Study Forecasts Increased Petrochemical Investment, Production in Mexico
The recent opening of the Mexican upstream energy industry, combined with access to abundant U.S. natural gas supplies from Texas, is driving significant energy infrastructure investment on both sides of the U.S./Mexico border, according to new research study compiled by global industry consultancy IHS.
That infrastructure, along with planned access to more competitively priced electricity promised by the reforms “is breathing potential for new life into the Mexican petrochemical industry, which has long relied on imports to meet its domestic needs,” the study said.
“After 15 years of stagnation, with no new petrochemical production capacity installed in the country and several plant closures, the Mexican petrochemical industry has been overdue for investment and has had to rely heavily on raw material imports to meet its need for local production of many chemicals,” said Dr. Rina Quijada, senior director – Latin America, at the Englewood, Colorado-based consultancy.
In 2014, Mexico imported nearly $24.5 billion in chemicals and petrochemicals to meet its domestic needs, according to ANIQ, Mexico’s petrochemical industry association.
For some chemical value chains, such as polyethylene (PE), the import gap is more dramatic. Last year, for example, Mexico had to import approximately 1.5 million tons of this widely used plastic, or about 75 percent of the country’s polyethylene demand, according to ANIQ figures.
The new production capacity is expected to start up by the end of 2015, reducing import demand for PE in 2016. That ethylene/polyethylene project, which is a joint venture effort between Brazilian-based Braskem and Mexican-based IDESA, is located in the state of Veracruz, and will use ethane as feedstock.
“This new site should be highly competitive” said Quijada. “Mexico needs more of this type investment, and we at IHS Chemical anticipate growth in production capacity of petrochemicals once additional feedstock is available in the next five to eight years.”
“For Mexico, that gas means access to abundant, competitively priced feedstock for petrochemical production. Just as important, it can be used for production of reliable, cost-competitive electricity, which is absolutely essential to grow the entire manufacturing base in the country and to making Mexican petrochemical production cost competitive.”
Mexican energy reform is currently driving billions of dollars in planned midstream investment, as private and state-owned companies seek access to abundant natural gas production available from key U.S. energy plays, including the Texas powerhouse known as the Eagle Ford shale, which extends from South Texas into Mexico.
For example, the Los Ramones (Phase I) pipeline, which came online last December, added 2.1 billion cubic feet (BCF) of natural gas per day of import capacity from Texas. Additional projects totaling 3.45 BCF per day of cross-border natural gas capacity are under development, and once online, will significantly increase gas availability in Mexico.
“These pipeline investments are needed to connect the regions that don’t currently have access to natural gas,” said David Crisostomo, a natural gas and power analyst at IHS. “As a result, fuel-oil generation is still being used in regions such as the northwest, which is more costly than gas. This means Mexican consumers and manufacturers pay more for electricity when compared to their U.S. neighbors.”
Access to more affordable power “will not only enable the petrochemical industry to grow and flourish, but also many other industries, such as automotive and consumer goods production.” Crisostomo added. “The process will take some time, but the impacts for the Mexican petrochemical industry, the manufacturing base, and the economy will be positive, and the power sector is pivotal to this success.”