Braskem set to start construction of $420-million ethane import terminal in Mexico´s biggest private investment project

Brazil-based Braskem, which owns a cracker and polyethylene plant in Mexico that started up over five years ago but has yet to run at full capacity, plans to begin in the second half of 2022 works contemplated for the past four years to build a $420-million ethane import terminal.

Braskem Idesa plant in Nanchital, Veracruz, Mexico. Image courtesy of Braskem Idesa

Braskem Idesa´s cracker hasn´t run at capacity since construction ended in 2016 because of a reduction in Mexican gas production, that also reduced the separated ethane streams. This decade-long reduction left the $5.2 billion cracker and 1.1-million tonnes per year of polyethylene capacity plant running below capacity.

Mexican ethane production plunged over the past decade to levels well below those anticipated when Braskem, and minority partner Idesa from Mexico, won in 2009 an auction for rights to buy 66,000 barrels per day of Mexican ethane. The resulting Mexican non-performance of deliveries forced Braskem to invest in ethane import infrastructure.

Braskem had announced plans to build a 50,000 barrel-per-day import terminal in Veracruz in late 2019 during a meeting between investors and company officials in Sao Paulo. During 2020-2021 it held talks with the Mexican government and agreed to “adjustments” that included new prices for ethane, new volumes, and elimination of any fines.

For Braskem, now the “ambition is to start construction in the second half of the year. We already have very advanced in our plans and it is natural to start construction with pieces of that,” said company´s CFO Pedro van Langendonck Teixeira de Freitas.

“The pier has to be started earlier and meanwhile you go into other details in other parts of construction,” he added on March 17, 2022 during the fourth quarter 2021 earnings discussion call.

Delayed investment

Back in late 2019 Braskem officials envisioned the new terminal could be running by 2021-2022. At the time Braskem was also asserting contractual rights down to full fine collections for deliveries missed and wasn´t planning to hold talks or change the contract terms.  

However, during 2020-2021 Braskem faced increased scrutiny of the contract. In mid-2020 Mexico announced the extradition of a former top Pemex official who had been captured in Spain and had reportedly agreed to cooperate with justice in relation to testimony over bribe-for-contract schemes, media reported at the time.

Braskem Idesa consistently denied any wrongdoing. Talks resulted in mid-2021 in accords on new ethane volumes that would be aligned with real Mexican production capacity and using prices aligned to spot values in Houston plus transportation logistics. Fines were eliminated.

Mexico also got to see investment and much needed job creation. Quadratin Veracruz, a local business media, reported on Oct. 2021 that just the construction of the terminal project would demand 2,000 workers and was planned to begin in Jan. 2022.

Looking for partner

Braskem Idesa is looking for a partner for the terminal that would help share the risk.

“At the end of last year the board approved the investment itself, which would be $420 million in total, and Braskem Idesa with all its financial capacity to have that investment fully independently, has been looking for a partner,” van Langendonck Teixeira de Freitas said.

“We created the subsidiary precisely so that we had space for a partner,” he said, referring to the terminal pier and 100,000-cubic-meter ethane cryogenic storage.

“We´re now in the final stages (…) We have a few choices, a few partners to choose from that we are discussing with Braskem Idesa right now,” he added.

´Largest´ private investment

“We´ve seen the Mexican government adopt a very positive stance in terms of supporting that investment and this may well be the largest investment underway in Mexico right now, private investment,” he said.

Private investment in Mexico has lagged in recent years amid investor caution.

According to a June 2021 report from the Federal Reserve Bank of Dallas, in Mexico “declines in private investment coincided with the 2018 cancellation of construction of a new $13 billion Mexico City airport (…) after $2 billion had already been spent.”

The terminal investment, however, is dwarfed by Mexican public spending. Just the Dos Bocas project, a 340,000-barrels-per-day refinery under construction in neighboring state Tabasco, just south of Veracruz on the Gulf of Mexico, will require up to $12 billion before completion.

Mexico wants to develop infrastructure in the region. “And this project falls within the realm of that program so everything is working well,” van Langendonck Teixeira de Freitas added.

Braskem Idesa´s contract

The contract to supply ethane to Braskem Idesa had been under scrutiny by Mexican President Andres Manuel Lopez Obrador from before he won the 2018 elections.  

In 2020 the Mexican government had said it was studying possible corruption related to contracts by former Pemex and Mexican officials related to ethane deliveries. Lopez Obrador then described the contract with Braskem as “leonine.”    

In December 2020 Mexican authorities forced the shutdown of Braskem Idesa´s plant by cutting off energy supplies. Braskem Idesa said Mexican officials irresponsibly forced a shutoff without safety protocols. In March 2021 Braskem announced a preliminary accord that allowed an operations restart while talks with Mexican officials continued.

Braskem Idesa informed on Sept. 28, 2021 it had finally reached more definite accords that would allow to invest in the needed terminal and ethane storage project.   

Braskem also reached in 2021 accords with its creditors to refinance $1.4 billion of pending debt with longer maturities. It received nearly $400 million in released collateral.

Capacity utilization

The company said during early Aug. 2021 that Braskem idesa´s capacity utilization was at the time 58%. 

On Feb. 10, 2020 Braskem reported that it started ethane imports to help increase running rates of the cracker. It reported a $4 million disbursement to import up to 12,800 barrels per day of ethane from the U.S. that represented 19% of the cracker´s capacity.

In 2021 Mexican ethane production continued its decline mainly due to mechanical problems, Pemex said in February.

By Renzo Pipoli