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By Diego Oré
MEXICO CITY, Oct 17 (Reuters) - Mexico's incoming government will soon inherit a costly dilemma over an ethane supply contract between national oil company Pemex and a consortium led by a unit of Brazilian builder Odebrecht.
Under the contract's terms, Pemex has had to supply ethane well below current market prices.
A hydrocarbon that comes from natural gas, ethane is used to make ethylene, which in turn is used to make the common plastic polyethylene at the Braskem-Idesa plant near the Gulf coast port of Coatzacoalcos.
The plant is operated by the consortium in which Odebrecht's unit Braskem has a 70 percent stake and Mexico's Grupo Idesa holds the remainder.
Energy aides to President-elect Andres Manuel Lopez, who takes office Dec. 1, have said the contract is problematic, but have not yet said what the new government will do about it.
"The contract with Braskem is very damaging to Mexico's interests," Sen. Armando Guadiana, of Lopez Obrador's Morena party and heads the Senate energy commission, told Reuters last week. Pemex is fully owned by the government.
The Braskem-Idesa consortium told Reuters last week it has no plans to void the contract.
If President-elect Lopez Obrador were to direct Pemex to cancel the contract, it would be forced to purchase from the consortium the sprawling Etileno XXI petrochemical facility currently valued at $1.26 billion, according to a contract annex seen by Reuters.
Neither Pemex or Braskem responded to questions about the valuation.
Conversely, if the new government opted to stick to the deal, it could only hope for more favorable ethane prices that might reduce its losses.
MUTUALLY BENEFICIAL?
Under the terms of the 20-year-long contract, Pemex committed to selling ethane to Braskem-Idesa for 16 cents per gallon. When the contract was signed in 2010 market prices for ethane were three times that, at 50 cents per gallon.
Current ethane prices hover around 40 cents per gallon.
A Pemex spokesman said the contract, which took effect in 2016, "responded to the market conditions of that time."
Before the facility began operations in 2016, Pemex produced more ethane than it needed, forcing it to inject excess supply back into its natural gas pipelines.
Pemex's production of ethane this year averages 88,000 bpd, but this is now insufficient to supply its own Morelos and Cangrejera petrochemical facilities that require a combined 66,900 bpd, plus the Baskem-Idesa contract obligation of 66,000 bpd.
As a result Pemex was forced to turn to ethane imports this year for the first time as domestic oil and gas production continues to fall, costing Pemex some $50 million during the first half of 2018, according to Reuters calculations, due to the cost of imported ethane at market rates compared to the cheaper fixed price in the contract with the Braskem-Idesa consortium.