Any new ethylene for VCM expansion would require cost review – US Westlake

HOUSTON (ICIS)–Before Westlake would consider expanding ethylene capacity at a joint-venture cracker, it would need to conduct a cost analysis that would take into account higher labor and material costs caused by inflation, the chief financial officer said on Monday.

The additional ethylene could be used by Westlake’s vinyl chloride monomer (VCM) plant in Geismar, Louisiana, which it is expanding.

Westlake has not provided an update on when that VCM expansion project could start operations.

The additional VCM capacity would require ethylene from the merchant market. Westlake could reduce its exposure to the merchant market by increasing its ethylene capacity.

One option for Westlake would be to expand its joint-venture cracker in Westlake Louisiana. Westlake has a 50% stake with Lotte Chemical in the LACC joint venture.

“It is important that we find a way to cost effectively be able to try to shorten that merchant position in ethylene,” said Steven Bender, chief financial officer. He made his comments during an earnings conference call.

“But we want to do this in a cost-effective, value-added way,” he said.

Westlake could achieve that through a number of ways, including a debottlenecking project at the joint venture cracker, Bender said.

The joint venture cracker could be expanded by about 40%, Bender said. If Lotte participates, Westlake would be entitled to half of the ethylene produced by the expansion project.

Westlake would then need to get a fresh estimate about the cost of the project on a dollar per pound investment basis, Bender said.

“As we all know, there has been labor inflation and materials cost inflation, so I would not want to rely on anything that we have done in the last couple of years as an indicator of capital cost for that,” he said.

Bender did not provide any estimates about cost inflation, and he did not specify any causes of the cost increases.

OTHER PROJECTS SAW COST INFLATION
Other companies reported in 2023 large cost increases that led some to delay or cancel projects.

• Alpek, Indorama and Far Eastern New Century (FENC) temporarily halted work on an integrated polyester plant because of high costs.
• Phillips 66 said the project costs for its renewable diesel project in California rose by more than 40%.
• Chemtrade Logistics put on hold its ultrapure sulfuric acid plant project after costs rose by 50%.

RESUMPTION OF STEEL, ALUMINUM TARIFFS
Construction costs could rise further after tariffs of 25% go into effect on 12 March on imports of steel and aluminum products.

The following will take place under the tariff order:

• The US will withdraw the exemptions to the 25% steel tariffs that it granted to South Korea, Argentina, Australia, Brazil, Mexico, the EU, Japan, the UK and Ukraine.
• More steel products will fall under the tariff.
• The US will restrict the ability for companies to seek exemptions from the duties.
• The US will raise its tariff on imports of aluminum to 25% from 10% while terminating agreements it had reached with Argentina, Australia, Canada, Mexico, the EU and the UK.
• The 25% tariff will cover more aluminum products.

Thumbnail shows pipe composed of polyvinyl chloride (PVC), which is made from VCM. Image by Shutterstock.