Brazilian petrochemical industry calls for government support

A genuine push has been made by Brazil’s petrochemicals industry for federal government intervention as it has been described as uncompetitive by key representatives.  US influences, especially shale gas, are said to be the greatest causes of difficulty for the sector. 

The Brazilian petrochemical industry has called for the federal government to cut the price of natural gas and provide incentives for new investment, to support a sector that has become increasingly uncompetitive in recent years.

At a seminar in the Brazilian congress, Pedro Freitas, director of strategic planning at Braskem, Brazil’s largest petrochemical company, said that because of the emergence of shale gas in the US, the price of petrochemical feedstock in the US has decreased by US$300/t since 2007, while it has increased by US$300/t in Brazil.

Freitas said that 80% of Braskem’s feedstock is naphtha, which has become much more expensive than feedstock derived from natural gas, which supplies only 16% of Braskem’s feedstock. Around 75% of the cost of Braskem’s cost of production is derived from feedstock purchases, Freitas said.

“Raw material is critical for the petrochemical industry to grow in Brazil,” he said. “There is no country with a strong industry without a strong chemical industry.”

Henri Slezynger, president of Brazilian chemical industry association Abiquim, said that “it is essential to take measures immediately to reactivate the industry…the American threat is obvious.”

“A large part of the increase in internal demand for chemical products in Brazil is now systematically met by imports,” he said. Abiquim forecasts that Brazil will post a trade deficit of around US$32bn in chemicals this year.

Representatives of the Brazilian petrochemical industry at the seminar called for the Brazilian government to cut the price of natural gas in Brazil from its current level of around US$12/MBTU to US$5/MBTU, closer to US levels of US$3.50/MBTU.

Slezynger said Brazil needs a more internationally competitive gas price, to prevent further shutdowns in capacity.

“Brazil has a major opportunity to be competitive with its onshore and offshore gas, but it needs government policy to price gas closer to the US level.”

The commercialization of Brazil’s recent offshore gas discoveries is only likely to begin around 2020, speakers said, providing Brazil with more raw materials for its petrochemical industry.

Pedro Wongtschowski, the former chief executive officer of Brazilian fuels and chemicals conglomerate Ultrapar, said that investments in new petrochemical capacity take four to six years, so the government needs to act now to incentivize the sector. Wongtschowski is currently chairman of Embrappi, the government’s industrial innovation company.

By Mark Beresford of BN Americas

The full article is visible via the link below – Pankaj Oswal

http://www.bnamericas.com/news/petrochemicals/brazilian-petrochemical-industry-calls-for-government-support

Haldia Petrochemicals’ networth erodes by 50%

The news coming out of Haldia Petrochemicals is cause for concern.  There do appear positive signs, however, that the company is prepared to find ways to turn it around.

After suffering a string of losses, the networth of Haldia Petrochemicals (HPL) has eroded by 50 percent.

After a board meeting and EGM of HPL on Friday, chairman of the company and state Industry Minister Partha Chatterjee said every step would be taken to prevent the company from going to the Board for Industrial and Financial Reconstruction (BIFR).

All the stakeholders had been informed at the EGM about the state of the company, he said.

Chatterjee also said the company might again approach the lenders for infusion of funds and added that other efforts would also be made. He, however, declined to divulge further.

The HPL board on Friday approved the appointment of UK Basu, former MD of MRPL , as the managing director of the company till March 2014. Chatterjee said that Basu had been asked to draw a roadmap for the company for a period of five years and a financial budget till next March.

About WBIDC’s stake sale in HPL to Indian Oil Corporation, the minister said that the matter was sub-judice.

The full article is visible via the link below – Pankaj Oswal

http://www.moneycontrol.com/news/business/haldia-petrochemicals-networth-erodes-by-50_995878.html

Despite reform, Brazil and Mexico lack energy investments

Global Risk Insights

Latin America is endowed with significant oil and natural gas reserves, which until recently offered little opportunity for private investment. However, new reforms and the expansion of the renewable energy sector promise new investment opportunities.

The International Energy Agency (IEA) report, released last week, features Brazil as both a world leader in renewable energy and soon to be a major exporter of oil. The Inter-American Development Bank’s June report claims that Latin America and the Caribbean’s endowment of renewable energy resources is enough to cover 100% of its electricity needs, depending on adequate investment.

New discoveries of shale gas and deep-sea reserves also draw attention to the region’s opportunities in the traditional energy sector. The pertinent question is the same for investors and regional policy-makers: how will these countries’ energy mixes develop over the next 5 to 10 years, and what are the opportunities and risks for investment?

Brazil

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The new Iron Age

Informa Insights

By Francis Browne, Editorial Director – Price Group, PlattsFrancis will be presenting at the Global Iron Ore & Steel Forecast conference, to be held on the 11th and 12th March 2014 in Perth.

