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 Fall 2015

  
 Features

Petrochemicals and the Southern Manufacturing Renaissance

A "once-in-a-century opportunity" for the nation's petrochemical industry

By Mike Randle

The massive effort underway in natural gas fractionation, or fracking, has cut oil imports to the U.S. by 50 percent in less than five years. There is no question that three key factors are behind the growth of the manufacturing sector in the American South -- reshoring, onshoring and a plentiful supply of low-cost natural gas that has reduced energy costs to run large plants to modern day record lows. Of course, we have to include an improving economy in the U.S., which is assisting manufacturers here as well.

But there is one critical factor that many times is overlooked in the manufacturing renaissance the South is currently experiencing. One factor which may be more important to the South's manufacturing sector than onshoring, reshoring or the low energy costs that are the result of the fracking frenzy. . . and that's the applications of advanced technology on the factory floor, almost all of which were developed in this country.

The U.S. manufacturing sector has shown growth almost every month since August 2009. But it has grown even faster in the last year. Through June of 2014, the Institute of Supply Management (ISM) reported that manufacturing in the U.S. has expanded for 13 consecutive months. The Purchasing Managers Index (PMI) of 57.3 in June was the highest growth rate since May 2010. And the advances have been widespread throughout the sector with furniture, food and beverage, machinery, metals, electronics, automotive and apparel all expanding during those 13 months.

But there is one sector that has grown faster than any in the manufacturing arena, particularly in the South. Taken as a whole — meaning combining oil and gas projects with chemical projects — no industry in the region has expanded more so than petrochemicals, and that includes the automotive industry, the South's manufacturing "rock star" for three decades.

The oil and gas boom is producing millions of jobs, both direct and indirect. Employment is up 43 percent in the oil and gas fields since 2007. Furthermore, U.S. oil production has grown by 60 percent since the recession ended in June 2009. The production has cut oil imports by more than 50 percent in less than five years and that has the Saudis, the Iranians and every other oil-producing country in which the U.S. has invested hundreds of billions of dollars shaking in their oil field boots.

Game-Changers
Top Petrochemical Manufacturing Locations SB&D 100 2010-2014

Location
1. Houston, Texas
2. Baton Rouge, La.
3. New Orleans, La.
4. Lake Charles, La.
5. Marshall Co., W.Va.
6. Oklahoma City, Okla.
7. Shreveport, La.
8. Tulsa, Okla.
9. Corpus Christi, Texas
10. Beaumont, Texas
11. Freeport, Texas
12. San Antonio, Texas
13. Clear Lake, Texas
14. Columbus, Miss.

Projects
27
23
21
20
8
8
5
5
4
3
3
3
2
2

* There are 54 additional cities with 1 petrochemical project that made the SB&D 100 from 2010 to 2014. Source: SB&D

A "once-in-a-century opportunity" for the petrochemicals industry is how the Boston Consulting Group described it in a BCG Perspectives article published in April titled "Seizing the Opportunity in Petrochemicals." And behind that "once-in-a-century opportunity" for the petrochemicals sector is the large supply of low-cost natural gas and natural gas liquids that the U.S. holds, truly a competitive advantage no other nation has.

Just like the surge in non-petrochemical manufacturing, the petrochemical industry is in a unique position to expand as a result of the cost of natural gas dropping by two-thirds just since 2008. In fact, since 2010, there has been more invested by both domestic and foreign companies in petrochemicals than at any time since this magazine began following all industries in the South in 1993.

There are so many new, large petrochemical plants slated in the U.S. that $1.4 trillion in capital investment will be required to get these facilities up and running. And it's going to take 1.6 million construction jobs to build those plants and put in place the infrastructure, such as new pipelines, power plants and other critical underpinnings that are associated with those facilities.

Petrochemical activity can be found in several states in the South, but the large concentration of feedstock plants in Texas and Louisiana draws most of the action. Four places in Louisiana and Texas dominate new petrochemical investments and those are the Houston region in Texas, and the Baton Rouge, New Orleans and Lake Charles regions in Louisiana. But really, all states in the South are benefiting from the expanding petrochemical sector. And just about every place west of the Mississippi River is thriving as a result of the oil and gas boom, with Midland, Odessa, Dallas-Fort Worth, Oklahoma City, Tulsa and others experiencing record in-migration. And don't forget about West Virginia. East of the Mississippi River, it is the South's No. 1 state in petrochemicals.

