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For the 37th Latin American Petrochemical Annual Meeting11-14 November 2017 | Rio de Janeiro, Brazil
APLA Annual Meeting 2017
LATIN AMERICA PETROCHEMICALS
FEEDSTOCK ISSUES TO THE FORE ASGROWTH RESUMESAs Brazil and Argentina emerge from recession, clarity is needed on energy policies and feedstocks
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in enabling the manufacture of affordable, that are helping to meet the growing demands
They are moving the world forward by enhancing opportunity and improving the
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exxonmobilchemical.com
E)f(onMobil
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NOVEMBER 2017
November 2017 | APLA Supplement | 3
REFORMS OFFER NEW FEEDSTOCK PROMISE 21 Political reforms in Brazil, Mexico and
Argentina are opening up energy markets PROJECT PIPELINE WILL EXPAND AGAIN
23 Investment in Latin America is subdued at present, but shows signs of improving
HURRICANE HARVEY HEADACHE LINGERS
25 Commodity polymer markets have been disrupted across the Americas by plant shutdowns after the recent storm
FOCUS ON FEEDSTOCKS AND SUSTAINABILITY 5 These are the key topics at this year’s APLA
Annual Meeting being held in Rio de Janeiro
RETURN TO GROWTH8 After a long period of recession, the
business outlook in Brazil is improving, says Oxiteno’s CEO Joao Parolin
CONFERENCE AGENDA 10 What’s happening and who’s speaking
at this year’s APLA Annual Meeting
ECONOMIC UPTURN HELPS RAISE HOPES 12 Economic performance has been poor, but
Brazil and Argentina are starting to grow
RAW MATERIALS A PRIORITY 19 Says Edmundo Puentes Riuz, CEO of
Oxiquim and APLA board director
COMMENTARYJOHN BAKER [email protected]
The Latin American petrochemical industry meets in Rio de Janeiro, Brazil, this month at the APLA Annual Conference with the promise of better times ahead. Hesitant economic growth is returning to Brazil and Argentina, and political
and fiscal reforms look to be opening up energy markets and thus improving the prospects for feedstock availability in these nations and in Mexico.
And none too soon. Regional petrochemical producers have had a difficult time over the past two to three years and investment spending has been largely suspended, with few capital projects now going forward.
The reduced value of the Brazilian currency against the US dollar has helped exports, it is true, but domestic demand and growth have been lacklustre. The prospect of increased competition in domestic markets from polymers coming out of North America, as a result of the shale gas-driven cracker investment, has been making the situation look even worse for local producers.
Now there are sign of an upturn. APLA director Jose Luis Uriegas says he expects the Latin American petrochemical industry to continue to grow. Braskem’s Edison Terra, chair of this year’s APLA meeting, adds that next year will be challenging for the industry, but that it is possible the downtrend will not last as long, or be as deep, as people expect.
Delays in the US projects and the logistical difficulties of shipping large quantities of polymers into Latin American markets have made local producers more sanguine recently. And, adds Terra, they are ready to compete in the market.
So what issues remain? The main worries surround the recent and pending elections in Argentina, Brazil and Mexico which are causing political uncertainty and raising fears that current reforms may be derailed.
The Rio meeting will address all these issues and more – the environment and sustainability and talent and diversity are also high on the agenda.
Perhaps this event will mark the turning point in the current straightened times.
“It is possible the downtrend will not last as long, or be as deep, as people expect”
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NOVIEMBRE 2017
ejecutivo de Oxiquim y director de la APLA
LAS REFORMAS OFRECEN NUEVA PROMESA DE MATERIAS PRIMAS
21 Las reformas políticas en Brasil, México y Argentina están abriendo mercados energéticos
LAS OPORTUNIDADES PARA PROYECTOS SE EXPANDIRÁN NUEVAMENTE
23 La inversión en América Latina es moderada en la actualidad, pero muestra signos que está mejorando
LAS PROBLEMAS DE HARVEY PERSISTEN
25 Los mercados de polímeros de materias primas se han visto alterados en todo el continente americano por apagones de plantas después de la reciente tormenta
ENFOQUE EN LAS MATERIAS PRIMAS Y LA SOSTENIBILIDAD
5 Un enfoque en las materias primas y la sostenibilidad
EL RETORNO AL CRECIMIENTO8 Después de un largo período de recesión,
la perspectiva comercial en Brasil está mejorando, dice el CEO de Oxiteno
AGENDA DE LA CONFERENCIA 10 Qué está pasando y quién habla en la
reunión anual de APLA de este año
LA RECUPERACIÓN ECONÓMICA AYUDARÁ
12 El desempeño económico ha sido pobre, pero Brasil y Argentina están comenzando a crecer
MATERIAS PRIMAS SON LA PRIORIDAD
19 Dice Edmundo Puentes Riuz, director
COMENTARIOJOHN BAKER [email protected]
L a industria petroquímica latinoamericana se reúne en Río de Janeiro, Brasil, este mes en la Conferencia Anual de APLA con la promesa de mejores tiempos por delante. El crecimiento económico vuelve a Brasil y Argentina, y las reformas políticas
y fiscales parecen estar abriendo mercados de energía y mejorando así las perspectivas de disponibilidad de materia prima en estas naciones y en México.
Los últimos dos o tres años han sido difíciles para los productores petroquímicos regionales. El gasto de inversión se ha suspendido en gran medida, y ahora hay pocos proyectos de capital en marcha. El valor reducido de la moneda brasileña frente al dólar estadounidense ha ayudado a las exportaciones, es cierto, pero la demanda y el crecimiento interno han sido regular. Mas competencia de América del Norte, a causa de la inversión del cracker de gas de esquisto, ha empeorado la situación para los productores locales.
Ahora hay señales de una recuperación. El director de APLA, José Luis Uriegas, dice que espera que la industria petroquímica en Latinoamérica continúe creciendo. Edison Terra de Braskem, presidente de la reunión de APLA de este año, agrega que el próximo año será un desafío para la industria, pero que es posible que la tendencia bajista no dure tanto tiempo, ni que sea tan profunda como la gente espera.
Los retrasos en los proyectos de los Estados Unidos y las dificultades logísticas de enviar grandes cantidades de polímeros a los mercados han hecho recientemente, que los productores locales sean más optimistas. Y, agrega Terra, están listos para competir en el mercado.
Entonces, ¿qué problemas quedan? Las preocupaciones principales rodean las elecciones recientes y pendientes en Argentina, Brasil y México, que están causando incertidumbre política y generando temores de que las reformas actuales se descarrilarán.
La reunión de Río abordará todos estos temas y más: el medio ambiente y la sostenibilidad, y también el talento y la diversidad, ocupan un lugar en la agenda. Tal vez este evento marcará una curva en estos tiempos rígidos.
“Es posible que la tendencia bajista no dure tanto tiempo, ni que sea tan profunda como la gente espera”
Publication prepared by
For the 37th Latin American Petrochemical Annual Meeting11-14 November 2017 | Rio de Janeiro, Brazil
APLA Annual Meeting 2017
LATIN AMERICA PETROCHEMICALS
FEEDSTOCK ISSUES TO THE FORE ASGROWTH RESUMESAs Brazil and Argentina emerge from recession, clarity is needed on energy policies and feedstocks
APL_101117_001.indd 1 27/10/2017 11:56
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November 2017 | APLA Supplement | 5www.icis.com
APLA INTRODUCTION
DAVID HAYDON HOUSTON
The environment, sustainability and feedstocks are the key points at this year’s APLA Annual Meeting being held in Rio de Janeiro
Focus on feedstocks and sustainability
APLA’s annual conference is one of the biggest events for Latin Ameri-ca’s petrochemical industry. The association’s president Marcos
Sabelli expects the Latin American petro-chemical industry to continue to grow and notes that attention will in part be focused on environmental impact at this year’s meeting.
Edison Terra, APLA director and president of this year’s meeting, adds that the 2017 con-ference will be a good opportunity for those in the industry to update and inspire each other on environmental and sustainability initiatives.
“There are several initiatives on sustaina-bility in Latin America that could be shared with other regions,” he says. “I think one of the main issues in the petrochemical industry is sustainability.”
For several years, Terra says, the petrochem-ical industry has been pressured to show how it is not a major threat to the environment. He highlights relevant investments in process safety, decreases in water and energy utilisa-tion rates, as well as advancing Responsible Care attitudes as factors that are improving the industry’s sustainability performance.
The new challenges, he believes, are prod-uct stewardship and the fate of chemicals and materials post-consumption.
PROGRESS ON RECYCLING“If we take plastics as an example, there are many issues damaging plastics’ image,” he argues. “The petrochemical industry together with many other industrial and commercial industries is taking care of this issue and there is a lot [of progress] still to be made.”
Terra notes, however, the important bene-fits plastics have brought to humanity: in term of health/hygiene, cost efficiency, and food
safety and convenience, to name but a few. “There is a huge challenge to work on post-
consumption issues with a rational approach,” he adds. “Alternative feedstock is also something new and addresses the same issue.” Investments on those projects are find-ing funding to move forward, he believes.
Mexico is an important part of this year’s conference as well, says Jose Luis Uriegas, director of APLA and CEO of Grupo IDESA, adding that he feels positive on the outcome of talks on the North American Free Trade
Agreement (NAFTA) between Mexico, the US and Canada. “It is very important that we con-tinue with the idea of free trade,” Uriegas says. “We have a very clear alignment be-tween the three countries.”
