Mexico Shuts Off Natural Gas Supply to Brazil's Braskem

MONTERREY, Mexico (Reuters) - Mexico has cut off natural gas supply to Braskem's Mexican operations, the company and government said, intensifying a dispute between President Andres Manuel Lopez Obrador and the Brazilian petrochemical company.

"There's no more natural gas for the company because the contract has ended," Lopez Obrador told reporters during a Wednesday news conference.

Lopez Obrador's administration had been seeking for some time to renegotiate a separate contract covering supply of a different gas, ethane, to make plastics at the Braskem-Idesa Etileno XXI plant near the Gulf coast.

The arrangement, signed by another Mexican government in 2010 and in effect until 2034, obliges state-run oil company Pemex to supply ethane at low prices to Braskem-Idesa, a consortium held 70% by Brazil's Braskem and 30% by Mexico's Grupo Idesa.

It appeared that the decision to shut off natural gas supplies was taken in order to make it impossible for the plant to keep operating.

The company asked authorities to "rectify" the decision taken by natural gas pipeline administrator CENAGAS and warned it must take legal actions to defend its rights.

"CENAGAS's actions have caused the total suspension of the plant's processes," Braskem-Idesa said in a statement.

Braskem-Idesa accused the authorities of jeopardizing the safety of the plant and employees by cutting of gas supply abruptly and not providing 48 hours of reduced supply to shut down operations safely.

Braskem-Idesa's statement appeared to contradict Lopez Obrador's claims that the natural gas contract had ended, describing it as "in force."

"We have repeatedly expressed our willingness to discuss with the authorities the issues that are raised today in relation to the operation of Braskem Idesa and its contracts with Mexican state companies, bringing proposals for solutions," the company said.

Under the terms of the 20-year contract for ethane supply, 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.

A hydrocarbon that comes from natural gas, ethane is used to make ethylene, which in turn is used to make the common plastic polyethylene.

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