Mexican national oil company Petróleos Mexicanos (Pemex) and Braskem Idesa have reached agreement on an ethane supply deal, bringing to an end a year-long dispute that threatened to shutter the largest petrochemicals operation in Latin America.

Braskem Idesa

The Brazil-based Braskem SA unit said on Tuesday Pemex would supply 30,000 b/d of ethane to the Etileno XXI petrochemicals plant in Veracruz in the new pact. Braskem, in conjunction with Pemex and its subsidiaries, would also develop a $400 million ethane import terminal in Coatzacoalcos, Veracruz, for the plant’s supply.

Braskem Idesa, a joint venture between Braskem SA and Mexico’s Grupo Idesa, owns the Etileno XXI plant, which has capacity to produce 1.05 million tons/year of high- and low-density polyethylene. The plant uses ethane as its principal feedstock.

Pemex had struggled to provide Etileno XXI with the 66,000 b/d of ethane as agreed to under a deal signed by the previous administration. Late last year, Mexico’s natural gas pipeline operator Cenagas cut off transport service for the plant following complaints from Mexico’s government that the ethane supply contract terms were unfair to Pemex. This forced the plant offline. Cenagas subsequently restored gas supply on the condition that the parties would come to a new feedstock supply agreement.

‘Important Boost’

“It’s great news to see Braskem Idesa and Pemex reach a deal on this project,” Rice University’s Adrian Duhalt of the Baker Institute told NGI’s Mexico GPI. Duhalt is a postdoctoral fellow in Mexico energy studies at the Houston think tank. “It is badly needed and will be an important boost for the petrochemical industry in the region.” 

Braskem said all “previously existing contractual pending issues” had been settled. Last year, the company said Pemex had accrued a balance worth tens of millions of dollars in unpaid credit notes to Braskem Idesa in damages for supplying ethane at below the contractually established volumes.

Braskem now sees the operational startup of the ethane import terminal for the second half of 2024. The amendment to the agreement also gives Braskem Idesa “the preemptive right to acquire all the ethane that Pemex has available and has not consumed in its own production process until 2045, at international benchmark prices.”

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Improving Outlook?

The dispute had been seen as symbolic of an antagonistic relationship that had opened up between Mexico’s government and the private sector.

Pemex and Mexico President Andrés Manuel López Obrador “have no reason to not work with private companies to turn things around in other key petrochemical value chains. Next in line should be ammonia,” Duhalt said.

Duhalt said the construction of an ethane import terminal in southern Veracruz “highlights that there is more to Mexico’s energy sector than crude production and refining. This project demonstrates that private investment can also benefit public interests.”

He said the new ethane supply would have “positive spillovers” and provide Pemex petrochemical complexes in the region increased access to imported ethane. This in turn could boost economic activity, he said.

“The terminal also fits into the objectives of the Interoceanic Corridor in the Isthmus of Tehuantepec, which, apart from being one of the most important regional development initiatives of President López Obrador, seeks to elevate the industrial profile of the region, and that includes petrochemicals.”

López Obrador has long touted the Interoceanic Corridor project’s potential benefits, saying it would propel the economies of Oaxaca and Veracruz through a focus on industrial projects. The corridor project would involve the construction of 10 industrial parks, along with road, railway, natural gas, telecommunications and electricity infrastructure.The corridor project would also link the deepwater ports of Coatzacoalcos and Salina Cruz on either side of the 77-mile isthmus with a natural gas pipeline and would include a liquefied natural gas export facility proposed for Salina Cruz.