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IEEFA U.S.: Proposed Formosa, Louisiana petrochemical complex financially unviable

March 23, 2021

March 23, 2021 (IEEFA)   A report released today by the Institute for Energy Economics and Financial Analysis (IEEFA) details the financial, legal, social and public opposition risks of Taiwan-based Formosa Plastics Group’s proposed petrochemical complex in St. James Parish, Louisiana.

IEEFA finds that the project will begin operations at a time of market oversupply, lower petrochemical prices, strong competition for market share, restrictive trade policies, environmental regulatory challenges, judicial findings of historic racial discrimination, popular opposition, rising construction costs and a weakened bond rating. The report urges the cancellation of “this ill-advised project, which should be abandoned in light of its weak fundamentals.”

The multibillion-dollar petrochemical project has been criticized for perpetuating environmental racism in Louisiana because it would emit large amounts of toxic air contaminants in a community that already suffers from heavy industrial pollution and whose residents are predominantly Black.

Highlights from IEEFA’s report:

  • The market is unlikely to grow at a pace fast enough to absorb the oversupply of ethylene and basic chemicals. The planned buildout of the petrochemical market is creating an oversupply. The economy may not recover in a manner sufficiently robust to absorb oversupply. Long-term demand for virgin plastic production will likely decline as recycling and bans on single-use plastic increase.
  • The export outlook from the United States is not promising, with China adding significant new petrochemical cracker capacity within its borders.
  • Rising construction costs will diminish profitability. The Taiwan Rating Service (TRS) recently estimated the cost of the project to be $12 billion, a 24 percent increase from Formosa’s 2018 estimate of $9.7 billion. Formosa has recently been downgraded in part due to its Louisiana investment.
  • Global prices for plastics and petrochemical products are on the rise but still much lower for most commodities today than they were during the Formosa project’s initial planning phase. Revenues are likely to fall short of targets and squeeze profits.
  • The project faces regulatory risks. The Army Corps of Engineers has suspended the water permit pending further review. A Louisiana judge has expressed concerns about how the project’s air emissions would affect a community that already bears a heavy burden of industrial pollution.* And citizens are challenging the local land use permits.
  • The project faces long-term political risks and charges of environmental racism. Community leaders and advocates argue that the project is rooted in historical patterns of racial injustice, and may deepen social divisions. A news consortium’s investigative analysis found that the air permit would allow the project to double or triple toxic pollution in nearby neighborhoods. Among the emissions is a chemical that causes a range of cancers, including lymphocytic leukemia, and is linked to miscarriages. If built, the company’s operations would likely spark future challenges by the community.

The project “would cause Formosa to make the wrong products, at the wrong time, at the wrong price, in the wrong place, and with the wrong financial calculus,” said Tom Sanzillo, IEEFA director of financial analysis and co-author of the report.

*While the District Court judge had remanded the case back to the state environmental agency to analyze the environmental justice issues, the First Circuit Court of Appeals recently overturned the District Court remand order on March 15 on procedural grounds and sent the case back to the District Court for further proceedings. The First Circuit did not rule on the merits of the issue itself. The plaintiffs are considering their options.

Full report: Formosa’s Louisiana Project: Wrong Products, Wrong Time, Wrong Place, Wrong Finances

About IEEFA

The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. https://ieefa.org/

Media Contact:

Aswar Rahman (arahman@ieefa.org)
+1 (612) 229-4533

 Interviews available with report authors:

Tom Sanzillo (tsanzillo@ieefa.org)
Suzanne Mattei (smattei@ieefa.org)

About IEEFA
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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Suzanne Mattei

Suzanne Mattei is an attorney with over 30 years of experience in public interest law and policy. She has analyzed the Federal Energy Regulatory Commission’s policies related to interstate pipeline approval. She has also conducted research on blue hydrogen, petrochemical projects, gas flaring and fossil fuel extraction on public lands.

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