The Gulf Coast's petrochemical industry is benefiting from the recent boom in U.S. natural gas supplies, which has lowered feedstock costs and improved odds that the region will get new plants and jobs in coming years, an economist for a leading industry group said Tuesday in Houston.
"Capital investment is now being reconsidered," said Kevin Swift, chief economist with the American Chemistry Council. "Ten years ago, it was largely being written off."
In recent years, the U.S. — and the Gulf Coast in particular - had been forecast to lose ground to the Middle East, where new chemical plants were being built near huge natural gas fields and major consuming markets like China.
The economic downturn dealt another blow, killing demand for products derived from chemicals and tipping several companies into bankruptcy.
Production to double?
But the discovery of shale rock formations, rich with natural gas and natural gas liquids, has changed the picture dramatically. Ethane, one of those liquids, is a primary feedstock for chemical makers on the Gulf Coast. It is used to make ethylene, a raw material for plastics.
Gas production from shale formations could double by 2035, the Energy Department estimates.
If U.S. output of ethane also rose 25 percent, it could spur $16 billion in new investment on U.S. chemical plants and create 17,000 jobs, Swift said, and Texas could be a big winner.
Today, the chemical industry employs 70,000 people in the state, nearly a tenth of the industry's total U.S. workforce, according to Labor Department figures. About half of those jobs are in the Houston region, spread across more than 430 chemical plants and refineries.
"Houston is the Jerusalem, the Mecca of the chemical industry," Swift said in a luncheon presentation to the Houston Economics Club at the Houston branch of the Federal Reserve Bank of Dallas.
Lost jobs
But nearly 90,000 industry jobs have been lost in the U.S. since 2005 - including about 3,000 in Texas - as the economic downturn forced plants to close and new competition in the Middle East took market share.
Chemical makers including Bayer, Chevron Phillips and Eastman Chemical Co. have said recently they may put mothballed U.S. production units back into service because of low ethane costs. Nova Chemicals Corp. has even proposed building a new ethane cracking unit in West Virginia.
'New wave'
Swift said such announcements herald a "new wave of petrochemical investment."
But Stephen Pryor, president of ExxonMobil Chemical Co., predicted at an energy conference in Houston earlier this month that investment will be incremental and will depend on the rate and pattern of North American ethane production and other factors.
Other industry leaders have said that before investing in new U.S. chemical capacity, they'll want resolution of regulatory uncertainty around U.S. shale gas development.
Hydraulic fracturing
The Environmental Protection Agency is in the early stages of studying hydraulic fracturing, the leading technique for unlocking natural gas from shales nationwide.
The process involves injecting mixtures of water, sand and chemicals deep underground and under high pressure to crack open the dense rock formations and release natural gas.
Environmental groups say the practice uses too much water and can contaminate groundwater supplies.
(Source: http://www.chron.com/disp/story.mpl/business/energy/7486846.html)
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