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Chiyoda to build one of world's biggest ethylene plants in US

Plans for $1.3bn facility propelled by rise in shale-related investment

Chiyoda has built ethylene plants around the world, including this one in Saudi Arabia. (Photo courtesy of Jubail United Petrochemical)

TOKYO -- Japanese engineering company Chiyoda has won a contract to build one of the world's largest ethylene plants in the U.S., a project aimed at tapping shale gas reserves there.

The plant, estimated to cost 150 billion yen ($1.35 billion), is a joint project by Exxon Mobil and Saudi Basic Industries Corp., or Sabic. The facility will be situated by the Gulf of Mexico in the state of Texas, with the start of operations targeted for 2022.

Chiyoda will work with American construction company Kiewit to handle all phases from design to construction. Chiyoda will focus on design and procurement.

Much of American shale gas and oil used to be turned into liquefied natural gas. But due to the decline in commodities prices since 2014, plans for many new LNG facilities have fallen through.

Meanwhile, non-fuel applications for shale have gained momentum. Shale-based ethylene -- used to make polymers, fibers and organic chemicals -- costs less than half to make in terms of materials than ethylene produced by the conventional method using naphtha.

With advances in production technologies boosting profitability, many big players are making further inroads into the field. Exxon Mobil has earmarked $50 billion for investments over five years starting this year, much of it in shale gas and oil-related operations.

Tax cuts introduced by U.S. President Donald Trump to boost domestic manufacturing also spurred plans for new facilities. Texas is expected to add 9 million tons of annual ethylene production capacity between 2017 and 2019.

The new project marks the first U.S. ethylene plant by Chiyoda. Japanese engineering companies have ample experience in Southeast Asia and the Middle East, but have struggled in the U.S.

Chiyoda's compatriot JGC got an order in 2013 to build a large-scale American ethylene plant. But construction delays led to the company's first net loss in 19 years in fiscal 2016. Chiyoda has been building LNG facilities in places including the Gulf Coast state of Louisiana, but unforeseen costs have squeezed profit margins.

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