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Promise of affordable shale gas lures another foreign manufacturer to U.S. shores

You might say the good news about overseas investment in U.S.-based chemical plants accumulates faster than a December snowfall — and you’d be right.

In the latest development, Asia’s largest chemical producer, Formosa Plastics Group, is seeking a $2 billion expansion of its Texas operations, as cheaper natural gas prices make production in America more competitive.

The investment is bigger than the amount Formosa Plastics announced in February 2012, when the Taiwanese company said it would spend $1.7 billion to build two factories and a polyethylene plastics plant in Point Comfort, Texas.

Formosa expects to receive the go-head for an ethane cracker and downstream derivatives at a facility roughly 125 miles southwest of Houston sometime next year. Construction can then start immediately, according to Formosa Plastics Vice Chairman Susan Wang. Additionally, Wang said:

[quote]Because of shale gas, the cost of making petrochemical and plastic-related products is becoming very competitive here in the United States. It’s probably as cost effective as in the Middle East.[/quote]

Evidence supports Wang’s conclusion. Another Taiwanese petrochemical giant, CPC Corp, recently shelved plans for a multi-billion-dollar chemical plant in Malaysia because it was no longer competitive with U.S. firms capitalizing on low-priced natural gas from shale.

Simon Lieu, vice president of Yuanta Securities Investment Trust Co., said Formosa Plastics will benefit from a Texas-based plant that can depend on shale gas derivatives instead of more expensive oil-based naphtha in manufacturing basic chemicals. “Investing in U.S. petrochemical plants is the right move,” Liu said.

The German chemical industry apparently agrees.

In 2012, German investment in new chemical plants or expansions in the United States rose 54 percent, to $4.3 billion, according to Germany’s chemical industry trade group VCI. The U.S. now accounts for 41 percent of the German chemical industry’s foreign investments, up from 28 percent in 2005. With natural gas prices three times as high as in the U.S., German chemical companies are struggling to compete, said VCI General Manager Utz Tillmann. He added:

[quote]Abroad, and particularly in the U.S., the firms obviously find better conditions for their production, helping them to preserve their competitiveness.[/quote]

The latest developments confirm an ongoing chemical industry boom in America. “It’s a big deal,” said Joe Chang, global editor of ICIS Chemical Business, who explained:

[quote]It’s a great amount of expansion, all based on the premise that you’re going to have these low-cost natural gas feedstocks for some time.[/quote]

All these plans by overseas companies and optimistic growth projections are justified by industry data. As of early December, according to ACC data, 136 projects worth $91 billion in potential capital investment have been announced, more than half from firms based outside the United States.

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