Uriegas adds that new facets of the trade agreement would need to be considered for the US or Canada to invest in Mexico, such as investments in the energy sector. When we signed the existing NAFTA agreement, we (in Mexico) didn’t have energy reform,” he says. “Now we have it.”
According to Terra, curiosity to understand the changes going on in Latin America has only grown in recent months. “There are rele-vant issues impacting all major economies in the region,” he says, but also notes that the political and economic situations in various Latin American countries have their own individual effects.
For example, the petrochemical industry in
JOSE LUIS URIEGASDirector of APLA and CEO, Grupo IDESA
“It is very important that we continue with the idea of free trade”
Get
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Post-consumer recycling is a big issue that is damaging the public image of plastics, but it is one the industry is now tackling in Latin America
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www.icis.com6 | APLA Supplement | November 2017
APLA INTRODUCTION
of 1.05m tonnes of ethylene and polyethyl-ene, this is the first greenfield plant in this [latest] cycle.”
ETHANE SUPPLY WILL IMPROVEUriegas adds that although Mexico has abun-dant reserves of ethane, production is not avail-able in sufficient amounts for new projects in the short term. “In my vision it’s going to be dif-ferent three to four years from now,” he says.
“If you look at the very short term, let’s say from now to 2020, I don’t see additional vol-umes of ethane available for projects.”
The consequences for petrochemicals may vary, depending on which solutions and poli-cies are adopted by each country, Terra says. He notes, in addition, that there is a sentiment that the Latin American region will be an easy reach for additional US capacity. “Which is ab-solutely not true,” argues Terra. “There is lim-ited space and locals are prepared to compete.”
Expectations for the next year vary, accord-ing to the APLA directors. “Next year will be challenging for the industry in order to accommodate all the new capacity that is coming onstream,” says Terra.
However, he adds, it is possible the down-trend will not last as long, or be as deep as people expect. ■
EDISON TERRAAPLA meeting president and vice president for polyolefins South America and Europe and renewable chemicals, Braskem
“There is a huge challenge to work on post-consumption issues with a rational approach”
El medio ambiente y la sostenibilidad ocupan un lugar importante en la agenda de la conferencia anual APLA de este año en Río de Janeiro.
Edison Terra, presidente de la reunión de este año, apunta a los esfuerzos de la industria en términos de seguridad de procesos y eficiencias, así como a la Atención Responsable que están marcando la diferencia.
Los problemas de los desechos después del consumo y la administración de los productos son nuevos desafíos a tratar.
José Luis Uriegas, presidente de APLA, agrega que los desarrollos en México y la renovación del acuerdo comercial del TLCAN también son temas importantes en la reunión.
También se está discutiendo los nuevos volúmenes enormes de polímeros que se encuentran en Estados Unidos. ■
SUMARIO
UN ENFOQUE EN LAS MATERIAS PRIMAS Y LA SOSTENIBILIDAD
Latin America has been discussing the overcapacity expected in polyethylene (PE) in 2018 as a result of increased US production, as well as the more balanced market for poly-propylene, he notes.
“There is one major point of discussion in our industry today, which is the new capacity that is coming onstream in the US for PE based on ethane from shale gas,” he says. “There have been some delays on those pro-jects and today the forecast is not as negative for petrochemical producers as it was a few years ago.”
Nevertheless, says Terra, Latin American producers have been preparing for this over-supply. “Braskem has invested $5.2bn in its petrochemical complex in Mexico in partner-ship with Mexico’s Grupo IDESA,” he says. “With annual integrated production capacity
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We produce intermediates and polymers using state of the art technologies, and engage in research and chemistry from renewable sources, to keep pace with the evolution of global markets. Together, we will take your business forward.
ON THE ROAD TO THE FUTURE.
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APLA INTERVIEW
AL GREENWOOD HOUSTON
After a long period of recession, the business outlook for Brazil is improving, but political uncertainty is still high. Oxiteno is making investments in the US
Return to growthlaunching some new products.
With regards to plant operations, the com-pany’s Oleoquimica plant in Camacari, Bahia state, is now running at full capacity. Earlier, Oxiteno had technical problems re-starting the plant following a scheduled stoppage.
Outside Brazil, Oxiteno continues to make progress on the new ethoxylation plant it is building in Pasadena, Texas. Parolin says start-up is scheduled for the first half of 2018. Oxite-no has already been pre-marketing material in anticipation of the start-up.
Earlier this year, Oxiteno opened a US research and development laboratory, the result of a partnership the company has struck with the University of Southern Mississippi in Hattiesburg, Mississippi. The lab is in The Garden, a research park of the university and should help Oxiteno serve US customers, since the nation’s market has some specifications that differ from Latin America, according to Parolin.
In Mexico, Oxiteno participated in a recent ethylene oxide (EO) auction held by state producer Pemex. With that, Oxiteno was actually able to secure more feedstock EO than the previous year.
While Oxiteno has no plants in Argenti-na, the country is still an important market for the company, since it neighbours Brazil and it has Latin America’s third largest economy. Like Brazil, Argentina is also re-covering from a recession, and the outlook for the country is positive, Parolin says.
“We are pretty excited about the outlook for the future in Latin America,” he con-cludes. “Now we can expect a more positive outlook for the region.” ■
than reais (R) 2.00. Since then, the ex-change rate has weakened to about R3.15 to the dollar.
This weakening helped make Brazil’s ex-ports more competitive, and rising foreign shipments are also helping the economy. “We have exported more and more,” Paro-lin says.
While Brazil is out of a recession, some factors are still holding back growth. Confi-dence is weak, both among consumers and industry, notes Parolin.
In addition, Brazil is suffering from quite a bit of political uncertainty. The country is holding presidential elections next year and Temer has long said he would not run.
SIGNS POINT TO RECOVERYSo far, the number of potential candidates is the largest since Brazil held its first elec-tions after the dictatorship, nearly three decades ago. “Everybody is asking what comes next,” says Parolin.
Still, all signs point to a recovery and Oxiteno is witnessing this first hand. The company is seeing year-on-year domestic growth of 4-5% in 2017, he says. In particular, the first part of the third quarter points to a recovery in volumes. Not only are volumes rising, Oxiteno is also
The outlook for Brazil is improving just as the country is emerging from one of its worst recessions ever re-corded. “I would say that Brazil is at
a turning point,” says Joao Parolin, CEO of Oxiteno, Latin America’s largest specialty chemicals producer and part of Brazil’s Ultra-par conglomerate.
These are still early days in the recovery. The country’s economy only started grow-ing in the second quarter of this year, when it expanded by just 0.3% year-on-year. While that is a small rate of growth, it still broke the run of 12 consecutive quarters of year-on-year contractions.
Quarter-on-quarter, GDP began recover-ing in the first three months of the year, when it expanded by 1.0%. So far, agricul-ture and automobiles are standing out in the recovery, adds Parolin.
The agriculture segment grew by a mas-sive 14.9% year-on-year in the second quar-ter, according to IBGE, Brazil’s state statisti-cal agency. That followed an impressive 15.2% expansion in the first quarter.
In automobiles, Brazil produced nearly 237,000 units in September, up 39% from the same time last year, according to trade group Anfavea. It was Brazil’s best perfor-mance for that month since 2014, when it produced nearly 301,000 vehicles.
POSITIVE CHANGESSeveral factors are contributing to the recov-ery. The administration of President Michel Temer has made a lot of positive changes, Parolin explains. Inflation in Brazil is actu-ally below the target set by the nation’s cen-tral bank. This leaves it a lot of room to lower interest rates.
Already, the key Selic rate has fallen to 8.25% at the beginning of September. Last year, the rate was as high as 14.25%. Econo-mists surveyed by the central bank expect the rate will continue declining, reaching 7.00% by the end of the year.
Brazil’s currency has strengthened re-cently, but it is still down from the high levels in the early part of the decade. At one point, one US dollar was worth less
JOAO PAROLINCEO, Oxiteno
“We are pretty excited about the outlook for the future in Latin America”
El clima comercial de Brasil está mejorando gradualmente, dice Joao Parolin, CEO de Oxiteno.
Los sectores agrícola y automotriz están liderando el camino, mostrando una recuperación significativa.
Además, las tasas de interés están disminuyendo y la moneda brasileña se ha fortalecido recientemente, aunque los bajos
niveles recientes han ayudado a las exportaciones de productos químicos.
La incertidumbre política es el problema principal en este momento y está frenando la confianza empresarial, dice Parolin.
Oxiteno continúa invirtiendo en capacidad nueva y capacidad de investigación y desarrollo en los Estados Unidos. ■
SUMARIO
EL RETORNO AL CRECIMIENTO
In our specialized centers, more than 300 researchers are committed to finding new solutions and technologies that contribute to creating value for our company and for our partners. Together, we will look at the future through different eyes.
WE GO BEYOND WHAT WE SEE.
