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Valero to build major methanol plant adjacent to Louisiana refinery

07.15.2013  | 

Construction at Valero's refinery in St. Charles, La., is initially scheduled to end by the 2016 first quarter and will expand the plant to make 1.6 million tpy of methanol. Production would start soon after.

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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 manufacturing.

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 other products.

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 said.

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



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