Challenges abound for new chemical companies coming to the Gulf Coast, experts say
- Molly Ryan
- Reporter- Houston Business Journal
The promise of cheap shale gas has brought chemical companies large and small from around the world to the Gulf Coast. It’s like a gold rush. But, while many chemical companies will hit the jackpot, it will be hard for all the new entrants to be winners.
A new report from the Boston Consulting Group found that in order for many of the chemical companies investing billions of dollars in new plants to be successful, they need to have project-management and sales-and-marketing teams that are extremely knowledgeable about the Gulf Coast market.
This could be a challenge for both foreign and small chemical players entering the market for the first time — especially with the short supply of experienced talent.
Between 2010 and 2023, chemical companies have committed $100.2 billion to new expansion projects in the U.S., according to the American Chemistry Council. The vast majority of these chemical projects are in Houston.
For background, shale gas is driving the billions of dollars of new chemical investments. Natural gas and natural gas liquids from U.S. shale plays can be used as feedstocks for chemicals. Since these feedstocks are at low prices and the demand for most chemicals is on the rise, this creates an environment with good profit margins.
Many new chemical companies will enter the Houston market for the first time, and BCG reported that depending on the type of chemicals the companies are producing, there will be additional challenges for each company. Besides this, there are underlying challenges that every company faces, including technical and construction workforce shortages and permitting.
Some of the unique challenges BCG pointed out include:
- For new methanol plants (which Celanese Corp., Mitsui & Company Ltd. and LyondellBasell Industries NV are starting up in Houston): Getting an “export-oriented” sales and marketing strategy in place and getting the plants up as fast as possible to meet existing demand
- For new ethylene and ethane-derivatives plants (which Chevron Phillips Chemical Company LLC, The Dow Chemical Co., NoltexLLC, C3 Petrochemical, BASF SE and many others are starting up in Houston): Getting entry into a very competitive market and getting a sales and marketing staff that is familiar with the Gulf Coast region
- For new propylene plants (which Dow and Enterprise Products Partners LP are starting up in Houston): Getting access to feedstock, which may require the construction of new pipelines, and knowledge of the Gulf Coast market
Some tips for having a smooth construction operation despite these challenges? BCG recommends running a lean organization, standardizing practices, setting up a strong feedstock strategy and setting up a strong sales and marketing strategy.