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Pipe, valves and fittings (PVF) hold great importance in the chemical processing industry. Industrial Info Resources (IIR) is tracking 180 U.S. capital chemical processing projects, with a total investment value (TIV) of more than $10 billion, listed as having PVF equipment needs and are slated to kick off construction this year.
IIR has assessed the projects as having a medium (70 to 80 percent) or high (81 to 99 percent) probability of moving forward as planned. See Figure 1 for a breakdown by industry segment.
With inflation presumably becoming less of a threat in the long term, most North American chemical plant owners have shifted their focus to developing “green” or “blue” commodities. Green products use emissions-free renewable energy in their manufacture, while blue products capture the carbon produced in the process. These projects are centered around hydrogen, methanol, ammonia and recycled plastics.
Environmental, social and governance (ESG) and sustainability goals continue to dominate boardroom discussions when planning capital expenditures for the coming years. These goals include a reduction in carbon dioxide (CO2) emissions, the capture of CO2 from existing and proposed unit additions, plastics recycling, a reduction in water consumption, and the incorporation of green or biomass feedstock.
Consumers are pushing for sustainable solutions in the production of commodities such as plastics, fertilizers and petrochemicals.
The energy transition and associated ESG projects are adding a new layer of spending on top of existing outlays related to long-term demand fundamentals, which have been strengthened by increasing demand for consumer end-products. This trend occurred rapidly, and now it’s not uncommon to see green initiatives incorporated into the initial planning of a project.
Many projects planned to meet ESG or sustainability goals have timelines running through 2025 and require billions of yet-to-be-permitted, engineered or funded project spending. Despite aggressive timelines for many of these projects and a global economic slump related to hyperinflation, the outlook for many projects seems strong.
Long-Term Demand for Chemical Commodities
The demand for many chemical commodities increased significantly during the COVID-19 pandemic and did not slow, even as the pandemic faded. This has created a dilemma for producers as feedstock prices escalated along with supply-chain challenges and an unfavorable economic outlook. This delayed decisions on capacity additions despite robust demand.
The chemical processing industry is consumer-centric and export-dependent. The war in Ukraine and worries of an industrial recession make it difficult for owners to approve major plant expansions. That aside, overall capital and maintenance spending in 2023 was expected to reach levels witnessed in 2022, based on the expectation that long-term demand will continue and additional capacity will be needed, if only for population growth.
Rapid inflation in the wake of COVID-19 stalled billions of dollars in grassroot construction and unit additions in the petrochemical sector. Many of these projects had been planned and postponed from previous years, only to be moved to 2023 or beyond.
However, few world-scale capacity and unit additions have been canceled so far, as most industry players believe demand still justifies most of these projects in the long term. The U.S. market is still one of the most cost-advantaged globally to produce building-block chemicals such as ethylene and methanol.
Every proposed unit addition bears its own carbon footprint. Increasingly, plant and project owners are using alternative energy resources to power the units, such as green or low-carbon feedstock or even CO2 sequestration, to satisfy ESG demands from investors and consumers. Several large ethylene producers plan to retrofit steam crackers to accept hydrogen as a supplemental fuel in furnaces to reduce emissions and contribute to carbon-reduction initiatives.
Petroleum-Based Plastics Still Needed
The long-term outlook for ethylene remains strong, as downstream demand for plastics seems endless. Over the past couple of years, U.S. producers have begun to export ethylene from the U.S. Gulf Coast, diversifying their opportunities for new capacity. Ethane feedstock prices have increased in tandem with natural gas prices, although they maintain a significant cost advantage against foreign capacity, especially those linked to naphtha and coal feedstock.
Demand for plastics has increased across nearly all demand segments, including electronics, automotive, industrial and housing. These increases are in response to changes in consumer demand for product packaging, personal protection equipment and plastics used for food safety protocols and food packaging.
While consumers are seeking alternatives to petroleum-based plastic, they are demanding complex plastics for food packaging and personal safety, in addition to ever-present needs in the automotive and electronics markets. This is pressing plastic producers to push for the development of chemical or thermal recycling for consumer waste plastics.
A growing awareness of plastic pollution is driving the recycling of post-consumer plastics and reducing waste. Technologies to convert waste plastics to a material that can used as feedstock for a steam cracker have been in development for years and are inching closer to reality.
The growing demand for electric vehicles, solar and wind farms to power green hydrogen (Power-to-X) and similar environmental initiatives require tremendous amounts of plastics. When combined with an outlook suggesting population growth consistently through the next several decades, the expectation is that plastic demand will only continue to increase.
The development of traditional industrial gases such as oxygen and nitrogen slowed significantly over the past two years as the development of major petrochemicals and agricultural chemicals declined.
A few years ago, most industry observers did not believe the production of green hydrogen from water electrolysis, commonly referred to as Power-to-X, would gain any significant momentum in the domestic market. Much to the contrary, the development of green hydrogen projects has proliferated, with more than $25 billion planned to be built in the United States and Canada in the coming years.
A global appetite is growing for green hydrogen as a feedstock for green ammonia or similar commodities, as well as in transportation sectors and as a fuel for power plants, where hydrogen is added as supplemental feed for some gas-fired units.
The Power-to-X process uses renewable energy (wind, solar, hydro, etc.) to feed an electrolysis unit that produces hydrogen from water. Development of Power-to-X technologies began more than five years ago in Europe and has taken off, with nearly 650 projects planned globally. U.S. producers have been slower to accept this technology as the payout against traditional feedstock still is not comparable, but the demand for green products is expected to grow.
The lack of any new chlorine capacity in several years has kept supply in this sector very tight. After one producer suffered a major explosion in the summer of 2020, supply chains and available capacity were further complicated. Despite these market challenges, producers are not proposing any large additions other than those to support downstream ethylene dichloride, vinyl chloride monomer, polyvinyl chloride and similar products.
Fertilizer and Agricultural Chemical Capacity
Chlor-alkali production processes, including chlorine and caustic soda, are among the most corrosive and expensive to operate in the chemical processing industry. For this reason, investment in repair and preventative maintenance remains crucial for producers. Most of the project activity in this segment historically has been geared toward unit and plant turnarounds for inspections and repairs.
The rapidly increasing cost of natural gas and the uncertain economic landscape of 2022 delayed the previously planned start of significant fertilizers and agricultural chemicals capacity additions. The average number of acres planted for most commodities — wheat, soybeans and cotton —increased in 2022, while acres for corn declined.
Presuming the number of acres planted remains strong for 2023, demand for fertilizers also will increase, as there have not been any new ammonia or urea capacity additions since 2020.
Several world-scale projects in the United States have been in the planning stages for several years, representing more than 5 million metric tons per year of ammonia capacity additions. However, the start of many of these projects will likely be further delayed.
Brian Ford is editor in chief at Industrial Info Resources and has been with IIR since 2014. With global headquarters in Sugar Land, Texas, and 18 offices worldwide, IIR is a provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. To contact IIR, visit www.industrialinfo.com or call 713-783-5147.