Game-Changers
Top Combined Non-Petro and Petrochemical Manufacturing Locations SB&D 100 2010-2014

Location
1. Baton Rouge, La.
2. Houston, Texas
3. New Orleans, La.
4. Lake Charles, La.
5. Greenville-Spartanburg, S.C.
6. Dallas-Fort Worth
7. Nashville, Tenn.
8. Oklahoma City, Okla.
9. Louisville, Ky.
10. Charlotte, N.C.
11. Marshall Co., W.Va.
12. Mobile, Ala.
13. San Antonio, Texas
14. Columbia, S.C.
15. Memphis, Tenn.
16. Shreveport, La.
17. Tulsa, Okla.
18. Charleston, S.C.
19. Columbus, Miss.
20. Corpus Christi, Texas
21. St. Louis, Mo.
22. Tuscaloosa Co., Ala.

Projects
30
27
21
20
19
13
11
11
10
8
8
7
7
6
6
6
6
5
5
5
5
5

* Markets with at least five projects making the SB&D 100 2010-2014. Source: SB&D.

Last year the manufacturing sector in the South set a 20-year record with 410 projects meeting or exceeding 200 jobs and/or $30 million in investment. It was the first time the 400-mark was reached. Twenty of those 410 projects were investments of $1 billion or more, also a record. And of those $20 billion or more investments, 15 were from the petrochemical sector.

In 2012, there were 13 announced projects in the South of $1 billion or more, and in 2011 there were seven investment deals of $1 billion or more. Of those 20 big capital-intensive projects in 2011 and 2012, 15 were from the petrochemical sector. Contrastingly, in 2010 there was only one $1 billion petrochemical project announced, meaning these super petrochemical projects didn't begin surfacing until 2011 and have risen in number each year.

The vast number of petrochemical projects announced, under construction or completed, are new and expanded plants to produce methanol, ammonia, ethylene and propylene in addition to oil and gas specific projects such as gasoline refineries. Assuming that most of the announced deals will materialize, the new capacity for these products will turn the U.S. and the South from a net importer of these products to a net exporter of the products.

All of the products that are seeing large increases in new capacity, particularly in Louisiana, Texas, Oklahoma and Arkansas, are also seeing rising demand globally. And with the low cost of natural gas in the U.S., petrochemical manufacturing in the South gives those producers a significant cost advantage over their global competitors.

Many of these new petrochemical plants are much larger than their predecessors and highly complex. The advanced technology on the non-petrochemical factory floor that is bringing with it increased worker productivity is also being used in these new facilities. Because of the size of some of these multi-billion-dollar plants, there obviously will be cost overruns, delays and quality issues. But those that successfully get their plants up and running first will be able to meet the domestic demand for these feedstocks as well as the global demand that they are designed to meet.

Sasol's $16 to $25 billion gas-to-liquids plant and chemical complex near Lake Charles, La., is one of the largest, if not the largest, foreign-owned projects in U.S. history. Pictured (l to r) are Sasol CEO David Constable, Louisiana Economic Development Sec. Stephen Moret, Gov. Bobby Jindal and George Swift, CEO of Southwest Louisiana EDA.

The prevailing labor shed is another issue facing these large, new petrochemical projects that have been announced or are under construction. Tens of thousands of jobs in petrochemicals are being created each month, and those are the permanent jobs. Tens of thousands more are temporary construction jobs. Just one project, the $16 to $21 billion Sasol world-scale ethane cracker and gas-to-liquids plant in Southwest Louisiana is expected to house 1,200 permanent jobs, create 7,000 construction jobs and generate more than 50,000 indirect jobs nationwide.

South Africa-based Sasol is just one of many foreign-owned petrochemical companies that are tapping into the oil and gas boom in the U.S., specifically in the South. Investor's Business Daily reported that 100 foreign-owned petrochemical plants worth $300 billion are slated to open by 2017, creating approximately 1 million new jobs. These new jobs created by foreign companies are all hydrocarbon related, whether they are from the chemical, oil and gas or the fertilizer sectors.

Investments by one or two countries can dominate certain industrial sectors. For example, the Netherlands and the United Kingdom rang up much of the foreign-based oil and gas investments in the South over the past few years -- massive capital expenditures made by just two foreign-owned companies, Royal Dutch Shell (Netherlands) and British Petroleum (BP, UK).

