Houston — A $3.8 billion methanol project in Louisiana could be delayed or canceled if the US imposes a tariff on components for a critical piece of equipment, global engineering and construction firm Fluor has told US officials.
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Fluor is on tap to build the Lake Charles Methanol project in Louisiana, which will refine petroleum coke into domestic energy and chemical products, including methanol, hydrogen, sulfuric acid and industrial gases.
The company submitted one of nearly 700 public comments to the US Trade Representative Robert Lighthizer asking that components in a key piece of equipment for the plant manufactured only in China be removed from a list of $16 billion in potential tariffs the US may impose on Chinese products.
In Fluor's letter to Lighthizer, dated July 23, Kathalina Canaan, Fluor's global director of trade compliance, asked that a certain tariff on machinery for liquefying air or gas be removed from the list of products targeted for such duties. Otherwise, the project could be delayed or canceled "due to increased costs and uncertainty," the letter said.
The project's contract involves a made-to-order air separation unit to feed gaseous high-pressure oxygen to a gasifier unit, which will be the main processing unit in the plant. The ASU will also provide nitrogen and instrument air to the entire facility, the letter said.
While the ASU would be designed and supplied by a US company, certain components for it "are only available from China," the letter said.
"The ASU and its accompanying proprietary technology are critical to Fluor's ability to meet its contractual price and schedule obligations to LCM," the letter said. "This situation creates a serious risk that this project -- which would create 1,000 US construction jobs, 200 US permanent plant operations jobs and 300 US associated manufacturing jobs -- will not move forward."
It is "interesting that the tariffs are intertwined in all aspects of our business," a methanol market source said this week. Another source expected the plant to face delays, but eventually come online, calling the key equipment "just a matter of cost and time."
ACC FIGHTING TARIFFS ON CHEMICALS
The American Chemistry Council has strongly opposed any tariffs involving chemicals, particularly in light of $194 billion in announced investments in US chemical manufacturing.
The ACC has asked the Trump administration to remove all chemicals and plastics from the $16 billion list, which would be the second round of $50 billion in tariffs on top of those for steel and aluminum imposed in March.
The first round of $34 billion in tariffs was imposed July 6, and China responded with tariffs on US goods of the same value, largely agricultural crops and automobiles. The $16 billion round involves many chemicals and plastics made with them, and China disclosed a more chemical- and plastics-heavy list of retaliatory tariffs that would come in response.
The US is considering an additional $200 billion in tariffs on Chinese goods, prompting China's Ministry of Commerce to respond on Friday that it would retaliate with another $60 billion in tariffs on US goods.
Bountiful cheap US ethane prompted chemical manufacturers to commit to building a slew of steam crackers and derivative plants along the US Gulf Coast, Pennsylvania and potentially Ohio, and the first wave began starting up in 2017. The US methanol industry has reaped similar benefits from the domestic natural gas boom and cheap feedstocks, fueling its transition into a net exporter to other countries. Methanol's uses include antifreeze, solvent, fuel and a denaturant for ethanol.
Currently the US has eight methanol plants that make a cumulative 7.5 million mt/year, including Natgasoline's 1.75 million mt/year plant in Beaumont, Texas, that started up in June.
Two more plants are slated to come online in 2019-2020: Liberty One in Charleston, West Virginia, and Methanex's third in Geismar, Louisiana.
Liberty One's 195,000 mt/year project was relocated in pieces from Brazil as the company looked to monetize access to cheap methane in the US.
Canada's Methanex, the world's largest methanol producer, had previously dismantled a plant in Chile to relocate it in Geismar. Compressor issues recently pushed the Liberty One plant's mid-2018 startup to late 2019, according to the company.
Methanex is moving ahead with its third US methanol plant, Geismar III in Louisiana, adjacent to its existing 1 million/mt Geismar I and II production facilities. Overall, the three facilities will have a combined capacity of 3.8 million mt/year.
LCM's project is slated to be backed by up to $2 billion in US Department of Energy loan guarantee program, which is intended to encourage clean energy projects. The technology involves gasifying petroleum coke into a synthetic gas, which is then converted to other products.
According to LCM, the process will emit less pollution than other petcoke uses and capture carbon dioxide that can be sold to energy producers to enhance oil and gas recovery.
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