Petrochemical Supply Chain

2018 State of the U.S.
Petrochemical Supply Chain
The 2018 State of the U.S. Petrochemical Supply Chain whitepaper provides analysis of the rapid growth of U.S.
downstream markets and evolving export trends and trade flows. The challenges the supply chain is facing amid
an export tsunami and looming trade war, as well as the innovative solutions supply chain professionals are using
to shape the future of the supply chain.
www.petchem-update.com/petrochemical-supplychain/
Featuring Insight from:
WALTER KEMMSIES
Managing Director, Economist and Chief Strategist, Ports,
Airports & Global Infrastructure
JLL’s U.S. Ports, Airports and Global Infrastructure Group
JOHN MOSELEY
Senior Director, Trade Development
Port Houston Authority
DONNELL JACKSON
Spokesperson
Port of New Orleans
PAUL MCCLINTOCK
Chief commercial officer and senior vice
president of sales and marketing
South Carolina Ports Authority
PLG CONSULTING
AMERICAN ASSOCIATION OF PORT AUTHORITIES
AMERICAN CHEMISTRY COUNCIL
IBM
CLIPPERDATA
INDUSTRIAL INFORMATION RESOURCES
Table of Contents
Introduction
Capacity Outlook
Trade Outlook
Supply Chain Growth
Port
Vessel Size
Barge Profile/LNG
Infrastructure
Packaging/Warehouse
Rail and Truck
Mexico influence
Pipeline
Trade and Cargo Flows Resins Most Exported
Importers
Exporters
Port activity
Challenges
Trade War
Congestion
Container availability
Repositioning
Container alternatives
Cost impact
Port Limitations
Driver Shortage
Hurricane Harvey Lessons
Project Outlook
Technological Innovations
Automation
Houston Case Study
Long Beach Case Study
Blockchain
Autonomous Driving
Savings
Cost
Infrastructure
Driver Shortage
Conclusion
INTRODUCTION
Several U.S. major petrochemical projects to emerge from the natural gas boom
have begun production and exporting, just as another wave of investment begins.
These investments will capitalize on the profound and sustainable competitive
advantage enabled by shale gas development.
More than 900 U.S. capital projects worth $241 billion are in the planning and
engineering phase and could come online over the next couple of years,
according to Industrial Information Resources (Industrial Info).
Image: Industrial Info
The long-term investment outlook strategy remains positive, giving North America
an undeniable competitive edge as a petrochemical exporter worldwide.
While the U.S. prepares for the logistical challenges that will come with the first
wave of construction, additional projects are expected to break ground in 2019
and 2020, with much of this new capacity coming online around 2023.
Consequently, North America’s petrochemical supply chain is now faced with

more complex and diverse export logistics.
2018 State of the U.S. Tax reform and regulatory relief efforts under the current administration have
Petrochemical Supply Chain fueled further investments, but challenges are also causing concern for the future
Nov 15-16, 2018, Royal Sonesta
of these projects and the supply chain. These include threats to trade, the need for
Houston Galleria, Houston, USA bigger ports and rail, and an ever-growing driver shortage.
www.petchem-update.com/
petrochemical-supplychain/
Petrochemical Update spoke with industry leaders about some of the most
pressing supply chain and logistical challenges, as well as what emerging
technologies and innovative solutions will shape the downstream supply chain
landscape.
CAPACITY OUTLOOK
Major capacity additions stand to play a key role in supply chain decisions and
investments.
At least 14 million tonnes of additional petrochemical capacity of natural

gas-derived chemicals including ethylene, propylene and methanol, is
expected to come online from 2018 through 2023, according to research firm
IHS Markit.
For 2018, IHS Markit expects the U.S. to add 5.2 million tonnes of
petrochemical capacity.
In 2019 and 2020, the U.S. is projected to add a total of 8.7 million tonnes of
production capacity, mostly on the Gulf Coast.
This is just what lies ahead.
Between 2011 and 2017, the U.S. added nearly 14 million tonnes of
petrochemical production capacity, according to IHS Markit.
In total, the U.S. is expected to add 27.9 million tonnes of new natural-gas
derived petrochemical production capacity between 2011 to 2020.
New petrochemical capacity growth in the U.S. is expected to outpace the

Middle East, which will add 21.1 million tonnes of new petrochemical capacity
between 2011 to 2020.