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APLA ANNUAL MEETING
APLA 37TH ANNUAL MEETING: RIO DE JANEIRO, BRAZIL
What’s on at this year’s conferenceSATURDAY, 11 NOVEMBER ■ 18:00-19:00 Happy hour, hosted by Braskem and IDESA, Royal Tulip Rio Sao Conrado Hotel swimming pool area
SUNDAY, 12 NOVEMBER■ 06:45-08:00 2km and 5km run, hosted by Vopak, Sao Conrado beach■ 08:00-12:45 Platts Petrochemical Forum, Pre-function A Room■ 18:30-19:45 Opening ceremony, Gavea Room Opening conference: regional economic analysis – Gustavo Franco, president, Rio Bravo■ 19:45-21:30 Welcome cocktail, hosted by Braskem and Braskem IDESA, Gran Melia Nacional Rio de Janeiro Mezzanine Lounge
MONDAY, 13 NOVEMBER■ 09:00-10:30 General session I, Gavea Room Oil and gas market analysis – Dave Witte, vice president, IHS Markit■ 10:30-12:00 CEO panel, Gavea RoomThe future of the petrochemical industry -–Marcos Sabelli, chemical executive manager, YPF. Speakers: Jose Luis Uriegas, president, IDESA; Fernando Musa, CEO, Braskem; Santiago Martinez Tanoira, execu-tive vice president downstream, YPF■ 14:30-16:30 Consulting companies panel, Gavea RoomPetrochemical outlook for 2018■ 17:00-18:00 Women of petrochemical reception, hosted by IHS Markit, Terraco 222 Room
■ 18:30-19:30 Caipirinha festival, hosted by S&P Global Platts, Royal Tulip Sao Conrado swimming pool area
TUESDAY, 14 NOVEMBER■ 09:00-11:30 General session II, Gavea RoomCarbon pricing: An opportunity for sustain-able competitiveness – Fernando Figueiredo, CEO, ABIQUIM ■ 11:30-13:00 Closing conference, Gavea RoomFuture generations and the impact on work– Monica Flores Barragan, president Latin America, ManpowerGroup ■ 13:00-14:30 Closing lunch, hosted by Braskem, IDESA and Braskem IDESA, Aquarela Restaurant
■ PRESIDENT Marco Sabelli YPF, Argentina
■ VICE PRESIDENTS Gastón Remy Dow Química Argentina Luciano Guidolin Braskem, Brazil Edmundo Puentes Ruiz Oxiquim, Chile Bernardo Alvarez Certucha Grupo Idesa, Mexico Domingo Hernandez Pequiven, Venezuela
■ TREASURER Daniel Pettarin Profertil, Argentina
■ DIRECTORS Daniel Azcarate Axion Energy, Argentina José Larpin Pampa Energía, Argentina Jorge R Sampietro Petroquímica Cuyo, Argentina Edison Terra Braskem, Brazil Marcos de Marchi Elekeiroz, Brazil João Benjamin Parolin Oxiteno, Brazil Marc Slezynger Unigel, Brazil Miguel Gana T Methanex, Chile Jorge García Rodríguez Petroquim, Chile
Felipe Trujillo Ecopetrol, Colombia José Luis Uriegas Grupo Idesa, Mexico Alejandro Llovera Zambrano Indelpro, Mexico Ricardo Gutierrez Muñoz Mexichem, Mexico ■ SUPERVISORY BODY Alejandro Fernández Compañía Mega, Argentina Oscar López Socio personal, Argentina ■ GUEST DIRECTORS Caroline Ciuciu EPCA, Europe
Chet Thompson AFPM, US Eduardo Praselj ALV, Venezuela
■ ADVISORY COUNCIL Jorge R Sampietro Petroquímica Cuyo, Argentina Michel Hartveld Brazil Pedro Wongtschowski Brazil Juan E González Sierra Methanex, Chile Arturo García Pérez Mexico José Luis Uriegas Grupo Idesa, Mexico
APLA BOARD MEMBERS 2017
Central to each of our ideas is the conscious use of energy and natural resources. This is why, every day, we aim to improve the efficiency of our production cycles and we commit to using renewable raw materials, wherever we can. This is how we will grow, together.
SUSTAINABILITY IS IN EVERYTHING WE DO.
www.icis.com12 | APLA Supplement | November 2017
APLA ECONOMIC OUTLOOK
Two of Latin America’s largest econo-mies are emerging from recession, with Brazil ending what was one of its worst downturns ever. Argentina,
Latin America’s third largest economy, could post two back-to-back years of GDP growth if its momentum continues into 2018.
Mexico, Latin America’s second largest economy, avoided a downturn, given its inte-gration with the US. However, that integration may work against the country if it cannot suc-cessfully renegotiate the NAFTA free-trade agreement with the US and Canada.
Much could change for all three countries. Argentina recently held congressional elec-tions, which could determine whether the country will continue pursuing reforms that could put it on a more sustainable path to growth. Both Mexico and Brazil will have contentious presidential elections next year.
Brazil is now recovering from an especially long and deep recession. The economy shrank by more than 3% each year in 2015 and 2016. So far, the recovery has been under-whelming. In the second quarter, GDP grew by 0.3% year-on-year, according to the state statistical agency (IBGE).
In all, GDP should grow by less than 1% this year and 1.5% in 2018, according to the International Monetary Fund (IMF).
Brazil’s economy still has many structural hurdles referred to as the custo Brasil – a con-voluted tax system, onerous labour laws and red tape. Brazil also needs fiscal reform, from taxes to pensions, says Monica de Bolle, a senior fellow at the Peterson Institute for International Economics.
It needs to adopt several reforms in the financial sector. Right now, this is dominated by public banks, which are inefficient and which lead to distorted credit allocation, she adds. The administration of President Michel Temer has passed a spending cap, but it has not pushed through these other reforms.
“You’ll have a recovery and with some
luck, you’ll get back to growing at 2%,” de Bolle notes. “But until that work is done on the reform front, it is very hard to see higher levels of growth.”
REASONABLE POLICIESSome reasonable policies were pursued, nonetheless, by Temer, who cleared up the disarray left by his predecessor, Dilma Rouss-eff. What followed were reasonable economic policies, which helped the economy recover.
Inflation, which reached double-digit rates during Rousseff’s administration, has fallen below the central bank’s target range of 3.0-
6.0%. This is the first time that inflation has ever fallen below the central bank’s goal in the era of inflation targeting, according to de Bolle.
Price stability in itself is good for the econo-my. In Brazil, falling inflation has an additional stimulatory effect. Some wages in the country are indexed to inflation, says de Bolle. As a result, these wages lag inflation. Because inflation has fallen, workers with indexed sala-ries are enjoying an effective pay raise. That increase should persist, although it will not be as pronounced as in the second quarter.
A more fleeting benefit is coming from some forced savings funds, explains de
AL GREENWOOD HOUSTON
Latin America’s economic performance has suffered in recent years but two of the largest economies, Brazil and Argentina, are beginning to emerge from recession
Economic upturn helps raise hopes
Brazilian president Michel Temer (left) and Argentine president Mauricio Macri at the recent Mercosur Summit: both leaders are working to improve the economic climate
Get
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APLA ECONOMIC OUTLOOK
Bolle. Brazil has allowed the unem-ployed and some hard-pressed workers to access these funds. This is giving consump-tion a temporary boost.
The savings funds and the indexed wages all point to one of the problems in Brazil’s recovery. It is driven mostly by consump-tion and not by investment. Brazil will need investment to grow to sustain higher levels of growth, de Bolle says. This weakness in investment reflects the deep nature of the recession.
Earlier in April, an executive at Braskem noted that plastics demand in Brazil had fall-en to levels not seen since 2011-2012. Compa-nies have no need to invest in new plants if their existing capacity is more than enough to meet current demand.
The limited scope of the recovery is another weakness. Right now, it is limited mostly to ag-riculture and automobile production, which is approaching pre-recession levels. But most other parts of the economy are still struggling. The industrial and service sector continued to shrink in the second quarter versus the first, ac-cording to IBGE, the state statistical agency.
POLITICAL UNCERTAINTYPolitical stability could improve the investment climate. But a pay-to-play cor-ruption scandal called Lava Jato has entan-gled much of the political class.
Next year’s presidential elections could add more uncertainty. It will likely have the largest slate of candidates since the country’s first presidential elections that followed Brazil’s military dictatorship. “These are going to be unprecedented elections in Brazil,” de Bolle says. The danger is that such a large number of candidates could crowd out centrists who could pursue economic reforms.
For the petrochemical industry, there has been a reluctance to take on investments, says Jorge Bühler-Vidal, director of Poly- olefins Consulting. “There really are no pro-jects,” he says. “That has been going on for a few years now, which is very unusual.” The reasons behind the lack of projects go beyond election uncertainty or Lava Jato,
Bühler-Vidal believes. “To have a new pro-ject, you need a certain level of enthusiasm.” For now, that enthusiasm is absent.
Like Brazil, Argentina is also emerging from a recession. After shrinking by 2.2% in 2016, the economy should grow by 2.5% this year and by another 2.5% in 2018, the IMF said. If GDP continues growing in 2018, it would mark the first time since 2011 that the economy has expanded for two consecutive years. This in itself would be an achieve-ment, since the volatility suffered by Argen-tina is bad for an economy, says Gabriel Tor-res, Argentina’s sovereign lead analyst for Moody’s Investors Service.
