LyondellBasell targets $3bn in US projects, and more on the table

LyondellBasell is planning around $3bn in capital investment (capex) to build two major projects in the US – its new 
Hyperzone high density polyethylene (HDPE) plant and a new propylene oxide/tertiary butyl alcohol (PO/TBA) facility.

The company is ready to “break ground in one month” on its 500,000 tonne/year HDPE expansion in La Porte, Texas, said Thomas Aebischer, CFO of LyondellBasell, at the company’s 
investor day.

The HDPE project, expected to start up in mid-2019, is expected to cost $700m-750m and generate earnings before interest, tax, 
depreciation and amortisation (EBITDA) of $150m-200m/year based on average 2016 margins.

LyondellBasell, as a global petrochemical player, appears to be in prime position to increase PE exports from the US.

“There will be a lot more global trade in PE, and we are well positioned to export from the US and market product throughout the world,” said Bob Patel, chairman and CEO of LyondellBasell at the company’s investor day.

“Our marketing plans are becoming more global – a customer in Shanghai is as important as one in Chicago.”

LyondellBasell has the global asset base and employees to be able to serve markets around the world, he noted.

The company has around 6,000 employees in the US, about 6,000 in Europe and 1,000 in Asia and the Middle East, Patel pointed out.

Also, LyondellBasell will make a final investment decision (FID) on its PO/TBA project in Houston, Texas by Q3 2017. The plant, which will have capacity of 450,000 tonnes/year of PO and 900,000 tonnes/year of TBA, is targeted for start-up in 2021, a slight delay from the previous timeline of late 2020.

“We rushed a few projects earlier – we are learning and maturing. We want to make sure we have the up-front scope right,” said Patel in response to an analyst who noted the slip in the timeline for the PO/TBA project.

“PO/TBA is the low-cost technology to produce PO. If it’s not us [expanding capacity], then who? But it’s not just for [market] share – we want to earn a good return,” said Patel.

“We have many other projects in the queue. By Q3, it’s time. Let’s decide, and if not, let’s move on to the next one,” he added.

The PO/TBA project would cost $2.0bn-2.5bn, and generate $300m-400m in annual EBITDA based on average 2016 margins, Aebischer noted.

PROJECTS UNDER STUDY

Other projects under consideration include expansions of 250,000 tonnes/year of ethylene, 136,000 tonnes/year of PE and 159,000 tonnes/year of polypropylene (PP).

These projects would cost $405-440m and potentially generate annual EBITDA of $200-290m based on average 2016 margins – an extremely attractive proposition just based on the numbers.

These projects had been studied previously and “will be coming back to the forefront in the near future,” said Paul Augustowski, senior vice president of Olefins & Polyolefins – Americas. “I see a tremendous amount of opportunity in the propylene chain,” he added.

LyondellBasell is also studying new projects involving around 500,000 tonnes/year of propylene, a 500,000 tonne/year PP unit, and a 500,000 tonne PE unit. However, no cost figures or potential EBITDA returns were included with these projects.

“It’s a very exciting time for us. These projects take awhile for us to develop, and we think the timing is going to be just perfect for us to bring some of these forward in full scale,” said Augustowski.

On additional PE and PP plants, these projects “could come into focus in the latter part of this year or next year”, noted Patel, with decisions in the second half of 2018. Start-ups could occur in 2021 and 2022, noted Augustowski.

M&A APPROACH

Another potential use of capital for LyondellBasell is in mergers and acquisitions (M&A). The company will exercise discipline in evaluating and executing M&A, the executives said.

“Discipline is important” – if it does not meet the company’s high hurdle metrics, “we won’t do it”, said Patel.

In describing the company’s disciplined and rigorous process for M&A, Aebischer said the first priority is to maintain LyondellBasell’s dividend, and then its investment-grade credit rating.

From an M&A standpoint, the company will look for “opportunities to strengthen our growth and margin profile, and improve earnings stability”, said Aebischer.

Any deal must be accretive to earnings per share within two years and have an internal rate of return (IRR) of at least 12%, he added.

LyondellBasell could focus 
on businesses that add stability to its earnings.

Patel mentioned that propylene oxide (PO) underpins stability in its Intermediates & Derivatives segment, and that it has been modestly growing its compounding business every year.

“There are opportunities without going into pure specialties,” said Patel.