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Early 2015 has seen the region striving to adjust to collapsing commodity prices and the slowdown in trading partner China’s economy, in particular. Analysis suggests that South America is in search of a new post-commodities boom economic model, while belt-tightening in the short-term will see growth slow.
Though prudent economies such as Chile and Peru are understood to be less exposed to the cyclical commodities collapse, Venezuela is known to have significantly suffered from the plummeting price of oil and Brazil – the largest of both the Latin American nations and the region’s gases markets – is cutting public spending by 2% of GDP. Slowing growth is the new norm, it seems.
For the South American industrial gases business, plant proliferation continues and a steady tranche of investment exists. Here we explore some of the recent developments in the region.
Bolivia
May 2014 saw DeMaCo awarded the contract to engineer, produce and supply vacuum insulated pipelines for the transfer of LNG on a new LNG plant in Rio Grande, Bolivia. The order was given by the consortium Indox Cryo Energy (Ros Roca) – Sener, which successfully tendered for the overall project contract.
The consortium will construct a plant to liquefy natural gas that will serve six of the nine regions of the country, with operations previously scheduled to start by the close of 2014. The plant will have the capacity to produce 200 metric tonnes of LNG per day, which will be transported in cryogenic tanks to Regasification Satellite Stations (ESR) to re-gasify the LNG and distribute the gas product through pipelines to houses and commercial users.
Brazil
As host of the FIFA 2014 World Cup, Brazil embarked upon various infrastructure improvement projects, including investments to airport terminals and road networks. With the 2016 Olympic Games in Rio looming too, estimated spending on new stadiums, transport links, airports and other infrastructure is reportedly into double-digit billions of dollars.
All of which comes against a mixed economic backdrop. For an economy that had previously been expected to elevate into one of the five largest in the world, growth has cooled. Despite this Brazil is the world’s seventh largest economy, a key part of the BRIC collective, and the largest of the Latin American nations; it is no surprise that the country’s gases business accounts for around 60% of a buoyant South American industrial gases business.
A key contributor to the development of the Brazilian economy is the country’s steel sector, once described as one of the most competitive in the world by the Brazil Steel Institute (IBS). In 2011, IBS data shows, there were 29 steel mills in the country, managed by 11 business groups.
One of these business groups is ArcelorMittal, one of the world’s leading integrated steel and mining companies. Praxair, Inc.’s Brazil-based subsidiary White Martins has a long-term relationship with ArcelorMittal and is the company’s main industrial gas supplier in Brazil, delivering gases to five of its facilities located in Espirito, Santo, Minas Gerais and Sao Paulo.
This relationship has particular longevity in Minas Gerais, southeastern Brazil and was built upon further in October 2013 when White Martins started up a new 800 tons per day (tpd) air separation plant (ASU) in the state. The new energy-efficient ASU enables ArcelorMittal to serve customers across all major steel-consuming industries, including automotive, mining and construction, while for White Martins it will also supply local merchant liquid customers in the Brazilian southeast.
Annual crude steel production for Brazil was 34.2 million tonnes (Mt) in 2013, according to the World Steel Association (worldsteel), down 1% compared to 2012 and perhaps indicative of the future of the steel business in the country. Of concern to Brazil’s steel industry has been high inflation. Though the country still ranked inside the top 10 global crude steel producers in 2014, Brazil’s crude steel production in 2014 stood at 33.9 Mt, a further year-on-year contraction of 0.7%.
Investment in the steel sector does continue, however, and Praxair is contracted to be part of another new steel mill emerging in the country. The company announced in January (2014) that it had signed a long-term contract to supply gases to a steel mill being built near the Port of Pecém, northeast Brazil. The mill will be operated by Companhia Siderúrgica do Pecém (CSP), a joint venture between Brazilian Vale and South Korean Dongkuk Steel and Posco Steel.
Praxair will build, own and operate a 2,400 tpd cryogenic plant that will produce gaseous and liquid oxygen, nitrogen and argon, and will enable CSP to produce an expected three million tons of steel slabs annually – largely for export.
The plant is expected to start up in 2016 and in addition to supplying CSP, will serve merchant and packaged gas customers in a variety of sectors across the northern and northeastern regions of Brazil, within the food and beverage, metal fabrication, healthcare and automotive industries.
