It will take time for the downstream sector to see a tangible recovery in natural gas and ethane feedstock.

Stefan LANNA LEPECKI General Director and CEO BRASKEM IDESA

Reinforcing Mexico’s petrochemicals capabilities

February 27, 2019

Stefan Lanna Lepecki, general director and CEO of Braskem Idesa, talks to TOGY about the company’s production and commercial goals, as well as what should be done to address feedstock supply issues. Established in 2010 as a joint venture between Brazil's Braskem and Mexico’s Grupo Idesa, the company operates the USD 5.2-billion Braskem Idesa Petrochemical Complex (BIPC).

On energy reform benefits: “We believe the energy reform is a very important decision for the country, and a right decision for promoting a transition from the Pemex monopoly to the open market.”

On the value chain: “It’s natural that the main focus of this administration is in the upstream, in exploration of hydrocarbons. But, it will take time for the downstream sector to see a tangible recovery in natural gas and ethane feedstock. It will be important to have alternative imports.”

Most TOGY interviews are published exclusively on our business intelligence platform, TOGYiN, but you can find the full interview with Stefan Lanna Lepecki below.

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What key milestones has the BIPC recently achieved?
In 2018, the BIPC celebrated two years of operation, as well as 2 million tonnes of polyethylene sales. In terms of industrial operation, we are doing very well. We consider ourselves stable, and the technologies we use to produce polyethylene are of high standards. We are meeting important targets, objectives and KPIs in terms of industrial performance, safety and environmental areas, including water consumption, energy and emissions.
Furthermore, 100% of our industrial team members are Mexican, which is a huge achievement. We started the operation with a key group of Brazilians from Braskem and took advantage of their experience in the ethylene and polyethylene process, transfering that knowledge to our people. This is important for both Braskem Idesa and the country, as we are able to demonstrate our capabilities to the international sector and prove that we can undertake these operations in Mexico.

What has Braskem Idesa been doing to expand product offtake?
In terms of sales, we are continuing to focus on the local market and to develop our clients. We are oriented in this circular economy, in terms of sustainability. We publish our commitments and objectives in regards to the circular economy and recycling polyethylene in Mexico, and we did this with ANIQ [National Association of the Chemical Industry]. We are very focused on working with clients and providers to promote the circular economy in the country, which is another important value for us and our shareholders.
In terms of our commercial strategy, we are continuing to focus on the local market, but we are also considering the volume of our exports: 35% of our production is exported, while the rest remains in the local market. We are continuing to export to strategic channels, including the US, Europe and Central America. I believe we have established an important base in these regions.
Another important target for us is to continue working with clients on our level of service and the quality of our products, and we are very happy with the result. Overall, business is running well.

How has Pemex’s production declines impacted the downstream and petrochemicals sector?
Along with the rest of the country’s petrochemicals industry, Braskem Idesa is suffering from the decrease of feedstock production, most notably natural gas and ethane, which are our main feedstocks.
We believe the energy reform is a very important decision for the country, and a right decision for promoting a transition from the Pemex monopoly to the open market. Pemex has an important role in this transition, and due to its financial and investment difficulties, challenges with operations and the decreased price of crude oil, the company has not been able to sustain the production of this main product to supply both Braskem Idesa and the industry. This is definitely impacting Braskem Idesa, and as a result, our operating rate in Q3 2018 was around 78%.

 

What is your opinion on the new government’s objective of strengthening Pemex?
The new government’s approach to reinforcing the role of Pemex will also be important to us. Having a strong national company is a positive, and it is important for us to also carry out co-ordinated work between Pemex, private companies and the government to recover the production of feedstocks in this country.
I believe the new government is very focused on new investments and refineries, as well as strengthening the role of Pemex in this regard. This is very positive, and we are looking forward to working with Pemex during this important time of recovery for the country.

What is the outlook for the downstream sector in light of the government’s desire to boost production and the upcoming conclusion of several midstream projects?
It’s natural that the main focus of this administration is in the upstream, in exploration of hydrocarbons. But, it will take time for the downstream sector to see a tangible recovery in natural gas and ethane feedstock. It will be important to have alternative imports.
In natural gas, we already have existing important infrastructure; however, the southeast of the country is more isolated and we lack infrastructure. The conclusion of the Sur de Texas-Tuxpan pipeline, which is expected to come on line during the second quarter of 2019, will be significant. We will then be able to buy natural gas from Pemex, but also from international providers.

What should the government and industry do to address ethane shortages?
In terms of ethane, we don’t have flexibility; Pemex is the only provider we have. We need to have a dialogue with the new government regarding the establishment of infrastructure to import ethane. These imports are a bridge to the future.
The main focus should be the recovery of our internal production in terms of petrochemicals feedstocks. Even with the energy reform, this will take time, so to sustain the petrochemicals industry, including Pemex, we need to have access to imports.

What key competitive advantages do the Mexican petrochemicals and refining sectors have?
I continue to be very optimistic when I consider Mexico as a country for investment. Braskem Idesa is one example of Mexico’s competitiveness. Mexico is a low-cost country, we have a good labour force and we have free-trade agreements with important countries in the world. Mexico’s geographic position is very positive in terms of exports and, considering macroeconomics, it is a stable country.
The feedstock is also an important part of this equation. This new government agenda will be important in reinforcing the competitiveness of the country and in guaranteeing alternative feedstock sources for the petrochemicals industry here.

Have increased polyethylene supplies impacted your bottom line?
Due to the phenomena of shale gas in the US, there are a lot of new plants in that country, but I do not think the BIPC has a very strong impact in the North American market, because the global demand for polyethylene is continuing to grow at an important velocity.
The trade war between China and the USA has changed the flow and dynamic for polyethylene, and this is important to consider in Mexico. With the potential of a low-cost country, and as a natural export country with free-trade agreements, we have a lot of options to distribute our products all over the world during this global market transition. I think in this moment of market transition, it is a good opportunity for Mexico and Braskem Idesa to reinforce our capabilities and use this to benefit the company and country.

What approach is Braskem Idesa taking to navigate current supply and demand market dynamics?
Even with some constraints in terms of feedstock, we are continuing to progress in a positive way. Our internal team and operation, and especially the connection in the market with our clients, is very strong. It was an important change here in the market to have a producer close to the clients that could understand their needs and support them along the journey. With Braskem Idesa, we changed the dynamic of the local market and we will continue to work in this direction.

How would Braskem Idesa’s activities in Mexico be affected by a deal between Braskem and LyondellBasell?
Braskem and LyondellBasell have announced they are currently in negotiations. According to public sources, they are at the end of a due diligence process. If this deal happens, it would establish the biggest petrochemicals company in the world. Therefore, there could be a lot of important synergies between LyondellBasell and Braskem, which could create a tremendous company.
Mexico and Braskem Idesa will be an important part of this business because it is an important operation and a success, in terms of results and strategic objectives. We are waiting for what will happen on that.

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