The terms of a new ethane supply agreement between Mexican national oil company Petróleos Mexicanos (Pemex) and petrochemical firm Braskem Idesa remain under discussion, despite indications from the government that a new agreement had been finalized, according to management of Braskem Idesa parent Braskem SA.

Braskem Idesa

The current 20-year, take-or-pay/supply-or-pay contract for Pemex to supply 66,000 b/d of ethane to the Etileno XXI polyethylene plant in Veracruz state remains in effect, Braskem CFO Pedro Freitas said during a fourth quarter 2020 earnings call. 

Mexico’s Centro Nacional de Control del Gas Natural (Cenagas), operator of the Sistrangas national pipeline grid, unilaterally cut off natural gas transport service for the plant in December amid complaints from Mexico’s government that the ethane supply contract terms were unfair to Pemex.

Pemex has failed to supply the contracted volumes of the natural gas liquid as its wet gas production has declined.

Braskem Idesa said in early March that Cenagas had restored transport service on the condition that Braskem Idesa would agree to work toward renegotiating the terms of the ethane supply agreement with Pemex.

However, while President Andrés Manuel López Obrador said the parties had agreed to drastically reduce the volumes and duration of the contract, Freitas said during the March 11 call that a series of topics remain under discussion.

“These topics include volumes, prices, penalties, the historical liquidated damages owed by Pemex, the terminal, the term itself of the contract,” Freitas said. “So all of this is subject to negotiation…We will disclose that whenever we have a final agreement with them.”

Braskem Idesa imported about 7,000 b/d of ethane to Mexico from the United States during the quarter to complement supply from Pemex. This amount by itself would equal 9% capacity utilization at the complex.

Etileno XXI’s polyethylene utilization rate, combining supply from Pemex and the United States, stood at 48% for the quarter, Braskem said.

For full-year 2020, Braskem Idesa imported 6,400 b/d of ethane to the facility. The utilization rate ended the year at 74%, down from 76% in 2019.

Braskem attributed the decline to the unilateral suspension of transport service by Cenagas.

Polyethylene production partially resumed on Jan. 7, and natural gas transport service was restored on March 1 after Braskem Idesa signed a memorandum of understanding with Pemex to discuss potential amendments to the ethane supply contract and to jointly develop a new ethane import terminal.

Braskem Idesa also agreed to a new, 15-year natural gas transport service agreement with Cenagas. 

Freitas said Braskem Idesa is currently receiving around 30,000 b/d of ethane from Pemex, or just under half of the 66,000 b/d contract.

Between ethane supply from Pemex and imports, the utilization rate at Etileno XXI is currently around 80%, Freitas said, adding that he expects the rate “could be more sustainably running above 90%” after the import terminal is built, “but that’s going to take a couple of years to implement it.”

In December, Braskem completed its expansion of the Fast Track project, an initiative to increase ethane import capacity at the facility in Veracruz.

The Fast Track capacity is currently about 20,000 b/d, said Braskem’s Rosana Avolio, investor relations manager.

Freitas said that figure is expected to reach 28,000 b/d starting from April.

Braskem reported a net profit of $137 million for the fourth quarter, versus a net loss of $708 million for the similar 2019 period.

For full-year 2020, Braskem posted a net loss of $1.37 billion, compared to a loss of $662 million in the previous year.

Full-year earnings per share for 2020 were minus 8.41 reais, or about minus $1.51, compared to minus 3.52 reais (minus 63 cents) in 2019.