Mexichem SAB is planning a joint venture with Occidental Chemical Corp. to produce more than half a millions tons of ethylene a year, in order to maintain long-term supplies for its PVC plastics production.
On July 30th, Mexichem and Occidental Petroleum Corp. unit, Oxychem, signed a memorandum of understanding to build a 544,000 tons a year capacity ethylene cracker. A feasibility study is expected to be completed in the second quarter of 2012 and the plant would be operational in 2016, if the project goes ahead.
The majority of the ethylene would be used at Oxychem’s Ingleside, Texas plant to produce 1 million metric tons a year of vinyl chloride monomer (VCM), a raw material used in PVC plastic production. Under a longterm supply contract, Oxychem would sell the VCM to Mexichem.
Mexichem former chief executive Rafael Davalos, left his position in June to lead the current project and explained that securing the supply of VCM would complete the chlorine-vinyl chain integration. The agreements and a joint investment with Petroleos Mexicanos, Mexico’s state oil company, will guarantee the raw material supplies that Mexichem requires to maintain its PVC production at competitive rates. The agreement with Pemex will raise VCM supplies for the current 220,000 tons to 400,000 tons. The company expects to increase its output of PVC from the current output of just over 1 million tons to 1.2 million tons in 2013 and 1.5 millions tons by 2016.
Davalos said that the cracker project would require an investment of approximately USD$1 billion to be split evenly between the two companies and that the plans would go ahead unless another party were to guarantee long-tern ethylene supplies at a preferential rate. The increased use shale gas has raised production and decreased the price of natural gas in North America, prompting others to plan the construction of ethylene crackers.
“Oxychem is enormous, and we’ve been working with them for years,” Mr. Davalos said. “What they haven’t got is ethylene, they buy it to make VCM for us.”