LyondellBasell’s PO/TBA plant near Houston moves closer to start up

LyondellBasell Industries NV (NYSE: LYB) is less than six months away from starting commercial operations on its most expensive project ever, which is a smidge more than $1 billion over the original budget announced in 2017.

The Houston-based chemical company's total investment on a major manufacturing project, spanning sites in Channelview and the Bayport complex in La Porte, will top $3.5 billion, an executive told the Houston Business Journal, making it LyondellBasell's biggest investment to date.

Once complete in the first quarter of 2023, LyondellBasell's new PO/TBA unit — which stands for propylene oxide and tertiary butyl alcohol — in Channelview will be the largest such unit in the world, the company said.

Back in 2017, when LyondellBasell made a final investment decision on the project, the company's projected budget for the PO/TBA unit in Channelview and oxyfuels unit in Bayport was $2.4 billion.

"We've had increased (costs) from inflation, trade wars, import duties, and then just extending the project due to Covid," Torkel Rhenman, executive vice president of intermediates, derivatives and refining, said in an interview.

Some of the key feedstocks needed for the PO/TBA unit, propylene and butane, are closely associated with natural gas production. The Houston Ship Channel's proximity to cheap shale gas fields like the Haynesville play in eastern Texas and western Louisiana makes the area a key contender for most globally competitive chemical projects.

"It's either here or the Middle East that would be the lowest cost," Rhenman said. "With the footprint that we have and integration to our other units, for us, Channelview and Bayport are just obvious locations from a strategic viewpoint."

Expectations of robust demand for propylene oxide in the U.S. also played a role in the company's decision to site its largest project in the Houston area, Rhenman said. LyondellBasell foresees that downstream manufacturers will have growing needs to use PO to make polyurethane foam — which goes into furniture and building insulation, is used as a solvent for semiconductors, and is used in electric vehicle batteries, he said.

"We've been in numerous discussions with customers that are looking at expanding and adding footprint here in Texas and around the Gulf Coast where we would be supplying the (propylene oxide) feed into their new plant," Rhenman said.

Down in Bayport, LyondellBasell already has a handful of older, smaller PO/TBA plants. Adding more TBA production into the company's regional portfolio led LyondellBasell to build a second new chemical unit in Bayport, one which uses TBA to produce oxyfuels — in particular, a chemical called ethyl tertiary-butyl ether, or ETBE — which is blended into gasoline to raise the fuel's octane value.

Construction on the oxyfuels unit has already finished, and the company said it's expected to start commercial operations before the massive PO/TBA unit in Channelview.

While it makes sense economically to produce ETBE in the U.S., all the gasoline blending material produced in the new Bayport facility will be exported to other countries because federal energy policy incentivizes U.S. refiners to use ethanol instead.