The U.S. is in place to be the most competitive global manufacturer of chemicals because of hydraulic fracturing and natural gas; but the current state of talks to update the NAFTA trade pact is creating uncertainty over investments and growth, an industry association told Petrochemical Update.

The U.S. runs a trade surplus in chemicals with Canada and Mexico, which are, respectively, the first and second largest national markets for U.S. chemical exports.

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“The United States cannot consume all of the increased production of chemicals domestically,” the American Chemistry Council (ACC) said. “U.S. chemical manufacturers can capitalize on the shale gas revolution by securing expanded access to key trading partners such as Canada and Mexico.”

The U.S. runs a trade surplus in chemicals with Canada and Mexico, which are, respectively, the first and second largest national markets for U.S. chemical exports.

“Barriers to trade only result in added costs to the manufacturer and consumer,” the ACC said. “Modernizing NAFTA to further reduce barriers to trade will stimulate additional chemical industry investment.”

Proposals

But Canada and Mexico say several U.S. proposals for modernizing the North American Free Trade Agreement are unacceptable, prompting increasing concern that President Donald Trump will yield to his threats to quit the 23-year old pact if a better deal is not reached.

The U.S., Mexico and Canada are due to hold their fifth round of talks in Mexico City from Nov 17 to 21. The negotiations are scheduled to run until the end of March 2018.

Ministers from each region ended their fourth round of talks in October by announcing that they would need to revise their initial timeframe, pushing back the negotiations’ conclusion from end of 2017 to at least next March.

The group said that negotiators would now need more time given the significant differences between the parties on certain areas – including controversial U.S. proposals on dispute settlement and a five-year “sunset clause,” among others.

Lobbying

In the weeks since, an army of officials from the energy, petrochemical, automotive, retail and other business sectors have stormed Capitol Hill and publicly commented on their concerns, while speculation continues as to whether a final negotiated deal will be able to make it through their legislatures – and what it would mean if the US were to start withdrawal proceedings.

“Any proposals that would risk a crisis every five years on NAFTA wouldn’t provide the certainty our members need to bring these investments forward,” said Greg Skelton, who heads the global affairs division at the American Chemistry Council, a lobbying group. “We are going to have a huge increase in domestic production, and there is no way we can consume that domestically.”

Skelton was referring to the surge in petrochemical capital project investment, which is a direct result of the shale gas revolution, and has made the U.S. one of the most competitive producers of chemicals in the world.

In 2016, expenditures on chemical plants accounted for half of all capital investment in U.S. manufacturing.

More than 300 announced chemical industry investment projects worth more than $185 billion will come online over the next decade.

Exports

Investment in polyethylene (PE) capacity is expected to increase North American PE production to more than 54 billion pounds by 2020. PE production will exceed domestic demand, adding up to 6-9 billion pounds of excess inventory for export through 2020, assuming 75% of the announced projects start up on time.

But PE is not the only resin growing at rapid pace, polystyrene (PS), polyvinyl chloride (PVC) and polypropylene (PP) are also skyrocketing. Analysts predict that eventually nearly half of all resin produced in the U.S. will be exported.

Exports of specific key chemistries directly linked to shale gas will more than double – from $60 billion in 2014, to $123 billion by 2030.

Increased production of chemicals in the U.S. will also boost the broader manufacturing sector, since 96% of all manufactured goods depend on chemistry.

The chemical manufacturing sector is among America’s top exporting industries, with $174 billion in exports in 2016, accounting for 14% of all U.S. goods exports.

It is also one of America’s largest manufacturing industries, a $768 billion enterprise providing 811,000 skilled, good-paying American jobs – 30% of which are export dependent.

“Future economic growth for the chemical sector depends on establishing a pro-growth, pro-competitiveness agenda that is comprehensive in topic range and addresses barriers in both the domestic and international markets,” the ACC said.

Since NAFTA entered into force, trade in chemicals among NAFTA countries has more than tripled, from $20 billion in 1994 to $63 billion in 2014.

By Heather Doyle