Based on exciting trends for the petrochemical production community, the opportunities for firms in the industrial construction segment are especially ATTRACTIVE for the next several years.
For the past several years, many eyes have been on the shale gas revolution in the United States. As U.S. oil and gas production has expanded exponentially, the attention has been on the impact on consumer markets, particularly such as natural gas for heating or oil and its attendant price impacts on gasoline at the pump. And while many have predicted a resurgence in U.S. manufacturing driven by cheap energy prices, the fact is that the needed investment in manufacturing facilities here has, for the most part, not been as significant or as quick as we might have hoped.
There are many possible contributing factors, such as public policy, labor immobility and decreased global demand for many manufactured products in the face of China’s economic challenges, preventing the manufacturing growth we all would have preferred to see.
Nevertheless, there is one area in which the manufacturing renaissance can be decisively described as being “well underway.” Chemical feedstocks are leading the Gulf Coast economy, with dozens of petrochemical manufacturing plants planned or under construction over the next several years. And while the current low prices may be introducing uncertainty and reducing investment in oil and natural gas production, in the words of Mr. McGuire of 1967’s “The Graduate,” “There’s a great future in plastics.” As worldwide demand for products like polyethylene and polypropylene continues to expand, industrial construction firms in the U.S. figure to have a role to play in helping Gulf Coast producers meet that demand.
Historical Movement of Petrochemical Manufacturing
Until the early 20th century, petrochemical manufacturing and processing focused on providing hotter-burning “coke” from coal to assist in smelting and other similar operations, and in the creation of aromatic compounds for use in textile manufacturing. However, beginning around World War I, petrochemical manufacturing became an end in itself, as Germany sought to create a synthetic tire rubber out of abundant coal, as a substitute for embargoed natural rubber.
Of course, in time many more useful petrochemicals were identified, and from the 1940s onward, the U.S. Gulf Coast region became the center of the worldwide petrochemical industry. Today, over 100,000 firms worldwide produce more than 70,000 distinct chemical compounds, many of which have their root feedstocks in crude oil, gas or natural gas liquids (NGLs). However, from the 1960s onward, the volatility of feedstock prices put petrochemical manufacturers at the mercy of the commodities markets and the national interests of the various oil and gas producing states.
For most of last decade, conventional wisdom held that Asian and Middle Eastern producers would remake the petrochemical industry to reflect their own capabilities. After all, more than one-third of the total operating costs of petrochemical operations are tied up in feedstocks and energy costs, and the U.S. could not compete with cheaper Middle Eastern oil. In fact, at the start of the century, Saudi Arabian manufacturing costs were believed to be only half of that of U.S. producers.
This article is part of The FMI Quarterly Issue 2. To read the complete article and sign-up for the Quarterly, click the image below.
For questions regarding this article, please contact Mike Clancy at email@example.com.