For the second quarter the fastest growing category was investment, notes Torres. The largest contributor to growth was private consumption. Some of this marks a recovery from last year’s recession. However, the growth in the second quarter also reflects confidence in the policies of the government. “The econo-my is growing. Real salaries are now rising. Poverty has fallen,” he says.
At the least, President Mauricio Macri has prevented Argentina’s economy from becoming worse, says Pedro Tuesta, senior Latin America economist for Continuum Economics. “The damage from the previous administration was huge… It is not possible to understate that.”
PERIOD OF ADJUSTMENTImmediately after his election at the end of 2015, Macri’s administration pushed through several reforms. These allowed the local currency to float; the government to issue foreign debt; and the country’s subsi-dies to decline. While these reforms were necessary, they did lead to a period of adjustment and recession.
In particular, the resulting devaluation of the peso and the reduction in energy subsi-dies caused inflation to soar. It has since fall-en back to the low 20% range, the level typical for the past several years.
Moody’s base-line scenario calls for inflation to continue falling next year, to about 15-16%, Torres says. That is above the bank’s target, but it still marks progress. Fighting inflation usual-ly takes years, Torres adds. Chile and Costa Rica went through a similar process, and it took those countries four to five years.
Other challenges remain. Torres points to the fiscal deficit. Argentina also has rela-tively high labour costs when compared with similar countries. Tuesta adds that the country needed to adopt other reforms that would ensure more consistent growth. The congressional elections held on 22 October could lead to laws that could address some of these issues.
Given the economic outlook for the coun-try, Argentina could attract new petrochemi-cal investment, Bühler-Vidal says. It is a mem-ber of Mercosur trading bloc, so Argentina has favourable access to the Brazilian market.
In addition, Argentina has reversed a multi-year decline in gas production. Production increased in 2016 for the first time since 2006, according to the Argentine Ministry of Energy and Minerals.
Argentina’s petrochemical industry relies on gas both as a fuel source and as a feed-stock. Like the US, the country’s crackers use ethane. If Argentina can continue increas-ing gas production and maintain those gains, then it could give companies the confidence to increase petrochemical capacity.
MEXICAN ECONOMY EXPANDINGIn Mexico, much of the recent growth in the economy was due to very active exports be-sides the domestic consumption.
Mexico has avoided the recessions that struck Brazil and Argentina. While growth in Mexico has not been spectacular, GDP has still been expanding. It grew by 2.3% last year, and the IMF expects it to expand by 2.1% this year and by 1.9% in 2018.
JORGE BUHLER-VIDALPresident, Polyolefins Consulting
“To have a new project, you need a certain level of enthusiasm”
OUTPUT GROWTH AND INFLATION FIGURES FOR MAIN LATIN AMERICAN COUNTRIES
Output growth, % Inflation, %
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Mexico 2.3 2.6 2.3 2.1 1.9 4.1 2.1 3.4 6.1 3.5
Argentina -2.5 2.6 -2.2 2.5 2.5 23.9 na na 22.3 16.7
Brazil 0.5 -3.8 -3.6 0.7 1.5 6.4 10.7 6.3 3.6 4
Chile 1.9 2.3 1.6 1.4 2.5 4.7 4.4 2.8 2.4 2.9
Peru 2.4 3.3 4 2.7 3.8 3.2 4.4 3.2 2.7 2.5
Colombia 4.4 3.1 2 1.7 2.8 3.7 6.8 5.7 4 3.1
Uruguay 3.2 0.4 1.5 3.5 3.1 8.3 9.4 8.1 6.2 6.7
Venezuela -3.9 -6.2 -16.5 -12 -6 64.7 159.7 302.6 1,133 2,530
SOURCE: IMF October 2017
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www.icis.com16 | APLA Supplement | November 2017
APLA ECONOMIC OUTLOOK
president, Enrique Peña Nieto, who also be-longs to the party.
The actual election is still several months away, so much could still change. Much clos-er on the horizon are the NAFTA negotiations. The US president, Donald Trump, expressed antipathy towards the agreement and has hint-ed at terminating it. Trump has focused on the trade deficit that the US has with Mexico, mostly the result of automobiles.
However, much of the business community in the US wants only minor updates and tweaks to the agreement. In fact, many key eco-nomic sectors in the US have trade surpluses with Mexico, and they do not want a botched negotiation to threaten those surpluses. For motor fuel, natural gas, plastic and petrochemi-cals, the US has a trade surpluses with Mexico.
LITTLE RISK FROM NAFTA REDRAFTSo far, Tuesta and others do not expect the NAFTA negotiations to be particularly harm-ful to Mexico’s economy. If the NAFTA rene-gotiations go relatively well for Mexico, then that should increase confidence in the nation’s economy, buttressing the value of the peso and taming inflation.
If inflation does decline, it should give the central bank room to lower the interest rate, Tuesta said, which should give the economy a boost. Faster economic growth would, in turn, increase demand for petrochemicals in Mexico. That demand would likely be met by imports. Mexico relies predominantly on ethane as a feedstock for its crackers, and much of this comes from the associated gas produced from its oil wells.
Oil production has been falling for years, and this has caused ethane supplies to de-cline. Aromatics and propylene are also tight because of recurrent problems at Mexico’s refineries. The country had amended its constitution to allow companies other than state producer Pemex to produce oil, natu-ral-gas liquids (NGLs) and refined products. Outside companies have already bid suc-cessfully on oil blocks.
Mexico is also eager to develop its reserves of wet gas, which could provide its petro-chemical industry with ethane. The country’s fuel markets are also opening up. The process could attract investors to spend money on the nation’s refineries if they feel confident that they could recoup their expenditures. ■
During the first half of the year, domestic consumption was higher than many expect-ed, Tuesta says. The problem is that this surge is not being matched by external demand or investments, the trends that are usually re-sponsible for growth in Mexico.
More importantly, domestic demand cannot keep growing on its own, Tuesta says. It needs fuel in the form of wages and real income.
Inflation is still above the target of Mexico’s central bank, due to a sharp rise in fuel prices earlier this year, along with an increase in agricultural products. Despite the rise in pric-es, there are no signs of a sustained increase in wages to keep up with inflation, Tuesta says.
This could lower domestic consumption, which drove much of the growth in the first half of the year. “Q3 is not going to be nice,” he adds. “Already, July is surprising on the down side. August is probably going to be an-other weak month.” This is before the earth-quakes that struck Mexico, which has made forecasting more difficult.
The earthquakes happened too recently to gauge their effect on the economy. But with what’s known so far, Mexico’s central bank doubts they will have any medium or long-term effect. At the end of September, it decided to keep the country’s interest rate steady at 7.00%, finding no need to stimulate the economy.
EARTHQUAKE BOOST TO ECONOMYTuesta believes the earthquake could boost the economy if the government acts quickly to en-courage reconstruction. On the other hand, the earthquake could slow growth. Many houses
Dos de las economías más grandes de América Latina están emergiendo de la recesión, con Brasil poniendo fin a una de sus peores desaceleraciones.
Argentina, la tercera economía más grande de América Latina, podría ver dos años consecutivos de crecimiento del PIB si sus éxitos continúan hasta 2018.
México, la segunda economía más grande de América Latina, ha evitado una recesión, dada su integración con los Estados Unidos.
Sin embargo, esa integración puede funcionar en contra del país si no puede renegociar exitosamente el acuerdo de libre comercio del TLCAN.
Mucho podría cambiar para los tres países: Argentina recientemente celebró elecciones parlamentarias, lo que podría determinar si el país continuará la búsqueda de reformas que podrían ponerlo en un camino más sostenible para el crecimiento.
México y Brasil tienen contenciosas elecciones presidenciales el próximo año. ■
SUMARIO
LA RECUPERACIÓN ECONÓMICA AYUDA A AUMENTAR LAS ESPERANZAS
MONICA DE BOLLESenior fellow, Peterson Institute for International Economics
“These are going to be unprecedented elections in Brazil”
PEDRO TUESTASenior Latin America economist, Continuum Economics
“The damage from the previous [Argentine] administration was huge”
in Mexico lack insurance, Tuesta says. While the earthquake was not as destructive as pre-vious ones, the extent of the damage could prove to be overwhelming.
The more persistent problem in Mexico is weak investment activity, which was pointed out by both the central bank and Tuesta. The uncertainty surrounding the upcoming elec-tions is causing some trepidation among investors, Tuesta says.
Right now, the front-runner is Andres Manuel Lopez Obrador, leader of the populist group MORENA (National Regeneration Mov-imiento). Lopez Obrador, known as AMLO, has opposed NAFTA, the free-trade agreement between Canada, the US and Mexico, arguing that it has hurt Mexico’s small farmers.
The movement itself said Mexico has suf-fered through a string of what it called neolib-eral governments that violated the nation’s constitution, which mandates that natural re-sources and strategic industries need to be used for the benefit of society.
MORENA said the nation’s energy reforms have transformed both Pemex and the Federal Electricity Commission into simple adminis-trators of contracts that favour foreigners. “We will fight to put an end to the privatisation of Pemex, the electrical industry and the cultural patrimony.” Such talk from the front- runner in Mexico’s presidential election is troubling.
Among the other parties, the right-leaning National Action Party (PAN) and the left-lean-ing Party of the Democratic Revolution (PRD) have struck up an unlikely electoral alliance, says Tuesta. While this could help the parties win the upcoming elections, it could make governing more difficult, he said. Moreover, both parties are having trouble finding a strong candidate to run for president.