Metallurgy (25%), manufacturing (18%) and healthcare (15%) make up the top three industrial gas applications in Brazil, reflecting our aforementioned understanding of the key components of Brazil’s economy. Praxair recently announced the start-up of multiple plants serving the country’s manufacturing sector, providing oxygen to leading housewares manufacturer Nadir Figueiredo S/A. Praxair’s new plants in Sao Paulo produced a combined capacity in excess of 100 tpd of gaseous oxygen, used in glass furnaces to enhance combustion, improve process efficiencies and productivity, and reduce nitrogen oxide emissions.
Praxair had previously supplied the company with liquid oxygen to meet its manufacturing needs, but with its new plants on-stream some of this liquid product will now be used to serve merchant and packaged gas customers across southeastern Brazil.
Mirroring the country’s currently ‘cooled’ economic growth, the Brazilian industrial gas market was relatively static in 2013 registering around the same value ($2.4bn) as in 2012, according to gasworld Business Intelligence.
Mexico
The Mexican merchant industrial gases business consolidated when in 2002 the Infra/Air Products joint venture acquired Messer’s small Mexican business, and in 2007 Praxair purchased Linde’s AGA Mexican merchant subsidiary. This left a few independent small gas companies and distributors and created a duopoly. Recently this situation has been altered by the presence of Air Liquide in the Northern region.
Over the last few years, Praxair has made significant investments in several plants: a new 400 tpd plant in Monterrey; a 120 tpd VPSA (vacuum-pressure swing adsorption) unit in Fonderia and a 140 tpd VPSA for Johnsons Controls; an ASU in Ciudad Sahagun; and a hydrogen plant at Tepeji del Rio, both in Hidalgo. Praxair also had a 500 tpd ASU expected for start-up in first-half 2014 for a DeAcero steel mill expansion in Coahuila state.
Air Liquide entered the Mexican market in 2011 through an agreement with Altos Hornos de Mexico (Ahmsa) for the installation of an ASU at Ahmsa’s steel mill in Monclova, Coahuila state, in Northern Mexico. This plant started up in April 2013 and produces 1,550 metric tpd of oxygen, plus nitrogen and argon, representing a total investment of $100m. In September 2013 Air Liquide announced a new $60m investment at the same site for the acquisition of an existing plant and investment in a new ASU. The total production capacity of Air Liquide Mexico’s four ASUs (three in Monclova, Coahuila, and one in Pesqueria, Nuevo Leon) will reach approximately 3,000 tons of oxygen and more than 100 tons of argon per day, and will provide liquid for customers in the merchant market in Northern Mexico.
Mexico’s oil and gas sector is very active in EOR, which uses nitrogen to increase pressure at the oil wells in order to fight declining oil production and has resulted in various capacity investments in the country to this effect.
The total Mexican industrial gases market in 2013 reached about $1.9bn, according to CryoGas International’s analysis of the region in October 2014.
Peru
Recent analysis of Peru’s economic outlook suggests that the country will maintain its position as one of the leading – and secure – economies in South America. Up to 4% growth in Peru’s economy is said to be possible this year, building upon the 2.5% experienced in 2014.
The last 12 months has seen Praxair announce two new projects in Peru. Firstly, the company revealed the start-up of a new 270 tpd ASU in Pisco, central Peru, in April 2014. The plant will increase Praxair’s supply of oxygen to Aceros Arequipa, the country’s largest long steelmaker, as it expands its metals production capacity. The new ASU is Praxair’s third plant serving Aceros Arequipa’s Pisco facility.
Secondly, Praxair is constructing a new steam methane reformer (SMR) to provide hydrogen to Repsol’s La Pampilla Refinery in the Callao district near Lima. Expected for a 2016 start-up, the 12 million standard cubic feet per day SMR will use natural gas or naptha as a feedstock for the production of hydrogen.
Uruguay
Praxair started up a new 125 tpd non-cryogenic VPSA plant at the Montes del Plata pulp and paper mill in Punta Pereira, Uruguay in June 2014.
The pulp mill is the largest privately executed investment that has been made in Uruguay, with more than $2bn invested in the modern pulp mill, including its power generation unit based on renewable resources. The mill is expected to produce 1.3m tonnes of cellulose pulp a year for paper and cardboard manufacturing, and Praxair will supply gaseous oxygen from its new VPSA plant in response to growing environmental regulations to eliminate the use of chemicals in the pulp bleaching process.
Oxygen delignification reduces the use of chemicals in the plant, resulting in operational cost savings, environmental benefits, and enhanced yield in pulp production.