Cracker plant investments to soar
Chevron Phillips Chemical Co. said its industry may spend $30 billion to build U.S. factories that convert natural gas into plastics because shale gas has made American production the cheapest outside the Middle East.
Output from shale formations will yield enough natural-gas liquids such as ethane to support about five new plants that produce ethylene and related plastics, said Mark Lashier, an executive vice president at Chevron Phillips. Each facility will cost $5 billion to $6 billion and will be built over more than a decade, he said on Tuesday in Houston.
The company, a joint venture of Chevron Corp. and ConocoPhillips, is spending $5 billion to build a new ethylene plant in Baytown, Texas, by 2017 as well as two polyethylene plants and related infrastructure, Lashier said. Dow Chemical Co., Sasol Ltd., Formosa Plastics Corp. and Royal Dutch Shell Plc also are studying plans to build new plants, known as crackers, to use the relatively inexpensive gas.
"It's tens of billions of dollars that the industry will have to invest to take advantage of that," Lashier said at CERAWeek, a Houston conference held by IHS Cambridge Energy Research Associates.
Cheap gas is doubly advantageous to chemical makers because it's used as a raw material and to power factories. U.S. gas is at a record low relative to oil, which is used to make petrochemicals in Europe and Asia.
U.S. plastics exports may surge as new plants start, creating the need for new infrastructure to handle the increased shipments, Lashier said. Plastics producers need to be sure they have port, rail and trucking capacity in place to get their products to Europe and Asia by the most efficient means, he said.
"The ports work very well right now, but we are importing more than we are exporting," Lashier said. "We kind of have to reverse that flow."
First-quarter profit margins from polyethylene and other ethylene derivatives are unsustainable, he said. An unusual number of crackers are temporarily shut, which cuts ethane demand and tightens ethylene markets, he said. Dow Chemical Chief Executive Officer Andrew Liveris also expects ethane costs to rise near term.
"We are seeing good margins like the rest of the industry, but it's short term," Lashier said. "We see things lining back out later this year."
Ethane is a component of gas used to make ethylene, the most produced petrochemical and an industry bellwether. New drilling methods are opening up shale formations from Colorado to West Virginia, reducing the price of gas.
Ethane at Mont Belvieu, Texas, has fallen 36 percent this year to 52 cents a gallon, according to Liquidity Partners data compiled by Bloomberg.