Chile Petrochemicals Report 2010

The Chilean petrochemicals industry is small and struggling with massive under-utilisation of capacity, a situation that is unlikely to change until the country can find and tap significant gas reserves, according to BMI’s latest Chile Petrochemicals Report.

Problems in securing adequate domestic gas supplies to operate Methanex’s Chilean methanol complex and limited refining capacity mean it is unlikely that Chile will see any increase in petrochemicals capacity over the medium-term. ENAP had announced plans in 2006 for significant developments, launching a study into units in Talcahuano including a 550,000 tonnes per annum (tpa) ethylene cracker, 275,000tpa propylene and 400,000tpa LLDPE to come onstream by 2011. Little has been heard of the plans since Argentina cut gas supplies to Chile.

The domestic market is not large enough to sustain world-scale petrochemicals facilities and would be reliant on export markets, putting Chilean industry in competition with new capacity in the Middle East, which has significant advantages in feedstock. According to the BP Statistical Review of World Energy, June 2009, Chile had just 150mn barrels of proven oil reserves and 90bn cubic metres (bcm) of proven natural gas reserves at end-2008 and BMI expects these reserves to decline without a higher level of exploration activity and drilling success.

Methanol production in Chile was hit by the Argentine government’s June 2007 decision to cut gas exports to Chile. In 2009, the massive methanol complex at Cabo Negro was operating at just 25-30% capacity due to the decline in feedstock supply as it was reliant on limited supplies from ENAP and GeoPark. Natural gas supply was just 3mn m3/d in 2009, falling well short of the 10mn m3/d needed to operate at full capacity. In an effort to resolve the problem, Methanex was expected to increase gas production at its Cabo Negro complex by end-2009 raising capacity utilisation to 55-60%. Methanex is currently carrying out a technical-economic feasibility study on transferring a plant from Chile which was expected to be finalised in early 2010. This would limit Chile’s long-term potential in methanol production.

Energy shortages also plague polymer production. A lack of propylene feedstock has meant that Petroquim has failed to produce near the 150,000tpa capacity at its PP plant. As such, BMI forecasts that capacities will not be increased over the forecast period, with ethylene capacity at 60,000tpa, propylene at 100,000tpa, PE at 46,000tpa and PP at 120,000tpa.

Chilean producers are also facing increased production as a result of free trade agreements, with US producers managing to increase their market share in recent years. Polymer production has never been sufficient to satisfy local demand and this pattern will continue over the forecast period with imports increasingly important on the Chilean market. Other suppliers in the region are able to beat Chilean producers on price. Lack of external competitiveness also hampers Chile’s ability to tap into the regional market. Competition for net buying markets such as Ecuador and Peru has intensified, because Brazilian and Colombian petrochemicals producers are lowering prices due to excess stocks at their disposal.

Much more will need to be done to reduce risk and secure long-term feedstock supplies if the Chilean petrochemical sector is to grow. Yet, Chile does offer some advantages. Methanex has shown that Chilean methanol production costs can be at least half those in China, provided feedstock is available. For Chile, as for most other exporters, the demand from China should enable the Methanex plants to run at maximum capacity.