Cheap feedstock trumps cheap labor
Dec. 25, 2016 at 10:48 p.m.
Updated Dec. 27, 2016 at midnight
Cheap feedstock trumps cheap labor, according to comments from Rob Tully, venture executive for Gulf Coast Growth Ventures for ExxonMobil Chemical Company, when he spoke at the Victoria Economic Development Corporation's annual membership meeting in November.
Tully gave a great presentation that explains in part why there seems to be a resurgence of interest in the Gulf Coast region by the petrochemical industry.
The bottom line is because of the advancements in oil and gas exploration and the discovery of shale plays such as the Eagle Ford Shale, the United States - and especially Texas - is creating a long-term supply of inexpensive natural gas.
Natural gas is a preferred feedstock that petrochemical plants use to make plastics and other intermediary chemicals. Just a decade ago, many were concerned that the U.S. might begin losing the petrochemical industry to lower-cost nations where labor was cheap.
For two decades, we saw very few expansions and almost no new petrochemical facilities. All of that has changed. As Tully put it in his presentation, "cheap feedstock trumps cheap labor."
There is more to the story. Regardless of a product's production cost, there still has to be a market. Based on the petrochemical/plastics renaissance that seems to be taking place, at least some must believe there is a growing market for these products overseas. According to the research addressed in Tully's presentation, the growing market for plastics will come from the growing middle class in the emerging world. The evidence suggests that as developing countries grow, their middle-class population will have more disposable income. As this shift in income takes place, the new middle class will buy more appliances such as televisions and refrigerators. Eventually, they will buy a family automobile and, with more affluence, will come a desire to have more prepackaged foods. All of these new lifestyle enhancers have one thing in common: plastic.
The research indicates that the developed world, such as North America and Europe, will begin to decline slightly in demand of plastics due to an increase in efficiency of use; thus, the growth in the industry will come from the rest of the world. It appears that the emerging market for plastics will be supplied by products produced along the U.S. Gulf Coast region so long as we can continue to supply low-cost natural gas through shale exploration.
All this should be good news for the Victoria region over the long term. Victoria has known the petrochemical industry for almost 70 years when DuPont first located here and then Union Carbide, now Dow Seadrift, came to Calhoun County.
Today, we have these companies in our area as well as INEOS, Formosa Plastics, Invista, LyondellBasell and more. There is no doubt that these companies have helped shape our community by bringing the tax base and high-quality jobs that allow us to fund great schools, hospitals, emergency services and strong infrastructure. All these same attributes are what we use to market Victoria to new players in this industry as well as encouraging our current industry partners to expand in our region.
Dale Fowler is the president of the Victoria Economic Development Corporation. Contact him at 361-485-3190 or email email@example.com.