Industry shift to specialty chemicals moves focus from Gulf Coast

As profit margins tighten, the petrochemical sector is focusing more on producing specialty chemicals and materials, which aren’t always made on the Gulf Coast.

The petrochemical boom in the Houston region is built around the manufacture of base, or building-block, chemicals like ethylene that made using cheap, abundant domestic shale natural gas as feedstock. However, profits margins have shrunk during the oil bust and chemical companies are looking at other ways to make money, said Adrian Beale, IHS vice president of specialty chemicals.

Base chemical prices are tied to the costs of commodities like natural gas and oil prices, whereas specialty chemicals are linked to the performance of the products they are used in, Beale said, so there’s less volatility. Companies and shareholders desire more stability, he said.

Most chemical plants outside of the U.S. rely on a feedstock derived from oil, so Gulf Coast petrochemical plants had a huge price advantage when natural gas was cheap and oil sold for $100 a barrel as recently as 2014. Now that oil is $35 a barrel, much, but not all, of that U.S. advantage has gone away, Beale said.

“That’s what’s stimulated this huge wave of investment, especially along the Gulf Coast, was that huge advantage,” Beale said. Many of those new investments won’t come online for another couple of years.

He said he expects a trend of focusing on specialty chemicals to last for the next five years or so, which could cause a bit of a pause along the Gulf Coast after the current wave of new projects is completed.

“Even if oil prices go back up, we’re not expecting them to go back to the heights where they were before,” he said. “Even though the U.S. will have a kind of advantage, it won’t be as significant.”

Some of the biggest specialty chemical growth areas are in pharmaceutical ingredients, specialty polymers, electronic chemicals, cosmetics, fragrances and construction chemicals.

Oilfield chemicals was a big growth area of late, Beale said, but that demand has declined during the oil crash.

Much of the new specialty chemical growth will come in developing areas where demand is growing like China, India and the Middle East, he said.

Still, there is some specialty chemical growth in the Houston area.

Paris-based Total on Monday will inaugurate its new, $100 million high-purity, specialty fluids facility at its Bayport complex. Total’s Bayport hydro de-aromatization, or HDA, plant will produce a range of 40 different specialty fluids for customer use pharmaceuticals, crop protection, water treatment, printing inks, paints and coatings and cosmetics.

The “de-aromatizing” is done in part to reduce toxicity and air pollution concerns of the products, Beale said.

And the base chemical growth isn’t quite done yet. Total will decide later this year whether to build a $2 billion steam cracker in Port Arthur to produce ethylene, which is the primary building block of most plastics.

With China representing a big growth area for specialty chemicals and China having a lack of technological know-how on the topic, Beale said, China is looking to acquire Western companies.

The China National Chemical Corp., called ChemChina, is in the process of buying Switzerland-based Syngenta chemicals and agribusiness giant in a $43 billion deal. Syngenta has a crop protection biosciences plant in eastern Houston near Greens Bayou.

Such Chinese growth through European and American companies could trigger more political debate, Beale said.