Mexico cuts natural gas supply to Braskem plant: Update

Adds comment from Braskem, other details.

Mexico's state-owned pipeline administrator Cenagas cut natural gas supply to Braskem Idesa's Ethylene XXI plant, forcing a complete shut-down in operations.

"Cenagas' actions have caused the complete suspension of the plant and negative repercussions not just for us but for our clients, providers, employees and hundreds of businesses that depend on the supply chain, affecting the national petrochemical industry," Braskem said today.

Cenagas informed Braskem on 30 November that it would not renew its fixed-transport contract and on 1 December also cut gas supply under the company's interruptible service contract, leaving the plant without supply.

Contract terms require a 48-hour notice for cancellation, but the company's request for service to ensure an orderly shut-down was denied.

Army personnel appeared at the site without warning to shut the pipeline valve and block gas supply into the plant, Argus learned.

The pipeline administrator chose not to renew the contract because of alleged corruption in its awarding, a government official told Argus today.

Gas transport contracts would usually only be cancelled or not renewed in the event of failure to pay, a former Cenagas official told Argus.

Braskem Idesa's 58,771 GJ/d gas transport contract — required to power operations at its plant — started on 1 July 2017 and expired on 30 November, according to the Cenagas electronic bulletin board.

"We ask that the rule of law be respected and that the administration allows the decisions taken by Cenagas to be rectified as they are an affront to operational security, among other things," Braskem said.

The plant has been at the center of a long-running corruption investigation linked to Braskem's parent company, Brazil's Odebrecht.

President Andres Manuel Lopez Obrador has repeatedly called for cancellation of state-owned Pemex's 20-year contract — signed in 2010 — to sell ethane to the ethylene plant at below-market cost. Pemex has also been forced to make costly ethane imports to meet demand in its own ethylene plants.

Pemex's ethane production from wet gas processing — essential to meet contractual commitments — dropped to a five-year low of 61,000 b/d in October, down from the 80,000 b/d produced in October last year and down from 70,000 b/d in the previous month.

Following the failure of Braskem Idesa and Pemex to renegotiate terms, Lopez Obrador said he had ordered cancellation of the contract on 13 November. Braskem Idesa maintained at the time that the contract remained valid.

By Rebecca Conan