US Gulf Coast investments overview
In 2011, The Dow Chemical Company (DOW) announced a huge investment in its existing US Gulf Coast facilities. Dow plans to build a large-scale ethylene plant at Freeport, Texas, to benefit from the availability of low-cost feedstock from US shale gas. This ethylene plant will have a total capacity of 1.5 million tons per year and will use ethane and propane as raw materials. This plant is currently on schedule and is expected to start in 2017.
Dow also plans to build a PDH (propane dehydrogenation) plant. Dow’s propylene plant will use propane as feedstock. This PDH unit is 60% completed and will start production from the fourth quarter of 2015. The US Gulf Coast investments are expected to deliver $2.5 billion of EBITDA (earnings before interest, tax, depreciation, and amortization) after the plant is fully commissioned.
Sadara Chemical Company
In 2011, Dow announced a joint venture, Sadara Chemical Company, with Saudi Arabian Oil Co. The joint venture, in Jubail, Saudi Arabia, will have 26 manufacturing units and will produce 3 million metric tons of high value-added chemical products and performance plastics after the fully commissioning. The facility is expected to be fully operational in 2016. Sadara is expected to generate around $10 billion of annual revenue after a few years of operation. The total project investment would be around $20 billion, where 35% equity interest will be owned by Dow Chemical.
Dow will gain a significant advantage over its peers, as it will get access to high-growth, geographic regions such as Asia-Pacific, the Middle East, and Africa. Sadara is expected to deliver equity earnings of around $500 million per year for Dow for the next ten years once the facility is fully operational.
Sadara is progressing on time and construction is 94% completed. Production will begin in the second half of 2015 with the initial production of polyethylene. The facility will be fully operational by the end of 2016.
Dow’s investment projects are all on schedule and are expected to add more than $3 billion to Dow’s annual EBITDA in the next few years.
Dow recorded a cumulative capital expenditure of $8.5 billion between 2012 and 2014 due to the huge investment in Sadara and the US Gulf Coast projects. Major peers Monsanto (MON), LyondellBasell Industries (LYB), and DuPont (DD) have made relatively lower cumulative investments of $2.4 billion, $4.1 billion and $5.7 billion, respectively, between 2012 and 2014.
The Materials Select Sector SPDR ETF (XLB) tracks the performance of chemical players. The combined holdings of Monsanto, DuPont, and LyondellBasell Industries form 25.8% of XLB.