Potential in Mexico’s chemicals sector

Mexico

Martin Toscano, managing director of Evonik Mexico, and Miguel Ángel Delgado, the company’s business manager for high performance polymers, talk to The Energy Year about challenges in Mexico’s petrochemicals and chemicals industry and the company’s solutions for ageing pipelines, among other issues. Evonik is a German speciality chemicals provider with several business lines active in Mexico.

What major challenges does the petrochemicals and chemicals industry in Mexico encounter?
Martin TOSCANO: The industry is missing a clear and common vision between state authorities and the private sector. Symmetries between all stakeholders are required to motivate further investments, business development and the full utilisation of existing assets in the country to serve local and global markets. This is mainly due to factors like the lack of raw materials, an unclear energy policy towards competitiveness and sustainability and, to some extent, limited government support.
By contrast, from a pure market perspective, the fundamentals are very strong. Mexico is growing and chemicals are in every step of the manufacturing value chain regardless of the industry. One also sees an increase in the relocation of supply chain manufacturing to fulfil key elements of the new free trade agreement with the US and Canada. There is also a new free trade agreement with Europe and ongoing discussion in Pacific Asia which will impact the sector.
The total petrochemical production capacity installed in this country is not being used. It is crucial for Mexico to consolidate a solid petrochemical and chemical manufacturing sector to then cater locally, regionally and globally. The chemical industry in Mexico represents just around 2% of the national GDP, employs more than 49,000 people but shows a trade balance deficit of more than USD 20,000 Mio currently. The industry is running at around 60% capacity only. There is significant potential and growth opportunities.

How does Evonik aim to embrace and capitalise on the changes triggered by the pandemic?
TOSCANO: In 2020-2021, we showed strong growth in Mexico in terms of revenue. One of the main reasons is the strong manufacturing footprint in this country, which includes local, regional and international players serving the automotive, aerospace, agriculture, protein, personal and home care, pharma and all other industries related and connected to these market segments. Also, we must consider the fact that Mexico was one of the countries least affected by the decline in FDI, and so doing business here has remained appealing.
The diversity and resilience of our product portfolio in speciality chemicals was also key. Being active in so many sectors gives us a holistic view of what’s going on, feeling the market through different channels. It also gives us a portfolio balance, which is elemental simply because when one market area is not doing as expected, one can always compensate with others. It’s always good to diversify one’s risk and the years 2020 and 2021 were all about mitigating risk – in terms of supply chain, but also in terms of the health, safety and wellbeing of our team and operations in the country.
It is commonly said that one should not let a good crisis go to waste and indeed, we want to capitalise on the crisis. We started asking ourselves what changes will follow in the post-pandemic era to be at the forefront. Now customers are starting to see concrete consequences of the pandemic such as the relocation of supply chains, the nearshoring or introduction of new products.
There is a new way of doing business and dynamics have shifted. In the chemical industry for example, we have seen the introduction of new applications and products as well as the bet on new technologies. Digital has proven to be more important than ever and is experiencing a substantial leap.
Also, we’re witnessing a consolidation of the market with the proliferation of JVs and other activities that will support the development of new business models and regionalisation of businesses. Also, there is a clearer agenda around matters such as sustainability and the environment. We see an opportunity in this change, so we’re now focusing on capitalising on this scenario.

What solutions are you introducing to protect Mexico’s ageing pipeline network?
Miguel Angel DELGADO: Oil and gas pipelines in Mexico are ageing rapidly, with the majority of them over 50 years old. This is obviously a major problem hampering the functioning of the industry, and more so when we acknowledge that the country has over 17,000 kilometres of lines. The solutions available are either to change them completely or to maintain them, for which we offer top-notch technology.
In this regard, we were involved in the Coatzacoalcos River project, which is a 1-kilometre pipeline that transports CO2 to a urea plant. We supply the polymer to produce the liner that protects this pipe. With this technology, one doesn’t have to open a trench to do the required maintenance works, which can take months – one has to only open one side and depending on the length of the line, introduce this liner. You can later join the lines again and start operating in a short period of time – not more than three days.
The second target market is gathering and flowline infrastructure. We launched a new product for expanding the use of thermoplastic piping systems at higher operating pressures and larger diameters to replace metallic piping systems in a safe and cost-effective manner. Here, a product called Polymer12 is used, which is very specific for this application as it has chemical resistance to hydrocarbon products.
Interestingly enough, this technology was developed here in Mexico and is unique worldwide. They now want to replicate this product in the UAE. We’re trying to offer these technologies to Pemex because they are the main owners of lines in Mexico.

What other products are you offering to enhance the performance of the oil and gas sector?
DELGADO: Evonik offers services to the entire value chain of the oil and gas industry. Here, we have developed advanced chemistries that enhance production, protect assets and increase value through the hydrocarbon lifecycle. From oil and gas reservoirs to refineries and petrochemical plants, our speciality chemicals enhance many aspects of the hydrocarbons industry.
On this note, we have a complete portfolio that we are introducing to the upstream sector to contribute to a better performance in the production of crude oil. For instance, we’re working in deepwater production to produce flexible pipes, which are in demand in the Gulf of Mexico. We are collaborating shoulder-to-shoulder with several firms to introduce this solution in deepwater plays.
In addition, in Mexico there is a focus on maturing fields, and thus on EOR techniques. We are interested in growing our presence in this area through chemical injection solutions. We’re now working to demonstrate that chemicals are the best solution to enhance recovery, being more efficient than solutions such as water. At the end of the day, our focus is on oilfield service and supply companies, as well as looking after the interests of the production community.
We cater technology used for paints and coatings that are then applied to oil platforms. These are also used for the painting and maintenance of large-sized ships. Although the demand for these services is low, it has plenty of potential in Mexico. We are looking to increase our activities in this sector, as the percentage of demand coming from oil and gas is not very high.

What current activities and business projections does Evonik have in Mexico?
TOSCANO: Now, the company is evaluating further development in the country given the growing relocation of supply chains, nearshoring and the opportunities arising from trade agreements with the US and the Asia-Pacific region. As a result of the pandemic, we believe we will see a further regionalisation of businesses and here Mexico plays a very important role in North America. Given this scenario we want to grow our in-country presence.
We don’t have significant local manufacturing here in Mexico today; we have more than 30 manufacturing assets across the border, in the US. The key element here is logistics and thus, to bring products into Mexico. We also have the benefit of Mexico having great connections through the Atlantic and the Pacific, giving us access to Europe and Asia, from where we import many products we need.
Locally, today our main business is the distribution of speciality chemicals and products that we bring to the country – and eventually also the handling and repackaging of materials. We have a network of sites in Querétaro, Santa Clara and Monterey, all well equipped and properly connected to our regional platform in North America. There are also some future projects in manufacturing that we are currently discussing.

What approach are you taking in the space of renewable energies and sustainability?
DELGADO: We are making slow but steady inroads in the area of renewables. The country is seeing an increase in solar farms and consequently, more players are starting to produce panels. We are also making a move in the direction of wind energy, catering coating solutions, anti-corrosion technology and lubricants for the structures (i.e. blades) and the manufacturing of equipment itself. Hydrogen is also a big topic for Evonik globally, and we hope to kick-start its growth in Mexico as well.
As a company, we take the energy transition and everything which comes with it seriously. As such, one of our leading principles at Evonik is to reduce our carbon footprint by 50% by 2025. Another area of huge potential for us is water treatment and management, especially in agriculture. We want to take the lead in bringing sustainable solutions to different segments of the Mexican economy, so we are monitoring what our products do for our customers in terms of reducing emissions or improving water treatment.

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