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Chevron-Philips JV, Qatar Unite for $8B Petrochemical Plant

Zacks Equity Research
Banking on growing demand for plastics, Chevron Phillips Chemical, which is a JV between Chevron (CVX) and Phillips 66 (PSX), is collaborating with Qatar Petroleum to build $8-billion petrochemical plant.

Chevron Corporation CVX and Phillips 66’s PSX joint venture, Chevron Phillips Chemical recently inked a deal with Qatar Petroleum to develop $8-billion petrochemical plant in the Gulf Coast region of the United States. The announcement of the deal comes on the heels of another pact signed between the companies just a few weeks ago to build thebiggest petrochemical facility in Qatar for producing ethylene.

The latest facility, called the U.S. Gulf Coast II Petrochemical Project (UGSC II), would comprise an ethane cracker, which will process ethane — a byproduct of oil and gas drilling — into 2 million metric tons of ethylene, the building block of plastics, per year. The project will also include two high-density polyethylene units, each having the capacity to process ethylene into 1 million tons of polyethylene, which is the world’s most common plastic.

While Qatar Petroleum will hold a 49% interest in the UGSC II project, Chevron Phillips Chemical will be the majority owner with a 51% stake, and be responsible for operation and management of the facility. Headquartered in Texas, Chevron Phillips Chemical is equally owned by Chevron and Phillips 66, each carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Final investment decision on the project will be made by 2021, with targeted startup of the facility in 2024.The facility is likely to process output from the Permian Basin’s booming hydrocarbon wells.Notably, with Permian producers boosting oil production, the output of gas and liquid by-products is on the rise, in turn providing cheap chemical feedstocks.

Despite the environment backlash, the long-term fundamentals driving demand for plastics and chemicals are likely to remain strong. Chevron Phillips Chemical is cashing in on the trend and believes that petrochemical plants will help meet the demand for plastics in the coming years.

Of late, Middle East oil companies are also getting more inclined toward petrochemicals, in an attempt to diversify into other products and regions.The UGSC II plant is the latest example in this regard. This project marks Qatar Petroleum’s first major petrochemical plant in the United States and rivals the scale of the $10-billion petrochemical complex, which is a joint venture between ExxonMobil XOM and SABIC, near Corpus Christi. Saudi Arabia’s state-owned oil firm, Saudi Aramco intends to invest around $100 billion in petrochemicals. The company has partnered with France’s TOTAL SA TOT and Daelim to construct a new polyisobutylene plant by 2024. Aramco and TOTAL are also planning to build a petrochemicals complex in Jubail. UAE’s state-owned oil company ADNOC aims at expanding petrochemical and refining assets in a $45-billion investment drive. State-owned Kuwait Petroleum Corporation is contemplating to further expand the petrochemicals business.

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