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Proposed PTTGC Petrochemical Complex in Ohio Faces Significant Risks

March 01, 2020
Tom Sanzillo and Kathy Hipple and Suzanne Mattei
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Key Findings

The project is also a critical element of a larger plan to establish a second U.S. petrochemical hub in the Ohio River Valley, akin to the Gulf Coast.

The risks, left unheeded, strongly suggest that the plant will face financial distress when it opens and into the foreseeable future, reducing potential economic benefits.

Executive Summary

The principal risks are:

  • Under current and expected market conditions, the complex is likely to face plastic prices that are significantly lower than when the project was planned. Plastics prices today are 40% below the 2010-2013 period when the project was being planned. Futures plastics prices through 2021 are weak. Such weak prices will drive profit margins below investment targets.
  • Oversupply from a global industry-wide plastics buildout is likely to drive prices and revenues down. The U.S. plastics buildout has oversupplied the market. Operating rates of cracker plants (which process ethane, a component of natural gas, to make raw materials for plastics) and profit margins for plastics manufacturers will decrease, and expected sales are likely to miss targets. Supply/demand imbalances are likely to last through 2026. 
  • PTTGC faces stiff competition in a constricted market that may depress prices. PTTGC’s Ohio complex enters the plastics market in the U.S. during a time of intense competition from existing producers and suppliers. PTTGC’s competition is made up of strong companies—ExxonMobil, Dow Chemical, Chevron—with existing domestic relationships. Slower U.S. economic growth projections by the International Monetary Fund (IMF) suggest a slowdown in the growth rate of plastics that may negatively impact both volume and prices of PTTGC’s plastic products made in Ohio.
  • PTTGC risks negative credit actions from pursuing the Ohio project at this time.
  • PTTGC’s investment in Ohio faces risk from unstable federal government policies

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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Kathy Hipple

Former IEEFA Financial Analyst Kathy Hipple is a founding partner of Noosphere Marketing and the finance professor at Bard’s MBA for Sustainability. She worked for 10 years with international institutional clients at Merrill Lynch and then served as CEO of Ambassador Media.

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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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