By BEN LEFEBVRE
Valero Energy will spend up to $700 million to build a petrochemical plant at one of its
Louisiana refineries, the latest sign that low US natural gas
prices are revitalizing domestic fuel and chemical
Valero's investment would be its biggest in the petrochemical business and make it
one of the world's largest producers of methanol, an alcohol
that can be processed into plastics, textiles and paint among
The move comes at a time when Dow Chemical and other petrochemical producers, who had
even five years ago considered the US too expensive a place to
manufacture chemicals, are now planning multi-billion dollar
investments in the country.
The promise of cheap natural
gas has lured companies to move some chemical plants from
other countries to the US. Canadian chemical company Methanex
is physically moving some of its production facilities from Chile in South
America to Louisiana.
"The low cost and availability of natural gas has made this
possible," Valero spokesman Bill Day said.
That availability has been the result of drilling innovations,
such as the combination of hydraulic fracturing and horizontal
drilling, that helped oil and gas companies tap the natural
gas trapped in shale rock, an endeavor formerly thought
uneconomical. US natural-gas prices have for months been below
$4 per million British thermal units, down from nearly $14 per
million British thermal units in July 2008.
Construction at Valero's refinery in St. Charles, La., is
initially scheduled to end by the first quarter of 2016 and
will expand the plant to produce 1.6 million tons of methanol a
year, Mr. Day said. Production would start soon after, Mr. Day
ExxonMobil, Phillips 66 and other energy companies with refining arms have relied on their
chemical sales to boost profits and offset slower growth in
other parts of their business.
Now, as rising US oil prices eat away at refinery profit margins, petrochemicals might be refiners'
best bet for profits, said Kevin Book, managing director at
consulting firm ClearView Energy Partners.
"Transportation fuels demand is flat-to-down, but (oil)
prices have stayed high," Mr. Book said. "Natural
gas prices remain obligingly low."
Dow Jones Newswires