Valero plans petrochemical plant in Louisiana to capitalize on low natural gas prices

Valero Energy Corp. said that it will spend up to USD700 million to build a petrochemical plant at one of its Louisiana refineries, the latest sign that low U.S. natural gas prices are revitalizing domestic fuel and chemical manufacturing.
Valero’s investment would be its biggest in the petrochemical business and make it one of the world’s largest producers of methanol, an alcohol that can be processed into plastics, textiles and paint, among other products.
The move comes at a time when Dow Chemical Co. and other petrochemical producers, who just five years ago considered the U.S. too expensive a place to manufacture chemicals, are now planning multi-billion dollar investments in the country.
The promise of cheap U.S. natural gas has lured companies to move chemical plants from other countries back to the U.S. Canadian chemical company Methanex Corp. is physically moving some of its production facilities from Chile to Louisiana.
“The low cost and availability of natural gas has made this possible,” Valero spokesman Bill Day said. This is the result of drilling innovations, such as the combination of hydraulic fracturing and horizontal drilling, that has helped oil and gas companies tap natural gas trapped in shale rock, something formerly thought uneconomical. U.S. natural gas prices have for months been below USD4 per million British thermal units (BTU), down from nearly USD14 per million BTU in July 2008.
Construction at the Valero refinery in St. Charles, La., is scheduled to be completed by the first quarter of 2016 and will expand the plant to produce 1.6 million tons of methanol a year, Day said.
ExxonMobil, Phillips 66, and other energy companies with refining arms have relied on their chemical sales to boost profits and offset slower growth in other parts of their business.
Now, as rising U.S. oil prices eat away at refinery profit margins, petrochemicals might be the refiners’ best bet for profits, said Kevin Book, managing director at consulting firm ClearView Energy Partners LLC.
(July 12, 2013)