Braskem Idesa said Thursday it had partially restored operations at the Etileno XXI polyethylene complex in Mexico’s Veracruz state.
In December, Mexico natural gas system operator Cenagas canceled the company’s access to pipeline natural gas supply, forcing Braskem Idesa to shut down Etileno XXI, the largest petrochemicals operation in Latin America.
The Etileno plant uses natural gas as a feedstock in the petrochemical process. The complex includes an ethane cracker with capacity to produce 1.05 million tons/year of high and low density polyethylene.
Braskem said it had restarted operations in an “experimental business model” and in accordance with safety standards thus “reducing the impact on the Mexican plastic industry’s supply chain.”
The cessation of natural gas supply to the plant is part of a larger dispute over ethane supply between the company and Mexican state oil giant Petróleos Mexicanos (Pemex).
Pemex has recently not been able to meet its ethane supply commitment to the plant under a 20-year, take-or-pay/supply-or-pay deal for 66,000 b/d signed in 2010. According to Fitch Ratings, Pemex had accrued a balance of $64 million in unpaid credit notes to Braskem at the end of September for damages in failing to meet the contractually established volumes.
Mexican government officials have said the terms of the contract were “abusive” and unfair to the state firm.
Braskem Idesa, a joint venture between Brazilian petrochemicals giant Braskem SA and Mexico’s Grupo Idesa, was told by Cenagas on Nov. 30 that the transport service contract in place would not be renewed. This subsequently led to the total suspension of the plant’s processes.
Mexico President Andrés Manuel López Obrador said during a press conference that the gas contract wasn’t renewed because the ethane contract had not been “corrected.” The Cenagas decision is seen by analysts as a direct affront to the independence of the natural gas system operator.
The conflict follows similar contract disputes in the Mexican energy sector, including over gas pipeline terms, which in 2019 led to infrastructure delays and renegotiations with several international and local companies.
Legal measures are being pursued by Braskem including “a remediation and negotiation period during which it will seek a resolution between the parties.”
Braskem Idesa management said it “remains subject to an adverse scenario due to the interruption of the natural gas transportation and cannot estimate, at this moment, the date for the full return” of operations. The company also said it does not yet have an estimate for the cost of the interruption of services.
This week, Veracruz lower house member Amado Cruz Malpica urged the government and Braskem Idesa to come to an agreement because so many jobs were on the line.
“The solution is that there is a negotiation between Braskem Idesa and Petróleos Mexicanos, that they sit down and come to an agreement, that they do this in the interests of the country, as well as in the legitimate interests of a company that has an important investment in the region,” he said, according to media reports.
The company said it remained committed to Mexico and to the “pursuit of constructive alternatives to resolve the ethane shortage in the country.”As a result of the conflict, last month Fitch downgraded Braskem Idesa’s long-term foreign and local currency issuer default ratings and senior unsecured notes to “B+” from “BB-” and placed the ratings on rating watch negative.
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