BASF holds off on plant project

German company BASF said Tuesday that it will postpone building a massive chemical plant at its Freeport complex as the Gulf Coast petrochemical boom continues to slow.

Since the $1.4 billion project was announced more than two years ago, profit margins in the industry have declined in the face of increased global competition and a glut of petrochemicals on the market. As a result, BASF, the world’s largest chemical company, is opting to delay the expansion until market conditions improve, BASF spokesman David Johnson said.

The plant would have produced 475,000 metric tons of propylene a year. Propylene is one of the most common chemical building blocks of plastics.

BASF and other chemical companies benefited from the so-called shale

revolution that produced cheap and plentiful supplies of natural gas, which is the feedstock for propylene and other petrochemicals. Rock bottom natural gas prices meant healthy profit margins, fueling the construction and expansion of plants along the Gulf Coast.

But that construction rush began when oil was priced at about $100 a barrel, twice the current price. Most chemical plants outside the U.S. use a form of crude oil as their feedstock. As the price of oil fell, so too did the competitive edge for the chemical plants in Texas and Louisiana, forcing the companies to accept lower profit margins to hold on to their markets.

In addition, prices for petrochemicals, particularly propylene, have plunged because of a global oversupply, further squeezing profit margins. New production in China and elsewhere has contributed to the glut, said chemicals analyst Hassan Ahmed of New York-based Alembic Global Advisors.

“The propylene prices have been decimated,” Ahmed said.

Concerns about a petrochemical glut and further price declines have led other companies to put planned projects on hold indefinitely.

For instance, Houstonbased Ascend Performance Materials said in May it would further delay the construction of its $1.2 billion propane dehydrogenation, or PDH, plant at its Chocolate Bayou campus in Alvin.

In Louisiana, Houston-based 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. Another key Texas project, Paris-based Total’s planned $2 billion ethylene plant in Port Arthur, is still awaiting the go-ahead. A final investment decision is expected in the second half of the year.

The American Chemistry Council still counts almost 265 petrochemical projects planned across the country through 2023. They are estimated to cost a combined $160 billion to build. Texas would be to more than 100 of the projects, worth $50 billion.

BASF is still building its ammonia plant in Freeport with Norway-based Yara International. That plant is slated to open in 2017.

Founded in 1958, BASF’s Freeport campus is the company’s oldest manufacturing site outside Europe.