Gulf Coast boom may fuel a glut of plastics
In the plastics industry, it’s a good time to be a buyer.
The Gulf Coast petrochemical boom and an expansion of the industry in China are leading to an oversupply of the world’s two most common plastics, polyethylene and polypropylene, according to a new report from the IHS research firm. As a result, IHS projects that prices and profits will fall and plans to expand or build petrochemical plants will be delayed or scrapped.
The “economics will be challenged in the near term as global capacity expansions exceed demand growth and pressure margins,” Nick Vafiadis, IHS Chemical global business director for polyolefins and plastics, said in a statement.
The U.S. shale boom created an abundance of cheap natural
gas, which is used to make chemicals that serve as the building blocks of plastics. IHS estimates more than 24 million metric tons of new polyethylene capacity — equivalent to one-fourth of current global consumption — is coming online by 2020. About 8 million metric tons of the new production will come from the United States.
The American Chemistry Council counts 266 petrochemical projects planned across the country through 2023 that will cost $164 billion to build. Texas would be home for 104 of the projects, worth $51.3 billion. The council expects those projects to result in 15,800 direct new jobs in Texas — not counting construction jobs — and 67,000 nationwide.
Companies including Exxon Mobil Corp., Chevron Phillips, Dow Chemical Co., BASF and LyondellBasell have multibillion-dollar expansion projects underway in areas such as Baytown, Channelview, Mont Belvieu, La Porte and Freeport. But as new petrochemical plants are built, fears of a plastics glut has led some companies to put planned projects on hold indefinitely.
For instance, Houston-based Ascend Performance Materials said Monday it would further delay the construction of its $1.2 billion propane dehydrogenation, or PDH, plant at its Chocolate Bayou campus in Alvin. The plant, which would make propylene, a primary building block of many plastics, was originally scheduled to be completed at the end of 2016. Last year, however, the company said it would push back the opening to 2019. Now it’s been delayed indefinitely.
Another key Texas project, Paris-based Total’s planned $2 billion plant in Port Arthur, is still awaiting the go-ahead. A final investment decision is expected in the second half of the year.
In Louisiana, Houstonbased G2X Energy recently delayed its planned $1.6 billion Big Lake Fuels methanol plant in Lake Charles, said Marc Alvarado, associate director of methanol research for IHS. South Africa’s Sasol opted to delay by a year its $8 billion project near Lake Charles in order to let the market rebound somewhat. It’s now projected to open in 2019.