The old adage in real estate is “location, location, location”. The same is true for major investments in Chemicals and other industries. I like to call it “Proximity Matters”.

  • Proximity to feedstocks
  • Proximity to customers
  • Proximity to logistics and other key assets

Oxiteno’s recent startup of its US Alkoxylation asset in Pasadena, Texas is a good example of proximity – to its new target customers in North America, as it seeks growth from its base business in Brazil, and, to its key raw material, ethylene oxide (EO).

Proximity to feedstocks: Access to cheap feedstock has been driving site selection for chemical industry investment for years. The dramatic growth in the Middle East in the 1990’s and 2000’s was largely a result of cheap feedstock. This decade’s dramatic growth and petrochemical investment in North America is driven by access to cheap ethane from shale gas. According the ACC, investments in US chemical manufacturing is expected to reach $202 billion by 2025. Why? Cheap feedstock creates advantaged economics and overcomes higher costs of construction, labor and (as-needed) export to other markets. (Tariff impact is another topic for another day…)

As industry insiders know, transportation of EO has been a hot topic for several years. As an extremely flammable gas and a toxic inhalation hazard, safe use and handling of EO and safe transportation of EO are vitally important. What’s that got to do with proximity? In recent years, EO producers have started limiting the geography in which they will transport EO. For some US Gulf Coast producers, their transportation radius has shrunk to Texas and Louisiana. On top of that, the transportation cost for EO has sky-rocketed, with rail transportation costs at 4-5x versus 10 years prior. Oxiteno’s new facility is adjacent to two key EO suppliers, enabling it to secure feedstock as well as reducing its transportation costs dramatically (via short-line rail transportation at <25% vs its competitors).

Proximity = access = economic benefits

Proximity to customers: North America continues to be one of the strongest markets for chemical demand. The US and Canada represent almost 25% of global surfactant demand, including ethoxylates. Oxiteno’s placement of its new alkoxylation asset in Texas ensures economical proximity to its target customers in the US, Canada and Mexico. Sure, these customers can be served by Oxiteno through its assets in Brazil and Mexico, but at longer and costlier supply chains.

Proximity to logistics: Speaking of supply chain, proximity to logistics (rail, road, and marine) matter. The Houston area, and Oxiteno’s site in Pasadena, has good access to logistics for domestic and export markets. I’ve already touched on the feedstock logistics advantage for Oxiteno. Its outbound logistics is challenged, however, by transportation congestion both at the Port of Houston and with the railroads. Truck transportation partially mitigates that. But, qualified truck drivers are in short supply these days. Other companies are finding ways around the crowded Houston Ship Channel… by building elsewhere, such as Corpus Christi, or by railing export products to other ports – Charleston, Savannah, Freeport, and Los Angeles. Oxiteno, and its customers, will need to ensure viable logistics to keep the product flowing.

Proximity matters… feedstocks, customers and logistics. The chemical industry, and Oxiteno, are banking on it continuing to be a winning value proposition.