BUSINESS P E T R O C H E M I C A L S
MEXICO PLANS CHEMICAL REFORM State oil company has grandiose ambitions, but will it follow through this time? ALEXANDER H. TULLO, C&EN NORTHEAST NEWS BUREAU
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HE PETROCHEMICAL INDUSTRY
in Mexico can best be classified as a tragic case of unrealized potential. The country is embarrassingly oil-rich, yet it imports half of the chemicals it uses. The state oil company, Petroleos Mexicanos, or Pemex, is again trying to turn this around and finally attract foreign investment to improve its petrochemical infrastructure. The company is even talking about forming joint ventures to build two new ethylene crackers—the kind of projects it hasn't launched in a generation. The country's chemical industry hasn't failed because of a lack of hydrocarbon resources. According to the U.S. Department of Energy, Mexico has 26.9 billion barrels of proven oil reserves, the second highest level in the Western Hemisphere after Venezuela. It has 29.5 trillion cu ft of natural gas reserves, ranking it behind the U.S., Canada, and Venezuela. But Pemex—which has a monopoly on hydrocarbons in Mexico that extends from oil fields to gas pumps and basic petrochemical plants—cannot take full advantage of the nation's hydrocarbon riches because supporting the government is a higher priority than investing in new operations. In the first nine months of 2002, Pemex's revenues were $33.9 billion. Its operating income was a healthy $21.2 billion during the same period. But it paid $21.7 billion in taxes and duties. Paying the government more than it earns leaves Pemex with meager funding. The company hasn't built a major petrochemical plant in about 10 years. Producers of chemicals and plastics that require ethylene, propylene, styrene, ethylene oxide, aromatics, and other petrochemical raw materials usually cannot expand unless they find chemicals offshore or in the U.S. Juan Balassa, director of Mexico and Central America for Clariant's functional chemicals division, is one of the lucky few who found a new feedstock source. When Clariant built an ethoxylation plant in 12
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Coatzacoalcos, Pemex scraped together 30,000 metric tons of additional ethylene oxide output to support the plant. "The petrochemical industry in Mexico has been really stagnant for several years," he says. "The only way to build a competitive future with Mexico as a source of petrochemical derivatives is for Pemex to expand units and modernize them." BUT WITHOUT such an effort, Mexico keeps falling behind the rest of the world. According to ANIQ, Mexico's chemical industry association, the country imported $9.4 billion of the $18.8 billion worth of chemicals it consumed in 2 0 0 1 . Its chemical trade deficit has increased every year since 1995, hitting $ 6 billion in 2 0 01. The situation is especially bad in plastics, says Jorge O. Buhler-Vidal, director of North Brunswick, N.J.-based Polyolefins Consulting and a Latin American chemical industry expert. He says consumption
AMBITIOUS Pemex Petroqulmica President Beverido faces tough challenges.
of polyethylene in Mexico was 1.3 million metric tons in 2001, while capacity was only about 580,000 metric tons, leaving a gap of 720,000 metric tons. By 2007—and assuming Pemex builds a plant— that gap is projected to widen by about 100,000 metric tons. "You don't have to do very sophisticated market analysis to figure out what products you want to produce," Buhler-Vidal says. "Just looking at gross numbers, you need three or four plants in the relatively near future." Rafael Beverido Lomelin, president of Pemex Petroqufmica, acknowledges this problem and is bent on solving it. "In the case of the Mexican industry, the volumes are high, the demand is growing, and the imports that we are getting from the outside are big," he says. "Therefore, we have a big chance to supply those demands." Vicente Fox Quesada, who became Mexico's president in 2001, tapped Beverido, former director of the Mexican synthetic rubbermaker Negromex, to help reform the country's chemical sector, a move similar to his appointment of Raul Munos Leos, former head of DuPont Mexico, as president of Pemex to jump-start the entire energy sector in the country Beverido is spearheading what is perhaps Pemex's most ambitious development plan ever: a $1 billion expansion program. On the drawing board are two new ethylene crackers and plants for polyethylene, polypropylene, styrene, aromatics, vinyl chloride, and linear alkylbenzene. Beverido says the projects, plus the related investments they will foster, could cut Mexico's chemical trade deficit in half. The company hopes to partner with the private sector for a 1.2 million-metric-tonper-year ethane-based cracker in Coatzacoalcos, near its existing Cangrejera and Morelos complexes. That project would include polyethylene and other derivative plants. It is also mulling a second, naphthabased cracker in Altamira that would have about 1 million metric tons of capacity. That plant would support a wider variety of derivatives, including polyethylene, polypropylene, styrene, and aromatics. Pemex has hired the law firm Hogan & Hartson to help it work out a bidding process for partners for the plants. Beverido hopes to have documents drawn up by the end of February, invitations out to potential partners in March, and offers by the end of the year. The crackers are planned for completion for 2007. It sounds simple, but if history serves as a guide, it probably won't be. Pemex has chronic problems courting partners. It HTTP://WWW.CEN-ONLINE.ORG
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Clariant Plant Shows An Industry Eager To Build
