Opening of Mexico's natural gas sector to aid Mexico's petrochemical sector

04-Jan-14

The opening of Mexico's natural gas sector to private investment will lower prices and allow local firms to increase their production capacity for petrochemical-based products, according to analysts in BNAmericas.com. Mexican majors such as Mexichem and Alpek will be benefited by the lower prices and be able to grow their presence in the sector, according to a report analyzing Mexico's energy reforms by Banamex Accival Casa de Bolsa. Both companies are currently investing to expand their production capacity to take advantage of the price differential between ethylene and natural gas. The expectation is that the energy reforms will contribute to an increase in the supply of ethane/propane, which have a high concentration of natural gas, and to a deregulation of the downstream sector, which will in turn lead to a drop in prices, the report states. Alpek is expected to invest in the construction of monoethylene glycol (MEG) plant in Mexico and an ethylene plant in the short term in order to take advantage of the lower gas prices. Mexichem is also likely to expand its VCM production in Mexico, after having begun to build a cracker plant in Texas in partnership with US firm Oxychem. Mexichem is currently building a 200MW cogeneration plant powered by natural gas in Altamira, in the northeastern state of Tamaulipas, and could approve the construction of another one in Salamanca, in the central state of Guanajuato. Mexico is the only country in the world where an artificial barrier was created in the petrochemical sector, and the reality is that the lack of investment in the sector by Pemex has created huge bottlenecks in the production chain, leading to more imports, which in 2013 surpassed US$23 bln, according to an analysis of the reform by Mexican energy consultancy GMEC. A lack of natural gas transportation infrastructure has meant that Mexican firms have suffered a supply deficit from the US, GMEC added, with Pemex importing more natural gas at a higher price to satisfy local demand.