By JACK KASKEY
Chemical makers from Germanys BASF to Brazils
Braskem plan to invest as much as $72 billion in US plants,
as they become increasingly convinced natural gas will remain
cheap and abundant.
BASF is planning its most expensive plant ever, a propylene
facility on the Gulf Coast that will take advantage of gas
that costs about half what it does in Europe
. Chemical makers get a
double boost from cheap gas, which is both a raw material and
a source of power for their factories.
Foreign companies account for 62% of announced capital
investments in the US chemical industry, the largest ever
influx from other nations, according to the American
Chemistry Council. BASF, Braskem and Royal Dutch Shell said
theyve overcome initial reservations about US gas
production and prices as they finalize spending decisions.
We came to the conclusion this will be a sustainable
advantage for the US, said Hans-Ulrich Engel,
BASFs North American chief. That is why we are
comfortable making an investment.
BASF, the worlds largest chemical maker, is confident
its US facilities
will benefit from cost
advantages over plants in other regions as US gas reserves
have surged to more than 100 years of supply, he said.
Prices, which peaked in 2005 at more than $15/MMBtu, are
averaging about $4.65 this year. That compares with about $9
. While US prices may
increase slightly, Engel expects them to remain among the
lowest in the world and cheaper than naphtha, the oil-derived
material thats commonly used in Europe
In addition to the Gulf Coast propylene plant, BASF expanded
a Texas ethylene facility it owns with Frances Total,
and its considering an ammonia factory in Texas, a
venture with Oslo-based Yara International.
The propylene plant will cost more than the 1 billion-euro
($1.4 billion) toluene diisocyanate factory BASF is building
in Ludwigshafen, Germany, the companys largest
investment to date, Engel said. Propylene is used in used in
paints and bottlecaps and toluene diisocyanate goes into
seating cushions and mattresses.
The three BASF project
s would add about 500
million euros to annual earnings before interest, taxes,
depreciation and amortization, said Jeremy Redenius, a
London-based analyst at Sanford C. Bernstein & Co., who
recommends buying the shares. More than half of that will
come from the propylene facility.
The foreign investments combined with new plants from US
companies such as Dow Chemical and Westlake Chemical total
$117 billion and will help turn a $3 billion trade deficit
for chemicals into a $30 billion surplus in five years, said
Cal Dooley, chief executive officer of the Washington-based
American Chemistry Council.
Shell has signed 10 gas supply contracts, some for as long as
20 years, for proposed ethylene and polyethylene plastic
plants in Monaca, Pennsylvania. While the company hasnt
made a final decision on whether it will build them,
increased gas production in the nearby Marcellus and Utica
shale formations is making a positive decision more likely,
said Graham vant Hoff, executive vice president of
chemicals at the company.
Our confidence level in those prospects is actually
higher than it was a year ago, vant Hoff told
reporters this month at the American Chemistry Councils
annual meeting in Colorado Springs, Colorado.
Whats made a huge seismic shift is the hydrocarbon
Abundant supplies have widened the price advantage from using
gas as a raw material over plants in other regions that use
naphtha, he said.
In addition to the lower cost of converting US gas into
plastics, the plants location will save money because
the gas wont need to be piped to the Gulf Coast, where
most US chemical plants are located. There will also be
benefits in shipping costs for delivering plastics to
fabricators in the Northeast, he said.
We are absolutely clear that for this, we see
advantages to being in Pennsylvania, vant Hoff
Shell has applied for state pollution permits, and started
front-end engineering and design work and demolition at the
western Pennsylvania site. The company also may build new
chemical plants at its site in Geismar, Louisiana, and
increase capacity at other US plants, he said.
Braskem is leading the pack in pursuing new plants that will
benefit from cheap gas. Its spending $4.5 billion with
partner Grupo Idesa to build an ethylene plant and three
polyethylene plants in Mexico that will start production next
year, said Fernando Musa, who oversees the Sao Paulo-based
companys US operations.
Braskem signed an ethane-supply contract with Petroleos
Mexicanos in 2009 at a price tied to the benchmark US price
at Mont Belvieu, Texas, he said.
Weve been ahead of the wave for awhile,
Musa said. The rationale is an America-centered
strategy going after advantaged feedstock
Braskem in November announced plans for another
ethylene-polyethylene complex to be built with Brazils
Odebrecht in Parkersburg, West Virginia, not far from
Shells proposed site. The company signed an ethane
supply agreement with Antero Resources in March.
Plastics demand should improve as companies that make
shopping bags and toys and other products realize that
material and energy costs in the US are as cheap as anywhere,
With more competitive ethylene, you should see the
reduction of offshoring of the plastics industry and maybe
some onshoring, Musa said.
Clariant, based in Muttenz, Switzerland, is doubling catalyst
production in Louisville, Kentucky, to serve new and expanded
US chemical plants, CEO Hariolf Kottmann said. He expects
some of the announced US project
s will be delayed or
canceled because of obstacles such as rising costs,
tightening labor markets and a lack of engineering expertise.
It is a huge amount of money to build everything that
is announced, Kottmann said in an interview.
There are too many expectations.
Not every chemical maker is ready to invest in the US. Bayer
isnt planning any major US chemical investments, even
though the German company foresees a shortage of MDI, a
chemical the company produces thats used in insulation
and foam cushions, said Jerry MacCleary, president of the
North America region.
US shale gas until recently wasnt even on the radar of
most companies, which like Bayer instead invested in fast
growing markets such as China, MacCleary said.
Companies are doing the right thing by making sure
shale gas is stable and sustainable, MacCleary said.
We have all gained confidence that it is.
The shale boom has Bayer and other chemical companies around
the world taking a closer look at investing in US plants.
It all supports the reemergence of manufacturing in the
United States that we didnt think was possible five to
seven years ago, MacCleary said.