Methanex moving chemicals plant from Chile to less stable Latin American state

Louisiana, here they come. Bloomberg reports:

Methanex Corp. (MX), the world’s biggest methanol maker, plans to dismantle an idled Chilean factory and ship it to Louisiana where it will be reassembled to capitalize on the lowest U.S. natural-gas prices in almost a decade.

The article fails to explain the back-story here. Argentina used to sell Chile lots of natural gas. Methanex built four plants in Tierra del Fuego to turn some of this fuel into chemicals. At the time, Argentina’s peso was pegged to the dollar and its price of natural gas was regulated.

Argentina eventually devalued its currency, making everything in that country more expensive. Except gas. It kept natural gas prices low, causing motorists to convert a big chunk of the vehicle fleet to the cheaper fuel. Soon, Argentina was suffering for lack of natural gas. People started freezing in their homes for lack of heating fuel. Power plants went into crisis mode. Predictably, Argentina cancelled its supply agreement with Chile.

Methanex had to shut down several methanol production lines. Over time, it has sought new natural gas supplies, including Chile’s own gas resources. But Southern Cone gas is still several times more expensive than the same fluid in Louisiana. So, off they go. It’s hard to analyze their cost-benefit situation because the company statement doesn’t reveal how much they plan to spend on the move.

Recall that Methanex took lots of rhetorical fire last year when southern Chile was facing higher gas prices.

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9 thoughts on “Methanex moving chemicals plant from Chile to less stable Latin American state

  1. Ariel

    “People started freezing in their homes for lack of heating fuel.”
    Wrong. Gas natural was kept at even lower prizes than industrial or vehicular, and prioritized over those. Also, vehicular gas, despite of high growing rate, isn’t a big chunk of all gas consumption, IIRC.
    There were even programmed industrial natural gas cuts to keep people warm on winter.
    Also, I think you got your financial part wrong: when the peso got free from being pegged to the dollar, the prizes went down from international POV.
    If anything, the issue for Argentina/Chile gas exports was one of giving cheap a lot of something you weren’t using because you were shrinking, to found that you had no longer an excess of it because now you were growing at a bigger pace than ever: from industries going from less than 50% of installed capacity being used, plus new investments, plus an expansion of home gas net, and, just then, a lot of gas used in vehicles.
    Sorry for the long digression.

  2. sapitosetty Post author

    Thanks for taking part. It looks like you’re right about the deaths from cold — they weren’t from freezing in homes, but from carbon monoxide and other such things. That said, that year did have extreme gas consumption and rationing. The vehicular consumption was one part of it. As I understand, overall, Argentina natural gas consumption grew a lot after the devaluation. If I’m wrong about that, I take responsibility for not carefully fact-checking my source — a very nice energy expert I interviewed the other day.

    I didn’t get the financial part wrong. I was talking about domestic gas prices staying low — not international prices.

    1. Ariel

      I think we got it right: for international prizes, everything in Argentina went down, including gas. For domestic prizes, everything went up (but not suddenly, by devaluation. It was a few years of different causations, included in inflation figures), except energy, transport and some other subsidized activities.
      The gas consumption grew a lot, indeed. With the rate of overall growing of the country, specially on industries, and being the energetic matrix heavily biased toward natural gas, plus a very extended grid for home use, plus cheap prizes, there was no other chance in the short and medium term.
      I remember seeing a graphic on distribution of that growth on the web, but I don’t remember were, sadly.
      A pair of links to places where it could be:
      http://www.cienciayenergia.com/Index_princip.htm
      http://colectivoenergetico.blogspot.com/

  3. westslope

    Thanks Dr. Faustus.

    In the background US net exports of petroleum products have been growing steadily. Retrofitting existing refinery capacity is much easier than setting up new greenfield refineries, and so I expect this heavy manufacturing industry to do well going forward.

    To nuance, Venezuela is not losing capacity to refine heavy oil. Some of that capacity is simply no longer cost effective and is being mothballed because of domestic policy.

    1. Dr. Faustus

      I think we’ll have to disagree here.

      PDVSA is most assuredly “losing their capacity to refine heavy oil.” With Hovensa shut down, and the German refinery sold two years ago, the heavy oil refining capacity of Venezuela has been significantly reduced. Furthermore, it is highly unlikely that the United States refineries will belong to PDVSA at the end of 2012. It’s almost a guarantee. But, that’s it. Venezuela will be left with very few options for the future. Fascinating story here.

      1. Ariel

        To make things even more convoluted, PDVSA has just signed an agreement with ENARSA from Argentina to build a refinery on argentine soil.

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