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Chevron eyes more downstream growth
The U.S. Gulf Coast and the downstream sector will figure prominently in Chevron’s current portfolio and future growth opportunities, Mike Coyle, Chevron’s President of Manufacturing said.
The trend for big oil to see the petrochemical sector as a growth engine and means for margin security has become a theme of the downstream sector.
“Another U.S. Gulf Coast project is currently under evaluation,” Coyle said “The U.S. Gulf Coast is a very attractive region for petrochemical growth with plentiful feedstock availability from the Shale gas deposits, robust pipeline, storage facilities, extensive rail infrastructure, access to coastal ports and an industry friendly environment.
“We are particularly optimistic about growth opportunities here in North America given global demand drivers, the U.S. Gulf Coast infrastructure and the development of shale resources,” Coyle added.
Coyle was speaking at the Downstream Conference in Houston, Texas in June 2019.
Chevron’s 50/50 joint venture with Phillips, CP Chem, recently invested $6.8 billion in U.S. Gulf Coast projects, including the Old Ocean polyethylene (PE) unit that started up at end of 2017, as well as the Cedar Bayou ethylene cracker that started in 2018.
Chevron has firmly positioned itself in the petrochemical industry with the startup of these mega petrochemical complexes in the U.S. Gulf Coast. The ethylene cracker is now running at full capacity. Currently, Chevron and its partners are evaluating the setup of another petrochemical complex in the U.S. Gulf Coast.
“Petrochemicals are important areas of growth for Chevron’s value chain, as an integrated oil company, and globally the petrochemical value chain continues to grow to meet the growing demands of the world,” Coyle said.
Image: Chevron June Investor Presentation 2019
Pasadena Refinery Plans
“Now with the addition of the Pasadena refinery in Texas to Chevron’s portfolio, it’s clear Chevron continues to be focused on the downstream value chain,” Coyle said.
Chevron recently completed its purchase from Petrobras America Inc. of all outstanding shares and equity interests of Pasadena Refining System Inc., which includes the refinery in Pasadena, Texas and PRSI Trading LLC for $350 million.
As part of the deal, completed on May 1, 2019, Chevron acquired the 110,000-bbl/day Pasadena refinery, direct pipeline connections to increasing industry and equity crude oil production, connections to major product pipelines, as well as waterborne access to receive and ship crude oil and refined products, Chevron said.
The 466-acre Pasadena refining complex includes the 323-acre refinery, 5.1 million barrels of oil and products storage capacity, an associated marine terminal and logistics system, and 143 acres of additional land along the Houston Ship Channel usable for potential future expansion.
With the addition of the Pasadena refinery, Chevron added a second refinery to its U.S. Gulf Coast downstream business, which also includes the 340,000-bbl/day Pascagoula refinery in Mississippi.
Chevron has strategic plans for this Texas refinery to fit into its overall plan. It will be the company’s second refinery on the U.S. Gulf Coast and the two facilities will be able to share resourced and coordinate turnarounds. There is also an opportunity to capture value on the abundant light Permian Crude.
“The refinery enables us to process more domestic light crude. The facility primarily ran Eagle Ford crude and we believe there is an optimization opportunity to process Permian extra light crude,” Coyle said. “We are currently evaluating this alternative.”
Pasadena will be closely tied to Chevron’s 150,000 barrel/day refinery in Mississippi, through the exchange of intermediate products, and with respect to turnaround coordination.
“The result of this integration of these facilities is a Gulf Coast Refining capacity of more than 45,000 barrels/day,” Coyle said.
CP Chem and Nova Chemicals in talks—reports
In terms of future growth, CP Chem has made a $15 billion bid to acquire Nova Chemicals, owned by UAE-based Mubadala, an analyst said.
“With this acquisition, Chevron Phillips would become the third largest polyethylene producer in North America, following ExxonMobil Chemical Company and Dow Chemical Company. This deal would also result in Chevron Phillips becoming the largest producer of high-density polyethylene (HDPE) in North America, followed by LyondellBasell,” Ashish Chitalia, Wood Mackenzie Chemicals Principal Analyst said.
The deal with Nova Chemicals would allow Chevron and Phillips 66 to diversify further into this market, while increasing competitiveness and market reach.