The last decade has witnessed a change in fortunes for steel makers and miners, the communities they serve and that serve them. Iron ore has taken a central role in that change. You might feel we are in a new Iron Age, we remain firmly however in the age of steel where the price of iron ore plots the dynamic of our age, daily.

Perhaps it seems odd to talk of an iron or steel age in the 21st Century; however as the world population grows – seeking more food, shelter and energy than ever before – steel is the material of choice providing the solutions we need. Urbanisation and economic development are enabled by…

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Article: RIL board wants investment focus to be on telecom and petrochemicals

Reliance Industries board members have reported that the company is officially shifting focus toward petrochemicals and away from oil and gas investments, particularly exploration and production.  This marks a substantial break from recent years when these commodities where bread and butter for RIL.  The messages from key RIL personnel are that the petrochemical, telecom and retail business lines will overtake oil and gas businesses.

MUMBAI: Reliance Industries’ board is strongly backing telecom, its latest venture, and petrochemicals that propelled it to fame in its early years but it is reluctant to invest in the oil and gas which has swallowed $14 billion but plunging output along with regulatory and pricing uncertainty has clouded the outlook.

A senior company executive told ET that the board has questioned further investment in exploration and production (E&P) that was once the key driver of its profits but is now almost irrelevant to the valuation of its shares that have lagged the market in recent years.

“Things are very difficult for us, our board has a lot of questions about the way things are going and it has not approved any further capital expenditure for the E&P business as it prefers to invest in the group’s petrochemicals business and telecom venture which it feels will yield greater returns in the future,” the executive familiar with the board’s deliberations told ET.

“Now even though we have approvals to start work in certain areas of KG-D6 and other hydrocarbon blocks, the board has not approved any further capex as it first wants complete clarity on the gas pricing issue and other related regulatory issues,” he added.

The company’s directors are merely following the verdict of the market. “Currently RIL’s E&P business is completely ignored by the market but we are very excited about the new expansion planned at its refinery complex in Jamnagar. Markets are particularly excited about the new cracker project that will greatly enhance RIL’s ethylene production and also reduce its use of expensive imported liquid gas by 50%.

This cracker will make RIL’s petrochem division comparable or even better than refineries in the US and the Middle East and can give an RoI of 20%,” said Jal Irani, oil and gas expert. The company’s petrochemicals business has done well, while the telecom venture has enormous potential. The retail business has also gathered momentum in recent quarters.

Company executives say that these businesses will overtake oil and gas production.

losing faith in E&P

The performance of the business has fallen drastically. In April 2010, when gas output touched the peak of 60 mmscmd, the group’s oil and gas business posted a segment revenue ofRs 4,318 crore and a EBIT of Rs 1,702 crore. In October 2011, output fell 20% from a year ago and the segment’s revenue fell to Rs 3,563 crore and EBIT dropped to Rs 1,531 crore. In the following October, output plunged 35.1%, revenue dropped to Rs 2,254 crore and EBIT sank to Rs 866 crore. In October this year, segment revenue and EBIT dropped to Rs 1,464 crore andRs 356 crore, respectively.

The board has serious concerns about oil and gas. “We have invested close to $14 billion in the overall E&P sector in India out of which $10 billion was spent in KG-D6 and even though we have recovered $9 billion from KG-D6 there is a huge capital cost involved here, as we started investing this amount from 2006, who will reimburse us for that? The PSC makes no provision for it so it has to come from RIL,” said the official.

“There is a time value to these investments. The weighted average cost of this capital is close to 12-13% which is now becoming a huge burden for us as the return on capital on these investments is less than 2 digits,” the official added.

Oil minister Veerappa Moily said last month RIL and its partner BP Plc will invest an additional $8-10 billion in KG-D6. The executive said: “That was pertaining to the overall E&P plan we have for KG-D6, but we are yet to go to the board for approvals for this,” said the official. Moily made this statement after meeting Mukesh Ambani and BP’s CEO Bob Dudley last month.

Gas output at KG-D6 has fallen to about 10 mmscmd against a target of 80 mmscmd and RIL faces an additional penalty of $800 million for not producing the promised amount of gas from KG-D6. RIL attributes this to geological complexity while the ministry feels production has fallen because RIL has not drilled the requisite amount of wells.

This second penalty comes after the former oil minister Jaipal Reddy had slapped a penalty of $1 billion on RIL for failing to meet production targets in May 2012. This comes in conjunction with the ministry asking RIL to give up 80% of KG-D6 as it was unable to produce gas according to the pre-decided timeframe The oil ministry is also preparing a new Cabinet note that would decide whether RIL would be eligible for the new gas price applicable from April 2014, when the price of domestically produced natural gas is slated to double according to the Rangarajan formula which has been accepted by the Cabinet.

By Shuchi Srivastava of The Economic Times

The full article is visible via the link below – Pankaj Oswal

http://articles.economictimes.indiatimes.com/2013-11-19/news/44242483_1_gas-output-kg-d6-telecom-venture