US downstream expansion momentum continues with new project announcements

Since 2010, petrochemical producers have announced significant capacity expansion in the U.S., and the momentum is not yet over for the plastics sector with additional project announcements revealed.

The Texas downstream industry on the Houston Ship Channel.

Rising trade barriers, reduced external demand, squeezed polyethylene margins and a growing U.S. chemical industry trade surplus may be slowing down the golden age of expansion in the U.S., but another wave of multibillion dollar plastics projects announcements that will take advantage of the cheap feedstock from the Permian Basin show that the region remains an attractive destination for downstream investment.

To date, 334 chemical and plastics projects cumulatively valued at $204 billion have been announced, with 53% of the investment completed or underway and 40% in the planning phase, according to the American Chemistry Council (ACC).

America’s plentiful and affordable supplies of natural gas and natural gas liquids (NGLs) are driving investment. Further gains in capital spending are anticipated, increasing by 5.4% this year and 4.9% in 2020. Capital spending will reach $43 billion by 2024, according to the ACC. Nearly half of these expansions are in Texas. 

The abundant shale resources of North America continue to make it a good place for investment.

Demand for plastics is growing more than 4% a year, Chevron Phillips Chemical Chief Executive Officer Mark Lashier said.

Concern that the added capacity could oversupply the market and keep plastics prices down means that the building boom could eat into margins, experts warn.

US Gulf Plastics Plans

Chevron - Qatar

Chevron Phillips Chemical Company LLC and Qatar Petroleum confirmed in July that they have signed an agreement to jointly pursue development of a new petrochemical plant in the U.S. Gulf Coast. The U.S. Gulf Coast II Petrochemical Project (USGC II) will include a 2m tonne/year ethylene cracker and two 1,000 tonne/year high-density polyethylene units.

Chevron Phillips Chemical would be the majority owner with a 51% share and Qatar Petroleum would own 49% of the project. Chevron Phillips Chemical would provide project management and oversight and be responsible for the operation and management of the facility. The preliminary cost of USGC II is approximately $8 billion. Chevron Phillips Chemical and Qatar Petroleum expect a final investment decision (FID) no later than 2021, followed by full funding and the award of engineering, procurement and construction (EPC) contracts, with targeted startup of the new facility in 2024.

At peak construction, USGC II would support an estimated 9,000 construction jobs and once operational, approximately 600 full time positions. The site’s location would be in the Gulf Coast region, where there is direct access to the significant shale natural gas liquid reserves of the Permian Basin in West Texas.

Chevron Phillips had been considering developing a second complex in the U.S. since it completed its previous one.

This is the second mega deal announced by Chevron Phillips and Qatar Petroleum this year.

Just one month earlier in June, Chevron Phillips Chemical and Qatar Petroleum announced a joint venture to pursue a world-scale petrochemical plant in Qatar at the Ras Laffan Industrial City. The companies currently operate Qatar Chemical Company Ltd. and Qatar Chemical Company II Ltd., as well as the Ras Laffan Olefins Company. These are some of the safest and most successful assets in Chevron Phillips Chemical’s global portfolio.

Exxon Mobil – SABIC

That follows Exxon Mobil and Saudi Arabia’s state-controlled petrochemicals company SABIC formally approving construction in June for a new petrochemical complex in Corpus Christi, Texas.

ExxonMobil announced last month that it is ready to start construction, with partner SABIC, on a $10 billion ethane cracker.

The Gulf Coast Ventures project received its final environmental regulatory approval in June to construct an ethane steam cracker, two polyethylene units and a monoethylene glycol unit.

Construction is expected to start in the third quarter of 2019, with completion scheduled by 2022.

The EPC companies are The Wood Group; McDermott & Turner Industries Group; Chiyoda & Kiewit; and Mitsubishi Heavy Industries & Zachry Group.

ExxonMobil said the project's building phase will create 6,000 construction jobs and generate $22 billion in economic activity.

PetroLogistics II to build US Gulf Coast PDH facility

PetroLogistics II plans to construct a 500,000 tonne/year propane dehydrogenation (PDH) facility on the U.S. Gulf Coast based on a new process technology.

The company has licensed Dow's fluidized catalytic dehydrogenation (FCDh) technology, which uses a reactor design based on fluidized catalytic cracking.

The patented technology represents a significant advancement in the production of propylene via PDH. Plants utilizing the FCDh technology are anticipated to have significantly lower capital cost and energy consumption, as well as improved reliability.

The Company is currently engaged in the front-end engineering design for its FCDh plant and has been evaluating two alternative sites on the Gulf Coast to locate the project.

PetroLogistics II is backed by Quantum Energy Partners.

PetroLogistics II built North America's first PDH facility in 2010 - a 635,000 tonne/year facility on the Houston Ship Channel that it later sold to Flint Hills Resources (FHR). PetroLogistics II is not affiliated with FHR.

Only two other PDH projects have been completed in the US: Dow's 750,000 tonne/year unit at Freeport, Texas, and Enterprise Products Partners' 750,000 tonne/year unit at Mont Belvieu, Texas.

The Enterprise unit uses CATOFIN technology from McDermott's Lummus Technology. Dow's plant uses the Oleflex process technology from Honeywell UOP. The PDH unit owned by FHR is based on the CATOFIN process technology.

Other projects based off the abundant shale gas resources beyond plastics continue to come up as well.

Methanex announces FID for La methanol plant

Methanex’s board of directors reached a unanimous FID to construct a 1.8 million tonne/year methanol plant in Geismar, Louisiana adjacent to its existing Geismar 1 and Geismar 2 facilities.

Construction on the Geismar 3 plant will begin later this year and operations are targeted in the second half of 2022. The cost of the project is expected to be between $1.3-$1.4 billion including costs of approximately $60 million incurred to date.

“Our long-term outlook for the methanol industry is very positive. Demand forecasts for methanol are strong and new capacity additions will be needed to meet expected demand growth,” said John Floren, president and CEO of Methanex.

Methanex has arranged committed financing for the project with a new five-year $800 million construction facility and for the renewal of its existing $300 million revolving credit facility, which replaces the company’s existing revolving facility, to provide further liquidity. Both facilities have been arranged with a syndicate of banks and will expire in July 2024.

In addition, Methanex expects to access the debt capital markets during the second half of 2019 to pre-fund approximately $250 million of the Geismar 3 2020 expenditures and to repay the Company’s $350 million aggregate principal amount of bonds due in December 2019.

Methanol is primarily used to produce formaldehyde, methyl tertiary butyl ether (MTBE) and acetic acid. Smaller amounts go into production of dimethyl terephthalate (DMT), methyl methacrylate (MMA), chloromethanes, methylamines, glycol methyl ethers, and fuels applications such dimethyl ether (DME), biodiesel and the direct blending into gasoline.

By Heather McGuire Doyle