The Boom in Plastics
Surging U.S. petrochemical production has ports scrambling to keep up.
(Article originally published in Mar/Apr 2019 edition.)
The increase in the production of petrochemicals, spurred by the abundance of shale gas as feedstock and the demand for ethane – a key component in plastics – has prompted energy companies to continue investing billions of dollars in the petrochemical sector.
“The global petrochemical sector continues to expand exponentially as developing nations' demand for petrochemical/chemical products continues to increase,” says Petroleum Economist, a highly respected energy industry publication.
Harrison Carroll, a chemicals and plastics consultant writing in London-based Petrochemical Update, adds, “It is expected that countries and oil producers are beginning to prioritize the production of plastics and building refineries dedicated to petrochemicals as opposed to producing oil products like petroleum or diesel that power our vehicles.” He says the demand for plastics is surging: “Global demand for petrochemical feedstock sat at around 12 million barrels per day in 2017 and is forecast to rise to almost 18 million barrels per day by 2050.”
The U.S. is among the leaders with nearly four percent growth forecast for 2019 even though producers are concerned about the trade tensions that continue to exist between the U.S. and China. However, there remains optimism the world’s two largest economies will continue to talk and iron out their differences.
Gulf Coast on Top
Meanwhile, petrochemical producers are pushing forward with new facilities that will not only boost production but also help address the challenging issue of storage space at ports.
The heaviest concentration of new petrochemical facilities is in the Gulf Coast region. Robert Benedict, Senior Director of Petrochemicals, Transportation & Infrastructure at American Fuel and Petrochemical Manufacturers (AFPM), a leading trade group, says AFPM members are building at least 11 new ethylene plants in the region between 2018 and 2021 with polyethylene capacity expected to grow by over 30 percent. Over the next decade, he adds, “You are going to see over $200 billion in investment in the Gulf Coast specifically related to petrochemical manufacturing.”
Major markets for these products include Asia and especially China. And when it comes to moving product, Benedict notes, petrochemicals aren’t “the only show in town,” pointing out the growing crude oil business in West Texas and lots of production in the gas industry – all of which needs to be transported somewhere.
From the ports’ perspective, places like Houston and Corpus Christi are looking to deepen their channels to accommodate larger ships and move more product. At Corpus Christi, for example, a $92 million contract has been awarded to deepen and widen the Corpus Christi Ship Channel from the Gulf of Mexico to Harbor Island to a depth of 54 feet.
“The award of this first dredging contract is without a doubt the most important development we will see in 2019,” says Charles W. Zahn, Chairman of the Port of Corpus Christi Commission. “Building critical infrastructure for the energy sector is our primary mission and will allow larger vessels access, safely and responsibly, to much-needed export facilities.” Ports are also doing other things like offshore loading and lightering out product to top up loads on ultra-large vessels.
Other regions of the country are playing catch-up with some in the industry suggesting the use of West or East Coast ports as alternatives to the busy Gulf ports. Savannah and Charleston are among the leaders in this regard.
Frontier Logistics, for example, is constructing an initial 400,000-square-foot, rail-served warehousing facility in South Carolina to support the transloading of plastic pellets for export through the port of Charleston. “Charleston has significant logistical advantages that reach the entire world market,” says CEO George Cook, “enough so that it compels us to make Charleston a comprehensive launching pad for future export/import and domestic logistics needs.”
Frontier has three operating centers in the Charleston region. The new warehousing facility is expected to be operational in the next 12 to 15 months.
Erin Dhand, Manager of Corporate Communications & Community Relations for the South Carolina Ports Authority, notes: “We also have A&R Bulk-Pak and Midstates facilities in the area handling plastics exports and imports, and we are currently working with a number of interested transloading companies who may announce new locations by this summer.”
Charleston recently received $138 million in federal funding to deepen its harbor to 52 feet – a big step forward. “We expect the harbor-deepening project to benefit plastics exporters, given the heavy nature of their cargo,” says Dhand. “When the project is completed, SC Ports will offer the deepest harbor on the East Coast, capable of serving fully loaded vessels, with limited tidal restrictions.”
But as AFPM’s Benedict says, the Gulf Coast with its many ports and proximity to the production of crude oil, natural gas and shale gas is still prime for infrastructure investment in new petrochemical and petroleum-related facilities.
The Port of South Louisiana, which spans 54 miles along the Mississippi River between Baton Rouge and New Orleans, will be a major benefactor of some of this investment. South Louisiana Methanol (SLM) is planning a $2.2 billion expenditure for a new methanol complex in St. James Parish, midway between Baton Rouge and New Orleans. Preliminary work on the project has begun at a 1,500-acre Mississippi River site. SLM could begin formal construction later this year with its new joint venture partner, the Houston-based subsidiary of Saudi Arabia-based SABIC (Saudi Aramco Basic Industries Corp., one of the world’s largest chemicals and plastics producers).
The new project will have a production capacity of two million metric tons per year and rank among the world’s largest methanol production sites.
“The Port of South Louisiana is excited to hear the developing news for the South Louisiana Methanol plant in St James Parish,” says Paul Aucoin, Executive Director for the Port of South Louisiana. “The new partnership with SABIC and South Louisiana Methanol will bring more opportunities to the success of this great project. This will add to the two new large projects recently announced this past year, all good news for our port district and Louisiana.”
Those two large projects include Wanhua Chemical Group’s plan to develop a $1.25 billion chemical manufacturing complex in the St. James Parish community of Convent and Formosa Petrochemical Corp.’s announcement of a $9.4 billion chemical manufacturing complex, also in St. James Parish, on a 2,400-acre site on the West Bank of the Mississippi River.
The Wanhua project will produce MDI or methylene diphenyl diisocyanate. MDI is commonly used for polyurethane automotive parts, foams and elastomers with applications in such consumer areas as appliances, electronics, spray-foam insulation, furniture, textiles and footwear. The Formosa Petrochemical complex will be built in two phases and produce ethylene, propylene, ethylene glycol and associated polymers – key ingredients in the production of plastics.
Growing the Gulf
The Port of Greater Baton Rouge had its fortunes boosted recently with the announcement that ExxonMobil will spend $469 million to add a polypropylene manufacturing unit to its vast greater Baton Rouge petrochemical complex.
Construction will begin later this year and the plant is expected to be operational by 2021. With the expansion, ExxonMobil will increase its production of polypropylene by 450,000 tons per year. The project is part of ExxonMobil’s Growing the Gulf Initiative, the company’s 10-year plan to invest more than $20 billion to expand manufacturing facilities along the U.S. Gulf Coast.
Robert Marionneaux, Director of Governmental Affairs for the Port of Greater Baton Rouge, says the petrochemical sector “is an important part of our port operations,” noting the addition of Houston-based Genesis Energy, a midstream services provider: “Genesis Energy is a fairly new tenant. Operations began here at the port in September 2017. They lease approximately 90 acres at our ‘inland rivers’ facility and use it to both import and export products.”
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.