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U.S. Gas to Fuel Petchem Revival in Mexico, IHS Says

Mexico's petrochemical industry is on the cusp of a renaissance, thanks to natural gas infrastructure investment on both sides of the U.S.-Mexico border that is being driven, in part, by the opening of the country's upstream oil/gas industry to outside investment, according to IHS.

"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 IHS Chemical’s Rina Quijada, senior director, Latin America.

"In 2014, Mexico imported nearly US$24.5 billion in chemicals and petrochemicals to meet its domestic needs, according to ANIQ, Mexico's petrochemical industry association,” Quijada noted. “However, for some chemical value chains, such as polyethylene, the import gap is more dramatic. Last year, Mexico had to import approximately 1.5 million tons of this widely used plastic, which is about 75% of the country's polyethylene demand."

But Mexico will be able to produce more of its petrochemical products in the future, thanks to U.S. gas that is increasingly available, thanks to multiple cross-border pipeline projects, IHS said.

"For Mexico, that [U.S.] gas means access to abundant, competitively priced feedstocks for petrochemical production," Quijada said. "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 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 Eagle Ford shale, which extends from South Texas into Mexico. The Los Ramones (Phase I) pipeline, which came online last December, added 2.1 Bcf/d of  import capacity from Texas (see Daily GPIMarch 27). Additional projects totaling 3.45 Bcf/d of cross-border capacity are under development, and once online, would significantly increase gas availability in Mexico (see Daily GPIAug. 12July 27May 15).

"These pipeline investments are needed to connect the regions that don't currently have access to natural gas," said IHS Energy’s David Crisostomo, a natural gas and power analyst. "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," he said. "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."

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