Houston Galleria, Houston, USA
Research firm GlobalData sees a similar story, predicting nearly 57 million

tonnes of new petrochemical capacity in the U.S. by 2023. This number
includes natural-gas derived chemicals and oil-derived chemicals.
The U.S. has the highest planned polyethylene (PE) capacity additions globally
with 9.4 million tonnes/year coming online during 2018 to 2022, followed by
Iran and China with 5.8 million tonnes/year and 4.4 million tonnes/year
respectively.
The U.S. will account for more than 25% of the total global planned PE
capacity additions in 2022, according to GlobalData.
CAPACITY IMPACT TO SUPPLY CHAIN
The added capacity will lead to greater supply chain and logistical demands.
The American Chemistry Council (ACC) estimates that the announced

investment of more than $160 billion over the next decade will help create
426,000 direct and supply chain jobs in the U.S. economy.
In a March 2017 dual report by the ACC and Price Waterhouse Cooper (PwC),
the two associations predicted that chemical shipments could increase by
approximately 36 million tonnes annually by 2020.
20 million tonnes will be olefins and methanol, which are shipped by

pipeline/bulk. The remaining 16 million will be rail, truck, and marine packed
cargo shipments.
The new capacity is projected to result in an additional 1.8 million annual

shipments by 2020 across all modes of transportation, adding an additional
270,000 railcars, 723,000 truck FTLs, and 808,000 marine TEUs each year.
TRADE OUTLOOK
U.S. polyethylene production is expected to exceed domestic demand, adding

up to 6-9 billion pounds of excess inventory for export through 2020.
But PE is not the only resin growing at rapid pace, polystyrene (PS), polyvinyl
chloride (PVC) and polypropylene (PP) are also skyrocketing.
Analysts predict that eventually nearly half of all resin produced in the U.S. will
2018 State of the U.S. be exported.
Nov 15-16, 2018, Royal Sonesta Increased exports have already resulted in a $32 billion trade surplus in
chemicals in 2017, according to the American Chemistry Council (ACC).
Total chemical exports (on a dollar basis) rose 4.9% to $127 billion, while
petrochemical-supplychain/ imports rose 2.8% to $96 billion.
Two-way trade between the U.S. and its foreign partners reached $223 billion
at the end of 2017, a 4.0% expansion over 2016.
Image: ACC
SUPPLY CHAIN GROWTH
Ports
U.S. supply chain groups are planning at least $155 billion in capital
investments and nearly 80% of that spending will take place in the U.S. Gulf,
where chemical exports have already begun to soar.
In its 2016-2020 Port Planned Infrastructure Investment Survey, the American

Association of Port Authorities (AAPA) asked its U.S. member ports how much
they and their private-sector partners plan to spend on port-related freight
and passenger infrastructure over the next five years. The answer was a
whopping $154.8 billion, but the dollar figure did not include every U.S. Port.
AAPA said it probably had a little over an 80% participation rate.
U.S. ports are planning investments in terminals, berths, piers, equipment,

2018 State of the U.S. navigation dredging, expansions, facility rehabs, security, rail and
Petrochemical Supply Chain environmental improvements.
Houston Galleria, Houston, USA Port private-sector partners are planning investments in rails, terminals,
equipment, bulk-handling and energy transfer facilities, storage, security, piers
and expansions.
U.S. GULF
With $129 billion in shipments, Texas is the largest chemical producing state
and Louisiana (with $51 billion in shipments) is the 4th largest chemical
producing state.
Most of the major ethylene crackers coming online will be in the U.S. Gulf.
While some supply chain professionals have been concerned that the US Gulf
ports will not have the capacity or equipment to handle the export rush,
authorities at Houston and New Orleans say they are well prepared.
HOUSTON
Port Houston has invested $1 billion over the last five years to develop
infrastructure to handle growth. Another $200 million is earmarked over the
next two years to handle future growth.
Houston just took possession of three new Neopanamax ship-to-shore (STS)