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laimant's start up last September of an ethoxylation plant in Coatzacoalcos, Mexico, highlights the potentially robust Mexican market for petrochemicals downstream from Petroleos Mexicanos, or Pemex. A global player in surfactants, Clariant produced ethoxylates at its Santa Clara plant in Mexico City. The site, built in the 1960s by Hoechst and inherited by Clariant, also makes pigments, alkylbenzene sulfonates, ether sulfates, and polyvinyl acetate. But much like Pemex' petrochemical operations, the ethoxylation plant was outdated. Moreover, ethylene oxide (EO) had to be shipped in by rail from Pemex units 600 miles away—very costly logistics for the hard-to-handle raw material. For about 10 years, Hoechst and, later, Clariant had been looking for a lower cost manufacturing base for ethoxylated amines, alcohol ethoxylates, and polyethylene glycol in Mexico, says Juan Balassa, director of Mexico and Central America for Clariant's functional chemicals division. The adoption of the North American Free Trade Agreement in 1994 made the decision easier. "NAFTA is fundamental to our decision," he says. "We told ourselves this would be the opportunity to do something in Mexico." In 1999, Clariant decided to build a 40,000-metric-ton-per-year ethoxylation plant in Coatzacoalcos as part of a plan to build a globally competitive ethoxylates business in Mexico. Also part of the plan was Clariant's 2000 purchase of Christianson, Mexico's largest surfactants maker, which made amine and EO derivatives in Cuernavaca. According to Balassa, the acquisition and construction were complementary, because the company's objective was not only to improve manufacturing efficiency, but also to expand its Mexican surfactants business. "Acquiring this company gave us the critical mass to justify the investment we made," he says. Balassa is proud of the considerable effort that went into the design and construction of the Coatzacoalcos plant. Clariant selected a site on industrial land surrounded by a nature preserve
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and that is situated just a few miles from Pemex' petrochemical complexes in Cangrejera and Morelos, its sources ofEO. However, the raw material wasn't plentiful. To accommodate the Clariant unit, Pemex implemented a low-cost expansion of Cangrejera's EO capacity by 30,000 metric tons. Eventually, an EO pipeline may link the two sites, but for now the feedstock is being shipped via a small rail line built while the Clariant plant was under construction. Mexicans did the engineering work for the plant, which included an unusual feature: a 400-foot hill on the plant site. Instead of leveling it, engineers carved out its center—making it resemble a volcano—and installed EO storage tanks inside. Balassa explains that the plant is considerably safer this way to the surrounding area. "There we have a natural bunker," he says. "This is like taking advantage of nature. All this was presented to the authorities, and they were amazed." Clariant is shutting down ethoxylates production at its Santa Clara unit and has shipped equipment related to ethoxylated amines to Coatzacoalcos. The Santa Clara plant continues to make polyvinyl acetate, pigments, and sulfonates. At the end of the year, Clariant also shut down ethoxylates production in Cuernavaca and shipped some of the equipment to the new plant. Clariant continues to produce naphthalene sulfonates and fatty amines at the unit. The new plant increased Clariant's annual surfactants capacity in Mexico from 35,000 to 60,000 metric tons. The additional output will help narrow Mexico's chemical trade deficit: The company will export most of its products to the U.S., partly via a barge that leaves weekly from Cangrejera to Mobile, Ala. Balassa is optimistic that the Mexican industry will change, perhaps encouraged by Clariant's example. "Our investment shows that there are companies that are deciding to invest in Mexico because they see possibilities to develop in Mexico as a center of gravity for their activities serving the NAFTA and Latin American markets."
tried to bring private investors into its Morelos complex in 1999. But because Mexican law states that it can sell off no more than 49%, leaving Pemex in control, the private sector balked. Beverido says the new plants will be different. "There are no problems in terms of the law," he says. "The problems we had in the past are because we were trying to sell or privatize the actual facilities of Pemex, but with the new ones, there are no restrictions according to the law, so it can be 100%, or half, or whatever. This is something we need to discuss and agree on, but we're ready to discuss any stake." ANOTHER PROBLEM with Pemexhas been feedstocks. The company normally prices feedstocks at U.S. Gulf Coast rates, providing little incentive to invest in Mexico over the U.S. Beverido says he is willing to discuss this, too, noting that Pemex needs profits to recover its investment on the one hand and that it can't scare away partners on the other. Investors "need to have a warranty," he says. Money at cash-strapped Pemex is another issue, although Beverido maintains that access to funds is better than it has been in the past. The company, he says, has lined up $500 million in financing for expansion projects, and it has options such as raising bonds and recovering investment through feedstock arrangements. Beverido claims that reform at Pemex is going well and cites as evidence the expansion projects it is taking on by itself. During the past six months, the company completed a pair of 100,000-metric-ton ethylene expansions at Morelos and Cangrejera. These additions will feed a new 300,000-metric-ton high-density/linear low-density polyethylene plant that will probably use Unipol technology. Beverido hopes to start construction on the project this year and complete it in 2005. Pemex is also planning to expand its 150,000-metric-ton Cangrejera styrene plant by two-thirds. The company will complete a 200,000-metric-ton vinyl chloride project in Parajitos next year. And it is planning to convert a dodecyl benzene surfactant plant in Independencia to make more environmentally friendly linear alkylbenzene. Negotiations on technology for that plant continue. Although he admits to being new to Pemex, Beverido is optimistic about reform. "Maybe I'm lucky, but things are going well," he says. He believes the company is becoming more attractive to outsiders, but he isn't overly confident. 'We are building credibility," he says, with a pause, "I think." • C&EN
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