BASF SE, the world’s largest chemical producer, said on Monday it would refrain for now from building a propylene plant in Texas because of volatile commodity prices, a sign that an aggressive U.S. Gulf Coast petrochemical building boom announced earlier this decade could be cooling.
Falling oil prices in the past two years have eroded the profitability of some chemical plants, which typically prefer to have a wide spread between prices for oil and the natural gas they process.
With oil prices down more than 50 percent from 2014 highs, BASF decided that now was not the best time to begin construction of a methane-to-propylene plant in Freeport, Texas. Methane is a key component of natural gas.
“The investment decision is based on mid- and long-term forecasts of crude oil and natural gas prices,” BASF spokeswoman Donna Jakubowski said in an email to Reuters.
While oil can be used to make certain chemicals, if its price is too close to natural gas, the business rational for building a plant that would primarily process gas is eroded.
“The economics just aren’t as good as BASF would have hoped,” said Peter Fasullo of En*Vantage Inc, a petrochemical consultancy. “I just don’t think the market’s there like it was when the decision was made to build three to four years ago.”
The cancellation comes as Dow Chemical Inc recently brought online a similar plant and Enterprise Product Partners LP and Formosa Plastics Corp have plans to open similar plants during the next two years.
Nearly $50 billion in petrochemical projects have been announced in Texas over the last decade, with many companies eager to capitalize on the surge in domestic oil and gas production.
LyondellBasell and Exxon Mobil Corp are among some of the largest companies to announce construction plans.
BASF’s announcement could dent the region’s economy, which has been helped in part by chemical plant construction activity that partially offset job losses in oil exploration and production since prices cratered in mid-2014.
More than 6,000 construction jobs were added in the greater Houston region between December 2014 and March 2016, according to data from the Greater Houston Partnership.