Wednesday, January 11 2017
By Woody Hydrick, Managing Principal and partner in Global Location Strategies
The growth in plastics resins production in the U.S. is continuing full steam. The American Chemical Council (ACC) reported in 2015 that $137 billion in capital investments in new plastic resins production operations had been announced in 225 projects with the investments predicted to come on line through 2023. The ACC also reported that these projects are expected to directly generate 127,500 jobs.
In the United States, plastic resins are primarily produced using natural gas liquids (ethane, propane, etc.) as their feedstock. In Asia and other parts of the world, plastic resins are normally produced using the crude oil derivative naptha as their raw material. Pricing for plastics resins is global, meaning the price paid for them is roughly the same wherever the buyer is in the world. Therefore, costs savings on raw materials, as well as the cost of the energy required to run the production operations, can be of great benefit to the manufacturers. The low cost of natural gas liquids (compared to crude oil) due to the large shale gas reserves in the U.S. give domestic producers a competitive advantage versus their foreign competition. Add in the low domestic cost of natural gas and electricity to power these production operations, and the result is clear: the United States is an advantaged position to produce plastic resins.
The overriding driver in the location of plastic resins manufacturing operations is access to raw material. If the raw material being used is a natural gas liquid, then access to a gas separation plant and/or a pipeline to a storage facility is critical. The separation plants are located near the gas fields so a location in relative proximity to the original source is key. As a result, the majority of the new production operations coming online are located in Ohio, Pennsylvania, and West Virginia for access to the Marcellus and Utica shale gas fields and in Texas and Louisiana for access to the Permian and Eagle Ford fields and the salt dome storage/trading hub in Mt. Belvieu, Texas.
Another important consideration for the location of these investments is access to transportation routes. Sites with access to navigable waterways, rail, and interstate proximity are critical. Waterway access is important both from the standpoint of the transportation of raw materials and finished products, but also from a construction perspective, with large production modules constructed off-site and moved to the property by ship or barge. Waterway access is also important from an operational standpoint for intake production water and for the outflow of treated wastewater. Rail and truck access is very important for raw material access and the transport of finished goods. Good road access is also necessary for site access by the thousands of construction workers required to build such a site and for access to the operation’s workers which can exceed 500.
As example of these siting considerations pulled together, in June 2016, Shell Chemical Appalachia LLC announced that it would be moving forward with the development of a new ethane cracker operation in Beaver County, Pennsylvania. The operation will be located on a 1,300-acre site along the Ohio River in rural western Pennsylvania. Six thousand construction jobs are expected as a result of the announcement with an additional 600 production jobs once the facility is complete. Though a capital investment number has not been officially announced, it is estimated the project will represent up to a $6-billion-dollar investment and should be operational in the early 2020’s. The operation will produce polyethylene.
Additionally, in Belmont County, Ohio, Thailand-based PTT Global Chemical Public Company Limited consented in September 2015 that they were studying the area for a $5.7 billion ethane cracker operation. The cracker would be located on a former First Energy coal-fired power plant site located on the Ohio River. In December 2016, it was announced that First Energy would be receiving a $14 million grant from Jobs Ohio to help with remediation of the site.
Multiple projects have announced along the U.S. Gulf Coast at new and existing production sites. For example, in February 2016, Occidental Chemical Corporation (OxyChem) and Mexichem SAB de CV (Mexichem) announced that they plan on commissioning their joint venture ethane cracker in Ingleside, Texas, in early 2017. The project represents a capital investment of $1.5 billion. In September 2015, Formosa Petrochemical Corporation announced they were eyeing St. James Parish, Louisiana for a $9.4 billion ethylene production operation. Formosa’s investment would directly generate 1,200 jobs. If it moves forward, the project would create one of the largest single-site ethylene production operations in the world.
The investments in plastic resins operations are not just important due to the capital spent on the production facilities and direct jobs created themselves, but also due to the downstream impacts the operations have on the overall plastics supply chain. Plastic resin production is the first step in the supply chain. From there, the resins are then combined with stabilizers, colorants and other additives then sold to customers who make the consumer-ready finished goods. These finished goods are produced via blow molding, thermoforming, injection molding, extruding, etc., and turned into thousands of products such as packaging films, bottles, appliance parts, furniture, etc. ACC estimates in their May 2015 report, "The Rising Competitive Advantage of U.S. Plastics," that total capital investments in the next decade to take advantage of the domestic plastic resins not exported will total $19.6 billion.
In summary, the plastics resins industry has continued its strong growth in 2016 with positive outlooks moving forward. This is an important point not just for the producers of raw materials or intermediate products, but across the plastics supply chain, and for the plastics industry as a whole. This is also an important trend as the United States continues to strive to retain manufacturing jobs with the issue rising to prominence in the recent presidential election. Given these dynamics, it appears plastics are the future and the future is now.
Author Bio: Woody Hydrick is the Managing Principal and a partner in the Greenville, South Carolina-based site selection consultancy Global Location Strategies. With approximately 20 years of experience in economic development and corporate site selection, he has helped locate billions of dollars of capital investments representing thousands of jobs. He has assisted companies with capital investment projects across the United States and the world. The majority of his advisory practice is focused on heavy industrial operations with an emphasis in life sciences and chemicals.