The Year Ahead/Energy

U.S. Chemicals Are Rocketing Back

Manufacturers are making the most of cheap natural gas.

Cheap plastic—brought to you by the fracking boom.

Photographer: Aaron Graubart/Trunk Archive

A decade ago, chemicals were just another fading U.S. manufacturing business. Companies were reluctant to invest in new factories because of soaring prices for the oil and natural gas that serve as both raw materials and power sources. Dow Chemical and others were closing plants and moving production to the Middle East to save money. “The conventional wisdom was we are not going to produce a lot of petrochemicals here,” says Kevin Swift, chief economist at the American Chemistry Council, an industry group.

Today, Dow, Exxon Mobil Corp., and Chevron Phillips Chemical Co. are putting the finishing touches on multibillion-dollar factories along the Texas Gulf Coast. The plants are part of $185 billion in proposed and recently completed investments, according to the chemistry council. “The U.S. is punching above its weight at the moment,” says Kevin McCarthy, a chemical industry analyst at Vertical Research Partners. Credit the rise of fracking. A torrent of cheap U.S. natural gas has made the country among the most profitable places to produce chemicals, beating out the Middle East in attracting projects. U.S. exports of polyethylene plastic to Asia will rise more than fivefold by 2020, with China as the primary destination, according to research company IHS Markit Ltd.

Almost 20 factories are being built or expanded to convert gas liquids such as ethane and propane into ethylene, the most used petrochemical and the main ingredient in polyethylene plastic. The largest is an $11 billion complex being built near Lake Charles, La., by South Africa’s Sasol Ltd. It’s scheduled to begin producing polyethylene next year. Much of the investment is coming from abroad. Along with Sasol, foreign companies putting money into U.S. facilities include France’s Total, South Korea’s Lotte Chemical, and Taiwan’s Formosa Plastics.

The largest plants are going up in Texas and Louisiana, where chemical makers can tie into existing infrastructure. “Houston has always been the hemispheric center of the plastics business, but this just cements it for decades to come,” says Bill Gilmer, director of the University of Houston’s Bauer Institute for Regional Forecasting.

For oil-driven Houston, the spending splurge on chemical plants has softened the blow from job cuts in the energy sector. Most of the new jobs aren’t permanent: Construction on a typical ethylene plant peaks with about 2,500 workers on-site. A completed plant requires only about 80 employees to operate, Gilmer says. Still, those long-term jobs pay better than most. Laura Marshall, 31, was working as a beautician before enrolling in a two-year community college program that won her an operations job at one of Chevron Phillips’s new Houston area plants. Now she’s making more than $100,000 a year, saving for retirement, and shopping for a house. “It was an extremely large change in my life,” Marshall says. “I’m no longer living paycheck to paycheck.”

The anticipated strain on the Houston area’s export infrastructure has some producers gearing up to send plastic pellets by rail to ports in Long Beach, Calif., and Charleston, S.C. Meanwhile, companies that convert raw plastics to finished products are expanding to take advantage of the abundant material.

More investment is coming across the country. “The cost advantage is strong enough and durable enough that people are going to put money in the ground for a second wave,” says John Roberts, a chemical industry analyst with UBS Securities.

Royal Dutch Shell Plc, the U.K. oil and chemicals conglomerate, has started building an ethylene complex outside Pittsburgh that will begin production in the early 2020s. Shell sees an advantage in being closer to Appalachian shale gas deposits as well as to the customers who turn plastic pellets into products such as packaging, trash bags, and bottles. Even Saudi Arabia wants a piece of the action. State-owned Saudi Basic Industries Corp. formed a joint venture with ExxonMobil to build an ethylene plant in Corpus Christi, Texas, by early in the next decade. Fertilizers are another major target of capital investment: More than 20 U.S. plants are being built or expanded to convert gas into ammonia, a key ingredient.

This boom relies on gas remaining relatively cheap, but also on continued economic growth worldwide. In India and China, an expanding middle class increasingly buys goods wrapped in plastic and appliances produced with chemicals. “If for some reason the world slows, that will be trouble,” Roberts says.

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