UPDATE 2-Idemitsu, Mitsui to study U.S. petchem plant feasibility

Mon Mar 18, 2013 6:33am EDT

Related Topics

* Dow Chemical plans to provide feedstock, use part of production

* Final investment decision in 2014 for planned start in 2016

* 70 pct of alpha olefins from planned plant to be sold in U.S.

TOKYO, March 18 (Reuters) - Japanese oil refiner Idemitsu Kosan and trading house Mitsui & Co have agreed to study the feasibility of running a petrochemical plant in the United States, taking advantage of cheaper feedstock from a shale gas and oil boom.

The two companies have reached an initial agreement with Dow Chemical Co, under which the U.S. firm would provide ethylene supplies for the plant and also take part of its production.

A final investment decision is expected in 2014 for the 50-50 joint venture to build a plant to start operations in 2016 with capacity of 330,000 tonnes per year of alpha olefins, the two said in a joint statement on Monday.

Alpha olefins are used as additives in polyethylene and other synthetic resins and are also used in products ranging from detergents to high-performance lubricants, with global demand of over 3 million tonnes a year, the companies said.

Feedstock from Dow would be taken in at the same price as production cost of the U.S. firm's planned ethane cracker, making alpha olefins from the planned Japanese venture competitive in the market, a Mitsui & Co spokesman said.

The two companies declined to comment on the value of investment, but the Nikkei business daily said on Monday the plant would cost up to 100 billion yen ($1.05 billion).

Currently, Idemitsu, Japan's third-biggest oil refiner, operates a unit to produce alpha olefins in Chiba, east of Tokyo, with capacity of 58,000 tonnes a year.

Idemitsu has sounded out the possibility of building a second unit outside of Japan as it estimates global demand to grow by 4 percent a year, a company spokesman said.

The planned plant is expected to sell 70 percent of its production to users in the United States, with the remaining 30 percent to Asia and Europe, the Idemitsu spokesman added.

U.S. natural gas prices are currently $3.85 per million British thermal units (mmBtu), well below Asian spot LNG prices of $16.15 per mmBtu. U.S. chemical industry trade groups expect prices to remain low for years due to ramped up production from the shale reserves.

If low prices are sustained, it would give the planned Japanese petrochemical plant a large cost advantage over European and Asian rivals, many of whom have to use crude oil-derived naphtha to make chemicals.

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