cranes and will be taking on another three cranes later in 2018, bringing its
ship-to-shore crane fleet to 26. Port Houston's container terminals currently sit
on 662 acres and with buildouts taking place at Bayport Texas, it will grow to
nearly 1,250 acres.
“Port Houston is the right place to handle this export of resins that is primarily
originated here. Our goals as supply chain professionals is to look at cost and
streamlining that supply chain, making it agile and getting that product
moving. Houston is well positioned to handle this,” said John Moseley, Senior
Director, Trade Development at Port of Houston Authority.
CONTAINERS
A big concern in the industry has been container availability in the U.S. Gulf,
which was not traditionally an import destination, but things are changing.
“The big story many may not know is that Houston is one of the fastest growing
container ports for imports. We handle more than 1 million TEUs of import
business. As of the end of November 2017, container import loaded volume
was up 21% year on year,” Moseley said.

Petrochemical Supply Chain Resins account for about 30% of exports out of Houston and the Port is
forecasting about a 15-20% uptick in exports for 2018 and stretching out over
Nov 15-16, 2018, Royal Sonesta the next few years.
The Port of New Orleans (Port NOLA) has also been working on finding creative
www.petchem-update.com/ solutions to container availability.
The port initiated a container on barge shuttle service, which brings empty
containers from Memphis to Baton Rouge where they are loaded with resins,
then shipped by barge along the Mississippi River to Port NOLA for export to
overseas markets.
SEACOR AMH, the Port’s marine transportation partner, operates the weekly
shuttle service that saw 4,000 TEUs shipped by barge from Baton Rouge to
New Orleans in 2016 and 15,000 TEUs in 2017 as of December 1, 2017.
SEACOR AMH is considering adding a second service to its current weekly

schedule with experts predicting 400,000 TEUs of plastic resins exports from
the Gulf region between now and 2020, Donnell Jackson, media spokesperson
said.
NEW ORLEANS
Port NOLA is preparing for export volume growth by growing multimodal

capacity, investing in technology, and a new gate system.
“With greater control of the logistics chain with the upcoming acquisition of the
New Orleans Public Belt Railroad and its access to six Class 1 railroads, we
expect to be able to invest strategically in anticipation of the Port’s growth,”
Jackson said.
In 2017, Port NOLA began development of a strategic ‘Gateway Master Plan.’
The plan lays out a vision for the next 20 years with strategies for growth,
including recommendations for capital investments, operational changes,
policies and strategic initiatives.
Currently, Port NOLA container facilities can handle 840,000 TEUs annually.
“Our overall expansion footprint at the Napoleon Avenue Container Terminal

allows for a capacity of up to 1.5 million TEUs per year and additional new
gantry cranes,” Jackson said.
SOUTHEAST
PORT OF CHARLESTON
Petrochemical Supply Chain The Port of Charleston is now servicing 17 import and export plastic resin
companies and has seven bagging and transloading facilities. The facilities
are operated by four companies which include Frontier Logistics, Midstates,
A&R Bulk-Pac and Wyse Logistics.
www.petchem-update.com/ Availability of empty containers is a top concern for petrochemical producers

that plan to grow their exports.
“I think the challenge will be finding places like Charleston that have surplus
equipment and have the capability of handling the biggest ships,” said Paul
McClintock, chief commercial officer and senior vice president of sales and
marketing at South Carolina Ports Authority (SCPA).
Surplus equipment is available in Charleston because the carriers are coming

out of this port as last port of call.
Because it has the deepest harbor in the Southeast, ocean carriers will bring
their ships into Charleston to top them off and hence, end up repositioning a
lot of empty containers there that may have started in other ports.
“Since we handle ships at 48 feet of water, we have capability of processing