The Institutional Revolutionary Party (PRI) does not have a candidate right now, although it is opening the door for the current finance minister, adds Tuesta. If the PRI does find a candidate, that person would have to over-come the deep unpopularity of the current
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November 2017 | APLA Supplement | 19www.icis.com
APLA INTERVIEW
Timber frame construction is boosting demand for wood and resins from Chile
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GEORGE MARTIN HOUSTON
Edmundo Puentes Ruiz, CEO of Chile’s Oxiquim, president of the country’s chemical industries association ASIQUIM and vice president of APLA, spoke to ICIS about his views on the Latin American petrochemicals sector
Raw materials are a priority
From the point of view of Oxiquim, what is the main challenge facing the Latin American petrochemical industry?The industry in the region should move forward in ensuring access to raw material sources that states control, to a large extent, directly or through regulations that do not adapt quickly enough to changes in markets and technologies.
In my opinion, it is necessary that more space is created for private investment and progress is made in generating more long-term regulatory certainty.
Second, we must increase research and de-velopment (R&D) investment and increase our ability to innovate.
I understand your company’s activities include production, marine chemical storage terminalling and distribution, and commercialisation of industrial products. What are the prospects for these segments and the biggest challenges they face?In production, we are the largest manufacturer
of resins for the wood panel industry in Chile and one of the three largest in Latin America. This industry grows with the construction of traditional houses and with an increasing in-corporation of wood as a basic material of con-struction.
In most countries of the region, masonry-based construction predominates and wood is culturally associated with poor quality con-struction. This is gradually changing in Chile and other countries through the use of better technologies. The export of wood-based prod-ucts to the Americas will be an engine for increasing demand. As a result, it will be neces-sary to continue investing in forest plantations to provide quality timber.
In the area of marine terminals, we are the largest operator of open terminals in Chile and we have a solid position in the main bays of the country. We expect to grow with the growth of demand associated with the coun-try’s main industries such as mining, fuels and industrial products in general.
In distribution, the challenge is to offer a differentiated service through integrating
logistics, providing security of supply and as-sociated services. We have a strong investment in efficiency and safety that will allow us to accommodate our customers’ needs, contrib-uting to their competitiveness and reliability.
It is known that the Latin American petrochemical industry lacks basic raw materials for sustained development. What would be the logical steps to address this problem and what is the chance of solving these problems in the next 10 years considering the increasing production of chemicals in the US from inexpensive natural gas (shale gas)?As I pointed out at the outset, I believe there are resources in the region and their develop-ment will depend greatly on the conditions offered by the states of the region for private investment and the stability of the rules, which should be greatly improved.
I should also point out that investment in better roads, ports and infrastructure is rele-vant when evaluating projects that require large investments, such as those involving the development of raw material sources.
What is the relationship of your company with the public sector? Do you have government support of any kind or should you plan your course privately and independently?The relationship of companies with the pub-lic sector is given through the trade unions that collaborate with the authorities to gener-ate regulations of good technical quality.
In our country, the exploitation of oil and natural gas is reserved for Enap, belonging to
EDMUNDO PUENTES RUIZCEO, Oxiquim
“It is important to advance the development of a culture of innovation based on confidence in our capabilities”
www.icis.com20 | APLA Supplement | November 2017
APLA INTERVIEW
❯❯ the state. In mid-2011, the company start-ed a tender to find partners with which to ex-plore new natural gas reserves in Magallanes. Enap partially supplies the Methanex metha-nol plant in Magallanes in the south of the country and local consumption in the area.
In the mining sector, Codelco, a state-owned company, is a relevant consumer of chemical inputs for mineral processing and it has recently been announced that it will be awarded concessions for the exploitation of lithium, which Chile has in abundance in the salt flats located in the north of the country.
What is APLA doing to promote the Latin American petrochemical and chemical industry? And what areas could or should be promoted to create growth, competition and greater integration into the global context?APLA brings together most of the companies in the sector and promotes the exchange be-tween companies, consultants and authorities contributing to generate better conditions for investment in the sector. It also coordinates efforts to generate more confidence in society regarding our work, coordinates efforts to fa-cilitate regional trade, promotes investment and safer operations.
Do you consider that Latin America has a good educational system for the training of professionals in industry capable of responding to the challenges of the future?We have much to advance, without a doubt. However I am convinced that we have excel-lent professionals in the region and that it is important to advance the development of a culture of innovation based on confidence in our capabilities. But as in the rest of the world, today we have to compete for young talent who have increasingly wide fields to choose from in the information economy, in electronics and the world of big data.
Edmundo Puentes Ruiz, presidente de la empresa chilena Oxiquim, presidente de la asociación de industrias químicas del país ASIQUIM y vicepresidente de APLA, dice que el acceso a las materias primas es un tema clave para la industria petroquímica de América Latina.
Para avanzar, la región necesita abrir el control estatal de la energía y permitir más espacio para la inversión privada. También
debería centrarse más en la innovación. Puentes apunta a un mercado en crecimiento
en Chile para productos forestales en la construcción de viviendas y espera que crezcan las importaciones de materiales para la minería, combustibles y productos industriales.
En distribución, el desafío clave es ofrecer servicios diferenciados mediante la integración de la logística. ■
SUMARIO
MATERIAS PRIMAS SON LA PRIORIDAD
In your opinion, what would be the greatest areas of growth for the petrochemical industry, considering the reality of the region, its pros and cons?That is too broad a question. I believe that the region will provide opportunities in the chemical industry to replace many current products with products that contribute more to sustainability, based on derivatives of renewable products such as sugar cane and others.
There will also be increasing opportunities in using new sources of energy such as solar, geothermal or wind. ■
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November 2017 | APLA Supplement | 21www.icis.com
APLA FEEDSTOCKS
LEELA LANDRESS PEREZ HOUSTON
Political reforms in Mexico, Brazil and Argentina are freeing up the energy sector in Latin America, which can only be good for the petrochemical industry
Reforms offer new feedstock promise
The winds of political and economic upheaval are blowing through Latin America. Policy shifts in Argentina, Brazil and Mexico will likely change
the energy situation in the region over the next few years.
Large natural-gas shale reserves in Argen-tina, oil fields in Brazil and offshore plays in Mexico will become more attractive to foreign and domestic energy investors because of regulatory changes currently underway as all three countries move to increase their hydrocarbon production.
Mexico’s oil production has decreased steadily since 2005 as a result of natural pro-duction declines from the Cantarell field and other large offshore fields. In August 2014, in an effort to address the decline, the Mexican government enacted constitutional and legal reforms that ended the more than 75-year monopoly of Petroleós Mexicanos (Pemex), the state-owned oil company.
President Enrique Pena Nieto also embarked on a series of institutional reforms to enhance economic growth and competitive-ness. The legislation targeted the energy sector and set out a process of making it more com-petitive. It also allowed private investment in both the electricity and petroleum sectors.
Mexico has since sought to attract domestic and foreign investment into the energy sector. But the plunge in oil prices that started in August 2014 and continued until January 2016 has undermined the reforms and ham-pered investment and growth.
However, 12 July 2017 marked one of the most successful days for the Mexican oil industry when two reservoirs with an esti-mated 1.4-2.0bn barrels of oil in one and 1.0bn in another were announced in the southern Gulf of Mexico.
The private companies that found the res-ervoirs did not anticipate sharing the output with the state oil company, but it looks like they might have to. One of the oil deposits spreads beyond the boundary of the com-
pany’s exploration bloc and into a neigh-bouring one owned by Pemex.
Now the Mexican government is scrambling to put together a rulebook for how this find, and subsequent ones, get distributed. It could shape the future of the whole energy plan.
Currently, Mexican oil production remains below necessary levels. Pemex reported late September that August crude production dipped by 10% compared to the same month last year, and marking two consecutive months with oil output coming in below 2m bbls/day.
Pemex’s crude production peaked at 3.4m bbls/day in 2004 but has been declining ever since, according to the US Energy Information Administration (EIA). It is now 32% below this peak. Notably, crude oil production in 2015 was at its lowest level since 1981 and has con-
tinued to decline in 2016, the EIA said.Falling oil production has caused numer-
ous problems for Mexico, most notably the need to import large volumes of refined prod-ucts and fuel. It has also led to restrictions in the ethane available to the Pemex and Braskem IDESA ethylene crackers, hampering Mexico’s petrochemical sector.
Fractionators extract ethane and other products from a mixed stream of natural gas liquids (NGLs). All of Mexico’s crackers rely on ethane as their main feedstock. In March 2016, Pemex started feeding ethane into the Braskem IDESA cracker at its Ethylene XXI project in Coatzacoalcos, Mexico, under a 20-year contract. Pemex has honoured the terms of that contract, even though it has had to re-strict ethane supplies to its own crackers.
Exploitation of the Vaca Muerta shale oil reserves in Argentina is now progressing: technicians set up an oil drilling rig in Loma Campana for YPF/Chevron
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www.icis.com22 | APLA Supplement | November 2017
APLA FEEDSTOCKS
Los cambios de política en Argentina, Brasil y México probablemente cambiarán la industria de energía en la región en los próximos años.
