Summary
Venezuela has the potential to build ethylene operations that would rival Middle Eastern plants. Japanese companies actively supporting and participating in Venezuela's ambitious plans.
Analysis
Japan is a very expensive place to produce petrochemicals. Feedstocks are imported, power costs are high, and the assets are aging. In my supply curve last week, Japanese ethylene margins were the second lowest in the region, only $3 per metric ton ahead of Taiwan, and half the margin of the regional Asian leaders. Early on in the current downturn, Japanese producers reduced their ethylene and derivative capacity to a level that only served the domestic, tariff-protected market. Producers essentially stopped exporting ethylene equivalents.
Even before the Japanese giants were petrochemical producers, they were traders. They continue to have an important presence globally.
Mitsubishi recently announced that they would be exiting the polystyrene and PVC businesses in Japan. They would sell their stakes in joint ventures and close operations. The same announcement indicated that the company would evaluate their ethylene capacity in Japan with an eye on rationalization. So how will Mitsubishi and the other Japanese giant trading companies maintain their global position?
This article indicates that Mitsubishi and Inpex have an oil/gas and petrochemical deal with Venezuela. The José II project in Venezuela has been kicking around for at least a decade, if not longer. Usually Exxon was mentioned in connection with this proposed complex. Exxon certainly pursued this as recently as 2003, and probably eyed the project until their parting differences with the government of Venezuela.
The industry discussion around this project at the time had Venezuela supplying ethane from associated gas to the petrochemical operation for the production of ethylene. The price mentioned was 50¢ per MMBTU. Considering that Saudi Arabia supplies ethane to producers at 75¢ per MMBTU, and that feedstock represent 65-70% of the cash cost of ethylene, the plant in Venezuela would have probably been the lowest cost producer in the world. In addition, at that time, they would have been the lowest cost producer, and just a short boat ride from the largest polyethylene market in the world across the Gulf of Mexico.
President Hugo Chávez’s ambition is for Venezuela to become one of the ‘most powerful petrochemical nations in the world.’
There are no details available on the project announced in this article. Supplies and arrangements regarding feedstock are unknown. However, if the operations were to be structured like the long-planned José II project, the operations would rival Middle Eastern polyethylene producers in cost, if not in scale.
So, how are the trading giants of Japan maintaining their position? Mitsubishi and Inpex are investing in Venezuela. Marubeni and Mitsui have completed oil exporting deals with Venezuela. Sumitomo is a JV partner with Saudi Aramco in Petro Rabigh and scoping another ethylene facility in China.
Location, location, location.
