Choose

The development of Peru's petrochemical industry

Raúl Arias

Senior consultant and manager for Latin America/Nexant

Published  Monday, October 19, 2009

BNamericas spoke with Raúl Arias, senior consultant and manager for Latin America at Nexant, to learn about Peru's efforts to develop a petrochemical industry and the issue of ensuring sufficient natural gas supply.

BNamericas: Does Peru have sufficient natural gas reserves to feed the country's and private investors' plans to develop the petrochemical industry?

Arias: That's the million-dollar question and one that continues to dominate discussions on the subject. There are those that say natural gas reserves might not be enough to secure domestic supply as well as develop the petrochemical industry and export the quantities companies intend to export, basically the Camisea consortium [led by Argentine oil company Pluspetrol]. And there are others that say there should be enough. Brazil's [federal oil company] Petrobras still has to officially communicate the natural gas reserves on block 58.

To me that remains an open question.

BNamericas: Will the gas be priced competitively enough for the petrochemical projects to become economically viable?

Arias: That's a very important point and once again a question that remains open. It will depend, and I'm really thinking about the Camisea consortium here, on how they ultimately decide to allocate gas for petrochemicals. If it's a simple bidding process, it is in danger of not giving investors the opportunity to negotiate the price they need to develop petrochemicals.

Some countries around the world have used the price of natural gas to promote development and I don't know if this will be the case in Peru. The government doesn't make the decisions directly, but we are all aware they want to develop the petrochemical industry.

BNamericas: [Illinois-based fertilizer manufacturer and distributor] CF Industries recently signed a natural gas supply agreement with Pluspetrol for its proposed petrochemical plant to produce urea in San Juan de Marcona, Ica region. Do you expect more agreements to be signed shortly?

Arias: Gas has been allocated to CF Industries, and also initially to Mexican [industrial group] Protexa for methanol production. I haven't spoken to Protexa directly, but I have heard that they will not go ahead with the project.

I'm not sure that the price CF Industries negotiated will apply to the other petrochemical projects currently being discussed.

In the past, there were announcements Peru was looking for investors for an ethylene and polyethylene complex which I think will be a different type of negotiation or bidding process.

BNamericas: Will the capacity due to come online in the Middle East affect the development of projects in Peru?

Arias: I think it will be a while before the new capacity coming online in the Middle East will have an impact on South America because overall the region is not the first option for them. The new capacity will initially go to Europe and Asia, and as it continues to grow to the US and then maybe, in the long run, Latin America. I also believe that the quantities are not so attractive to Middle Eastern producers.

BNamericas: What areas within the petrochemical industry should Peru be looking to develop?

Arias: I can't answer that. A while ago there was an announcement by [Peru's state oil company] Petroperú, Petrobras and [Brazilian petrochemical company] Braskem that they wanted to develop olefins and polyolefins separately from the Camisea consortium. Initially it looks like it would not be a particularly good project given the other projects in the region, in Brazil, Venezuela and even Colombia, but I think because of the geography it could work. They could supply the surrounding region and also Mexico and the US. Mexico has a deficit and will most probably continue to have one for a long time to come because of its own situation with [state oil company] Pemex and petrochemicals; and even the US is not investing in petrochemicals. So that might be one of the opportunities.

BNamericas: For all the talk, do you think these projects will come to fruition?

Arias: My guess is that these projects may turn into something serious. The basic questions that still have to be answered are: Is there going to be enough natural gas? And, is the gas going to be priced competitively? This is the issue for now.

Investors need to be certain of the proven reserves before they will forge ahead with their plans. Also, socio-political issues may arise, particularly related to domestic consumption if there is not enough gas to supply the local market.

In the end, if the natural gas reserves do not meet expectations, then they will have to make a decision on how they will distribute the resource, and that will be for power generation.

ABOUT THE COMPANY:

Nexant is an independent provider of consulting services and technology solutions to the global energy and chemical industries.

The company is headquartered in San Francisco.

USA Voice/Fax: (800) 535-2137 Santiago, Chile: +56 (2) 941-0300 info@BNAmericas.com Business News Americas. Copyright 1996-2009 All Rights Reserved.