Use of a recursive mixed-integer programming model to detect an optimal integration sequence for the mexican petrochemical industry

Abstract Developing countries are typically dependent on imports to meet their domestic demand for petrochemicals. Long-range as well as short-range development studies are needed to provide a proper integration sequence for the industry. We present a recursive mixed-integer programming model of the petrochemical industry. The model provides the sequence of short steps needed to achieve a specified long-range development plan. An application of the model to detect an optimal integration sequence for the Mexican petrochemical industry is presented. Scope —The integration of economic sectors such as the petrochemical industry is of major importance for developing countries. The problem involves the proper substitution of imports and an orderly growth of the industry. An investment planning model would assist the decision-maker to analyze the impact of alternate development policies. Several factors influence an integration program, 2 of those being the price structure of domestic feedstocks and the expected demand levels for petrochemicals. In a previous paper we have shown how different price structures for basic feedstocks promote different long-range development plans for the Mexican petrochemical industry, [1]. An equally important problem is that of detecting the strategic addition of production capacity to the existing industry in order to reach that target structure. In this work we use a recursive mixed-integer programming model to detect an optimum integration sequence for the Mexican petrochemical industry. Through a sequence of short planning steps, the model provides the yearly expansions necessary to achieve a given long-range development plan. Since the model takes into account economies of scale, an expansion is selected only when proper demand levels for the chemical products are reached. Conclusions and Significance —A recursive mixed-integer programming model for the petrochemical industry has been presented. The model is better suited for applications for developing countries. Driven by a specified price structure of primary feedstocks and forecasted demand levels for petrochemicals for each year of the development period, the model provides an optimum integration program for the industry. The results of the model also provide the basis for a further economic analysis of the resulting integration plan for the chemical industry. The decision-maker would then analyze the impact of a given development policy taking into account factors such as the reduction of imports, the potential export capability, the investment requirements, and the yearly cost of subsidies that would be required to meet that development program.