Peru Petrochemicals Report 2010

Peru is failing to exploit anywhere near its potential in petrochemicals. With over 340bcm of natural gas reserves supported by the massive Camisea reserves, it has enough raw materials to support a petrochemical complex with capacity of more than 1mn tpa, according to BMI’s latest Peru Petrochemicals Report. This untapped potential means that Peru could become a significant petrochemicals producer and if it secures investment could be producing 800,000tpa of ethylene by 2010, with further investments in polyvinyl chloride (PVC) and polyethylene (PE) production. Peru will most likely develop urea and ethanol production, an ethylene cracker and downstream polymer and PVC production at the terminal point of the Camisea gas and liquid pipelines.

By 2009, Peru had no production capacity for basic petrochemicals such as ethylene, propylene or polymers such as PE, polypropylene (PP), PVC and polystyrene (PS). A small domestic market would mean any development of the petrochemical sector would have to be export-oriented. There is also unlikely to be any dramatic short-term change in the end-2007 193,000 barrels per day (b/d) of refining capacity, although modest plant expansion and some upgrading can be expected by 2010. Depending on the timing of expansion and refinery utilisation rates, Peru could be facing modest but growing products imports at the end of the forecast period. Petroperú is modernising the country's Talara refinery, upgrading and expanding from 62,000b/d to 90,000-100,000b/d by 2013.

Despite significant gas reserves and the government’s policy of prioritising domestic gas needs over exports, growth in Peruvian petrochemicals production will be focused on a small number of sectors, in particular fertilisers. According to BMI forecasts, it is highly unlikely that Peru will see olefins and polyolefins capacity coming onstream in the next five years. The only development in this area is the proposed joint venture (JV) by PetroPeru and Brazil’s Petrobras and Braskem to create a facility that will produce 700,000-1.2mn tpa of PE. However, this has been pushed back by two years to 2016 as investors wait for an increase in gas supplies. In the fertiliser segment, proposed projects could provide 2.41mn tpa of ammonia capacity, but BMI does not believe any of these projects will be completed before 2015. We are mindful that past proposed petrochemical projects have not progressed and that some plants may not get off the drawing-board.

While the domestic petrochemicals market will remain small, it will be stable with Peru’s economy performing favourably in regional and global terms. The main concern, as elsewhere, is the downturn in construction while is not being helped by the deterioration of the investment climate amid heightened political risk as the country approaches the 2011 elections. This could knock the market in construction materials, notably PVC. Nevertheless, private consumption growth levels will remain relatively stable, albeit at a gentler rate, which will benefit goods that utilise PE and PP.