Texas and Louisiana Will Attract the Majority of $2 Billion Chemical Process Industry Project Spending Planned for the Southwest Region in 2005

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Written by Trey Hamblet, VP & Chemicals Group Manager for Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Home to over 630 plants in the United States Southwest market region (Texas, Louisiana, Oklahoma, and Arkansas), the Chemical Processing Industry (CPI) is beginning the new year with a significant increase in capital and maintenance project spending planned for 2005. Capital spending in the region is expected to increase by approximately 16%, as compared to 2004, with maintenance spending increasing by 8% over 2004.

Chemical producers in the region have been burdened with escalating energy and feedstock costs. Despite that trend, not loosing any momentum in 2004, contract prices for many olefin and core chemicals increased early in the year. These price increases provided an opportunity for many producers to pass along some increased costs, as well as strengthened company bottom lines. As 2004 comes to a close, pricing for large portions of the chemical industry, including ethylene and propylene, remains strong. This positive trend for the industry could lead to more available dollars for capital improvements at the plant level in 2005.

Click on the image at right to view the 2005 U.S. Southwest Region CPI Capital & Maintenance Spending Map & Chart.

Of the 181 CPI projects currently being planned in the region for 2005, it is not surprising that over half the project activity and total spending is planned to take place in Texas. During 2005, Texas is expected to realize over 100 individual major capital and maintenance projects, with total investments exceeding $1.5 billion in spending. Some of the top spenders in 2005 will be BP, Lucite International Incorporated, EVAL Company of America, and International Specialty Products Incorporated (ISP), collectively spending nearly $700 million in capital and maintenance dollars during the year. This is a diverse group of companies, representing different corners of the CPI, supporting a trend of increased spending in Texas across a large spectrum of industry segments, including petrochemicals, resins, and inorganic chemicals.

Louisiana follows close behind Texas when comparing project activity, with 77 projects planned for 2005, although, the total investment value will be substantially less than for Texas, at just over $400 million. Total spending could change quickly with the recent announcement by Shin-Etsu Chemical Company that Louisiana is being considered, along with Texas, as the potential home for its planned integrated vinyls complex. The complex would cost $1 billion to construct in two phases. Active projects planned for 2005 in Louisiana represent a much more traditional base of petrochemicals, including feed flex conversions, ethylene unit retrofits, and restarts, as well as energy efficiency projects.

Huntsman Chemical Company has restarted an ethylene unit in Texas that had been idle since 2001, and another olefins producer in Louisiana is strongly considering an ethylene unit restart in early 2005. These restarts represent a very core olefin ingredient to the Southwest's ability to strengthen and maintain its momentum in 2005, over the previous year's performance. Strong demand for petrochemicals and downstream products enabled most producers to pass along the increased costs of feedstock during 2004, and this is expected to continue next year.

Low NOx (nitrous oxide) compliance projects have been a priority in capital budgets for many chemical plant owners along the coastal region of the Southwest for several years. Despite a large number of compliance projects already having been completed in recent years, deadlines for some plant owners are still two years away, leaving a significant number of emissions reduction projects to be installed in 2005 and 2006. Many small CPI plant owners have already accomplished NOx reduction goals through minor process changes and energy efficiency projects, once again making room in capital budgets for competitive and return on investment projects.

The Southwest market region has traditionally outperformed most other regions in total spending, due to its strategically located population of major petrochemical plants along the U.S. Gulf Coast area with access to some of the world's largest marine terminals and intracoastal water ways, which make up one of America's major energy corridors. The Southwest region is often used as an economic indicator to measure the health of the country's industrial market.

The number of projects for 2005 that are still considered active compared to those projects that have already been placed on hold or cancelled, remains slim, at less than 11% as of December 2004. This will obviously change as the year progresses and plant owners adjust budgets to meet market demands. In 2004, fewer than 40 projects, or 20% of the total planned project activity, was cancelled or placed on hold. This was a significant accomplishment for the industry in 2004, and 2005 is forecasted to enjoy the same, or even better results.

*All project data mentioned in this article was derived from Industrialinfo.com's North American Industrial Database. For details on these projects contact Industrialinfo.com's Member Center at 1-800-762-3361.

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