and handling fully loaded vessels, mega ships, large container ships here
today,” McClintock said.
“If you look at the ports from Houston to Charleston, on a 14,000 TEU ship, we
can handle 1,000 more loaded containers than any other port along the way
because of our water depth.”
INVESTMENT AND VESSEL SIZE
SCPA and the State of South Carolina are investing more than $2 billion in port
and port-related facilities by 2021 to fulfill the requirements of a modern port
in today’s big-ship environment.
“The ocean carriers are competing for efficiency. The way they become the
most efficient is through economies of scale and they are all investing tens of
billions of dollars in these new mega vessels,” McClintock said.
There has been a steady increase in vessel size over time. In the 1980s, a big
ship was 3,000 or 4,000 TEUs. In the 1990s, it got up to about 6,000 or 7,000
TEUs. Now most of the ships under construction right now are 18,000 -21,000
TEUs, McClintock added.
A recent Allianz infographic shows containership growth starting from 1968

forecasting the next generation of super-sized container shipping giants for
2018.
As is shown in the image, from 1530 TEU to 19.000+ TEU, container-carrying

capacity has increased by approximately 1.200% from 1968.

Image: Allianz
“If you want to participate in this new environment as a port, you must handle
big ships,” McClintock said. “We are definitely in a position to handle them, but
it costs a lot of money to get there.”
The largest investment by the State is the harbor deepening project to 52 feet,
which will make Charleston the deepest harbor on the entire East Coast.
“We have the only permitted under construction major container terminal in
the US. Phase 1 is 1 billion dollars. Construction on our deepening project
began in February, a $530 million project and that will make us the deepest
port in the U.S. East or Gulf Coast,” McClintock said.
Petrochemical Supply Chain South Carolina also has a new intermodal facility that is under construction
that will be close to 300 million dollars and is dual served, with proximity to the
Houston Galleria, Houston, USA Port’s new container terminal.
BARGE PROFILE/LNG
U.S. liquefied natural gas (LNG) exports rose sharply in 2017 and will do the
same in 2018, due to new export capacity which will turn the U.S. into a net
exporter of gas, according to the U.S. Energy Information Administration (EIA).
Cheniere's Sabine Pass facility in Louisiana became the first operating LNG
export facility in the Lower 48 states in 2016 and capacity was expanded
again in 2017. Cheniere is now taking supplies from as far away as the
Montney shale play in Canada’s Alberta and British Columbia provinces, the
company said last month.
“We’re able to build a portfolio of supply from domestic gas producers and
take full advantage of the cost-competitive basins across the U.S.,” Cheniere
CEO Anatol Feygin said in an earnings call. “In fact, it doesn’t stop at the U.S.,
as we recently entered into our first supply deal to receive Montney gas.”
In addition, Dominion's 0.82 Bcf/d Cove point liquefaction plant in Maryland

came online in December 2017 while Sempra Energy's 2.1 Bcf/d Cameron LNG
and Freeport LNG's 1.8 Bcf/d Gulf of Mexico plants are scheduled to start up in
the second half of 2018.
Rising demand from growing sectors such as petrochemicals is fueling

investment in the US barge industry, which serves inland waterways, coastal
ports, as well as Alaska and Hawaii.
The U.S. barge transportation market in the US is forecast to grow at a

compound annual growth rate of 1.4% during the period 2017-2021,
according to analysis published by Research and Markets in 2017.
2018 State of the U.S. President Trump's pledges to support industrial projects and reduce regulation
Petrochemical Supply Chain are also supporting barge investments, Allen Barrett of Informa Economics,
told Petrochemical Update.
“Currently, the U.S. has $160 billion in new manufacturing [projects] scheduled
to be or being built...a push to reduce regulations and promote “dirty”
petrochemical-supplychain/ industries is very welcome by the barge industry,” Barrett said.
While barge transportation is typically slower than rail networks, barge

transport costs can represent half the cost of rail transit and individual barges
can transport much larger volumes.
The cargo capacity of an average inland tank barge is equivalent to more

