December 17, 2014 [OPIS] - Yesterday, Cydsa, a specialty chemical manufacturer based in Monterrey, Mexico, received a contract from Petroleos Mexicanos to develop a salt cavern for LPG underground storage.
The cavern will be located right next to the Pajaritos Marine Terminal in Coatzacoalcos, Mexico‘s primary port for export and import of petroleum cargoes in southeast Veracruz state.
The critical path to finally reaching the contract stage was receipt of a permit for LPG storage from the Comision Reguladora de Energia (CRE), Mexico’s primary regulator of petroleum facilities and the electric grid.
Cydsa said in a statement to the Mexican stock exchange that the project will require investment of $120 to $140 million. Cydsa has a salt mining business at Coatzacoalcos which has operated for around 50 years. They will develop a new cavern for the Pemex facility, and operate it for 20 years under the contract. Planned in-service date is 1stQtr 2016.
Capacity of the cavern, or storage well, will be 1.8 million bbl of LPG, and it will be equipped with pump horsepower and related hardware to receive product from the dock at 5,000 bbl/hour or put product at the same rate into Mexico’s LPG mainline that crosses the country from the Pajaritos Terminal to Guadalajara.
The project is a major breakthrough as the first LPG underground storage facility ever developed in Latin America. MexGas Trading, the trading arm of Pemex Gas, will be freed from exclusive reliance on the spot market. With storage capacity for roughly three VLGC cargoes, they will be able to make advance purchases at slack times in the market instead of having to corral immediate cargoes to supply peak winter demand.
This is a landmark step in developing modern infrastructure for Mexican LPG which, after all, is the domestic fuel of choice in 80% of the nation’s households. As related in OPIS on Sept. 12, “Pajaritos terminal running on only two tanks,” the most storage Pemex ever had available at Pajaritos was 640,000 bbl (640 kbl) working storage in four 200 kbl tanks. But with two of those knocked out of service since 2013, they’ve had to make do with 320 kbl (26 KT) of storage, barely half of a VLGC cargo.
Among the ship-broking fraternity in Houston, it has been a source of wonder that Pemex never went forward with a plan to mine an LPG cavern to alleviate the perennial commercial and logistics headaches created by lack of storage.
In the late 90s, Pemex went on a major solution mining program in Coatzacoalcos, where the geology is very similar to the Texas Gulf Coast, underlain by salt domes everywhere. In the end, field sources believe they completed at least 12 caverns which were put into crude service. An LPG cavern was on the drawing boards, and included in the program, but before they could get to it, an election changed the party in power for the first time in 70 years, and the LPG cavern was lost in the shuffle.
Since that time Cydsa, under the leadership of Alejandro von Rossum, director general of their chemical division, has been quietly working in the background to get an LPG cavern approved by the CRE and obtain a contract with Pemex to assure that the cavern will be used. Throughout the 15 years since the engineering and permitting process has been underway, Cydsa has been teamed with SalTec International, based in Southport, Conn.
In Monterrey, Cydsa is a major producer of acrylic yarns and industrial gases. But two of its business lines are conducted atop a salt dome in Coatzacoalcos. One, Sales del Istmo (SISA), is a commercial salt business with a line of consumer salts and a line of industrial salts. The other, Industria Quimica del Istmo (IQUISA), produces chlorine and caustic soda for the Mexican and Central American markets.
After years of negotiations with Pemex to get firm backing for a project, Cydsa finally tired of the wait and pulled the trigger in 2012 on capital spending to develop new caverns in their salt dome. In the 2013 Annual Report, they say that two domes were finished last year. Reports from the field indicate that now, at the end of 2014, solution mining is complete on two more caverns. Total capex just for the salt leaching of the caverns is $100 million over the three years of the program.
In reality, say the field sources, mining of the first well for 1.8 million bbl is complete. That budget of $130 million for an operational LPG storage cavern simply adds $100 million to the cost of the well for all the necessary surface equipment: the high-volume pumps, the brine storage ponds and all the pipeline connections. With a firm contract now in place, SalTec has the right to come into this project and all related salt-dome storage projects developed by Cydsa for a minority equity interest.
The Cydsa complex is just southeast of Pajaritos Terminal, and the LPG mainline, which originates at the Cactus gas plant near Villahermosa, goes right past their yard. Naturally, plenty of new piping will be needed to provide product transfer from the dock to the cavern and from the cavern into the mainline headed west.
What about all those other wells Cydsa has been mining on spec, i.e., without a contract? This is where the entrepreneurial boldness of their cavern mining program really comes to the fore. Pemex has an ambitious “trans-oceanic” pipeline project, the Trans-Istmo Pipeline, to cross the narrowest part of Mexico, the Isthmus of Tehuantepec, and provide a land bridge by pipeline covering the 186 miles between the Atlantic and the Pacific at Salina Cruz.
Pemex Gas is proposing to go head to head with the new, wider Panama Canal and provide transfer service between the oceans for an apparent tariff of $2.52 per barrel. Pemex Gas is claiming that tariff would represent a savings of roughly $4.20/bbl over the Panama Canal transit. They also calculate that using the Mexico-transfer option would knock seven days off the trip from Houston to China, reducing it to 25 sailing days.
And the storage that would make this new global transport option possible? Why, those three additional storage wells Cydsa has just completed mining. Incoming tankers will offload cargoes into the Cydsa caverns, which will be the holding tank to assemble pipeline batches for the new 20-inch pipeline. Pemex has proposed a tentative budget of $800 million for the pipeline and the terminals at each end and is presently soliciting interest from an Asian commercial partner.
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