Petrochemical Boom Offsets Effects From Houston’s Oil Downturn – But For How Much Longer?

While the oil and gas industry is in recovery from a two-year slump, which has had a negative impact on Houston especially, the chemical industry has been experiencing a boom.

In the last few years, many chemical companies built new facilities or expanded existing ones here on the Gulf Coast.

In March, the BASF plant in Beaumont celebrated its $270 million expansion to produce the herbicide dicamba.

"Our expansion project literally employed hundreds of additional people here in Beaumont," site director Debbie Dallie said during the opening ceremony.

A week later, Brazilian chemical company Braskem opened its new UTEC plant in La Porte.

UTEC is made from polyethylene and mostly used in industrial applications.

"It gives us the opportunity to add our seventh asset here in the United States," Chris Gee, UTEC business leader, said. "And our first polyethylene plant in the United States."

These projects are part of more than $50 billion worth of chemical plant construction in the Houston region since 2013.

"That's the equivalent of maybe, in terms of capital equivalent, maybe 200 downtown office buildings," said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston's Bauer College of Business.

He said the construction boom began when the price of natural gas collapsed in 2013 thanks to hydraulic fracturing.

In the United States, natural gas is used to make plastic. In most other parts of the world, they use oil – which at the time was still at about $100 per barrel.

"So the rest of the world is trying to make plastics with feedstocks that cost $100 per barrel," Gilmer said, "while here in Houston, because we use natural gas liquids, we were making the same plastics with a feedstock that cost $15-20 per barrel. Enormous advantage."

Then in late 2014, the price of oil tanked, which spelled big trouble for the Houston economy. So the petrochemical boom couldn't have come at a more convenient time.

"Just as we're losing tens of thousands of jobs on the west side of Houston, we're hiring tens of thousands of construction workers on the east side."

But that east side boom is about to be over.

Gilmer said projects will wind down rapidly after this year – from almost $23 billion worth of projects completed to just under $5 billion next year.

"They're built and they leave behind relatively few permanent jobs," he said. "These big plants are what's called continuous process engineering, which means you turn them on and let them run for six months, and there will be a crew of maybe 40 or 50 people."

Texas-wide, the American Chemistry Council projects the industry will create 195,000 jobs by 2023.

"Now some of those are going to be construction jobs," the ACC's Anne Kolton said. She said tens of thousands of Texas jobs will be permanent.

"It's going to be new, lasting, high-paying manufacturing jobs in the Gulf Coast and hopefully in other areas of the country as well."

Gilmer said after this year there will still be new plants and expansions, but at a much lower level – regardless of how low the price of natural gas is.

"I think we're going to have all the plastic and synthetic rubber that we need for the next 30 or 40 years."

He said it would have been nice for Houston to be fully recovered from the oil downturn before the chemical boom winds down.

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