Las grandes reservas de esquisto bituminoso en Argentina, los yacimientos de petróleo en Brasil y el petróleo en la costa afuera de México se volverán más atractivas para los inversionistas nacionales y extran-jeros debido a los cambios regulatorios actual-mente en curso.
Los tres países están aumentando su pro-ducción de hidrocarburos. México espera re-vertir la disminución de su producción de petróleo con nuevos hallazgos en la costa afuera por parte de empresas privadas.
Y Argentina sigue con la explotación de sus enormes reservas de petróleo de esquisto.
En Brasil, se están levantando las restric-ciones a la propiedad estatal de los activos petroleros y se alienta la inversión privada. ■
SUMARIO
LAS REFORMAS OFRECEN NUEVA PROMESA DE MATERIAS PRIMAS
The shortages have affected the Mexican polyethylene (PE) market. Run rates at the new Ethylene XXI complex fell in the second quarter of the year, in part because of prob-lems securing ethane from Pemex, the CEO of Braskem said in August.
The sweeping energy reforms have turned Mexico into one of the world’s most attractive offshore drilling prospects, but on the flip-side, the nation’s ageing refineries are seeing little investment interest. The daunting task of upgrading the ageing refineries dating back to the 1970s, paired with a large union-con-trolled workforce, has caused concern for potential investors.
Despite some snags in Mexico’s energy reform, the outlook is positive for Mexico’s oil industry and optimism about Mexico’s hydrocarbon sector continues. The EIA increased its prediction for crude produc-tion to rise from 2.1m bbls/day in 2014 to 3.7m bbls/day by 2040.
BRAZIL CHANGES ABOUNDThe Brazilian government is also trying to attract foreign companies to develop its com-plex and potentially lucrative pre-salt oil fields. Recent talk of possibly privatising state-owned oil giant Petroleo Brasileiro (Petrobras) has fuelled talk of investment in
Brazil offered the world’s oil companies a chance to bid for drilling rights in its offshore blocs in late September this year. The auction, the first of nine, was considered a test of investor confidence in President Michel Temer’s free-market policies.
The auction follows a series of reforms start-ed last year under Temer to try and spur invest-ment, dropping the designation of Petrobras as sole operator and lowering requirements for Brazilian content in machinery and construc-tion for exploration and production. The gov-ernment also guaranteed that those winning exploration rights would own the oil and nat-ural gas that is produced, minus royalties, taxes and a government share of profits.
This year, Temer’s government has approved a regulatory change lifting the requirement that state-owned energy firm Petrobras act as the primary operator in every pre-salt oil field. Now, Petrobras will no long-er have to meet a minimum participation requirement of 30%.
Oil production is important for Brazil’s petrochemical industry because the country relies overwhelmingly on naphtha as a feed-stock for its crackers. Brazil’s refineries pro-duce naphtha when they process oil.
Part of the reason for the disjunction between oil and refined-products output is the decline in capital expenditures by Petrobras. As part of the cuts in capital spending, Petrobras had post-poned or cancelled several refinery projects, notably the two proposed trains at the Comperj
site in Rio de Janeiro state, although it is now in talks with the Chinese to progress this project.
Petrobras cut its planned spending by 25% in September 2016 under a five-year strategic plan which aims to reduce its massive debt burden and improve cash generation. The plan called for investments of $74.1bn from 2017-2021, or an average $14.8bn a year, com-pared with $98.4bn in a previous 2015-2019
plan announced in January.But recent news regarding the possible
future of Petrobras and the country’s refining and energy sector could mean uncertainty and changes to come. In early October, when Fernando Coelho Filho, Brazil’s minister for mines and energy, was asked on television about privatising Petrobras his response caused major market chatter. The minister said he expects the further privatisation of Petrobras in the longer term.
ARGENTINA UNDERDEVELOPEDAn historically unfavourable business climate has led to a number of setbacks in Argentina’s energy sector over the last several years, re-sulting in a decline in production, even while energy demand has continued to increase.
Ultimately, this has led to energy supply problems that restrict economic growth as well as an inability to attract investments that experts say are critical for economic recovery.
Since taking office in December 2015 business-friendly President Mauricio Mac-ri’s government has prioritised investment in the energy sector to try to reverse a costly energy deficit.
One of the world’s largest shale gas forma-tions, roughly the size of Belgium, Argentina’s
Vaca Muerta has remained mostly undevel-oped due to high production costs and lack of labour flexibility. Macri reached a deal this year with unions and oil companies to sup-port energy development and so far this year, ExxonMobil, BP unit Pan American Energy, Wintershall, Total and Statoil have an-nounced large investments in Vaca Muerta.
According to a new Vaca Muerta Develop-ment Study by Wood Mackenzie, new pilot and development agreements in the Vaca Muerta have been announced with increased frequency since January 2017, demonstrating a significant uptick in interest in the play, especially in the gas window.
While still in the early days of develop-ment, Vaca Muerta’s well performance is already on par with some US shale plays that have thousands of producing wells. Financial commitments since January 2017 total over $3.5bn, marking an inflection point in the play’s ramp up, according to the report.
Elena Nikolova, Latin America upstream oil and gas research analyst for Wood Mac-kenzie, asserts that the government is taking steps to address several above ground con-cerns. “The labour union and price agree-ments finalised earlier in the year have pro-vided enough flexibility and pricing predictability to encourage operators to com-mit to new pilots,” she says.
The study also examines how Vaca Muerta can compete with the best US shale plays. Findings show that as Argentinian operators continue to move up the learning curve, strong well performance and lower costs can unlock scale comparable to that of US shale plays.
However, political stability and the out-come of the mid-term elections in October could impede continued economic and energy reform. Argentina’s mid-term elec-tions on 22 October will decide half the seats in the Chamber of Deputies and a third of the seats in the Senate. Billions of dollars in potential investment and the future of Latin America’s third largest economy hang in the balance. ■
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ELENA NIKOLOVALatin America upstream oil and gas research analyst, Wood Mackenzie
“The labour union and price agreements... have provided enough flexibility and pricing predictability to encourage operators to commit”
November 2017 | APLA Supplement | 23www.icis.com
APLA CAPITAL INVESTMENT
Argentina’s President Mauricio Macri visits Dow Chemical workers in Bahia Blanca following the company’s announcement it will invest $210m in the petrochemical complex
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SIMON WEST MEDELLIN, COLOMBIA
The investment climate in Latin America is poor, but there are some green shoots emerging among the woes
Project pipeline will expand again
With low oil prices that have frus-trated spending plans and slug-gish economies that have damp-ened demand, the consensus is
that the Latin American petrochemical indus-try is unlikely to lure anytime soon the invest-ment it so desperately needs.
US producers, benefitting from their shale gas boom, will step up polymer exports in the coming months, putting further pressure on Latin American companies to compete.
However, amid a rise in upstream develop-ment, modest signs of economic recovery – growth across the whole region next year is expected to reach 1.9%, according to the IMF – and relative political stability, there are some grounds for optimism.
One country that could see significant ex-pansion is Argentina. Since taking office
almost two years ago, President Mauricio Macri’s business-friendly coalition has intro-duced a number of reforms aimed at stabilis-ing Argentina’s economy.
Dismantling restrictive foreign exchange and import controls, reducing taxes on exports and removing barriers that allow state oil company YPF to form joint ven-tures are all measures that are kindling investor interest.
Meanwhile, investments in Argentina’s vast Vaca Muerta shale deposits, which the government said could reach up to $15bn in 2018, are providing reliable feedstock sup-plies to expand downstream production capacity. YPF has already teamed up with a number of producers to develop the project, including Chevron, Petronas and Shell.
“The natural gas potential is quickly turn-ing into a reality,” says Jorge Buhler-Vidal, director of Polyolefins Consulting. “Petro-
chemical investments are sure to follow.”Dow Chemical, which has its own 50% stake
in Vaca Muerta’s El Orejano block, said in Octo-ber it would invest $210m to improve the relia-bility of ethylene and polyethylene (PE) pro-duction at its Bahia Blanca industrial complex in Buenos Aires province, although the com-pany was unwilling to specify which grades of PE would benefit from the outlay or the degree to which capacities would be increased.
Dow has been mulling a major ethylene and PE expansion at Bahia Blanca since 2014. The complex houses two ethane-fed crackers and four PE plants with a com-bined capacity of about 650,000 tonnes/year, according to ICIS data.
CRUDE OIL DECLINE IN MEXICOIn Mexico, declining crude production is creating supply problems for petrochemical companies, who depend on state oil company Pemex for natural gas liquid feedstock. Short-ages arose when Pemex started delivering ethane to Ethylene XXI, a $5.2bn joint venture between Braskem and Mexico’s Grupo IDESA.
To meet its contractual supply agreement with Braskem IDESA, Pemex has had to reduce output at its crackers, limiting supply to down-stream units. Mexico’s Chemical Industry Asso-ciation (ANIQ) described the feedstock situation as critical, and warned that shortages would deter future investment in infrastructure.
A stable democratic government, rising economic growth and a gradual recovery in oil prices should make Colombia a hand-some destination for investors. The country, which last year inked a peace deal with the insurgency group Farc to end over five dec-ades of civil conflict, is number 53 on the World Bank Group’s “ease of doing business index 2017”, the highest ranking for any South American nation.
