Ineos Weighs Expansion of U.S. Chemical Plant to Tap Cheap Gas

Ineos Group Ltd., the largest closely held U.K. company, is considering expanding its U.S. factories to take advantage of low-cost natural-gas liquids that are used to make ethylene and plastics.

The company may add 250 million to 1 billion pounds of annual ethylene production at its Chocolate Bayou site south of Houston, Dennis Seith, chief executive officer of the company’s U.S. olefins and polymers unit, said Wednesday. Additional polypropylene and alpha-olefins capacity may be added at the site. Decisions on all three investments will be made within a year, with the expanded ethylene output available early next decade, he said in an interview.

Abundant shale gas has made the U.S. among the least expensive places to produce ethylene, the most used petrochemical, and derivative products, such as polyethylene plastic, which is used in bags and food packaging. The advantage has “diminished somewhat,” however, as crude’s decline has cut prices for naphtha, an alternative raw material for making ethylene, Seith said. Low oil prices are causing delays in investment decisions that could lead to “a very tight market” for ethylene at decade’s end, he said.

“It’s not a predictable environment for investments,” he said in the Houston interview.

Weighing Deals

Cheap oil could spur more mergers and acquisitions, particularly if state-owned oil companies in the Middle East decide to shed some of their chemical units, Seith said. Ineos may consider purchasing those assets, as well as any that may become available from the pending combination of Dow Chemical Co. and DuPont Co., the chemical industry’s largest Merger ever, he said.

Ineos is weighing acquiring its own shale-gas fields in the U.S., complementing its activities in the U.K., he said. The company is working with the British government and local communities to begin extracting gas from shale formations to supply its Grangemouth ethylene plant in Scotland, he said.

Ineos this month began shipping U.S. ethane, a gas liquid, to Grangemouth, becoming the first European chemical maker to tap U.S. gas.

A 1-billion pound expansion of polyethylene plastics production at a joint-venture site on the Houston Ship Channel is scheduled to start production in the fourth quarter, Seith said.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net. To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson, Bruce Rule

By: Jack Kaskey

©2016 Bloomberg News