Chemical Companies Rush to the U.S. Thanks to Cheap Natural Gas
Ships sailing north from Chile are bringing an unusual cargo to the U.S.: chemical factories. Methanex, the Canadian company that’s the world’s largest producer of methanol, is spending $1.1 billion to disassemble two of its Chilean factories and rebuild them in Geismar, La. The first plant is scheduled to open next year. A second will be relocated by early 2016.
Scores of other companies including ExxonMobil, Chevron, and Sasol plan to spend about $100 billion to build or expand chemical plants in the U.S., according to a tally kept by Dow Chemical, the biggest U.S. chemical maker by sales. Dow is spending $4 billion to build factories in Freeport, Tex., and reopen a plant in Hahnville, La., creating 500 manufacturing and 5,000 construction jobs. Five years ago the company was closing U.S. plants and moving production to the Middle East to gain access to cheaper raw materials and be closer to Asian markets.
The resurgence of the U.S. chemical industry can be explained in two words: natural gas. The shale boom has made the U.S. the lowest-cost chemical producer outside the Middle East. Gas prices have fallen by three-fourths since 2005, a boon for chemical makers that use it as a raw material and to power factories. Employment in chemicals is rising, after falling 29 percent over the previous three decades, according to Kevin Swift, chief economist at the American Chemistry Council, a trade group. The U.S. logged a trade surplus of $800 million in chemicals in 2012, its first since 2001. Swift expects the surplus to swell to $46 billion by 2020. “If anyone asked me even four years ago, ‘Would you ever see world-scale commodity chemical plants being built in the U.S.?’ I would have said categorically ‘no,’ ” says Paul Harnick, global chief operating officer for chemicals at KPMG.
Nearly half of all the fresh investment is coming from foreign companies. South Africa’s Sasol is making the single biggest bet on the U.S., plowing $21 billion into at least nine Louisiana plants that turn gas into plastics and diesel. Taiwan’s Formosa Plastics plans two new factories in Texas to make ethylene and propylene, key ingredients in the manufacture of plastics and carpets, while EuroChem, a Russian company that makes fertilizers, is building an ammonia plant in Louisiana, where proximity to the Mississippi River provides easy access to Midwest farms.
Saudi Basic Industries, the world’s biggest petrochemicals maker by market value, is also scouting for opportunities in the U.S. “It is very important that Sabic is not left out from investments in the U.S.,” Chief Executive Officer Mohamed al-Mady said during a July 21 press conference in Riyadh.
Most of the new plants are planned for the Texas and Louisiana coast, where infrastructure already exists. “In a way, we’re sitting in the catbird seat, with our water transport, pipeline networks, and cheap gas,” says Patrick Jankowski, vice president of research at the Greater Houston Partnership, which promotes economic development. “Foreign companies are realizing it’s cheaper to build in the U.S. than in their home country.” Dan Borne, president of the Louisiana Chemical Association, says that between 1999 and 2009, Louisiana lost 10,000 chemical industry jobs, along with 90 percent of its methanol and fertilizer production capacity.
Nationwide, chemical producers added 11,800 jobs in the 12 months through June, according to the U.S. Bureau of Labor Statistics, the biggest 12-month gain since 1988. The industry will need 46,000 more workers by decade’s end, according to the ACC. Investments by chemical companies will generate an additional 1.7 million jobs in construction and other industries. Fluor, the general contractor on many of the new U.S. plants, expects labor needs will peak in 2016.
Terry Watkins traded in her waitress uniform for construction boots before moving to the Texas coast in March to help oversee utility crews during the initial earth-moving phase of the Dow project in Freeport. “There are a lot of construction workers who have been out of a job, so all this work has been a welcome event,” she says. “They are talking about 10-years-plus work here in this area, so I’ll probably look at purchasing a home.”