In 1975, the Saudi government designated the port city of Jubail an industrial target zone and American chemical giants flocked there in partnerships with SABIC to build huge new production plants using natural gas that had been flared.
Development of large-sale plants to produce plastics and its monomers largely dried up in the United States; we lost a huge trade surplus in chemicals; and it was largely assumed that America was in a steep decline as a chemical producer. Industry bellwether Dow dumped significant commodity chemical assets and even sought a major JV with a Mideastern partner, who eventually pulled out.
Well the tide has turned thanks to an explosion in natural gas production in the United States. Credit the boom –totally unexpected—to greatly improved technology to extract shale gas. The U.S. Energy Information Administration recently reported that storage levels for natural gas were 2,479 billion cubic (Bcf) for the week ending March 30, more than 60% above the five-year average for that week. Natural gas imports are at the lowest levels in five years. Plans to import more liquefied natural gas are being replaced with plans to export LNG. U.S. shale gas production grew 48% between 2006 and 2010.
Dow Chemical announced this week that it will build a world scale ethylene cracker in Freeport, TX, as part of its previously announced plan to further connect its U.S. operations with cost-advantaged feedstocks available from increasing supplies of U.S. shale gas.
Dow estimates that this project, together with all other planned projects announced as part of the Company’s comprehensive U.S. investment plan, will employ up to 4,800 workers during peak construction and support over 35,000 jobs in the broader U.S. economy.
“For the first time in over a decade, U.S. natural gas prices are affordable and relatively stable, attracting new industry investments and growth and putting us on the threshold of an American manufacturing resurgence,” said Andrew N. Liveris, Dow Chairman and Chief Executive Officer. “Dow is proud to have been among the first manufacturing companies to declare a comprehensive plan to take advantage of these favorable market dynamics, further enhancing our footprint in the Americas and the profitability of our global businesses while supporting economic revitalization in the communities in which we operate.”
“The outlook for advantaged U.S. natural gas was a significant factor in Dow’s decision to invest $4 billion to grow our overall ethylene and propylene production capabilities in the U.S. Gulf Coast region,” said Jim Fitterling, Dow Executive Vice President and President of Feedstocks & Energy and Corporate Development. “Today, 70% of the Company’s global ethylene assets are in regions with cost advantaged feedstocks – and we’ve seen the benefits this advantage provides given oil-based naphtha margin pressure in Europe and Asia. This plan represents a game-changing move to strengthen the competitiveness of our high-margin, high-growth derivatives businesses as we continue to capture growth in the Americas.”
A month ago, Royal Dutch Shell announced plans to build a similar plant for $2 billion near Pittsburgh, close to production sites for shale gas. Pittsburgh has a legacy chemical industry tied to byproducts of coke and steel manufacturing. But that industry has languished. And the Shell project may be the first major chemical plant in western Pennsylvania not related to the steel industry – ever.
Chevron Phillips is building a new plant in Texas. More will follow.
A resurging chemical and plastics industry in America is good. There will be significant ripple effects through the economy. American processors, for example, will benefit from less expensive plastic resins.