Commentary: US government shutdown could delay US cracker projects

04 October 2013 09:31  [Source: ICB]

With around 95% of the US Environmental Protection Agency’s workers furloughed, expect the processing of air permits needed to start building new crackers to grind to a halt

The drama in Washington DC with the US government shutdown has everyone scrambling to figure out what will be the impact. While the economic impact from around 800,000 government workers on furlough is expected to be relatively small, a prolonged shutdown would have serious consequences.


 New cracker projects could be on hold

Copyright: Rex Features

One impact of the shutdown particular to the chemical sector is delays in companies securing air permits from the Environmental Protection Agency (EPA) to proceed with the construction of new crackers.

The EPA will be stripped down to just 1,071 essential staff during the shutdown, which began on 1 October. This represents just 6.6% of total staff of 16,205 before the shutdown, the agency said in its Contingency Plan for Shutdown on 1 October.

In the US, there are plans to build seven new ethane crackers – six on the US Gulf Coast by 2016-2017 and one in Pennsylvania with an unspecified timeframe.

Among the six on the US Gulf Coast, only Chevron Phillips Chemical has secured the necessary federal and state air permits to start building a new cracker.

The rest – Dow Chemical, ExxonMobil Chemical, Sasol, Formosa Plastics and Occidental Chemical/Mexichem – are in various stages of securing these permits.

Companies must submit applications for Greenhouse Gas (GHG) Prevention of Significant Deterioration (PSD) air permits to the EPA for their projects and typically are in frequent dialogue with the agency on a range of issues prior to approval.

“We are continuing to make good progress with EPA Region 6 on moving the air permit forward for approval,” said ExxonMobil Chemical spokesman Russ Roberts. He would not comment on the government shutdown.

“EPA is just one of the affected agencies. So for the time being, we are still assessing its impact on our permitting efforts while continuing to proceed with our internal efforts and other tasks,” said Steve Rice, spokesman for Formosa Plastics.

ExxonMobil is planning to build a 1.5m tonne/year ethane cracker in Baytown, Texas, US with start-up planned for late 2016.

However, a prolonged US government shutdown could cause delays in the permitting process, impacting all firms seeking to build new petrochemical projects.

According to the US Clean Air Act, “the EPA is required to make a permit decision on a PSD permit application within one year after the application is complete as determined by the EPA”, as reiterated in a 15 October 2012 EPA memorandum on the “Timely Processing of PSD Permits when EPA or a PSD-Delegated Air Agency Issues the Permit”.

While the EPA by law has one year to make a decision, its goal is to make a decision within 10 months of the application being deemed complete, it said in the memo.

ExxonMobil’s PSD air permit application to the EPA for its new Baytown cracker was deemed complete in December 2012.

EPA progress on air permits is likely to grind to a halt as the agency operates with less than 7% of its staff during the shutdown.

The EPA’s Office of Air and Radiation, which deals with these permits, will be particularly hard hit. This office employs 1,177 staff and will be down to just 17 excepted staff and zero exempted staff during the shutdown, representing 1.4% of full staffing levels. You can bet these employees will not be working on air permits for new chemical plants.

“Excepted personnel are excluded from furlough during shutdown but only for the hours/days it takes them to perform their excepted activities,” said the EPA in its contingency plan. Excepted staff activities would include those related to an imminent threat to public health.

With the US manufacturing and chemical renaissance underpinned on the construction of new facilities, a prolonged delay in issuing environmental permits would be devastating to long-term growth prospects.

Meanwhile, the consensus is that the shutdown will cut US GDP by 0.2% every month it lasts, noted Kevin Swift, chief economist at the American Chemistry Council.

Far more important is the debt ceiling, which is fast approaching and could result in the catastrophic event of the US defaulting on its debt. The US government said it will hit the ceiling on 17 October unless Congress acts to raise it.

Additional contribution from Will Beacham in London

By: Joseph Chang
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