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Formosa's Louisiana project update: supply and demand dynamics, legal challenges bode ill

March 21, 2022
Tom Sanzillo and Abhishek Sinha and Suzanne Mattei
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Key Findings

Financial, market, regulatory and political risks have combined to make Formosa Plastics’ petrochemical Sunshine Project proposed for Louisiana unviable.

The Sunshine Project being considered for development by Formosa Plastics is increasingly threatened by rising construction prices, more intense regulatory scrutiny, increased community opposition, and withering credit agency support.

Regulatory hurdles also continue to plague the project. An environmental impact statement is likely to have to address the issue of water pollution caused by discharges of plastic pellets; a federal judge recently ordered Formosa to resume cleaning waters contaminated by its petrochemical complex in Port Comfort, Texas.

Executive Summary

IEEFA first identified financial, market, regulatory and political risks to the project in a March 2021 report. Although some improvement has occurred in the commodity price environment since then, four key conditions have changed: Construction prices have risen; regulatory scrutiny has intensified; credit agency support has withered; and community opposition has heightened questions among stakeholders.

Formosa Plastics is a financially strong corporation with a solid dividend history. The project proposed for the St. James parish of Louisiana would manufacture several types of plastic resins, using ethane as its primary feedstock. It faces staunch opposition by community groups and environmental advocates because it would add significant toxic emissions to an already heavily polluted community.

The company has not yet made a final investment decision (FID) to proceed with the Louisiana project. This update of IEEFA’s March 2021 report shows that on-and offbalance sheet issues have converged to make the project less likely to move forward.

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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Abhishek Sinha

Abhishek Sinha is a petrochemicals analyst, US. At IEEFA, he conducts in-depth research for our petrochemicals group analysing industry trends, regulations and company data. He identifies research topics for exploration and examines issues relevant to IEEFA’s mission.

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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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