Uncertain Outlook for Mexico's Petrochemical Industry

HispanicBusiness.com ^ | June 17

[MRMEAN]

: New Report By Baker & Associates on Political Timetable of Project Fenix

HOUSTON, June 7 /PRNewswire/ -- A new report by Baker & Associates, Energy Consultants, documents the efforts by the Fox administration to reverse a ten- year decline in Mexico's petrochemical industry and a history of false starts in attracting private capital. In 2002, Pemex began seeking private investors for a US$2.6 billion, million-ton ethylene complex. The Mexican chemical market, meanwhile, needs more than $10 billion of imports annually.

Project Fenix features two innovations: Pemex would be a minority partner and the Oil Union would not have automatic labor rights in the new company. Four investors were selected in October 2004, three Mexican companies and 1 Canadian (Nova).

Investors are asking the government for substantial discounts on feedstock and energy costs compared to those of U.S.-based competitors. Investors want these incentives to counterbalance country and project risk. Such discounts are politically awkward, however. Natural gas prices, for instance, are tied, by law, to the opportunity cost of gas in relevant markets (Houston Ship Channel or Henry Hub). While there is pressure to change the netback system so as to lower the price charged for Pemex's gas production, the public policy conundrum has remained unsolved since 2001.

A separate matter is the selection of the site for the complex. Two cities are under consideration: Altamira and Coatazcoalcos. The two state governments are engaged in a full-press public relations effort to bring the complex home.

The report analyzes the agendas of Pemex, the investors and the Oil Union, and identifies issues that will need to be resolved in order for the project to be politically and legally viable. It also surveys the Mexican online press on Fenix since 2003, with the titles translated into English and current to June 6, 2005.

The report concludes that there is not enough time left in the political calendar of the Fox administration for Fenix to be finalized. "Mexico's chemical industry badly needs the new capacity that Fenix would bring," says George Baker, principal author of the report. "Fenix would also motivate new or expanded capacity by private investors. At present, however, the devil is in the details."

Baker is publisher of Mexico Energy Intelligence, an industry and policy newsletter. Its reports are available by subscription or on the web at http://www.energia.com/ . Baker & Associates, Energy Consultants

Web site: http://www.energia.com/

Source: PR Newswire