than 40 railroad tank cars or 140 tractor-trailer tank trucks.
The inland tank barge market has grown by 1.4% over the last 20 years and
3.0% over the last 10 years, according to Informa Economics’ Barge Fleet
Profile 2016 report.
The inland barge fleet is comprised of approximately 18,000 dry cargo barges
and 3,850 liquid tank barges.
The coastal market, including Alaska and Hawaii, encompasses approxim
Image: Kirby Corp
LARGER BARGES
Much of the recent investments in the U.S. barge industry have been in larger
capacity vessels, driven by rising oil demand, Barrett said.
Petrochemical shippers primarily use barges of capacity 10,000 to 20,000

barrels and going forward the supply of these smaller barges will be tighter
than that of larger vessels, Barrett said.


US DOMESTIC LIQUID BARGE TRANSPORT
Image: US Army Corps of Engineers
Texas and Louisiana produce around 80% of U.S. petrochemical output and
much of the region's farm industry also uses the inland waterway system to
transport farm products.
In 2016, barge supplier Kirby funded capital expenditures of $231.1 million,

mostly to support business along the U.S. Gulf Coast.
In late 2016, Kirby took delivery of a new 155,000-barrel articulated tank

barge and tugboat unit (“ATB”). The ATB transported ethanol from the Great
Lakes to the Northeast on its maiden voyage in late November.
Petrochemicals and chemicals transport provides 49% of Kirby’s revenues,

followed by black oil at 25%.
Kirby's 2017 barge construction projects included a 155,000-barrel ATB as well

as two 4900 horsepower tugboats. An additional six 5000 horsepower
tugboats are expecting delivery between mid-2018 and late-2019.
STRONG ORDERS
Barge construction requires significant investment, particularly in the U.S.

where federal shipping regulations inflate prices.
According to the long-standing U.S. Federal Merchant Marine Act (a.k.a. the
Nov 15-16, 2018, Royal Sonesta Jones Act), U.S. domestic cargo transport must use vessels that are built in the
U.S. and crewed by U.S. staff.
www.petchem-update.com/ This means domestic barge suppliers do not compete against international
companies, elevating vessel construction and maintenance costs.
“The purchase price for the U.S.-built barges is about four times the price of
foreign-built barges,” Research and Markets said in its February 2017 report.
Barge suppliers will continue to look for demand from industrial sectors such as
petrochemicals to support the high investment costs, Barrett said.
“With all the new manufacturing coming online, the outlook for petrochemical
shipments in the barge industry is very good,” he said. “The barge industry is
ahead of the industry and is waiting for the supply to come on-line.”
INFRASTRUCTURE
Logistics infrastructure investments and improvements to support the

significant increase in container transport from the U.S. are focusing on the
required additional shipping container, product packaging and container
loading capacity.
The expansions of the Panama Canal, container ports, and the container
vessel fleet have been underway for several years and the transport of
containerized polyethylene leverages on-going container shipping
developments.
Meanwhile, the nearly $155 billion supply chain spending number does not
include an additional $66 billion the AAPA estimates the U.S. government will
need to spend on infrastructure to keep up with the growth.
Federal investments through 2020 that could aid freight movement through
ports is now around $25 billion, according to Aaron Ellis, Public Affairs Director
for AAPA.
“Port, private sector and federal spending on infrastructure must be better

aligned for safe, efficient goods movement that will grow U.S. jobs and the
nation’s 21st century economy,” Ellis said.
AAPA is pushing for $66 billion as part of the President’s $1 Trillion

