Tariffs, delays, construction inflate LyondellBasell PO/TBA costs by 30%

Author: Al Greenwood

2020/10/30

HOUSTON (ICIS)--Because of tariffs, delays and construction, LyondellBasell expects that costs will rise by at least 30% for its new propylene oxide/tertiary butyl alcohol (PO/TBA) project, executives said on Friday.

The $2.4bn PO/TBA project began in August 2018, and it is made up of two parts.

The PO/TBA plant is being built at LyondellBasell's complex in Channelview, Texas. Once finished, the plant will produce  2.2bn lb/year (1m tonnes/year) of TBA and 1bn lb/year of PO.

The second part - about $640m of the $2.4bn project - will expand the company's complex in Bayport, Texas. The new capacity will convert TBA into mainly ethyl tertiary butyl ether (ETBE), although it will have the flexibility to produce methyl tertiary butyl ether (MTBE) as well.

Back in March, LyondellBasell said it was slowing down construction at the site to preserve capital and to limit the spread of the coronavirus.

The delay pushed the completion date for the project by about a year to the fourth quarter of 2022, said Michael McMurray, chief financial officer. He made his comments during an earnings conference call.

"Higher costs arising from the delayed project execution, more extensive civil construction and unexpected tariffs on materials are expected to add at least 30% to our original cost estimate of $2.4bn," he said.

The delay does have a positive side. It could help with the timing of the start-up of the project, so it corresponds with a stronger economy, McMurray said.

Nonetheless, the combined effects of the delay, the tariffs and the construction will lower the returns of the project, said Bob Patel, CEO. He was also on the conference call.

"Certainly returns will be lower. We think probably in the 10% range on returns for PO/TBA," he said. Still, "I think in the end, we are going to net out the delay of the project".

The delay gave LyondellBasell a cushion on cash flow in 2020, Patel said. Like McMurray, he noted that the project will start operations when the market is further along in its recovery.

"In the end, balancing near-term needs with long-term market demand, I think this was the right call to make," Patel said.

Thumbnail image shows the project's construction site. Source: LyondellBasell

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