Cheap natural gas fuels plant expansions

Here’s something to think about the next time you toss a plastic milk carton in the recycling bin: You’re part of the natural gas revolution, and a $15 billion expansion at chemical plants along the Texas Gulf Coast will bring it closer to home than ever.

“We started watching a few years ago,” said Mark Lashier, executive vice president of olefins and polyolefins at Chevron Phillips Chemical. “We went from, ‘Gosh, is this something real?’ to convincing ourselves this is here to stay.”

“This” is not only low natural gas prices but also the huge reserves of shale gas released by hydraulic fracturing technology, which have given chemical plants a steady source of fuel, as well as the raw material for the staples of modern life, from plastic bags and milk cartons to medical supplies.

That has local governments scrambling to provide more housing, more roads and more workers to build and operate the expanded plants.

“It’s a new industrial revolution,” said Dan BornĂ©, president of the Louisiana Chemical Association, which is in the midst of its own boom.

Even as critics worry about air pollution and overburdened infrastructure, federal estimates suggest the growth is here to stay.

The U.S. Energy Information Administration predicts natural gas production will reach 27.9 trillion cubic feet by 2035, up almost one-third from 2010 levels.

The newly discovered reserves offered the promise of prosperity and energy independence, but some of the pioneers haven’t fared so well: Prices plummeted as more natural gas became available, and some of the first companies to jump into shale gas drilling – and their investors – lost money.

Chemical companies, on the other hand, prospered from the low prices and the knowledge that there will be natural gas available for decades.

Chemical companies use natural gas and natural gas liquids, including ethane, butane and propane, in a number of ways.

In one of the most common, ethane is converted to ethylene in a process called cracking. From there, ethylene can be made into packaging, paint and other products.

Edward Hirs, an energy economist at the University of Houston, said the expansions make sense even if natural gas prices ultimately go up.

“This is a long-term, significant advantage,” he said of the shale gas reserves, especially because natural gas is more expensive overseas. “Even $8 gas gives us a huge competitive advantage.”

Natural gas has been trading in the United States at under $4 per million British thermal units.

‘Not just all gravy’

Chevron Phillips Chemical, based in The Woodlands, is in the midst of more than $5 billion in expansion projects at plants in Baytown and in Brazoria County.

Dow Chemical last spring announced a $4 billion expansion along the Gulf Coast, including a new ethylene production plant at its Freeport complex, already the largest chemical plant in North America.

In October, Dow announced plans to cut 2,400 jobs and close 20 plants worldwide as a result of slow growth in Europe and elsewhere, but CEO Andrew Liveris said the Gulf Coast projects will continue.

In all, Texas chemical plants have announced $15 billion in expansions, all tied in some way to cheap and abundant natural gas, said Hector Rivero, president and CEO of the Texas Chemical Council.

The plant expansions will produce an estimated 25,000 jobs in Texas, Rivero said. That’s mostly temporary construction jobs, but hundreds of permanent jobs, too.

With that will come the need for more housing, additional road repairs and law enforcement and other services.

“It’s not just all gravy,” Brazoria County Judge Joe King said.

King said Brazoria County has granted more than $6 billion in tax abatements for the expansions – slightly more than $1 billion at Dow Chemical’s Freeport facility, another $1 billion for Chevron Phillips’ expansions at the Sweeny plant in Old Ocean, a tiny town in Brazoria County, and a $4 billion abatement for a proposed liquefied natural gas export facility.

The export facility may never be built – several other locations are under consideration, and the federal government hasn’t approved the plan yet – but county commissioners approved the abatement earlier this year anyway, King said.

Each expansion requires a permit from the Texas Commission on Environmental Quality, or an amendment to an existing permit, setting new allowable emission rates. But the sheer number of plants that are expanding has some watchdogs worried.

Driving the economy

King is convinced any trade-offs will be worth it.

“It’s easy to speculate it’ll mean more business for the service folks,” King said. “That’s everything from the restaurants to the laundries.”

And even with the tax abatements, he said the additional residents and business are expected to increase revenue from personal property, hotel and sales taxes.

“The majority of the people in Brazoria County know if we didn’t have the industry we have, we wouldn’t have the jobs available,” he said. “They are the driving force of the economy of the county.”

But Elena Craft, air quality specialist with the Environmental Defense Fund, said there are concerns about expanding industrial activity, even if an individual plant never exceeds its permit.

“As we learn more, as the science becomes more advanced, we are finding health impacts at lower levels of exposure,” Craft said. “We have a lot of unknowns.”

Often, no one plant is to blame, she said. “A facility can be operating within its permit limits, but when there are 12 or 15 operating within their permits, you can still have an air quality issue.”