Infrastructure Package.
“Seaport cargo activity accounts for 26% of U.S. GDP, over 23 million American
jobs, and generates over $320 billion annually in federal, state and local tax
revenues,” AAPA President and CEO Kurt Nagle said.
Petrochemical Supply Chain While President Trump has promised voters ‘the biggest and boldest
infrastructure investment in American history,’ funding remains caught up in
Houston Galleria, Houston, USA politics with only 1% of the president’s goal approved by Congress as of April
2018.
PACKAGING
The same story goes for packaging and warehousing. Houston says it is ready
to handle the growth, but other ports and facilities are willing and able to help
if Texas can’t handle the overflow.
“Houston area is the most economical and efficient location for packaging
Houston-area production,” Robinson said. “More than adequate
packaging/warehousing capacity is being developed in the Houston area with
steady state shipping. But due to the erratic nature of export market and
production, wild swings in volume could result in temporary packaging
capacity shortages.”
Other packaging locations are being developed to alleviate potential

bottlenecks. Sites being developed include: Dallas/Ft. Worth and Freeport, TX;
Savannah, GA; Charleston, SC and New Orleans/Baton Rouge, LA.
HILLWOOD, BNSF RAILWAY COMPANY (BNSF) AND

PACKWELL
Hillwood, BNSF Railway Company (BNSF) and Packwell agreed in 2016 to build
a plastics export packaging facility at the Alliance Texas industrial and
distribution park. This is expected to be complete in 2018.
The facility will be part of a new global supply chain route that enables resin
packager Packwell, to ship its customer’s containerized plastic resins to end
users utilizing a wide array of ocean steamship lines who are affiliated partners
with BNSF.
These steamship lines operate between the BNSF Alliance Intermodal terminal
and Asia via the major West Coast ports in California.
The project benefits from the availability of empty containers in the DFW
Metroplex resulting from the large volume of imports that arrive at the Alliance
Texas Global Logistics Hub.
KATOEN NATIE
A similar plastics packaging and export facility is being built by the Union
2018 State of the U.S. Pacific railroad and global logistic firm Katoen Natie (KTN) in Dallas, Texas and
Petrochemical Supply Chain expected to come online during the second half of 2018.

Houston Galleria, Houston, USA The location is at Prime Pointe Industrial Park, which is a 3,000-acre industrial
park located in South Dallas County and is adjacent to Union Pacific's Dallas
Intermodal Terminal (DIT).
Upon start-up, the Katoen Natie facility will have at least 250,000 square feet
of warehouse space that may expand as warranted by market conditions. The
space will have direct railroad access, served by Union Pacific.
This facility will become Katoen Natie's 20th NAFTA location. Producers will ship
bulk railcars of plastic resin pellets to the warehouse where the pellets will be
packaged and loaded into intermodal containers.
After a short trip to the adjacent intermodal terminal, Union Pacific's Dallas to
Dock service will transport the containers to ocean ports via premium
intermodal service.
"The Dallas facility will assist our customers in diversifying their export channels
to global markets," said Frank Vingerhoets, President of Katoen Natie.
Both of facilities will transport plastic pellets in hopper cars from the US Gulf
Coast – and mostly from the Houston area – to sites in Dallas-Fort Worth
where the pellets will be packaged and transferred into shipping containers
that will travel by rail to the US west coast for shipment to Asia.
FRONTIER
Frontier Logistics will construct an initial 400,000-square-foot rail-served

warehousing facility in South Carolina to support the transloading of plastic
pellets for export through the Port of Charleston. Rail service will be provided
by Palmetto Railways, providing connections to both Norfolk Southern and
CSX.
The $35.5 million investment announcement will be built on 26 acres at the

former Navy base in North Charleston, South Carolina.
The Port of Charleston got a head start on the game servicing its first railcar
from the U.S. Gulf in 2011 and then began making tremendous efforts to grow
and support this business.
The Port of Charleston is now servicing 17 import and export plastic resin
companies and has seven bagging and transloading facilities.
The facilities are operated by four companies which include Frontier Logistics,
Midstates, A&R Bulk-Pak and Wyse Logistics.
2018 State of the U.S. Since 2011, SCPA has 11 active exporters sending railcars to Charleston for
Petrochemical Supply Chain loading.
Houston Galleria, Houston, USA Frontier Logistics is now operating 10 facilities nationwide. Six of the 10
facilities are in the greater Houston area.
RAILCAR AND TRUCK VOLUMES
This capacity growth will result in forecasted minimum 152,400 railcar

