Identifying product demand drivers in emerging countries. Recognizing and capitalizing on the advantages and challenges of the shale revolution. Replenishing a shrinking industry workforce. These concepts and more were among the topics addressed by petrochemical industry leaders participating in a panel discussion at the recent Gulf Coast Industry Forum in Pasadena, Texas.
According to Robert Armstrong, general manager of Kuraray America’s American Eval business unit, the demand for ethyl vinyl alcohol co-polymers is being driven by a combination of factors, including the rising cost of energy and food products, how valuable food is, and the convenience and value of flexible packaging.
“When you look at products that used to be sold in metal, foil and glass, plastic packaging is ultimately cheaper and helps protect the product for a longer period of time,” he said. “Something like 80-90 percent of the milk produced in Kenya never reaches a consumer because it spoils before they can receive it. Barrier packaging can protect and preserve more food. And that’s driving the growth here and also in Latin America.
“Beyond that, it is environmental regulation protecting air, soil and water quality by using barrier materials to prevent emissions of hydrocarbons. All of those applications are driving the growth of EVOH (ethylene vinyl alcohol).”
Regarding capitalizing on this growth, Dennis Winkler, owner of Winkler Public Relations and moderator of the panel, asked panelists how plants can best compete to win expansion bids and continue to contract for more products to be shipped to their sites.
“The first thing we look at is, ‘Where is our customer base?’ A lot of that business is in the Americas,” Armstrong responded. “Then you look at if you can locate a plant close to raw materials, close to the infrastructure where you need to move those materials and final products to customers.”
Armstrong added the network of engineering, maintenance and construction personnel that supports a plant plays a key role.
“Underlying all that,” Armstrong said, “is the governmental system. The United States, particularly Houston, has a lot of advantages. Political stability and the legal system that we have here in the United States is a tremendous advantage for all of us.”
Shale boom pros and cons
“We are experiencing a renaissance in the chemical industry,” Winkler observed. Winkler then asked panelists how that renaissance was impacting individual companies.
David W. T. King, strategic workforce development manager for INEOS Olefins & Polymers USA, believes the effect has been negative on upstream.
“That is clear when we hear a lot of the announcements about the oil majors and about layoffs,” he said.
The effect on downstream has been “quite a different picture.”
“The shale gas opportunities in the context of a manufacturing renaissance have allowed the downstream industries to improve both their feedstock positions as well as their energy positions,” King said. “And that has really turned the industry on its head. That is what we are seeing a lot of in this expansion.
“Some people have kind of ‘tapped on the brakes,’ to be sure, but there are enormous projects going on that we would not have even conceived of three years ago. What it has allowed our company to do is leverage those shale gas economics to a significant investment and to try to leverage those overseas as well.”
Dale Friedrichs, site manager at LyondellBasell’s La Porte, Texas, plant, enthusiastically agreed with King’s assessment.
“As we build out a lot of the initial building block chemicals — the olefins — you’ve got to find vertical integration opportunities,” he said. “You have heard us and others announce polyethylene expansions. I think there will be more of those derivative expansions coming to try to vertically integrate and ultimately get products that are fungible around the world.”
Winkler asked the panel what could stop “this bit of a boom” the petrochemical industry is currently experiencing.
“My concern is, with all of this growth, we have a tendency in this industry to overbuild. We are all going after the same carrot,” Friedrichs said. “There will come a time, probably in the next few years, where we’re long on capacity. Our margins are going to come down over time as we try to find homes for this material, and it gets much more competitive not only here in the United States but also around the world.”
Friedrichs noted continued development occurring in third-world countries would sustain demand for petrochemicals and its spin-off products.
“You have a lot of emerging countries, whether it’s India or places in South America, that are going to continue to demand basic products,” he said. “Our companies produce basic building-block chemicals that support how we live our lives day-to-day, so I think fundamental demand is going to continue. As long as we have the shale gas advantage here in the United States, cheap feedstocks and cheap energy, I think we will do quite well.”
“If we do get to that position where we are long in supply, how do the plants react to that?” Winkler asked.
Friedrichs believes plants must react to each challenge on a case-by-case basis.
“Let’s face it,” he said. “A lot of the units being built are extremely large, world-scale units. They don’t transition real easily, particularly when we are talking about polymers or downstream-type chemicals. So they’re going to make a few products and a lot of them.
“I think it’s very reasonable to expect that some of the older, less profitable units will be shut down. I think that is the nature of where we’re headed.”
Friedrichs said he expects some older plants to retool, focusing on specialty products in order to compete in more niche markets.
Meeting the demands of a dwindling workforce
Winkler noted one of the greatest challenges to optimizing success in the age of the shale renaissance is meeting workforce demands.
King agreed, calling the effects of the shale boom “a perfect storm.”
“The manufacturing renaissance has allowed us to expand our facilities,” he said. “With that, we also have a significant challenge of retirements.”
King cited a study conducted by the East Harris County Manufacturers Association, which predicts a 50-percent turnover of plant operation personnel by 2019, including crafts, operators and engineers.
“On top of that,” King continued, “we have competition because of the uplift from shale gas and the work that we’re doing in the residential, commercial and other activities, which are also competing for the same resources and especially for the skilled trades.”
Another study commissioned by the Houston Independent School District in 2012 shows only 20 percent of students leaving eighth grade and entering the system were expected to earn post-secondary credentials, whether a technical certificate, a two-year associate’s degree or a four-year university degree.
“It’s even worse for economically disadvantaged people. It’s probably half that rate,” King said. “So here we have this need that is growing at a huge pace, and we have this supply, which is not helping matters.”
On the plus side, King noted, is the Texas Legislature’s House Bill (HB) 5.
“HB5 promotes kids making career decisions in grade eight — they called them endorsements — so that they will be career ready or they will be college ready by the end of high school,” he explained. “This is an important opportunity for us as an industry to really build momentum with the educational institutions around getting folks into great careers in our industry.”
King commended the motivation of the local petrochemical industry for working with the colleges and universities to promote students to explore careers in the petrochemical and energy fields.
“We are doing a lot of work in that area with Lee College, San Jacinto College, the College of the Mainland and Alvin College to really improve upon those programs,” he said. “Most recently, Lone Star is going to be breaking ground on a petroleum tech facility. And there is an effort underway at San Jacinto College for a $70-plus million petrochemical and energy technology excellence center, which is really exciting.”
Others agreed with King’s sentiments regarding the need for the industry to take a proactive approach to meeting workforce demands and emphasized the importance of skilled workers mentoring and sharing their industry knowledge with their successors.
“There really is a lot of opportunity, but it is nonetheless a challenge,” King concluded. “What is nice to see is the industry working together to sort of lift everybody’s boat and try to build a population that we can all draw from in order to support our industry.”
