A bigger slice of the shale pie

Japan’s petrochemical players are seeking to grab a piece of the US shale gas pie through new projects, joint ventures and acquisitions. The US shale gas boom has dramatically lowered petrochemical feedstock as well as energy costs in the country, leading to a major jump in global competitiveness.

Most prominent among Japan’s chemical players is polyvinyl chloride (PVC) producer Shin-Etsu, whose US subsidiary Shintech plans to build a new 500,000 tonne/year ethane cracker in the US – potentially in Plaquemine, Louisiana, where it already has a major PVC site.

Shintech announced the plan and filed a construction permit with the Louisiana Department of Environment Quality (LDEQ) in April, to advance its strategy “to assure stable supply of ethylene for the manufacture of PVC”.

FEASIBILITY STUDY UNDERWAY

The company is conducting a feasibility study on the planned cracker, and a final investment decision has yet to be made. The Shintech cracker is one of 11 such planned projects in the US (see table).

Other global PVC producers are also making moves to back-integrate into cost-advantaged US ethylene feedstock. US PVC producer Axiall has partnered with South Korea’s Lotte Chemical in a 50:50 joint venture to build a 1m tonne/year ethane cracker in Louisiana by 2018, while Mexico-based PVC maker Mexichem’s 50:50 joint venture cracker of 544,000 tonnes/year with US-based 
Occidental Chemical (OxyChem) is under construction and slated for start-up in 2017. The Mexichem/OxyChem cracker is being built in Ingleside, Texas.

Rex Features Toray is looking to invest in the US to supply the aviation industry with advanced materials

PVC players in the US or those looking to expand in the US will also get a shot to back-integrate into chlorine – the other major feedstock – with US-based Dow Chemical’s plan to split off its chlorine business (along with other downstream businesses), potentially through a Reverse Morris Trust (RMT) transaction.

In an RMT deal, which would be more tax efficient, Dow could split-off its chlorine business, and then merge it with another company. Assets that Dow would split off include chlor-alkali and chlorvinyl facilities in Plaquemine, Louisiana, and Freeport, Texas. This includes the company’s 50% stake in the Dow Mitsui chlor-alkali joint venture in Freeport.

The Dow Mitsui chlor-alkali joint venture started production at its 800,000 tonne/year plant in March 2014. Mitsui & Co’s share of the chlorine output is converted by Dow to produce ethylene dichloride (EDC), a PVC feedstock, for Mitsui & Co to market worldwide.

MMA JOINT VENTURE

In January 2013, US-based PPG Industries used the RMT structure in merging its chlor-alkali business with US-based PVC producer Georgia Gulf, creating the company Axiall.

Japan-based companies are also looking to exploit new chemical technologies to take 
advantage of US shale gas. In June 2014, 
Mitsubishi Rayon Co (MRC) and Mitsui & Co signed a memorandum of understanding (MoU) to explore setting up a joint venture in the US to build a world-scale 250,000 tonne/year methyl methacrylate (MMA) facility for start-up by the end of 2018. The location has yet to be announced.

The companies plan to apply MRC’s innovative Alpha ethylene-based production process technology for MMA to benefit from shale gas in the US. The venture would secure access to ethylene from Dow’s US Gulf Coast production network, and also supply part of the MMA output to Dow.

To this effect, MRC and Mitsui & Co have also entered into a Non-Binding Material Terms of Agreement with Dow on the partial supply of ethylene feedstock from Dow and supply of MMA monomer from the joint venture to Dow.

With all the major projects being planned or under construction in the US on the back of shale gas, engineering and construction costs have risen, posing a major challenge. There are 195 chemical projects being planned in the US based on shale gas, representing capital investment of $125bn, according to the American Chemistry Council (ACC).

Back in May 2014, Japan’s Idemitsu Kosan and Mitsui & Co cancelled their proposed joint venture to construct a 330,000 tonne/year linear alpha olefins (LAO) plant in the US by 2016, and also terminated their initial ethylene off-take agreement with Dow. The LAO plant plans had been announced in March 2013.

Idemitsu Kosan and Mitsui & Co cancelled the project because the plant construction costs exceeded their initial estimate, making it difficult to profit from the business, an 
Idemitsu Kosan spokesperson said in May.

TORAY PLANNED EXPANSION

Earlier in February 2014, Japan’s Toray 
Industries bought a 400 acre (about 1.6m square metres) commercial land site in Spartanburg County, South Carolina, for 
future business expansion. In the US, Toray produces fibers and textiles, plastic resins, films, carbon fibre composite materials and water treatment chemicals.

“The country is expected to regain its 
industrial competitiveness on the back of the shale gas/oil revolution and the resulting 
revival in manufacturing. It is going to be the key market for Toray’s business expansion,” the company said in a statement.

Toray plans to make around Yen100bn ($924m) in investments in the US through 2020 to build its carbon fibre advanced materials business with the Spartanburg site serving as the base.

“Toray plans to actively invest its management resources in the acquired land to make it its advanced material business base,” Toray said.

“In the carbon fibre composite material business, in which demand is expected to grow for high-performance, high-quality carbon fibre TORAYCA in aircraft and natural gas pressure vessel applications, Toray has already been considering a plan to newly build an integrated high-performance carbon fibre production facility that covers from raw material fibre (precursor) spinning to carbonisation as well as a production facility for TORAYCA prepreg, a TORAYCA-based intermediate material which is a carbon fibre sheet impregnated in resin,” the company added.

It is clear that Japan-based chemical producers are actively seeking to boost their footprint in the US to take advantage of low cost shale gas based feedstock, and energy, as well as the manufacturing renaissance in the country. Expect more investment in the future.

• Additional reporting by Jeremy Pafford and Tomomi Yokomura