There are synergies between both companies in the polyethylene and polystyrene sector. CP Chem is a predominant producer of HDPE, while Nova Chemicals’ portfolio leans towards linear low-density polyethylene (LLDPE).
In terms of styrenics, CP Chem is a major North American producer of polystyrene through its American Styrenics joint venture.
American Styrenics accounts for around 28% of North American polystyrene capacity. Nova Chemicals, on the other hand, is a major producer of expanded polystyrene (EPS), with a capacity share of 22% in the region, Chitalia said.
CP Chem offers geographical advantages for the acquisition.Chevron Phillips participates in the Middle East and Asian markets through JVs in Qatar, Saudi Arabia and Singapore.
Both companies also provide a distinct edge in the technology sector. CP Chem is a pioneer and a licensor of HDPE slurry loop technology, while Nova Chemicals is a major licensor of solution LLDPE technology.
Together, both companies would have total polyethylene capacity of 8.5 million tonnes/year. HDPE would account for 5.8 million tonnes/year, while LLDPE would be a little short of 2.5 million tonnes/year. In North America, both companies would account for 20% of the capacity share for total polyethylene. The combined capacity share would increase to around 25% for HDPE, according to Wood Mackenzie.
“The Nova Chemicals acquisition would increase ethylene merchant exposure for CP Chem. After the recent ethylene capacity increase at Cedar Bayou, Texas, CP Chem was exposed to 500,000 tonnes of ethylene in the merchant market. Nova Chemicals, post its acquisition of Williams Geismar in Louisiana became exposed to approximately 1 million tonnes of ethylene. Together, the companies would have ethylene volumes equivalent of a world-scale cracker size of 1.5 million tonnes,” Chitalia said.
The petrochemical market is consolidating, with the main players – ExxonMobil, Saudi Aramco, LyondellBasell, and Dow Chemical Company - either expanding organically or through M&A activity.
Since 2018, many petrochemical companies have been under pressure owing to the slow economic growth outlook, the credit crunch in India and China, the trade war, and the plastic backlash.
“Such a deal would confirm the trend of Big Oil diversifying further into downstream, viewing the petrochemical sector as a growth engine and a means for margin security,” Chitalia said.
“However, CP Chem and Nova Chemicals also complement in terms of products, including polyethylene and polystyrene, geographic footprint and technology. With up to 1.5 millions of merchant ethylene available to CP Chem post-Nova Chemicals acquisition, the company would be in a strong position to leverage the second expansion wave on the Gulf Coast,” Chitalia added.
Chevron is the second largest integrated energy company headquartered in the U.S. and has business activities all over the world. In the U.S., Chevron has upstream assets in California, the Southwest, the Gulf of Mexico and Appalachia.
“Our growth prospects are anchored by leading positions in the Permian Basin shale assets and in the Deep Water Gulf of Mexico,” Coyle said.
Downstream, Chevron owns and operates five refineries in the U.S., El Segundo and Richmond in California, Salt Lake City in Utah, Pascagoula in Mississippi, and the newest addition in Pasadena, Texas.
Chevron also has interest in three joint ventures located in Singapore, South Korea, and Thailand.
All told, Chevron has 2 million bbl/day refining capacity, Coyle said.
“We are thinking in terms of value chain from crude to customer. We have three integrated value chains. The U.S. west coast, where we are the number one retailer of gasoline, the U.S. Gulf Coast, and this region also includes Central America, where we market our Texaco brand, and Asia where we market under the Caltex brand,” Coyle said.
Chevron’s key downstream projects include the modernization of its Richmond refinery in California, and an upgrade to its alkylation unit at the Salt Lake refinery in Utah.
Chevron has three petrochemical value chains located in the U.S. Gulf Coast, Middle East, and South Korea.
Chevron is the only integrated company with wholly owned lubricants, additives and base oils businesses.
Chevron has a 50/50 joint venture with Phillips 66. Chevron Phillips Chemical or CP Chem.
“CP Chem is one of the world’s top producers of olefins and polyolefins, and a leading supplier of aromatics, alpha olefins, styrenics, specialty chemicals and polyethylene piping,” Coyle said.
CP Chem headquarters are in the Woodlands, Texas and the company has 5,000 employees globally, operates in 13 states, six countries, and has $14 billion in assets.
By Heather McGuire Doyle