May 17, 2012 / 6:25 PM / in 6 years

U.S. natgas liquids glut to persist -CP Chemical CEO

HOUSTON (Reuters) - Chevron Phillips Chemical Co, one of the top five U.S. chemical companies by volume, believes the oversupply of natural gas liquids (NGLs)that feed its U.S. plants is unlikely to be eliminated for another four or five years.

The joint venture of Chevron Corp (CVX.N) and Phillips 66 Co (PSX.N) is spending $5 billion on new ethylene facilities in Texas as part of a broader industry build-out that should soak up demand for NGLs such as ethane.

Chevron Phillips Chemical, which was formed in 2000 and employs about 4,700 people, is the world’s fourth-largest producer of high density polyethylene, used to make everything from food containers to plastic furniture.

The company found out last month its application with the U.S. Environmental Protection Agency for two polyethylene plants was complete, and the EPA now has a year to consider it, Chief Executive Peter Cella said on Thursday. If approved, the chemical company could seek funding approval from its own board by the end of next year, with an eye on starting up in 2017.

The plants will be fed by a new “cracker” outside Houston that converts ethane to ethylene, and all together the three sites will be a $5 billion investment that adds to Chevron Phillips Chemical’s $8.5 billion in assets, Cella said.

“The supply source has gotten ahead of the demand need. I think we’re doing our share to elevate the capacity to consume,” he told the Reuters Global Energy & Environment Summit in Houston.

“You can drill a well in a month or two, and it takes us five years to build a new cracker, so you’ve got this mismatch in timelines.”

The price of ethane fell by half in just three months earlier this year, which Cella blamed on maintenance projects by the U.S. Gulf Coast industry that led to an acute NGL glut.

He believes that over time a “Goldilocks” price will emerge somewhere above current levels that ensures drillers and pipeline companies earn enough to keep it flowing, but still plenty low enough to support the new polyethylene plants.

Cella expected three or four new crackers would be needed in the next decade just to meet U.S. plastic demand, especially packaging but also a variety of products like lipstick and trash bags, since demand grows with the economy.

“It’s not quite (equivalent to) GDP growth, but it is growth,” he said.

    Engineering company Fluor Corp (FLR.N) told Reuters this week that there was possibly the potential for up to five new petrochemical plants in the United States.

    Analysts at Tudor Pickering Holt then wrote on Thursday that something in the range of $20 billion in potential work would be driven solely by petrochemical sector demand for cheap U.S. shale gas, and that there was even more building on top of that needed to support those new facilities.

    Cella was glad his company seemed to be slightly ahead of the pack with its new projects, given the potential for skilled labor shortages emerging with the wave of building. With 10,000 people needed for his projects alone, the work would need to be spread out. “The problem occurs if we all go at once.”

    Chevron Phillips Chemical made its first acquisition late last year with the purchase of a plant from Neste Oil NES1V.HE in Belgium, and Cella said that while his focus would mainly be on the internal projects, he would keep an eye out for other potential deals.

    That could include more joint ventures, which is how most of its non-U.S. interests are held, or acquisitions targeted at building up the company’s aromatic technologies and specialty chemicals, Cella said.

    Follow Reuters Summits on Twitter @Reuters_Summits

    Reporting by Braden Reddall, Anna Driver, Michael Erman, Kristen Hays in Houston, and Patricia Kranz and Matt Daily in New York; Editing by David Gregorio

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