By Yuji Nitta
Japanese chemical manufacturers are making moves to increase production in the U.S. using shale gas, which is cheaper than petroleum, as the raw material. Mitsubishi Chemical Holdings is opening a new plant in Texas, while Mitsui Chemicals and Ube Industries, Ltd. are also planning to build plants. They are shifting to a strategy of enhancing cost competitiveness by using the cheaper shale gas. Stepping up “local production and utilization” in the U.S. is also likely to reduce trade risks from the U.S.-China trade war and other developments.
Mitsubishi Chemical is opening a new methyl methacrylate (MMA) plant in Texas. This will be a major facility with an annual production capacity of around 250,000 tons that will start operations as soon as FY21. The entire project is estimated to cost 70-80 billion yen.
Mitsubishi Chemical accounts for some 40% of the global MMA market. The new plant will boost its production capacity by over 10% to 2.1 million tons each year. Acrylic resin made from MMA is used for making auto tail lamps, construction materials, paints, and a wide range of industrial products. There is also strong demand for this material for making liquid crystal TV screens. Its price is spiraling.
The new plant will be able to cut production costs significantly by using ethylene made from shale gas, which is reckoned to cost as little as one-third of ethylene made from petroleum. Mitsubishi plans to supply MMA produced in Texas to material makers in the U.S.
However, most Japanese chemical manufacturers see shale’s overwhelming cost competitiveness as a “threat.” As Mitsubishi Chemical President Hitoshi Ochi warns: “The deluge of shale-derived chemical products into Asia may have an impact on the Japanese chemical industry, which has so far been operating at full capacity.”
The inundation of the world market by shale-derived chemical products exported from the U.S. will push down prices, and this may shrink the profit margins of Japanese chemical makers, which use petroleum for their products.
Dow Chemical and Exxon Mobil have already opened plants for manufacturing ethylene from shale in the southern part of the United States, resulting in a sharp dive in the domestic prices for ethylene. As exports gain momentum next year, the impact will spread globally. Furthermore, production capacity in the U.S. is expected to increase by 10 million tons – equivalent to 1.5 times Japan’s total capacity – by 2021. Many U.S. companies have also announced plans to set up new facilities beyond 2021.
This is Act Two of the shale revolution, with ramifications extending beyond the energy sector to the materials sector. With the U.S. increasingly taking measures to protect domestic industries — by slapping 25% tariffs on plastic and rubber products from China, for instance — building a supply chain to manufacture and market products within the U.S. will help reduce trade risks. There have been active moves to take advantage of shale’s cost competitiveness to target robust demand in the U.S.
Chairman Chihiro Kanagawa of Shin-Etsu Chemical Co., who has taken charge of the company’s polyvinyl chloride (PVC) project in the U.S. since the 1970s, is optimistic about the competitiveness of shale-derived PVC. This company will spend 160 billion yen to build a new PVC plant. Using shale-derived ethylene instead of the traditional naphtha as the material will cut the cost by 50%. Shin-Etsu’s production capacity in the U.S. will grow by 10% to 3.24 million tons. This company accounts for some 10% of the global market share for PVC.
Ube is also planning to build a new plant in the U.S. or elsewhere to produce dimethyl carbonate (DMC) used in batteries in anticipation of the expansion of the market for batteries, with General Motors and Tesla vigorously developing electric vehicles in the U.S.
DMC is used as a material for making an electrolyte, a key component of lithium-ion batteries. It is a chemical produced from natural gas and the U.S., where cheap shale is in great supply, is a promising candidate site for the new plant. Ube currently has only one DMC plant in Ube City, Yamaguchi Prefecture. If a decision is made to build a new plant in the U.S., this will be Ube’s second DMC plant.
Mitsui Chemicals is also considering a new plant in the U.S., mainly to produce elastomer from ethylene, a material used for autos. Total investment will reach several tens of billions of yen.
Since the Japanese chemical industry started producing ethylene in 1958, it has used naphtha made from petroleum to manufacture chemical products for 60 years premised on the stable supply of crude oil from the Middle East. However, heavy reliance on Middle East oil has sometimes become a vulnerability. The industry was hit hard by crude oil prices skyrocketing to over $100 a barrel in the 2010s, forcing many companies to close their plants or lay off personnel. The recent moves to take advantage of shale’s competitiveness are also significant in reducing reliance on crude oil and diminishing the risks of the overall supply chain. (Slightly abridged)