However, state-led energy producer Eco-petrol’s shelved expansion project at Barran-cabermeja, Colombia’s largest refinery and supplier of 70% of the petrochemicals circu-lating in the domestic market, is unlikely to be revived unless the industry begins drilling for unconventional oil and gas. Authorities have warned that current domestic crude produc-tion could be insufficient to meet refinery demand by as early as 2021. ❯❯
www.icis.com24 | APLA Supplement | November 2017
APLA CAPITAL INVESTMENT
❯❯ Camilo Silva, founder of Colombian fi-nancial advisory firm Valora Inversiones, says the government’s support for fracking is piv-otal. “New companies would undoubtedly arrive. With higher capacities, the overhaul of Barrancabermeja could be restarted.”
Meanwhile, Finance Minister Mauricio Cardenas has ended almost two years of speculation surrounding Ecopetrol’s poly-propylene (PP) and PE subsidiary Esenttia (formerly Propilco), which had been up for sale as part of a divestment plan to cut costs and focus on core activities.
Cardenas told reporters in October that off-loading Esenttia was now unnecessary, given the improving oil price environment. An Eco-petrol spokesperson confirmed the unit was no longer on the market.
PERU PROJECT SETBACKPeru’s petrochemical ambitions suffered a set-back in January after the government rescinded a contract with a consortium controlled by scandal-hit Brazilian constructor Odebrecht to build the Gasoducto Sur Peruano (GSP), a 1,100km pipeline that would transport natural gas from the Camisea gas fields in central Peru to the site of potential petrochemical plants along the country’s Pacific coast. Peru’s energy and mines ministry said a new contract would be inked in early 2018.
As a sweetener for potential backers, the ministry announced in September it was working on a new Petrochemicals Promotions Act aimed at “creating the conditions to attract investment”. The legislation, which would make it easier for companies to invest in methane and ethane-based industrial pro-jects, will be unveiled at the end of the year, the ministry said.
In addition to feedstock constraints, poten-tial investors will also look to the stability (or lack thereof) of the economic, political and regulatory environment.
Brazil, the region’s largest economy, is start-ing to recover from its deepest recession in 100 years, with predicted growth of around 1.5% in 2018. Still, with domestic demand for plas-
tics falling to levels not seen since 2011-2012, the likelihood of expenditure on new capaci-ties in the short to mid-term is remote.
Braskem, Brazil’s sole producer of PE and PP, has yet to decide if it will press ahead with a project to near double the capacity of its 520,000 tonne/year Duque de Caxias gas cracker in Rio de Janeiro. Expanding the cracker, one of four owned by Braskem, de-pends on securing enough ethane feedstock from Brazil’s offshore pre-salt production, a spokesperson said.
The company is also building a new termi-nal and adapting its Camacari cracker in northeast Bahia state in a bid to diversify feedstock for its operations. The retrofit, which will allow Camacari, currently a 100% naphtha-based facility, to use up to 15% ethane feedstock, is expected to be completed this year.
In northeast Ceara state, negotiations contin-ue between the local government and execu-tives at China’s Qingdao Xinyutian Chemical to build a 300,000 bbl/day refinery at the Pecem Industrial and Port Complex close to Fortaleza. A memorandum of understanding was signed between the two parties last November.
“The usual modus operandi of these com-panies is not to invest in greenfield projects but in already-operational assets, so it remains to be seen whether this project will come to fruition,” said Adriano Pires, director of Brazil’s Centre for Infrastructure (CBIE).
Meanwhile, the political situation in Brazil remains tense, with a billion-dollar bribes-for-contracts scandal throwing the country’s entire political class into tumult.
The scandal has forced state controlled Petrobras to cancel a number of refinery and fertilizer projects, although the Comperj initi-ative – minus petrochemical operations – remains under consideration, according to the company’s latest five-year plan.
According to Joao Augusto de Castro Neves, Brazil analyst at US-based consultants Eurasia Group, concerns that next year’s presidential elections will jeopardise economic recovery and scare off potential investors may be pre-
mature, despite the very real possibility of a left or right-wing populist getting into power.
“The odds of a reversal of the policies and reforms that have begun to be implemented over the last year is unlikely to happen, irre-spective of who wins,” he says.
VENEZUELA AND BOLIVIAIn Venezuela, state oil giant PDVSA is evaluat-ing proposals to invest in its 940,000 bbl/day Paraguana Refining Centre in northwest Falcon state, according to a tweet sent out by CEO Nelson Martinez in October. Paraguana, one of the largest refinery complexes in the world, meets 71% of Venezuela’s domestic fuel demand. PDVSA was unable to provide fur-ther details about the plans.
And to Bolivia, whose goal to become a regional petrochemical powerhouse took a major step forward in September following the inauguration of state-run YPFB’s 2,100 tonne/day Bulo Bulo urea plant in central Cochabamba state.
The hydrocarbons ministry revealed that the plant would provide feedstock to produce nitrogen phosphorus potassium (NPK), urea ammonium nitrate (UAN) and diammonium phosphate (DAP), although no timeline was provided for the construction of new units.
Until now, Bolivia’s industrialisation drive has been state-financed. However, plans for an ethylene and 650,000 tonne/year PE plant in Tarija department may include private sector participation, according to the government.
Still, the YPFB-led project has endured fre-quent delays, which may deter bidders, says Buhler-Vidal. “Potential outside investors would need to see a clear and verifiable busi-ness case, within a simple and extremely transparent selection process.”
A proposed propylene and 250,000 tonne/year PP plant, also in Tarija, has run into prob-lems after YPFB annulled a construction con-tract in June with Italy’s Tecnimont amid un-specified irregularities in the bidding process. At $2.2bn, the plant would constitute Boliv-ia’s largest-ever public investment in an in-dustrial project.
Buhler-Vidal warns that time is running out to get these plants built. “This could happen when Argentina and Brazil have less of a need for Bolivian natural gas, and they return to a road of steady petrochemical investments. ■
JORG BUHLER-VIDAL President, Polyolefins Consulting
“The natural gas potential is quickly turning into a reality... Petrochemical investments are sure to follow”
Con precios del petróleo bajos que han frustrado los planes de gasto, y las economías débiles que han desacelerado la demanda, el consenso es que es poco probable que la industria petroquímica latinoamericana atraiga en el corto plazo la inversión que tanto necesita.
Los productores estadounidenses, que se benefician de su auge del gas de esquisto, acelerarán las exportaciones de polímeros en
los próximos meses, lo que presionará aún más a las empresas latinoamericanas.
Sin embargo, en medio de un aumento en el desarrollo inicial, se espera que los modestos signos de recuperación económica – el crecimiento en toda la región el próximo año llegará a 1.9%, según el FMI – y la estabilidad política relativa, hay razón para el optimismo.
Un país que podría ver una expansión significativa es Argentina. ■
SUMARIO
LAS OPORTUNIDADES PARA PROYECTOS SE EXPANDIRÁN NUEVAMENTE
November 2017 | APLA Supplement | 25www.icis.com
APLA MARKET REVIEW
Hurricane Harvey hit Texas on 25 August,
shutting polymer plants and disrupting markets
across the Americas
Get
ty Im
ages
GEORGE MARTIN AND RON COIFMAN HOUSTON
The plant outages in the US Gulf Coast region as a result of Hurricane Harvey have had a significant impact on polymer pricing across the Americas
Harvey headache lingers on
T he second half of 2017 veered off course in late August to early Sep-tember under the influence of Hurri-cane Harvey, which stopped many
production plants in the US Gulf Coast and tightened monomer and polymer markets.
Before the arrival of Harvey, ethylene and polyethylene (PE) markets were languishing under the prospects of a large-scale increase in US production expected to take place in the second half of this year.
Despite some obvious delays, those pros-pects have not changed: the new crackers and PE plants will be coming later this year and further capacity additions loom for 2018.
What changed was the availability of mate-rial while we waited for those new capacities to come online and this, in turn, propelled prices to unexpected high levels.
Starting with feedstock ethylene, spot pric-es started rising in mid-July and continued rising through August and September.
This rise is significant only because Harvey affected benchmark US markets, followed in Latin America as the main indicator for pric-ing downstream chemicals.
❯❯
The impact was swift. August US Gulf PE contracts were rollover bound, but after Harvey, the contracts settled with a gain of 3 cents/lb ($66/tonne).
In addition, producers in Latin America separately sought a 4 cents/lb ($88/tonne) price increase for September and $70/tonne for October. Some of these increases may depend on the particular economic circum-stances of each country.
Sellers in net importing countries such as
Chile, Peru, Colombia or Ecuador raised pric-es immediately to ensure replenishment of their inventories. The same was true for the Caribbean and Central America.
Braskem in Brazil and Dow Chemical in Argentina accommodated their policies to existing demand, but pressed nonetheless for price increases.
Market players knew this would be a tempo-rary situation, but estimating its duration has been harder than expected. At the time of
$/tonne
LATIN AMERICAN LOW-DENSITY POLYETHYLENE REGIONAL AVERAGE PRICE
1,200
1,400
1,600
1,800
2,000
2,200
2,400
Aug'17Aug'16Aug'15Aug'14Aug'13Aug'12
SOURCE: ICIS
APLA MARKET REVIEW
www.icis.com26 | APLA Supplement | November 2017
❯❯ writing (mid-October), prices were still rising. In time, supply and prices will return to normal in the US Gulf and added capacity from new plants will pressure prices down-wards again.
