Despite a slowdown in the U.S. economic recovery, the outlook for the U.S. chemicals manufacturing industry is more encouraging because of low natural gas prices and abundant gas reserves, according to the American Chemistry Council (ACC).

A “gradual improvement” is expected in the coming year before a “stronger recovery” in the U.S. chemicals sector takes hold in 2013, according to the ACC’s latest “Year-End Situation and Outlook.” Most “major” chemistry end-use markets already have recovered in the United States, which has helped to maintain the $720 billion industry’s 26% contribution to U.S. gross domestic product (GDP).

“Key to the domestic chemical industry recovery is access to vast, new supplies of natural gas from previously untapped shale deposits,” the ACC said. “After years of high and volatile natural gas prices, the new economics of shale gas are creating a competitive advantage for U.S. manufacturers, leading to greater investment, job creation and industry growth” (see related story).

Last week Chevron Phillips Chemical Co. LP made those advantages crystal clear in its announcement to build a “world-scale” ethane cracker and ethylene derivatives facilities in the Texas Gulf Coast region near Baytown. The Woodlands, TX-based company, which is jointly owned by Chevron Corp. and ConocoPhillips, launched a feasibility study in March and said then that it anticipated making an announcement about whether to proceed by year’s end.

CEO Peter L. Cella, who made the announcement at a conference in Dubai, United Arab Emirates, credited abundant U.S. natural gas shale resources in helping to make the final decision. Cella said “the development of shale gas resources in the United States has set the stage for major petrochemical investment and job creation in our own backyard.”

Agreements have been executed with Shaw Energy & Chemicals to design a 1.5 million metric tons/year (3.3 billion pounds/year) ethane cracker at the chemical company’s existing Cedar Bayou facility in Baytown. Two polyethylene facilities, each with an annual capacity of 500,000 metric tons (1.1 billion pounds), are to be built either at the Cedar Bayou facility or at a site nearby in Old Ocean. A final site selection decision for these units is anticipated early next year.

“This project represents a significant change in the ethylene marketplace as no U.S. plants have been added in approximately 10 years,” said Shaw’s James Glass, president of the Energy & Chemicals Group. “The selection of Shaw’s technology for this project followed an evaluation of the top ethylene licensors in the world.”

Shaw has built more than 120 grassroots ethylene units including Chevron Phillips Chemical’s ethylene plants in Port Arthur, TX, as well as in Saudi Arabia. The undisclosed value of the contract is be included in Shaw’s Energy & Chemicals segment’s backlog of unfilled orders in the first quarter of fiscal year 2012. Final approvals are expected in 2013 with estimated completion in 2017.

Dow Chemical Co. earlier this year launched ambitious plans to increase ethylene and propylene production in the United States because of increasing U.S. gas supplies (see NGI, Oct. 10). Among other things Dow may construct a world-scale ethylene production plant along the Gulf Coast, also with a startup date of 2017. It also plans to restart an ethylene cracker at the St. Charles Operations in Louisiana by the end of 2012 and expand operations in Plaquemine, LA, and at its Dow Texas Operations.

A few weeks ago Sasol Ltd. said it was considering whether to build an ethane cracker and derivatives complex near its existing Lake Charles Chemical Complex in Westlake, LA (see NGI, Dec. 5). In addition, Westlake Chemical Corp. has expressed an interest in building a cracker in Louisiana.

ACC CEO Cal Dooley said for the first time the chemical industry’s economic outlook “indicates a two-speed manufacturing recovery. Most major end-use markets for chemistry in the U.S. have recovered, though growth has slowed for overall U.S. manufacturing.” Developed nations, constrained by debt and tighter fiscal policies, are likely to expand chemistry production only moderately, while output from emerging markets is expected to rapidly increase.

“The shale gas production boom is moderating natural gas prices and creating more stable supplies, which has allowed U.S. chemical manufacturers to become more competitive with producers abroad,” Dooley said.

Ethane, a natural gas liquid, is used as a feedstock by U.S. chemical companies. Because of stable supplies and competitive costs, affordable natural gas and ethane have given domestic manufacturers an advantage over global competitors that use more expensive, oil-based feedstock, the ACC said.

“Historically, an oil-to-natural gas price ratio of six to one or higher increases the global competitiveness of U.S. Gulf Coast-based petrochemicals and derivatives such as plastic resins. For the last several years this ratio has been above seven to one, but more recently the high ratio of oil to natural gas prices has been over 25 to one, helping to spur capital investment in North America.”

Previously, the ACC estimated that projected domestic petrochemical investments would approach about $16 billion because of “reasonable” increases in ethane supplies. However, after considering “the broader chemical industry, capital investment is expected to exceed $25 billion, further fueling economic and job growth,” the report said.

American Gas Association President Dave McCurdy earlier this month told reporters that chemical industries, “which had fled offshore in the ’90s and early 2000 because of the [high] cost of the feedstock natural gas, are coming back and they’re bringing billions of dollars…” And states have begun “competing” to build ethylene crackers to accommodate the growth.

“Despite the subdued year, most major end-use markets for chemistry have recovered in the U.S., especially those tied to export markets and business investment,” the ACC said. “The boom in oil and gas is creating both demand-side (e.g., pipe mills, oilfield machinery) and supply-side (e.g., chemicals, fertilizers, direct iron reduction) opportunities and this is likely to continue.”

Strength also is seen in light vehicles and aircraft, while “a recovery in construction materials, and industries involved with business investment (iron and steel, foundries, computers, etc.) are still strong.” By contrast, several industries are lagging, including textiles, paper and printing,” which indicates “the emergence of a two-speed manufacturing sector, with about one-half of industries soft and others doing well.”

In addition to “favorable energy dynamics and a weaker dollar, the strong growth overseas will aid U.S. chemical exports in the years to come,” the ACC said. “The outlook for chemicals points to modest growth over the next several years and depends on strengthening domestic demand and an improvement in exports abroad. Exports were up nearly 11% to $189 billion in 2011 and are expected to exceed $230 billion in 2014.”

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