shipments and 371,900 truck shipments annually from 2017-2020, according
to PLG Consulting.
This forecast considers the initial product moves from the production facilities
so is expected to be substantially bigger as products and by-products can be
moved multiple times downstream.
ALTERNATIVE EXPORT CHANNELS
Producers are looking for export options that offer available empty containers,
fast turnarounds, short transit times, competitive freight rates, high
over-the-road and container weight allowances, as well as options to avoid
port congestion and delays.
Viable U.S. export options are through Houston; Dallas Forth Worth (DFW) to
Long Beach, California; East Coast Packing (Europe), and Bulkmatic de
Mexico/KCS Mexico.
MEXICO
Petrochemical Supply Chain Mexican Ports are now being looked at as an alternative to U.S. ports for
plastic resins exports using resources through a recent joint venture with KCS
Nov 15-16, 2018, Royal Sonesta and Bulkmatic.
“Over the last previous years, we hear the same thing at all the conferences the
www.petchem-update.com/ concern that U.S. Gulf Ports will struggle to be an outlet for all those resins,”
said Camilo Gómez Beltrán, commercial manager for polymers and minerals
at Bulkmatic.
Mexico is a good option for US product because of the availability of

packaging facilities, rail infrastructure, containers availability, and port
capacity, according to Beltrán.
For example, a shipper takes product from the U.S. Gulf plant by rail in bulk
and puts it on hopper cars. The hopper cars heads directly to the Bulkmatic
terminal in Mexico.
Bulkmatic packages the material within the facility boundaries, and then loads
shipping containers with the packaged material.
The drayage is sent to an intermodal facility to get loaded on a train. The

Intermodal train delivers containers to the port and the port loads the
containers on a steamship line. Finally, the steamship arrives at the destination
port.
“This is a direct route transfer change from hopper car to bag or super sack,
then containers. The product travels less than five miles and it stays in the
warehouse until time to ship in containers,” Beltrán said.
FREE TRADE ZONE IMPORT REGIME
Shipping products via Mexico means that ownership of the plastics resides in
2018 State of the U.S. the foreign entity always, without affecting logistics.

“We can avoid duties, taxes on the product you are importing. It is a temporary
Houston Galleria, Houston, USA importation credit because it will go out of Mexico,” Beltrán said.
Bulkmatic facilities operate under a temporary or free trade zone import

petrochemical-supplychain/ regime, thus avoiding value added tax and the creation of permanent
establishment in Mexico.
“This streamlines the customs process and clears importation duties at

customs because the product is now in a Foreign trade zone at a Bulkmatic
facility,” Fussell added. “This method protects against excess taxes while the
product is waiting to be sent to its end destination.”
MEXICO LOCATIONS AND CAPACITY
This southbound network into Mexico not only has current capacity but is
adding capacity for added plastics volume.
Bulkmatic has multiple terminal and warehouse locations along the route to
Mexican ports, simplifying the supply chain. This includes 10 terminals in
Mexico, 15 terminals total at U.S. Gulf and in Mexico. Intermodal rails quickly
connect the product to one of two ports.
MEXICO PORTS
The Port of Lázaro Cárdenas on the western side of Mexico and Veracruz on
the Eastern side both continue to expand.
APM Terminals at the Port of Lazaro began operations in first quarter of 2017
after a $900 million investment in infrastructure and technology.
Today, the terminal has annual capacity of 1.2 million TEUs and at full build
out, the terminal will increase capacity to more than 4 million TEU in 2030.
With the first phase of the terminal complete, APM Terminals Lazaro Cardenas
covers 49 hectares, with a 750-meter quay and a depth of 16.5 meters, deep
enough to accommodate the latest generation of Ultra-Large Container ships.
Meanwhile in Veracruz, the Gulf of Mexico port’s access channel and turning
basin is in the process of being dredged, resulting in 13 million cubic meters
being removed and reclaimed, which five new terminals will be built on. The
new terminals will be able to handle up to 100 million tonnes/year.
“Containers are available, and empty and waiting,” Beltrán said.
PIPELINES
Petrochemical Supply Chain The industry is rapidly responding to the energy renaissance with pipelines and
infrastructure to transport refined products to the Gulf Coast or nearby
consumers.
ONEOK recently announced plans to invest approximately $2.3 billion between

