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Chevron Phillips planning new polyethylene capacity in Texas

By: Frank Esposito

December 15, 2011

THE WOODLANDS, TEXAS (Dec. 15, 10:30 a.m. ET) — Cross this one off the list of things that were never going to happen again: New polyethylene capacity is headed for the U.S.

Chevron Phillips Chemical Co. LP is forging ahead with a massive project that will add two PE plants with total annual capacity of 2.2 billion pounds. The plants will be located either at the firm’s Cedar Bayou complex in Baytown, Texas, or at its Sweeny facility in Old Ocean, Texas.

Final site selection is set for the first quarter of 2012. The total cost of the project is estimated at $5 billion.

The PE plants are part of a larger project that will install a new ethylene feedstock cracker – using natural gas-based ethane - with annual capacity of 3.3 billion pounds in Baytown. The total project is expected be completed in 2017.

“We are pleased that the development of shale gas resources in the United States has set the stage for major petrochemical investment and job creation in our own backyard,” President and CEO Peter Cella said in a Dec. 14 news release.

Officials with Chevron Phillips – based in The Woodlands, Texas – added that the project is expected to create 400 permanent jobs and as many as 10,000 temporary engineering and construction jobs.

Chevron Phillips ranks as North America’s largest maker of high density PE with a market share of 20 percent of annual capacity. The firm also ranks fourth in low density PE with an 8 percent share and sixth in linear LDPE with a 4 percent share.

Market analyst Phil Karig – managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis – said that Chevron Phillips “appears to be making a reasoned decision, based on what we know today about what the world will probably look like five years down the road.”

That description includes continued availability of low cost shale gas and no crippling restrictions on hydraulic fracturing, as well as continued modest resin demand growth in the U.S. and continued availability of periodic PE export opportunities,” he added.

PE market analyst Mike Burns was a bit cautious in his assessment of Chevron Phillips’ plans, since the global PE market currently is oversupplied and exports of PE from North America – which in the past “have kept reactors running” – are down this year as well.

“On paper, you have to ask where the pounds are going to go,” said Burns, who’s with Resin Technology Inc. in Fort Worth, Texas. “The domestic market would have to increase by 20-30 percent to handle that much material.”

Burns added that some older PE plants in North America may have to be shut down to keep the market in balance once new supply comes online.

Strong U.S. export markets also will be key to the plant’s success, Karig added. He also said that the 2012 U.S. Presidential election also could factor in if it results in more support for aggressive EPA restrictions on hydraulic fracturing, a process widely used to access natural gas deposits.

If that’s what the election yields, the economics of a new (PE) plant could change substantially,” Karig said.

Chevron Phillips is one of several companies that earlier this year announced plans to expand its petrochemical operations in North America because of newfound natural gas supplies. In June, Nova Chemicals Corp. said it planned to add two new PE production lines in either Corunna, Ontario, or Joffre, Alberta. Chevron Phillips becomes the first company to confirm new PE lines in the U.S., although both Dow Chemical Co. and Westlake Chemical Corp. are increasing ethylene capacity, which could lead to new PE capacity.

Ethylene supplier Shell Oil Co. also is expanding with plans to build a new cracker at a site in Ohio, Pennsylvania or West Virginia. Shell officials sang the praises of PE in a June news release, although the company no longer is involved in production of the material.

The shale gas boom has altered the landscape and perceptions of the U.S. market. Between 2000 and 2010, more than 16,000 miles of new interstate gas pipeline were installed in the U.S. to access the new supplies.

The Marcellus shale basin – covering a large part of Pennsylvania and Ohio – is estimated at 95,000 square miles – about 19 times the size of the Barnett basin in Texas, which previously was considered to be a large natural gas find.

“We’re talking about a supply of 100-plus years and growing,” Williams Cos. Inc. CEO Alan Armstrong said at an industry conference in March. Williams is one of the country’s 10 largest natural gas suppliers and is developing several new fields.