Each year, the American Fuel & Petrochemical Manufacturers hosts the International Petrochemicals Conference, where key issues impacting the petrochemical industry are discussed: environment, the economy, and political issues are covered by industry experts, high-level managers, and key government officials. The past several years have been focused on the re-established growth in petrochemicals, particularly in North America due to the impact of shale gas: plentiful, inexpensive feedstocks have driven $185 billion of planned investment in new factories and expanded capacity, with construction projects ongoing and more investment being considered. Potential challenges to growth have previously included environmental policies that restricted fracking, pipeline infrastructure, and other issues. This year’s conference, however, included a new challenge: Trump Administration trade policies. Trump’s tariffs on steel, his rumblings on China, and his bluster on NAFTA all hit right at the heart of petrochemicals, particularly in the United States.
Steel is critical to the construction of petrochemical facilities and pipelines. Approximately 20-25% of the cost of a new petrochemical plant is steel – a recent $6 billion DowDupont ethane cracker in Freeport required $1.2 billion in steel purchases, and an $11 billion Sasol construction project in Lake Charles, LA, will use an estimated 58,400 metric tons of steel. In response to the increased steel taxes imposed by the Trump Administration, DowDupont is considering Canada and Argentina for future construction projects originally planned for the US Gulf Coast, and billions of dollars of other construction projects will be delayed as returns on capital investment are
In addition to new construction of manufacturing facilities, the price of steel impacts shipping costs. Polyethylene exports from the shale gas boom will increase by 4.6 million metric tons by 2020; this will require approximately 255,000 20-foot steel shipping containers. Raising the cost of shipping negates some of the American cost advantage that is derived from the inexpensive feedstocks.
Then-candidate Trump made construction of the Keystone pipeline a signature issue during his campaign, and one of his first-year priorities was green-lighting the construction project with much fanfare. Yet many more pipeline infrastructure projects will be delayed by the increased taxes; some may be canceled altogether. Also threatening the petrochemical sector is general protectionist sentiment towards China. While the supply-side of US petrochemical growth and capital investment in increased capacity is cheap, plentiful ethane feedstock, the demand-side is driven by consumers in China – between 2018 and 2025, US production of linear low-density polyethylene (LLDPE) will increase by 67%, with domestic consumption only increasing by 12%. The balance will result in a 321% increase in LLDPE exports. Similar trends exist for other grades of polymer, as nearly half of all polymer produced in the US is
exported. Chinese retaliatory tariffs could leave the US with fewer markets for this excess production capacity.
A third area where the President threatens US petrochemical growth is with NAFTA. A fierce critic of what he considers an “inartful deal,” Trump has taken a hard line on renegotiation and at times threatened withdrawal. But whatever faults may exist with the agreement, according to a report by the American Chemistry Council (ACC), under NAFTA US chemical exports to Mexico and China have increased by 450% since 1994, resulted in over $1.5 billion in tariff relief for US companies, and resulted in a highly intertwined supply chain between the 3 signatory nations. President Trump has often praised “trade surpluses” as evidence of a good deal, and the US enjoys trade surpluses with both countries under NAFTA. The ACC report warns that “uncertainty created by withdrawing from NAFTA” could, as mentioned above with the steel tariffs, delay or terminate planned capital investments with tens of billions of dollars or more. The keynote speaker at the IPC, former British Prime Minister David Cameron, himself an advocate of free trade, expressed cautious hope that the President is merely using the threat of tariffs as a negotiating tactic, not a signal of a coming wave of protectionist decrees. The continued US petrochemical boom relies on this being the case.
Born in the same county as Davy Crockett in East Tennessee, Dave found his way to Texas where he works in the petrochemical industry. He’s written and spoken about politics on various media outlets including Fox, ABC, and Townhall. He is a graduate of Tennessee Tech with a degree in chemical engineering. Follow Dave on Twitter: @semperlibertas.