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Braskem Idesa seeks import terminal to address ethane shortage in Mexico

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Braskem Idesa seeks import terminal to address ethane shortage in Mexico

Houston β€” Mexican polyethylene producer Braskem Idesa is pushing for construction of a dedicated ethane import terminal and other projects to address the long-standing shortage of feedstock in the region, a company official said Friday.

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The push comes as state-owned Pemex continues to deal with production and extraction issues, which have led to a shortfall in supplies to Braskem Idesa as well as curtailed production at its own plants.

"The Mexican petrochemical industry is short on ethane, and the shortfall cannot be solved immediately from a production side," Director of Business Development Cleantho de Paiva Leite Filho said. "So what can you do short term? Build or expand the import terminal, for one."

Leite also mentioned more long-term solutions centered on Mexico's existing resources, but said those options -- such as upstream investments and updating existing gas processing infrastructure -- would take much longer and potentially come with higher costs.

Pemex would be a key player in any options going forward, Leite said, adding that the state-owned energy producer was already taking steps to remedy the ethane shortfall long term.

Pemex officials did not respond to multiple requests for comment, although Leite said the company has been receptive to the import terminal project. As a result, Braskem Idesa "is confident that this country-wide shortfall will be resolved," Leite added.

ISSUES ORIGINATE UPSTREAM

Pemex's reduced ethane production stems from lower wellhead output as a result of elevated nitrogen levels, with compression issues trimming overall NGL production.

Overall, Pemex's raw gas production is decreasing in tandem with its crude production, but they are putting more money into exploration and production (ENP), Leite explained.

"Part of that is investing in new wells, but it takes time for ENP to bear fruit, around 5-6 years for inland, and deep-water can stretch to 8-10 years," Leite said.

Additionally, Pemex could benefit from addressing older gas processing infrastructure, namely cryogenic plants that have done a poor job of extracting purity ethane, he said.

"You can make improvements to old plants, old cryogenic units, to get more ethane," Leite said. "With newer cryogenic units, you can get around 90%-95% purity ethane from the gas feed, and with older ones you're getting just 70%-75%.

"If [Pemex] can make investments they will leave less in the natural gas pool and allow more to be used by region's petrochemical industries."

Pemex's decline in ethane production began in earnest during the summer of 2017, and internal analysis at the time called for production to remain around 20% lower for the foreseeable future.

That would leave Pemex with around 80,000-90,000 b/d to supply Braskem Idesa and still run its two steam crackers, which can consume up to 68,000 b/d of ethane combined at full rates.

Pemex saw its ethane production dip to a record-low of 70,764 b/d in December 2018, down 9.6% month on month and 16.5% year on year. Overall, Pemex's ethane output in 2018 fell by 16.3% from 2017 levels and 20.2% when compared with 2016, company records showed.

CURRENT IMPORTS HAVE LIMITS

Pemex's supply deal with Braskem Idesa calls for it to provide 66,000 b/d of ethane for 20 years, and Pemex had been typically producing around 100,000-115,000 b/d overall in the years leading to the mid-2017 dropoff.

Despite the current deal and what was viewed as ample production at the time of negotiations, Pemex has struggled to meet the contractual minimums, subjecting it to penalties that Braskem confirmed collecting last year.

In a related development, Pemex in July 2018 began a three-year contract with Vitol for imports of US-origin ethane to Pemex's Pajaritos terminal in Veracruz, with up to 240,000 mt (around 4.25 million barrels) to be supplied in 2018 and up to 288,000 mt/year (around 5.1 million b/year) in 2019 and 2020, according to company sources.

Pemex's Pajaritos terminal houses five ethylene storage tanks retrofitted in recent years for the intake of refrigerated ethane, according to company sources. However, those tanks have limited capacity, which has also factored into industry calls for improvements and investment.

Pemex's three-year deal was to implement "buy time" for long-term solutions, and it gave time to work out a bigger import project, Leite said.

"The option for a [new or expanded] dedicated import terminal makes the most sense," Leite said. "Due combination of proximity to the US and also due to the overall picture for the US, with additional export terminals on the horizon, and more fractionation capacity in the plans, too, specifically with Marcus Hook."

A 75:25 joint venture between Brazilian petrochemical giant Braskem and Mexico's Grupo Idesa, Braskem Idesa's petrochemical complex in the southeastern state of Veracruz has a nameplate production capacity of 1.05 million mt/year each of ethylene and polyethylene.

--Phillipe Craig, phillipe.craig@spglobal.com

--Edited by Pankti Mehta, pankti.mehta1@spglobal.com

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