Dow Chemical Co. (NYSE: DOW) announced Monday that it plans to tap cheaper shale gas in North America by building several new specialty production plants on the Gulf Coast. The Michigan-based chemical maker aims to produce plastics onshore for use in areas such as transportation and telecommunications.
The U.S. plastics-producing industry is increasingly shifting away from oil-derived naphtha, the key feedstock for the petrochemical industry. The industry is also investing billions in plants that run on ethane, made from shale gas. Dow's new plants will connect its manufacturing operations in the U.S. with efforts to increase shale gas supplies in North America.
The plants will take advantage of cheaper shale-derived natural gas, as margins in Dow Chemical's performance plastics have narrowed in Europe and Asia due to the use of more expensive crude oil-derived naphtha.
These facilities will manufacture competitively advantaged materials for several of the company's fastest growing market segments, including packaging; hygiene and medical; electrical and telecommunications; transportation, sports and leisure and consumer durables.
Dow, the world's second-largest chemical producer by revenue, said on Monday that the plants will employ up to 3,000 workers at construction peak. It did not specify how much it intends to invest in the new plants, yet last week it announced that it plans to divest more than $1 billion in proceeds over the next 18 months in noncore business units, including polypropylene licensing, catalysts and plastics additives.
Dow Chemical said it is considering location options on the Gulf Coast and will determine where its plants will be built at a later date. However, in a related development, Nikkei Business Daily reports that the Gulf location being considered is on Texas' coast, with information that two Japanese chemical industry powerhouses -- oil refiner Idemitsu Kosan and trading company Mitsui & Co. -- plan to partner with Dow to build a 100 billion yen ($1.05 billion) petrochemical plant in Texas to be online as early as 2017 and use ethylene supplied by Dow. The new plant will be right next to Dow's planned plant.
Chemical industry trade groups in the U.S. expect prices to remain low for years to come due to accelerated production from shale reserves. Natural gas prices are currently $3.85 per mmBtu in the U.S., well below Asian spot liquid natrual gas prices of $16.15 per mmBtu, according to Reuters.