Mexico


Exports thrive but domestic issues surrounding Pemex remain

Image courtesy of Braskem Idesa

The Mexico economy fell by 8.2% in 2020, its sharpest annual contraction since the Great Depression in 1932. However, the rebound of Latin America’s second biggest economy has gained steam in 2021, driven first by exports to a booming USA, and bolstered by robust domestic demand. According to figures from the national statistics institute, in Q2 2021 Mexican GDP rose 19.6% compared to the same period in 2020, with analysts in a Citibanamex survey predicting over 6% for the year. “In 2021 Mexico’s chemical sector is experiencing a significant recovery, especially due to extreme growth in the US, which is our main export market,” commented Miguel Benedetto, director general of Mexico’s Chemical Association, ANIQ.

Benedetto pointed to adhesives and sealants for the packaging industry, fertilizers and construction as standout sectors, noting that although 2019 production levels had not yet been reached, ANIQ expects they will be by Q1 2022.

While Mexico’s export market thrives, the issue of a lack of domestic feedstock from Pemex has persisted and stands in the way of the country’s chemical sector reaching its full potential. The mid to long-term solution to a structural issue that has caused tension between the AMLO government and the private sector is for Pemex to ramp up production.

In the meantime, ANIQ has highlighted that Pemex is not using all of its infrastructure, proposing that Pemex’s facilities could be used to import ethane, propylene and ammonia. “This would benefit everyone as Pemex would receive payment for the use of its facilities, the availability of raw material within the country would increase, which will contribute to the development of the industry and the government will receive more taxes,” said Benedetto.

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“As there is a lack of ethane production in Mexico, which is Braskem Idesa’s main feedstock, we started a dialog with Pemex to reach a common agreement in order to find a balanced solution to the problem,” explained Stefan Lepecki, CEO of Braskem Idesa.

At the beginning of 2021, Braskem Idesa signed a memorandum of understanding with Pemex setting out respective understandings for the discussion of potential amendments to the ethane supply contract in the country and for the development of an ethane import terminal. Subsequently, a 15-year gas transportation agreement with Cenagás was signed and, as a result, the Etileno XXI petrochemical complex started receiving natural gas again through Cenagás, which had suspended deliveries in December 2020.

Lepecki revealed that Braskem Idesa is now working towards definitive amendments that include attaining approval from lenders to finance the ethane import terminal project. “All of Mexico's crackers rely on ethane and the development of a terminal would mean more feedstock could be imported, which would allow the crackers to run at full capacity, benefitting the petrochemical industry and entire country in terms of social and economic development,” he explained, adding that Braskem Idesa’s future will be based on maintaining the access to Pemex’ ethane while having competitive access to ethane imported from the US through the new terminal.

Patricio Gutiérrez, chairman of the board and CEO of Grupo Idesa, stated that his company’s position on AMLO’s vision for the energy sector has always been clear: “Pemex needs to exist as an industry leader, but needs to be focused on the areas where it has good competence, for example E&P. If we have other players in the refining business than Pemex, that will help the chemicals industry have access to more options to source feedstock.” Expanding on the subject, Gutiérrez suggested that if Pemex decides to stay in the refining business, then the private industry should help Pemex strengthen its business, be it in refining, gas separation or petrochemicals. “It would be a win-win-win relationship, for Pemex, for the private sector, and for the country.”

Eugenio Manzano, executive director of large chemical distributor Grupo Pochteca, explained that because chemical plants in the southeast of the country are operating at low rates and with higher costs than their counterparts in other countries, many downstream inefficiencies have been generated, creating a commercial deficit of more than US$20 billion per year. He concluded: “The strength and efficiency of Pemex is crucial to obtain key raw materials. It is urgent to recover this and encourage private investment in the energy and petrochemical industries to improve the competitiveness of our industry.”

On October 1st, 2021, AMLO’s ruling Morena party confirmed its bill for electricity reform had been sent to Congress. Although there are doubts that the bill, which is due to be voted on before Mexico’s budget is agreed at the end of November, will be able to get the two-thirds majority it needs to pass, it is another clear indication of the President’s intention to take control of the country’s energy sector. In a scenario where energy prices are rising substantially regardless of government policy, the proposed constitutional reform is a further concern for an industry whose competitiveness has already been impacted by a lack of domestic feedstock.