Natural Gas Incentives Could Halt U.S. Chemical Industry Growth

Whether the resurgent U.S. chemical industry continues to expand domestically after years of slow investment activity could hinge on how the nation proceeds with policies that impact shale gas drilling and consumption, said American Chemistry Council President and CEO Cal Dooley.

Chemical manufacturers have announced several major capital investments over the past three years as the industry takes advantage of the growing natural gas supplies in North America.

But policies that incentivize demand for particular energy sources or usage threaten future chemical industry growth in the United States by potentially raising natural gas prices, Dooley told IndustryWeek during a visit to Ohio April 5.

Specifically, Dooley referred to a plan championed by energy tycoon T. Boone Pickens that would expand tax credits for natural gas-powered vehicles. President Obama recently proposed a $1 billion plan to bring more alternative-energy vehicles to market, including the development of regional liquefied natural gas fueling areas for trucks.

Dooley also said regulations that force coal-fired power plants to either shut down or convert to natural gas could impact future chemical industry investments.

"If you have a regulatory policy that results in the 86% of the electricity generated in Ohio currently by coal, then dramatically shift that to natural gas over a short period of time without allowing supply to catch up, that creates an expectation in years out that the feedstock we're so dependent on - natural gas - will be much higher (priced)," Dooley said.

In Ohio, First Energy Corp. and American Electric Power have announced plans to shut down several coal-fired plants and expand their use of natural gas because of Environmental Protection Agency emissions standards. Power companies are taking similar actions in other states.

Dooley said he's concerned about the impact such regulations could have on investments similar to those planned by Royal Dutch Shell plc (IW 1000/2) and other chemical producers considering the construction of multibillion-dollar plants in shale gas regions.

Shell is conducting feasibility studies for a new ethane cracker in Pennsylvania and according to a report in the Wall Street Journal, the company may build a $10 billion gas-to-diesel processing plant in Louisiana.

'Chemistry to Energy'

The American Chemistry Council has launched a "chemistry to energy" campaign that not only calls for market-driven natural gas policies but stresses the importance of a comprehensive energy policy.

This includes offering the same type of credits to manufacturers for energy efficiency as those provided by some states to companies that utilize renewable energy, Dooley said.

Chemical manufacturers could benefit as well from waste-to-energy policies that encourage the reuse of discarded plastic for energy generation.

Plastic has a 25% higher energy content than coal, according to Dooley.

"We're making the case of why dig coal out of the ground and bury plastic when plastic has more energy in it?" he said.

Another part of the association's energy initiative focuses on the chemical industry's role in advancing all forms energy sources in the United States.

While natural gas plays a critical role in chemical production, the industry also supplies the composites used in wind turbines and materials for solar panels, Dooley said.

Battle over Ethanol

New ethanol production technologies have made it possible to produce the fuel from hydrocarbon sources such as coal and natural gas.

In March, Dallas-based Celanese Corp. (IW 500/153) said it received key government approvals to move forward with plans to modify an existing facility in China to produce ethanol from coal.

The company views the technology, which it calls TCX, as a lower-cost option than traditional corn or sugar-based ethanol.

Celanese has announced some expansion in the United States related to its TCX development. The company expects to open a facility in Clear Lake, Texas, this summer to produce ethanol from natural gas.

But regulations could stifle further investment domestically, said Steven Sterin, chief financial officer for Celanese.

Ethanol legislation enacted prior to the availability of TCX requires most of the ethanol produced to be derived from corn.

Dooley said Celanese's situation is a prime example of legislators "picking winners and losers."

"It's much more cost-effective than biobased and yet we have public policy in place that disadvantages its entry into the marketplace," Dooley said. "And that's where we think you have to be very cautious and judicious about government providing subsidies and mandates."

In January, six House members introduced a bill sponsored by Republican Pete Olson from Texas that would encourage more ethanol production from sources other than corn.