INDUSTRY INSIGHT

Feedstock availability drives growth decisions

Access to competitive feedstocks is the prime consideration for CP Chem when looking to place investment for growth, which gives the US the advantage today, despite the company’s considerable presence in Saudi Arabia and Qatar

There is no doubt that the US Gulf Coast is a primary focus for growth at Chevron Phillips Chemical (CP Chem) right now. The joint venture petrochemicals major, created in July 2000, has just completed its largest-ever investment, a USD 6 billion spend on a new ethane cracker and two polyethylene (PE) units, and is already studying its next projects in the region.

For us, says Mark Lashier, president and CEO of the USD 9 billion turnover business, based in The Woodlands, Texas, growth “starts with the ability to secure access to low-cost feedstocks.” At the moment, that means low-cost ethane and NGLs from the abundant shale gas reserves now being extracted in the US.

The picture was very different in the first decade of the millennium, when the Middle East was the prime source of advantaged gas feedstocks. At this time CP Chem sought growth through a series of joint venture investments in Saudi Arabia and Qatar with local partners.

Today, in Saudi Arabia its operations are grouped under the S-Chem and SPCo banners, and include olefins and aromatics as well as downstream PE, polypropylene and polystyrene. In Qatar, they are grouped under the Q-Chem and Q-Chem II names and consist of ethylene, polyethylene, n-alphaolefins and 1-hexene production.

“We are looking at ways to incrementally debottleneck and grow here, the same as with our other global facilities.”

These businesses operate very successfully, says Lashier, but additional feedstocks have become harder to secure over time, “just as shale kicked in in the US,” resulting in a refocusing of CP Chem’s growth imperative.

That’s not to say there isn’t potential for some expansion in the GCC operations. “They are maturing quite nicely and are robust; we are looking at ways to incrementally debottleneck and grow here, the same as with our other global facilities.”

Lashier points to potential for some additional feedstock in Qatar, for example, as the government expands natural gas production, but acknowledges that the Middle East is not its primary investment focus at this time.

It is most definitely the US that holds all the interest at present. “The main potential is here,” says Lashier. “We have direct line of sight to feedstocks and the resource base in West Texas is incredible.” Upstream participants estimate that there are 100+ years of reserves available.

CP Chem, he says, is very well placed to use NGLs from the West Texas and New Mexico fields as the US Gulf has the pipeline infrastructure to move feedstocks and intermediates around efficiently and cost effectively.

That infrastructure was put to good use with the commissioning of the new ethylene and polymer capacities. The overall project, dubbed the US Gulf Coast Petrochemical Project, consists of a 1.5m ton/year cracker at Cedar Bayou, Texas, and two high-density PE units of 500,000 tons/year each at Old Ocean, Texas.

The two PE units, designed to produce Marlex® metallocene lldPE and bimodal PE for film and pipe grades, were brought onstream in September/October last year, using ethylene piped from the grid, and the cracker brought up later, in March this year.

Lashier confirms the plants have all been fully operational from April this year and that the cracker is running well above design rates. “It has been a pretty spectacular start-up in terms of timing and performance of the units. It is a very efficient facility and product [from here] can compete anywhere in the world,” he claims.

CP Chem is now “firmly motivated” to look into building another, similar world-scale complex but Lashier stresses that no final investment decision has been taken as yet. But, “we can say that we are looking to develop a second phase.”

CP Chem is also looking to develop a new benzene facility using its proprietary Aromax® on-purpose aromatics technology. This takes C6-C8 naphtha-based feedstocks and converts them to aromatics such as benzene, with a by-product of hydrogen. As such, explains Lashier, investment calls for a suitable refinery-based partner to be found.

“It has been a spectacular start-up in terms of timing and performance. It is a very efficient facility and product [from here] can compete anywhere in the world.”

CP Chem operates Aromax® units in the US, using integration with the Chevron refinery in Pascagoula, Mississippi, and in Jubail, Saudi Arabia, at its Saudi Chevron Phillips Chemical joint venture with SIIG.

However, he sees this as a lower growth business than the olefins and n-alphaolefins businesses, which offer better growth potential for CP Chem. “These higher growth value chains will attract the capital as they offer better opportunities going forward.”

The company just last year, for instance, also completed investments for 100,000 tons/year of new n-alphaolefins capacity and a 20% increase in polyalphaolefins capacity at Cedar Bayou.

Growth opportunities apart, Lashier will be discussing the relative advantages of investing in North America or the Middle East at the 13th Annual GPCA Forum taking place on 26-28 November at Madinat Jumeirah, Dubai. In line with this year’s forum theme, Lashier will address the topic of ‘Transformational investment and regional partnership as routes to growth’ on day one, 27 November.

Also, he suggests, it is easier to access global engineering talent in the Middle East – recruiting for the big US projects has created certain challenges for companies investing in North America, he adds. But, the US has the edge when it comes to existing infrastructure and access to low-cost feedstocks.

So, while the US is most favoured for core growth projects at the moment, “if we find the right situation we would be pleased to build again [in the Middle East] and replicate what we have already, in tandem with what we are doing right now in North America,” he concludes.

“Mark Lashier will address the topic of ‘Transformational investment and regional partnership as routes to growth’ at the 13th Annual GPCA Forum taking place on 26-28 November at Madinat Jumeirah, Dubai.”