The recent wave of expansion announcements for plastic feedstock ethylene can be seen as a good omen for North American plastics processors.
In the last six weeks, petrochemical firms Dow Chemical Co., Chevron Phillips Chemical Co. LP, Nova Chemicals Corp. and Westlake Chemical Corp. each have announced plans to add ethylene capacity in North America. The moves are tied in to new discoveries of natural gas in shale rock and oil sands throughout North America. Natural gas is used to make ethane feedstock, which then is converted into ethylene.
Although no formal resin expansion announcements have been made, many market watchers believe more resin eventually will be added, since polyethylene is a large consumer of ethylene. PVC and various specialty resins also use ethylene as a feedstock.
“If you're a processor in North America right now, there are a lot of reasons to feel more comfortable about the future,” said Phil Karig, managing director of the Mathelin Bay Associates LLC consulting firm in St. Louis.
“You might feel better about local secure [resin] supply instead of material maybe having to come all the way around the world,” he added.
Karig — whose firm's business includes work with resin buyers — pointed out in a recent phone interview that recent moves will ensure that North American ethylene “will continue to have the second-best cost position in the world, behind only the Middle East.” The new capacity also “could reduce [resin] price volatility — but not necessarily,” he added.
Of the four projects announced so far — and more could be on the way — Dow's was the most far-reaching. The Midland, Mich.-based firm announced plans to build a new ethylene unit on the U.S. Gulf Coast by 2017 and to re-start a dormant ethylene unit at its St. Charles plant near Hahnville, La. Dow also plans to increase its ethane feedstock flexibility in Freeport, Texas, and will improve its flexibility for that material in Plaquemine, La. Dow's plans even expand to propylene, with an intention to create a new on-purpose propylene unit in Freeport.
Feedstocks needed for these many efforts will be supplied from a number of business ventures and arrangements, including a long-term natural gas supply deal between Dow and Range Resources Corp., a natural gas supplier based in Fort Worth, Texas. Range will supply natural gas from the Marcellus Shale region of Pennsylvania to Dow's Louisiana plants.
“The improved outlook for U.S. natural gas supply from shale brings the prospect of competitively priced ethane and propane feedstocks to Dow — and the promise of new manufacturing jobs to America,” Dow's Jim Fitterling said in a recent news release. Fitterling serves as executive vice president of corporate development and hydrocarbons for the firm.
“Our plan is to further integrate Dow's businesses with the advantaged feedstocks, based in shale gas deposits and long-term ethane and propane supply agreements,” he added.
Although it will take a few years for projects from Dow and the three others who have announced them to come on-line, the new capacity “certainly will be a help to downstream businesses,” said Dmitry Silversteyn, a market analyst with Longbow Research in Independence, Ohio.
“These are all global companies, but they tend to source locally,” said Silversteyn, whose coverage includes major resin consumers such as PolyOne Corp., A. Schulman Inc., Spartech Corp. and Ferro Corp.
And although Silversteyn said that he believes some new resin capacity will be added, he also said in a recent phone interview that he doesn't think resin makers will go overboard.
“You have to have assets where the growth is — and that's Asia and Latin America,” Silversteyn said.
Long-term, the announcements also mean that petrochemical firms now are sold on the promise of abundant natural gas — only a few years after they believed North America's supplies of that material were in decline.
“What these new projects are saying is that when these companies look at their tea leaves, they see natural gas being advantaged vs. crude oil for some time,” Silversteyn said.