While Colombia has experienced a significant increase in oil production over the past four years, recent events indicate that the petrochemicals segment will begin to follow a similar upward trend. In November 2011 Ecopetrol, the partially state-owned oil company, announced plans to expand oil refining and petrochemicals production capacity. Since then, several plastics producers have also announced their intentions to expand. Leaders from the sector predict that Colombia?s strong economic performance will lead to greater demand for plastics and other petrochemicals products in the future.
As part of its expansion plans, Ecopetrol will invest $4bn in upgrading its refinery in Cartagena over the next two years. The company will also expand its Barrancabermeja refinery. These operations will help to fuel growth in the petrochemicals sector as a whole by increasing the available quantity of feedstock.
For example, Propilco, an Ecopetrol subsidiary and Colombia?s only polypropylene producer, will benefit directly from the increased refining capacity. Ecopetrol provides Propilco with 30% of the propylene used in its products; this currently amounts to 130,000 tonnes annually. By 2015, this figure is due to increase to 270,000 tonnes following completion of the expansion at Cartagena. The total will then increase to 330,000 tonnes by 2018, following the Barrancabermeja expansion.
Propilco is also looking for partners to join in the creation of a propane dehydration (PDH) plant. Sebastian Zapata, the vice-president of planning and strategy at Propilco, told OBG that PDH represents an important discovery for the petrochemicals industry as it creates a more cost-effective alternative for producing propylene by using propane as feedstock.
?One strong option that Propilco is exploring is to have a PDH plant through a joint venture,? Zapata said. ?The plant could be operational by 2015, adding an additional 230,000 metric tonnes of propylene supply to the country.?
In addition, Pavco, a subsidiary of the Mexichem petrochemicals group, will be investing $40m in building two new plants in North Cauca. The company specialises in producing tube systems for transporting water. Pavco plans on maintaining this focus post-expansion, while also engaging in a greater number of public-private partnerships related to water infrastructure development and management.
The company?s expanding operations are representative of a strong growth opportunity for the plastics segment and the petrochemicals sector as a whole. A lack of infrastructure, however, remains one of Colombia?s most serious challenges and one of the areas where President Juan Manuel Santos is most intent on making a major impact. Most infrastructure projects involve plastics in one form or another, which is good news for Pavco, Propilco, and the country?s other petrochemicals and plastic producers.
Petrochemicals will also play an important role in meeting Colombia?s social housing needs and developing the country?s food export sector. Carlos Alberto, the president of the Colombian Petrochemical Association (Acopl?sticos) told OBG, ?Colombia’s emergence as a processed food exporter, particularly to neighbouring countries, is among the causes of growth for the plastics industry, as it encourages the use of plastics for packaging?.
Overall, plastics consumption in Colombia remains low in comparison to developed countries. For example, the average US resident consumes 100 kg of plastics per year, while in Colombia this figure is closer to 19-20 kg, according to Acopl?sticos. This gap represents huge growth opportunities for petrochemicals and plastics, as well as fast-moving consumer goods. Alberto stated, ?The plastics industry has experienced, on average, a 7% growth over the last 25 years. Growth is foreseen to remain strong going forward.?
While the petrochemicals segment?s growth opportunities are plentiful, it is not without its challenges. For polypropylene producers such as Propilco, the emergence of Asian producers is a source of concern. While most new polypropylene plants in Asia are aimed at meeting demand in China, Zapata said that ?if China does not reach its expected growth rate of 10%, then that excess will be exported to the global markets?, thus depressing polypropylene market prices. Zapata is optimistic that this would only be a temporary concern however, claiming that in a balanced global market demand for polypropylene will remain high.
A bigger concern for producers is the strength of the Colombia peso, which hinders exports. Nonetheless, petrochemicals exports totalled $16bn in 2010. Industry leaders are intent on remaining competitive on the global market. To this end, companies are showing their determination by investing heavily in the training and development of human resources for the sector, as well as upgrading production facilities to include the most advanced and cost-effective technologies.