FREEPORT, Texas—Dow Chemical Co. will build a multibillion-dollar plant to convert natural gas into the building blocks of plastic in this coastal city, becoming the latest chemical maker to capitalize on the abundant gas supplies that are helping spur a renaissance in U.S. manufacturing.
Over the last decade, chemical companies in search of cheap raw materials have made some of their biggest investments outside the U.S., which is the world’s largest consumer of plastics.
But Dow and its peers are seeing new opportunity in huge domestic deposits of gas. Drilling innovations can now unlock the fuel from shale formations, pushing U.S. natural-gas prices to among the lowest in the world. Even as natural-gas producers cut back drilling in response to the low prices, chemical firms are increasing their manufacturing investments.
Dow’s new plant here will create 2,000 jobs at the peak of construction, the company says, and is scheduled to be completed in 2017. It will be built on a vacant lot within the chemical conglomerate’s Gulf Coast compound near Houston, a metal jungle of pipes and towering furnaces that sprawls over thousands of acres.
The new plant is the largest part of a previously announced $4 billion expansion of Dow’s facilities in the region, including enhancements to existing plants in Texas and Louisiana. Those projects will create about 500 long-term jobs when completed, the company said.
“The discovery of shale has really recreated the value proposition to build these facilities in what is the world’s largest market,” Andrew Liveris, Dow’s chief executive, said in an interview.
Dow’s announcement comes a month after Royal Dutch Shell PLC said it would build a similar, $2 billion chemicals plant in Pennsylvania near Pittsburgh, above the prolific natural-gas deposits of the Marcellus Shale.
Other chemical makers are eyeing major investments along the Gulf Coast, which is near major shale-gas sources in Texas and Louisiana. Chevron Phillips Chemical Co., a joint venture of Chevron Corp. and ConocoPhillips, is moving forward with plans to build a new plant at its facility outside of Houston, a spokeswoman said, part of the company’s $5 billion expansion in the region.
Formosa Plastics Corp., the U.S. affiliate of the Taiwan-based chemical maker, said in February it will build a plant and ancillary facilities on the Texas Gulf Coast at a cost of about $1.7 billion.
Meanwhile, LyondellBasell, the chemical company based in the Netherlands, and Occidental Petroleum Corp.’s OXY +0.28% chemical business are among a host of companies considering major expansions in the U.S., according to the American Chemistry Council, a trade group.
Taken together, the manufacturers’ expansion plans represent a long-term bet on the abundance of natural gas in the U.S. They are also providing a positive economic jolt in gas-producing regions where energy producers are cutting back on natural-gas drilling. Natural-gas futures closed Wednesday at $1.95 per million British thermal units, down 55% from a year ago and the lowest price in 10 years.
I haven’t checked, but the price of ammonia should be quite low, since methane is the feedstock for its production. That should take a bit of the edge off the cost of food production.