Harvey demonstrated that Latin America is ill-prepared to cope with these inherited price spikes. The region will continue to be exposed to these spikes for as long as demand outstrips regional supply. Offers of material from other regions were not available when needed the most, and the long lead-time further discour-aged buyers to pursue deep-sea volumes.
POLYPROPYLENEPolypropylene (PP) prices experienced a sim-ilar situation, with important variations. Although production of feedstock propylene will grow considerably with the addition of three propane dehydrogenation (PDH) plants starting before the end of the year, PP produc-tion capacity will remain steady.
The new propylene production will feed idle PP capacity and will be partially destined to production of other propylene derivatives such as propylene oxide or solvents.
Propylene prices have gained since late July. Spot prices continued climbing in August and September, influencing the contract price.
PP prices are often set with a monomer-plus formula. The monomer increase passes to the polymer almost automatically, and from time to time, producers seek to improve margins with hikes larger than those for the monomer.
PP prices went up throughout Latin Ameri-ca with Harvey, but not as much as PE prices did, considering that PP deficits in the region are smaller. The increases were absorbed more easily in countries protected by high import tariffs, such as Argentina and Brazil.
At the close of this edition, producers were still pushing PP price increases for October.
POLYSTYRENEPolystyrene (PS) markets were not immune to the impact of Hurricane Harvey on feedstock
supply. Styrene plant closures in the US Gulf coast tightened the market and prices soared for the entire downstream chain. Prices increased by $66/tonne in September and producers sought a similar amount for October. Price increases were steeper in Brazil, where one of two producers stopped production when its styrene supply from the US Gulf dried up.
Increases were steep also in Argentina. Without any specific shortages, the main pro-ducer in that country increased prices every month after Harvey. In October alone, the local producer sought a 7% price increase. Colombia is having a 10% price increase in October and Brazilian producers are trying to repeat 10% September hikes.
Understanding the temporary nature of Har-vey increases, many buyers held-off on purchas-es while waiting for lower prices. However, the supply shortages have been longer than initially expected, meaning that many will have to buy at high prices if their inventories run out.
After the present spike, prices should stabi-lise. There is no new PS production entering the market and PS demand grows at a rate of less than 1%/year.
PVC Latin America polyvinyl chloride (PVC) mar-kets faced upward pricing pressure on tighter supply and logistic disruptions caused by Hurricane Harvey in the US Gulf coast.
However, the adverse conditions from Hurricane Harvey eased as plants restarted and transportation improved.
Petrochemicals markets in Latin America generally take cues from US and Asia markets. Although some PVC prices rose recently in Latin America, the increases were moderate and did not fully reflect $100/tonne increases proposed in the US that predated Harvey.
PVC prices in Brazil, the major economy in South America, remained steady through 2017, even as prices in Asia, particularly Taiwan’s Formosa Plastics Corp (FPC) month-ly benchmark announcements for Asia, fluc-tuated throughout the year. As an example, FPC’s PVC prices in Asia for September rose by $60/tonne from August, but August and September prices in Brazil remained unchanged. In Brazil, producers are propos-ing price increases for October.
Resin sellers in Brazil kept prices stable this year to stimulate demand after the coun-try’s recession in 2016. Contrary to expecta-tions, the Brazilian economy did not recover significantly in early 2017 despite some timid hints of improvement. Industry partic-ipants noted demand strengthening only at the start of September.
In Argentina, PVC prices rose in early Sep-tember, and there are hike initiatives for Octo-ber. However, market conditions in Argentina are not far from those of Brazil, amid a gradual recovery from the country’s recession in 2016. Argentina’s significant currency devaluation after President Mauricio Macri’s election in late 2015 reduced the population’s purchas-ing power and, as a result, consumer spend-ing declined. As Argentina eased restrictions on imports, domestic resin prices dropped.
$/tonne
LATIN AMERICAN INJECTION MOULDING POLYPROPYLENE REGIONAL AVERAGE PRICE
1,300
1,500
1,700
1,900
2,100
2,300
2,500
Aug'17Aug'16Aug'15Aug'14Aug'13Aug'12
SOURCE: ICIS
$/tonne
PVC Pipe DEL Argentina Assessment Domestic Full Market Range (Mid)PVC Pipe Grade DEL Brazil Assessment Domestic Full Market Range (Mid)PVC Pipe Grade DEL Mexico Assessment Domestic Full Market Range (Mid)
LATIN AMERICAN PIPE-GRADE PVC PRICE TRENDS
800
850
900
950
1,0001,050
1,100
1,150
1,200
1,250
1,300
1,350
Sep'17May'17Jan'17Sep'16May'16Jan'16
SOURCE: ICIS
APLA MARKET REVIEW
November 2017 | APLA Supplement | 27www.icis.com
As in Brazil, industry participants are noting a gradual recovery after a slow start to 2017.
Seasonality also tends to drive PVC demand throughout Latin America. Market participants expect PVC business to weaken in the fourth quarter in North America, in-cluding Mexico, as construction activity slows with cold weather. On the other hand, building, along with PVC activity, is expected to pick up in South America with rising temperatures.
In Venezuela, commodity markets plunged, as the population focuses on obtaining food, medicines and basic household items while ignoring non-essential products, including downstream PVC finished goods.
PET As the Harvey recovery progresses, poly- ethylene terephthalate (PET) market partici-pants in Latin America are also closely fol-lowing developments with PET major Mossi & Ghisolfi (M&G) and its production plants in the Americas.
Industry participants in Latin America and other regions are monitoring the potential
$/tonne
LATIN AMERICAN GENERAL PURPOSE POLYSTYRENE REGIONAL AVERAGE PRICE
1,400
1,600
1,800
2,000
2,200
2,400
2,600
Aug'17Aug'16Aug'15Aug'14Aug'13Aug'12
SOURCE: ICIS
effects of supply issues at Italy-based M&G. Mexican firm Alpek announced that it has
stopped supplying feedstock purified tereph-thalic acid (PTA) to M&G’s PET plants in Altamira, Mexico, and Suape, Brazil, because of past-due payments totalling $49m, approx-imately 40% of its total balance.
Additionally, M&G will be ceasing produc-tion at its PET plant in Mason County, West
Virginia, county officials told ICIS on 29 September. Mason County commissioner Rick Handly said the county received a letter in the previous week that M&G would be forced to cease production at the plant due to lack of funding.
M&G’s recent financial difficulties have also led the company to reduce construction activity at its new integrated PET/PTA plant in Corpus Christi, Texas. That plant would have a capacity of 1.1m tonnes/year of PET and 1.3m tonnes/year of PTA.
Potential solutions to M&G’s issues, along with the consequences on the PET market, remain unclear. However, PET availability in Latin America has already tightened, and is expected to continue tightening until a plan on the operation of M&G’s production plants emerges. This has already caused PET prices to rise in Latin America.
The current trend reflects a substantial change from the outlook projected until recently for the PET market. Sources had been complaining of soft demand amid an over- supplied market, along with global PET over-capacity projected several years into the future.
Although prices for resin and precursors had risen in Asia earlier in 2017 prior to M&G’s problems, PET prices around the world were perceived to have stagnated and had remained soft for an extended period.
Alternating between South America and North America, cyclical consumption periods for bottled drinks, preforms and PET resin gave rise to only minor fluctuations in demand. In early 2017, sources in Latin America said that the peak bottle-drinking season had not felt dif-ferent from the slower season.
However, by September, local sources in Brazil said that demand for bottled drinks and for PET in Brazil has increased significantly with the start of the hot weather in late 2017. Summer is usually the busy season for PET demand in Brazil, but until last year, continued oversupply and a colder-than- normal summer put downward pressure on the market. ■
Las plantas de producción en la costa del Golfo de Estados Unidos – y como resultado, los mercados de monómeros y polímeros en las América – se vieron muy afectados por el huracán Harvey en agosto.
Antes de la llegada de Harvey, los mercados de etileno y polietileno estaban languideciendo ante la perspectiva de un aumento a gran escala de la producción estadounidense que se esperaba en el segundo semestre de este año. A pesar de los retrasos, esas perspectivas no han cambiado.
Lo que ha cambiado es la disponibilidad actual de material.
Esto, a su vez, ha impulsado los precios a niveles elevados inesperados. Comenzando con el etileno de alimentación, los precios spot comenzaron a aumentar a mediados de julio y continuaron aumentando durante agosto y septiembre.
Este aumento es significativo, porque para América Latina, los precios de los EEUU son los indicadores principales de los precios de los productos químicos posteriores. ■
SUMARIO
LAS PROBLEMAS DE HARVEY PERSISTEN
$/tonne
PET Bottle Grade DEL Argentina Assessment Domestic Full Market Range (Mid)PET Bottle Grade DEL Brazil Assessment Domestic Full Market Range (Mid)PET Bottle Grade DEL Mexico Assessment Domestic Full Market Range (Mid)
LATIN AMERICAN BOTTLE-GRADE PET PRICE TRENDS
1,0001,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
Sep'17May'17Jan'17Sep'16May'16Jan'16
SOURCE: ICIS
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