEMEX Gas at competitive market prices.

Braskem and Idesa are jointly developing Project Ethylene XXI, located at the Coatzacoalcos petrochemicals complex in Veracruz. The project is expected to begin operations by 2015 and will address local demand and reduce Mexico's dependence on petrochemical imports. Currently, the country is a net importer of polyethylene and other chemicals.

The facility will include an ethane cracker with the capacity to produce 1 million tons per year of both polyethylene and ethylene, and three integrated polymer units with a combined production capacity of 200,000 tons per year of low-density polyethylene (LDPE), 450,000 tons per year of high-density polyethylene (HDPE), and 350,000 tons per year of linear LDPE. A portion of the ethylene produced at the complex will be used as feedstock for the vinyl chloride monomer plant at the Pajaritos complex in Coatzacoalcos.

The total investment in the project is estimated to be $2.5 billion over a period of five years. Sources have indicated that about 70% of the financing is likely to be raised through debt, while the remainder will be funded by shareholders' capital. The financing decision is expected to be made by December 2010. Several domestic and international multilateral financial institutions and banks have expressed interest to provide loans for this project. The Braskem-Idesa consortium is in talks with Inter-American Development Bank (Washington, D.C.), Brazilian Development Bank (Rio de Janeiro, Brazil), International Finance Corporation (Washington, D.C) and Nacional Financiera SNC (Mexico City) for project funds.

Mexico's reconsideration of the construction of the Coatzacoalcos petrochemicals complex received a boost when Braskem decided to join the project. New petrochemical projects are critical for the country to reduce dependence on imports. However, attempts to build large-scale production facilities were thwarted, as companies failed to secure competitively priced feedstock. In 2007, despite receiving partnership support from Nova Chemicals (Calgary, Alberta), PEMEX Gas, which was then developing the Phoenix project, decided to cease plans to set up the petrochemicals project after talks with the government on ethane pricing failed.

Last year, the Phoenix project was taken over and renamed Project Ethylene XXI, with the proposal to develop it without investment from PEMEX. Mexican chemicals producers IDESA, Mexichem SAB de CV (Mexico City), and Alpek (Mexico City) announced that the consortium will build the petrochemicals project with ethane supplied by PEMEX Gas. Later, Braskem, which is 25% owned by Brazilian state-controlled enterprise Petrobras (NYSE:PBR) (Rio De Janeiro), joined the consortium. Industry experts observed that Braskem's move to join the consortium would assist in providing technical expertise to the project, as the other partners, with the exception of Alpek, do not have experience in polyolefins production. Alpek is a subsidiary of industrial group Alfa SAB de CV (MXK:ALFAA) (Mexico City).

Experts have indicated that while IDESA and Braskem would benefit from the production of polyethylene at this plant, Alpek, which produces expandable polystyrene, polyethylene terephthalate and purified terephthalic acid, will benefit from the production of propylene and polypropylene. Recent media reports indicate that Mexichem has announced its withdrawal form Project Ethylene XXI.

Mexico relies heavily on revenues from the oil and gas sector, which in 2008, accounted for 44% of the federal revenues. In the last few years, oil production at the country's largest reserve, the Cantarell oil field, has reportedly been declining. Mexico's National Chemical Association (ANIQ) (Mexico City) has said that the country will need to invest about $34 billion in the next 15 years to resurrect the country's chemicals and petrochemicals sectors. ANIQ expressed concern that if new production capacity was not developed in the next 15 years, the country's petrochemical imports could soar up to $25 billion. Presently, Mexico imports around 1 million tons per year of polyethylene. There has been no significant investment in Mexico's petrochemicals sector in the last few years. The success of Project Ethylene XXI is therefore critical to pave the way for fresh investments and new capacity addition in the domestic petrochemicals sector.

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