“We work very closely with Pemex and are very confident in their ability.”
Braskem Idesa (Etileno XXI Project) has performed well since becoming operational in April 2016. What are the reasons for this?
We are very happy with the results so far and we will close the year with almost 43% market share of high density and low density polyethylene in Mexico. The project’s success is due to the strong support of its two sponsors, Braskem and Idesa. Both believed from the start it was the right project with the right fundamentals behind it, such as access to competitive feedstock and a large market. Braskem is a global Brazilian petrochemical company which is very active on the global scene and Idesa is a very strong petrochemical company in Mexico.
This is important because the project is the most significant project ever in Latin America and even in North America there has not been a project like it for twenty or thirty years. This meant there were a lot of challenges such as local financing and technical issues when we started. Furthermore, Etileno XXI has succeeded because it has been an important initiative of Mexico as a whole. In the late 2000s the government showed a firm commitment to develop the petrochemical industry with the private sector and to reduce the trade deficit in petrochemicals. The base of the project is an ethane contract awarded to Braskem and Idesa in an auction process by Pemex. Mexico has demonstrated to the international community it can handle a project of this size.
How cutting edge is the technology used in Etileno XXI?
Our intention since the beginning has been to use the most up-to-date technologies. We used Technip’s technology for the cracker and Inneos and LyondellBasell’s for the polyethylene plants. These are very well proven but also state-of-the-art. The construction phase was a tremendous challenge because of the high volumes of materials involved, such as concrete, steel structures, piping, equipment and so on. Technically speaking, the most critical aspect of the construction phase was the logistics in terms of transporting equipment from countries all around the world to Coatzacoalcos where the project is based. The use of local companies and labor is testament to the capabilities present in Mexico.
Run rates fell slightly in Q3 and Q4 2017 partly due to supply issues with Pemex. How confident are you this issue will not occur again?
In the oil and gas market it is important to maintain a good level of investment to sustain production rates. This will therefore be important for Pemex going forward. We work very closely with Pemex and are very confident in their ability. Mexico is going through an important transition from a monopoly in its oil and gas market to an opening up of the market to private companies. The energy reform is not an easy task but it has huge potential. The challenge is to maintain levels of investment whilst opening up the market. Our intention is to run at 100% capacity. So far market penetration and the market’s reaction has been very good both domestically and internationally as we our exporting to more than 40 countries.
Where has demand been particularly strong internationally and does Braskem Idesa still plan to sell the majority of its products domestically?
When we first began production our focus was on volume and exporting some volume to Asia but gradually we are changing this strategy to focus on North America, Europe and Central America, taking advantage of our synergies with Braskem. We are very happy with the speed of our market penetration and the relationships we have developed with our clients. Around 65% of our production is dedicated to the domestic market which is a great result. Our intention is to gradually increase this level so as to maintain the quality of our service to clients and our relevance in the country.
There is much volatility in the market so we have to carefully manage where we sell to. We are focused on our client´s processes and competitiveness and any other external factors are out of our control. We want to be close to clients and help make the whole Mexican petrochemical value chain more competitive.
The United States will add 12 million mt of ethylene capacity by 2022. How will Braskem Idesa compete against such competition?
The global polyethylene market is vast. Global demand will continue to grow, including from China, so there is space for new capacity. Also, complex projects due to come on stream are facing delays, therefore new capacity will be spread out. These two factors mean the impact will not be so great. Nevertheless, we in Mexico have to be ready by being as competitive as possible in production, quality, transportation, logistics and developing products and solutions together with our clients. This will help us mitigate any external events.
How confident are you about Mexico’s economy, especially in light of NAFTA renegotiations?
Being in the polyethylene business, we serve many different sectors. When we talk with our clients we see a positive outlook. Of course there are some difficulties but the main fundamentals are good. The Mexican economy is very strong and together with Brazil it is the most important in Latin America. It will continue to grow consistently. ANIQ is leading the negotiations for the chemical and petrochemical sector and is progressing in a good direction. Unlike other sectors, in the chemical industries there is a common understanding among the three countries. The market potential is tremendous in Mexico due to the likely effects of the energy reforms on feedstock and because Mexico is very well located to send products to key markets globally.