Thailand's PTTGC indefinitely postpones Ohio project amid challenges
The postponement follows expectations built up over the past half decade. Confirmation of a project in which land was bought and air permits obtained, in addition to millions spent to ready the site, had seemed highly probable considering nearby availability of feedstock and markets.
Thailand-based PTT Global Chemical’s long-awaited Final Investment Decision (FID) to build an ethylene-polyethylene complex in Ohio will remain under consideration for an indefinite period.
“Due to circumstances beyond our control related to the pandemic, we’re unable to promise a firm timeline” for an FID, the company said in a mid-May email referring to the project to turn shale gas ethane into ethylene to polymerize into 1.5 million tonnes annually of polyethylene.
The Bangkok Post had reported as recently as on Feb. 12 that a decision related to the FID was going to be announced by mid-year.
It quoted the company’s CEO Kongkrapan Intarajang saying PTTGC was seeking low interest financing for this project as it was a good fit in a strategy to expand overseas revenue.
However, an Industry expert told Petrochemical Update that conditions needed for such a complex had deteriorated even before Covid-19.
PTTGC first quarter financial statements show that Thailand’s main refiner and petrochemical company suffered the impact of low plastic prices and foresees more weakness ahead.
PTTGC Americas troubled before Covid-19
“Prior to the pandemic the planned PTTGC project for Ohio faced a cumulative set of troublesome risks,” Tom Sanzillo, director of finance at the Institute for Energy Economics and FInancial Analysis, an organization that examines issues related to energy markets.
“The pandemic only increased the weak fundamentals and created greater uncertainty about the fate of the project,” Sanzillo told Petrochemical Update on May 25.
PTTGC officials have given a number of firm dates for final decision and now they have put the decision off indefinitely, he said.
“It would be a very big surprise if this project was revived. The oversupplied market, low prices, increased competition and now an unpredictable demand outlook and uncertain growth path all weigh to the downside,” he added.
“Despite a recent agreement on taxes with some Ohio municipalities, these local concessions will be insufficient to significantly improve the project’s weakened financial fundamentals,” Sanzillo said.
Current plastic prices hurting project’s viability
Plastics prices today remain 40% below the 2010-2013 period when the project was originally proposed, Sanzillo said.
According to the latest earnings release by PTTGC, its revenue in the first quarter of 2020 suffered the impact of lower resin prices.
The Thai company saw for the January-March period an average deterioration of its polyethylene prices of 17%, with the high-density polyethylene seeing a decline of about 30% and the low-density under 10%.
Average polyethylene prices were US $880 per ton in the first three months of the year but may drop more, it said.
A decline is possible because new supply is expected in 2020 in an environment where lower crude oil prices would also weigh down plastic prices.
“The average polyethylene price is expected to be $740-820 USD/ton,” the company said as it described its expectation for the second half of the year.
In addition, the project contemplates tapping ethane as feedstock to gain price advantages.
In recent years and until the start of the Covid-19 pandemic, ethane had clear cost advantages over oil-based naphtha feedstock. However, a low crude oil price environment changed that.
PTTGC to continue works around Ohio site
“We have completed the first phase of site preparation and engineering work, and we will continue to invest in the safety of the surrounding neighborhood by demolishing vacant structures,” the company said.
“We will do everything within our control to make an announcement as soon as we possibly can with the goal of bringing jobs and prosperity to the Ohio Valley,” it added.
PTTGC America and Daelim Industrial (South Korea) have invested an estimated $200 million to conduct detailed front-end engineering design in the land it already owns. In December 2018 it saw approval of a key Ohio air permit.
PTTGC America had selected the site in April 2015 and by September of that year it tapped Fluor and Bechtel for front-end engineering design work, along with approving an initial $100 million investment.
“A world-scale petrochemical complex in Ohio remains a top priority for the PTTGC America-Daelim Chemical USA partnership,” PTTGC said.
According to industry estimates, the costs of such a project could be at least $6 billion. It would be similar in size to a project by Shell polymers in Pennsylvania, also along the Ohio river, with startup expected early this decade.
Shell, also planning to tap ethane from shale gas, has faced hurdles that slowed construction since the pandemic started and had to work on safety protocols.
PTTGC sees declining revenue, reduction in assets
PTTGC posted total sales revenue in the first quarter of baht 93,036 million (1 baht = 3 US cents), an 18% on-year decrease. Its adjusted EBITDA fell 35% on-year.
The company attributed those declines mainly to weaker prices of oil and oil products. Demand fell during the pandemic, hitting jet fuel and gasoline the hardest.
The company also reported maintenance shutdowns in two plants for over a month that resulted in a decline in olefins and derivatives sales volume.
As a result, it posted a net loss of 8,784 million bath in the first quarter of 2020. That compares with a net profit of 6,443 million baht in the same period a year earlier.
As of March 31, 2020, PTTGC had total assets of baht 442,747 million, decreased by baht 9,767 million from December 31, 2019.
By Renzo Pipoli