Investment in US chemicals industry rises
Planned investments in the US chemicals industry have continued to rise this year in spite of the fall in oil prices, pointing to a surge in capacity by the end of the decade.
Companies have announced 238 investment projects worth a total of $145bn, up from $136bn at the end of last year and about $90bn a year ago, according to the American Chemistry Council, the industry group.
The drop in crude prices is a potential threat to US producers of bulk chemicals such as ethylene, because they use feedstocks that are typically linked to gas prices, and compete against rivals in Asia and Europe that use feedstocks based on oil.
However, the fall in oil prices appears to have slowed the flow of new investment plans for the US, rather than stopping it altogether.
Some projects are also being delayed, but they account for only about 5 per cent of the total value of planned investments, the ACC believes, with the outlook for a further 7 per cent uncertain.
Capital spending in the US chemicals industry rose 64 per cent from 2010 to $33.4bn in 2014, and is expected to rise another 37 per cent to $45.8bn on the ACC’s forecasts.
Kevin Swift, the council’s chief economist, said the US was capturing a growing share of investment in the chemicals industry worldwide.
US capacity for some bulk chemicals could rise 35-40 per cent by the end of the decade, he added.
US companies including ExxonMobil, Dow Chemical and CP Chem, a joint venture of Chevron and Phillips 66, have launched expansion plans, but about 61 per cent of the announced investment comes from non-US companies, Mr Swift said.
Companies including Sasol of South Africa and Royal Dutch Shell have launched or are considering large investment projects.
US chemicals producers have preserved most of their cost advantage during the drop in oil prices because the US prices for gas and the natural gas liquids such as ethane used as feedstocks have also fallen sharply.
Bob Patel, chief executive of LyondellBasell, one of the largest US-listed chemicals companies, said he expected the oil to gas price ratio to remain favourable to producers in the US, making it the world’s most competitive location for making ethylene, a basic building block used in many products.
“When you think about ethylene production, the US clearly has the advantage in terms of new capacity,” he said.
However, he raised concerns about the cost of investing in new plants on greenfield sites, at a time when competition for staff and construction services was inflated by the surge in activity.