January 25, 2016 11:05 pm JST
Formosa Plastics Group

Investing $9.4bn in US ethane facility

CHENG TING-FANG, Nikkei staff writer

TAIPEI -- Taiwan's leading industrial conglomerate Formosa Plastics Group, has said it will invest as much as $9.4 billion to build a new ethane cracker in the U.S., in what appears to be an attempt to maximize the benefits of cheap shale gas in the world's largest economy.

     Spokesman and Executive Vice President Lin Keh-yen of Formosa Petrochemical Corp, FPG's petrochemical arm, said the company submitted an application to the state government in Louisiana last September to proceed with an environmental impact assessment for the facility.

     "It is a very big project, and hopefully, we can get approval as early as the end of 2017," Lin told the Nikkei Asian Review on Monday. "It will take about four years to build the site, so it can start producing in 2022."

     If approved, the new facility would be FPG's fourth ethane cracker plant in the U.S., and its first one in Louisiana, leveraging easy access to water and transportation provided by the Mississippi River. Ethane crackers process ethane, a component of natural gas found in shale, and extract ethylene, which is used in the manufacture of plastics.

     Taipei-based FPG already has two similar facilities in Texas that produce 1.66 million tons of ethylene every year. It is also building a third manufacturing site in Texas, which is set to yield 1.2 million tons of ethylene from 2018.

     News about the progress of the investment in Louisiana was first reported by Taiwan's Economic Daily News on Monday.

     Formosa Plastics Group's four major public-listed subsidiaries -- Formosa Plastics Corp, Formosa Chemicals & Fiber, Nan Ya Plastics, and Formosa Petrochemical - together generated a net profit of $141.4 billion New Taiwan dollars ($4.2 billion) on a revenue of NT$1.4 trillion in 2015. Formosa Plastics Group's U.S. subsidiary Formosa Plastics Corporation, U.S.A., is one of the conglomerate's most profitable units, posting more than $1.14 billion of net income before tax in 2014.

     FPG Chairman William Wong has told reporters on several occasions that the company will expand its overseas operations, highlighting the U.S., Vietnam and China as three top target areas. A main reason for FPG's venture into foreign locations is growing public sentiment against the expansion of petrochemical production facilities in Taiwan due to environmental concerns.

     "It would be extremely cost-effective for FPG to expand in the U.S. due to cheap shale gas available there," said Leo Lee, an analyst at Yuanta Investment Consulting.

     According to Lee, it costs only $200 per metric ton using American shale gas as a raw material to produce ethylene, while using the alternative of naphtha is twice as expensive.

     "Even if the oil price plummeted, some Asian companies still buy ethylene from the U.S. since it's still cheaper this way," he said.

Asia300

Formosa Plastics Corp.

Taiwan

Market(Ticker): TAI(1301)
Sector:
Industry:
Process Industries
Chemicals: Specialty
Market cap(USD): 19,610.3M
Shares: 6,365.74M

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