And in July, there was even a rare Chinese petrochemical investment in the New Orleans to Baton Rouge/Mississippi River industrial corridor. Louisiana's very first large-scale Chinese foreign direct investment project was announced by Yuhuang Chemical. The company will invest $1.85 billion in a world-scale methanol complex on the Mississippi River in St. James Parish, La. Construction will begin in 2016 and the first phase of methanol production should begin in 2017. The project will create 400 permanent jobs and another 2,700 construction jobs.

Dennis Berman of The Wall Street Journal put it this way regarding petrochemical activity in the Gulf Coast states of Texas and Louisiana, and the Sasol project specifically, in a recent story: "Sasol is a metaphor for what we don't yet understand about America's gas boom. Most know what fracking has meant for oil prices. But because much of the work hasn't started yet (on many petrochemical projects, including Sasol), few appreciate the true extent of the industrialization that's about to begin," Berman wrote. "So let's put it this way. We are building a Qatar on the Bayou."

This "once-in-a-century" opportunity for the petrochemical industry that is sitting right on our doorstep is indeed sizable. It is the biggest manufacturing wave to wash onto the American South's shores in decades, probably since the ramp up seen in the sector during and just after World War II. What's more, it is expected to grow for years to come. No country has the petrochemical infrastructure the U.S. has, therefore this country will have a distinct advantage for a long time since large-scale fracking is not taking place anywhere on the globe except here.

The end result is this: if we do this right, this petrochemical expansion will be bigger than anyone could have ever have imagined. It is a game-changing event, one that will increase GDP dramatically, grow exports exponentially and create wealth (particularly in the middle class) and energy security for years to come. Yes, "once-in-a-century" might be an understatement.

The $10 billion Golden Pass natural gas export facility in Port Arthur, Texas was the South's largest capital investment last year.

Petrochemical Projects of $1 Billion or more 2011-2014

2011
Company
Sasol
Cheniere Energy
Faustina Hydrogen
Chevron
Location
Calcasieu Parish, La.
Cameron Parish, La.
St. James Parish, La.
Pascagoula, Miss.
$Inv
$6313
$5000
$1600
$1400
Jobs
372
N/A
N/A
20
 
2012
Company
Chevron
Sempra Energy
Dow Chemical
Sasol
CF Industries 
Formosa Plastics
Williams Partners
Magnolia LNG
Koch Nitrogen
Celanese
Ineos USA
Location
Baytown, Texas
Cameron Parish, La.
Freeport, Texas
Calcasieu Parish, La.
Ascension Parish, La.
Point Comfort, Texas
Marshall Co., W.Va.
Calcasieu Parish, La.
Enid, Okla.
Clear Lake, Texas
La Porte, Texas
 
$Inv
$5000
$4000
$4000
$3000
$2100
$1700
$1340
$1060
$1000
$1000
$1000
Jobs
414
N/A
N/A
294
N/A
225
100
N/A
30
N/A
N/A
       
2013
Company
Golden Pass
ExxonMobil
Axiall Lotte
Natgasoline
Eastman Chemicals
Eurochem
Ingleside Ethylene
G2X Energy
South La. Methanol
BioNitrogen Louisiana
Ascend Performance
Dow Chemical
Koch Industries
Phillips 66
Lotte Chemical
Location
Port Arthur, Texas
Baytown, Texas
Calcasieu Parish, La.
Beaumont, Texas
Kingsport, Tenn.
Iberville Parish, La.
Ingleside, Texas
Calcasieu Parish, La.
St. James Parish, La.
Pointe Coupee, La.
Alvin, Texas
Iberville Parish, La.
Enid, Okla.
Freeport, Texas
Calcasieu Parish, La.
$Inv
$10000
$2000
$2000
$1900
$1600
$1500
$1500
$1300
$1300
$1250
$1200
$1200
$1000
$1000
$1000
Jobs
N/A
N/A
N/A
N/A
300
200
N/A
243
N/A
250
100
N/A
25
N/A
N/A
       
2014
Company
Southern Calif. Energy
Chevron Phillips
Yuhuang Chemical
Location
Cameron Parish
Houston, Texas
St. James Parish, La.
 
$Inv
$2600
$3000
$1850
Jobs
N/A
N/A
N/A

*$INV = investment in millions


  
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