Exxon Boosts Asian Production of Plastics

Exxon mobil Corp, is betting big that Asian consumers will be needing a lot of plastics as their countries develop. As energy reporter and editor Russell Gold reports in The Wall Street Journal, the company is finishing up one of the biggest projects in its corporate history: a huge expansion of a petrochemical facility in Singapore.

The Texas-based company is famous as a global supplier of crude, natural gas and gasoline, but Exxon is concentrating more on growing its chemical production activities. The company won’t say exactly how much the project is costing it.

The company’s chemical division isn’t puny. It generated a record $1.52 billion in operating income for the division during the first quarter. If the unit were an individual company, it would be the second-largest chemical company in the world, after the German company BASF AG, by profit. And, as Gold reports, it’s about to get larger:

The Singapore expansion — which an Exxon executive earlier this year called ‘one of the largest projects ever executed’ by the 141-year-old company — will boost Exxon’s output of chemicals used to make plastics and other staples of modern life by more than 11%. Singapore will become Exxon’s largest refining-and-petrochemical complex, bigger even than Baytown, Texas, which held that distinction for decades.

Exxon is bulking up on chemicals, analysts say, in part because this business is becoming more profitable. Historically, investments in its upstream business — finding and developing oil and gas — has yielded a better return than investments in chemicals. But that is starting to change. In 2010, Exxon’s chemical unit generated better returns on capital — segment income divided by capital investment — than the upstream division for the first time since 1998. And in recent quarters, chemicals returns have routinely beat Exxon’s refinery segment, typically a cash cow.

Exxon sees chemical production as a way to get a foot in the door of the largest emerging markets: Asia, namely, China. Demand for petrochemicals is anticipated to grow by 5% every year for the next 10 years; two-thirds of that growth will happen in Asia and half in China.

This view of Asia being the center of the chemical world is not shared by everyone. Dow Chemical Co. and Chevron Phillips Chemical Company LLC, a joint venture of Chevron Corp. and ConocoPhillips, are going to stick around in North America.

Gold explains there is another notable difference between Exxon and other chemical manufacturers:

The Dow and Chevron plants are being built to take advantage of the newly abundant, low-cost ethane and propane being produced as byproducts by companies drilling natural gas and oil from shale rock. The facilities will produce ethylene, which is used to make plastic bottles and other products.

In contrast, Exxon built the Singapore facility to run off a wide range of feedstocks — petroleum byproducts that are changed into chemical products by using catalysts, heat and pressure. The facility will be able to process hundreds of different liquid feedstocks such as ethane and heavy oils, up from 80 before the expansion, said Exxon spokeswoman Karen Matusic.

With Singapore as its Asian foothold, Exxon hopes to meet the growing demand in Asia for plastic in any form. Gold lists polyester clothing, water bottles, and surgical masks as examples of products that require plastic. Exxon has already started to test the market with a product made out of a new kind of polymer: disposable diapers that feel like cloth ones but have the elastic, stretchable plastic properties parents love. This novel polymer will also be used in automobile bumpers to make them more resistant to dents.