Braskem Idesa halts activity after Mexico cuts gas supply to petrochemical complex

Sao Paulo — Braskem Idesa halted its activities Dec. 2 after the Mexican government agency responsible for transporting natural gas into the petrochemical complex shut the pipeline.

Natural gas is the main feedstock used for power generation in the complex.

According to Braskem Idesa, the stoppage can materially affect the company's operational or financial results, depending on how long it will have to keep industrial activities halted.

"Braskem Idesa will adopt the legal measures applicable in the search for the preservation of its rights and a solution to the issue and cannot estimate, at this moment, the date for the return of its activities," the company said in a statement.

Mexican president Andres Manuel Lopez Obrador said at a Nov. 2 press conference that the gas contract has expired and will not be renewed.

"The contract was not interrupted, it has reached its expiration date," AMLO said.

According to Braskem Idesa, Cenagas told the company that it would not renew the contract Nov. 30 and blocked the entry of gas the following day.

"The decision violates our rights including multiple legal provisions in force," Braskem Idesa said in a statement.

The stoppage of natural gas supply is another chapter of the fight between Braskem Idesa and the Mexican government. The petrochemical producer has an ethane supply contract with oil state company Pemex, a contract that AMLO finds "leonine" and wants to cancel.

Pemex is not fulfilling its part of the contract and owes Braskem Idesa $65 million in liquidated damages, a fine for not delivering the quantity of ethane agreed in the contract, according to Braskem's third-quarter earnings report.

"They do not want to come to an agreement. They want Pemex to keep selling them ethane gas for 25% of its market cost and that Pemex subsidy 75% of the cost," AMLO said.

Braskem Idesa is a joint venture between Brazil's Braskem and Mexico's Idesa and has a nameplate production capacity of 1.05 million mt/year each of ethylene and polyethylene.