Dow Chemical's Texas Propylene Plant Starts Operation
Dow Chemical’s DOW new propane dehydrogenation unit (“PDH”) in Freeport, TX, has started commercial operations, marking a key milestone in the company’s plans to integrate its U.S. operations with cost-advantaged feedstocks from increasing U.S. shale gas supplies.
The world-scale propylene production plant has a capacity of 750 kilotons per annum (KTA), making it the biggest on demand propylene facility of its kind. The unit is expected to benefit from favorable propane to propylene spread.
The PDH unit represents a major part of Dow’s roughly $4 billion U.S. Gulf Coast investments. The investment supports the company’s strategy to enable cost-advantaged growth in rapidly growing regions.
Dow also remains on track with its new world-scale ethylene production facility in Freeport. This new cracker (converts ethane into ethylene) represents a major part of Dow’s Texas Operations in Freeport. The facility is expected to facilitate growth and expansion of the company’s performance plastics business.
Affordable natural gas and ethane (derived from shale gas) offer U.S. producers a compelling cost advantage over their global counterparts who use a more expensive, oil-based feedstock. Leveraging the abundant natural gas supply and cost advantage, chemical makers, including Dow, are investing billions of dollars for setting up crackers that produce ethylene from ethane.
Dow noted that the start-up of the ethylene unit will be synchronized with the completion of the performance plastics derivative investments. The Gulf Coast investment will connect cost-advantaged raw materials to many of the company’s highest-margin downstream businesses including performance plastics.
Dow, one of the biggest ethylene producers on the planet, is seeing significant feedstock advantage in North America. The company’s investments in the U.S. Gulf coast and Middle East (including the Sadara joint venture) are focused on boosting this advantage. Dow’s strategic investments, including Sadara and U.S. Gulf coast, are expected to help it achieve its overall EBITDA target of over $10 billion.
Dow’s shares fell 1.2% to close at $49.63 last Friday. Its shares are up nearly 15% this year.
Dow currently retains a Zacks Rank #3 (Hold).
Better-ranked companies in the chemicals space include Celanese Corporation CE, Innospec Inc. IOSP and Stepan Company SCL with all holding a Zacks Rank #2 (Buy).
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