Dow Chemical is planning to take full advantage of the low price of U.S. shale gas by investing in the construction of several processing plants on the U.S. Gulf Coast that are set to produce plastics for a range of applications in the transportation and telecommunications industries.
As plastics production in the United States gradually shifts from oil-derived naphtha and turns to natural gas and ethane, operating a number of facilities might prove an immensely lucrative business for the Michigan-based company, Reuters commented.
The new plants are predicted to serve as link between Dow's manufacturing operations in the United States and attempts to boost shale gas supply in North America. Because of the relatively cheap natural gas, Dow believes the project could help the company make up for the narrowed margins that its plastic production has seen in Europe and Asia recently. Industry analysts predict that U.S. natural gas prices are likely to remain low for years to come because of the abundant production. At present, natural gas prices stand at $3.85 per mmBtu in the United States, compared to Asian natural gas prices of $16.15 per mmBtu, according to Reuters.
Dow expects the facilities to employ about 3,000 people. They will manufacture materials for a number of its fast growing segments, including hygiene and medical, transportation, electrical and telecommunications, packaging, consumer durables and sports and leisure. On a broader scale, Dow estimates that the project will create around 5,000 jobs during the construction and more than 35,000 jobs in the U.S. economy over the next five to seven years. In a separate announcement, the company said it plans to raise over $1 billion within the next 18 months from the divestment of non-core assets, such as its polypropylene licensing and catalysts arm and its plastics additives unit.
Currently, Dow is looking into possible locations for the plants on the Gulf Coast and is expected to announce its final decision on the sites at a later stage. Zacks Equity Research said that the plants are currently in the front end engineering and design (FEED) phase and are expected to be completed in 2014.
However, according to Nikkei Business Daily, the development is likely to take place on the Texas coast given that oil refiner Idemitsu Kosan and trading company Mitsui & Co have plans to team up with Dow to launch a petrochemical plant in Texas, estimated to cost about $1.05 billion and to be operating by 2017, located next to a new Dow plant.