US petechems: Back to basics

19 April 2004 00:01  [Source: ACN]

Achieving self-sufficiency in energy is an important component of FPC USA’s strategy to reduce costs and grow its business, reports Prema Viswanathan

AT a time when most cracker operators in the US are grappling with the challenge of contending with soaring feedstock costs, Formosa Plastics Corp USA (FPC USA) appears relatively unperturbed.

The reason: FPC USA has been pursuing a strategy that will, it hopes, make it self-sufficient in energy in a few years from now.

Currently, the Taiwanese petrochemical major’s US subsidiary produces 35 000 mmbtu/day of natural gas through its Texas-based gas and oil exploration, production, transmission and processing operations.

Its self-generated sources of gas and oil currently constitute 25% of FPC USA’s total energy needs, says Paul Huang, the petrochemical major’s vice-president for olefins and energy. The company is, however, hoping to grow this energy reserve substantially by targeting a 20%/year increase in gas production. That target was achieved last year with the company well set to reach it this year too, claims Huang.

Energy and raw materials for FPC USA’s chemical manufacturing operations are supplied by three subsidiaries acquired in 1988: Lavaca Pipeline Co, which is involved in natural gas transmission; Neumin Production Co, which specialises in exploration and production of natural gas and oil; and Formosa Hydrocarbons, which is involved with gas processing and fractionation.

In addition, the company says it has enhanced its competitiveness in the US by sourcing natural gasoline from Mexico. ‘This is a feedstock with better olefin yield than naphtha, but less expensive. And unlike natural gas liquids such as ethane and propane, it can be shipped easily at lower cost,’ says Huang.

FPC USA’s flexible feedstock design has helped its cracker to remain competitive. It has been able to switch from gas feed to naphtha feed when gas prices peaked, and from naphtha feed to gas feed when crude values skyrocketed. But of course, this does not mean that the company is invulnerable to hikes in gas and crude prices, dependent as it still is on market supply of feedstocks.

‘We would very much like it if natural gas prices were to come down to the high US$3s/mmbtu or low US$4s/mmbtu in 2004. I think we can live with that,’ says Huang. Currently natural gas prices in the US are in the region of US$6/mmbtu.

Another matter for concern is the shrinking export market for polyolefins. Over the last few years, FPC USA has been steadily turning its attention away from exports and towards the US domestic market.

This is a vastly different scenario from three years ago, when the company’s exports to the Nafta (North America Free Trade Agreement) countries, especially Mexico, were quite significant.

Not any more. Over the last year, exports to Nafta countries have shrunk. ‘But that is not unique to FPC USA. Most US producers face the same situation. The answer is to focus increasingly on the domestic market.’

The outlook for exports appears to be improving a little this year, compared to last year, says Huang. But it is too early to be upbeat, he cautions.

Global demand for polyethylene (PE) is expected to grow by 4-5% over last year, and that for polypropylene (PP) by 5-7% over 2003. The company plans to increase its PP capacity by 60 000 tonne/year by end-2004, to meet increasing demand from injection grade applications.

The current capacity of the PP plant at Point Comfort, Texas is 670 000 tonne/year, while its hdPE/lldPE swing plant at the same site has a capacity of 900 000 tonne/year. The company does not produce any ldPE.

Besides supplying raw material for its PE and PP operations, FPC USA’s two crackers also provide ethylene feedstock for the company’s 300 000 tonne/year monoethylene glycol plant at Point Comfort, and ethylene dichloride plant with 970 000 tonne/year at Point Comfort.

FPC USA’s total ethylene capacity is 1.5m tonne/year while that of propylene is 450 000 tonne/year. The company is also looking to increase its cracker capacity by end-2005 or early 2006. A final decision is expected to be taken by end-May this year, says Huang.

The company is considering debottlenecking its cracker capacity so as to add value to its PE and PP production.

But all these efforts to improve competitiveness will yield the targeted results only if the US economy continues on its path to recovery. And that is something FPC USA, like other US-based companies, is banking on.

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