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Platts Petrochemical Report: Argentinean natural gas cuts continue to curtail Chilean methanol production
Platts
HOUSTON
Petroleumworld.com 09 04 07
Argentinean natural gas cuts continue to curtail Chilean methanol production
An unusually cold winter has constrained Argentine natural gas supplies resulting from, petrochemical production both domestically and in neighboring countries has suffered.Argentine gas has been in short supply since 2004 as demand has risen faster than production and the replacement of reserves. During the winter months (late May to mid-August), the country ran a deficit of 2,000 MW, or 10% of peak demand, and 40 million cu m/d, or 30% of average demand, on cold days.
The effect that the shortage has had on petrochemical production in Argentina and neighboring countries has been widespread. One of the most visible examples was Methanex and its production issues at its Cabo Negro facility in Chile.
In late April, Methanex was forced to shut one of its four plants in southern Chile due to limited feedstock supplies that resulted from constrained natural gas shipments out of Argentina.
The company's Chile 2 plant was taken offline in the first half of May and, at the time, was expected to remain offline until natural gas supplies improved.
"Instead of operating at that reduced rate with less gas efficiency in our four plants, we have made a decision to shut down one of them," Methanex Chile Chief Executive Paul Schiodtz said.
He went on to say that the company's complex in Chile had been running at rates between 80% and 90% capacity and that the remaining three plants would compensate for any production losses caused by the shutdown of the Chile 2 plant.
By the second week of June, the gas crunch worsened. Methanex was operating only one of its four plants at Cabo Negro. At the time, the company anticipated improved natural gas supplies within a week and sought to have a total of three plants online. However the plan did not come to fruition.
Production from the Chilean operations from April 1, 2007 to June 10, 2007 was 520,000 tons compared to production capacity of 740,000 tons, or roughly 70% of the total capacity.
As of August 22, Methanex was heard to be producing at only 30% capacity, sources said. By time of press, the three units at Cabo Negro remained down.
A source told Platts that, as of August 28, Methanex had received no Argentinean natural gas for the second consecutive day. The ratio of gas supplies used by Methanex was said to be 65% from Argentina and 35% local, the source added. This information could not be confirmed.
Methanex has an annual production capacity of 3.8 million metric tons. However, if the facility's running at 30% capacity, the result would be roughly 660,000 metric tons taken out of the market due to limited availability of natural gas from Argentina.
As expected, the gas shortages have had an effect on domestic production as well. According to the Argentinean government statistics office Indec, overall chemical production fell 20.2% from June to July of this year.
The country's total chemical production for the month of July dropped by 38.5% when compared to the same period in 2006. While labor strikes contributed somewhat to the declining production numbers, reduced gas supplies have been responsible for the lion's share of the deficit.
Indec said that the production of polymers and synthetic rubber dropped 38.3% in July from a year earlier. Compared with June, production was down 26.1% in July. Output of urea and other chemicals for fertilizers also plummeted 25.2% in July compared to a year earlier.
During the second week of July Argentina's Compania Mega was producing ethane at 40% of capacity, as freezing temperatures reduced the available supply of natural gas feedstock.
The gas cuts forced Mega to bring its production of ethane, butane, propane and natural gasoline to a standstill June 30 to July 2, later gradually lifting capacity to 60% as temperatures rose. The effects were felt downstream as the company sells ethane to Dow's PBBPolisur, which uses it to make ethylene and polyethylene.
During that same week, Argentine PVC producer Solvay Indupa, had been operating at lower capacity due to power and natural gas shortages but was able to keep up deliveries by using stock, a company director said.
The company was running its plants at a technical minimum of capacity, said Juan Alberto Cancio, the company's director of administration and finances.
By law, producers in Argentina can only export gas and other hydrocarbons and refined products in amounts that are in excess of domestic demand. This law forced the government to restrict the country's average of 20 million cu m/d of exports, 90% of which goes to Chile.
The extreme temperatures during early July forced Argentina to halt all exports of natural gas to central Chile, Chile's national energy commission CNE said. As a result of the constrained supplies, the government launched a subsidies program to substitute natural gas consumption at factories with gasoil and fuel oil, in an effort to free up 5.8 million cu m/d of gas to ease shortages that were stifling the economy.
In late July, Argentina increased exports of natural gas to neighboring Chile along the GasAndes pipelines to 1 million cu m/d from 500,000 cu m/d after reevaluating domestic market conditions, Chile's national energy commission, CNE, said.
As the crisis wore on into August, Argentina President Nestor Kirchner called on natural gas producers in Bolivia to step up exploration and production to supply a planned pipeline that would increase deliveries to Argentina.
Although the gas crisis was reportedly easing with warmer temperatures, the future outlook was tight gas supply/winter shortages for the next few years as production has not increasing and reserves were falling. In response, Argentina planned to import gas to compensate for the shortfall.
Platts 03 09 07
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