www.petchem-update.com/ now and 2020 to construct: a new 400,000 barrel/day NGL pipeline that will
create additional NGL transportation capacity between ONEOK's extensive
Mid-Continent infrastructure in Oklahoma and the company's existing NGL

facilities in Mont Belvieu, Texas.
ONEOK will also invest in a new 125,000 bpd NGL fractionator in Mont Belvieu,
Texas, and related infrastructure; and a new 200-million cubic feet per day
(MMcf/d) natural gas processing facility in the Williston Basin.
TRADE AND CARGO FLOWS
Rapidly growing U.S. ethylene production and investment in new derivative

capacity has increased the number of ports exporting plastics and opened
new markets for U.S. producers.
Exports are now critical in the oversupplied U.S. plastics market and will
become even more significant in the next few years as additional capacity
comes online, according to research firm ClipperData.
ClipperData uses Customs and Border Protection cargo-level data to gauge

the growth of the plastics export market and track its evolving trends.
PLASTIC EXPORTS GROWING
The total of all plastics exported from the U.S. in 2017 was 5.03m tonnes, down
12% from 2016, but up 18% from 2015, according to the Customs documents
accessed by ClipperData.
The decline in exports in 2017 from 2016 could be due to extensive outages
following Hurricane Harvey and outages related to expansions in the works at
the time.
For 2015, the total of all water-borne plastics exports from the U.S. was 4.25m
tonnes.
By 2016, 3 million tonnes of new PE and cracker capacity was added in North
America, following the first part of the petrochemical construction boom
nicknamed the ‘first wave.’
The total of all plastics exported by vessel in 2016 from the U.S. rose by 31%
from a year earlier to 5.73m tonnes.

NEW IMPORTERS DEVELOPING
Latin America and Mexico can’t handle all the extra resin, so additional export
destinations have now opened in Europe, Asia and the Caribbean.
Brazil, Colombia, and China are the top export destinations from 2015 to
year-to-date 2018, with Chile, Peru, Argentina, Italy and Spain also taking in a
large share of U.S. product, according to ClipperData.
In 2013, for example the top destinations for U.S. HDPE were Mexico, Canada
and Brazil, together taking 62% of exports for the year. At that time, U.S. HDPE
exports were 1.75m tonnes, according to U.S. Customs Border Patrol (CBP)
cargo documentation.
US HDPE exports to Mexico fell to 7,967 tonnes in 2017, a 71% decline over
2016 and a 76% decline over 2015.
The decline of U.S. exports to Mexico is a result of the start-up of Braskem

Idesa's Ethylene XXI joint venture cracker and PE project in Veracruz, Mexico.
The PE complex started operations in late 2016 and began selling product in
2017. The PE complex is a joint venture between Braskem and Grupo Idesa.
The greatest growth markets for consuming U.S. plastics look like they will be
the Middle East, China, Korea, Brazil and Europe, according to ClipperData.
Although looming trade wars could impact this analysis.
HDPE MARKET SHARE
High Density Polyethylene (HDPE) has the greatest market share, accounting
for 72% of plastic exports in the U.S. in 2017 when compared with Linear Low
Density Polyethylene, Low Density Polyethylene, Polypropylene Copolymer and
Polypropylene Homopolymer.
2018 State of the U.S. Linear low density PE (LLDPE) has also been on the rise since the
Petrochemical Supply Chain petrochemical construction renaissance in North America begun. There were
689,719 tonnes of LLDPE exported from the U.S. in 2017, up 25% from 2016
Houston Galleria, Houston, USA and 78% higher than the 387,791 tonnes exported in 2015.
Much of the LLDPE produced around the world is used with LDPE or replaces
petrochemical-supplychain/ LDPE in film and packaging. As more people buy goods online via mail order,
the demand for packaging and shipping material increases.
Announcements at the start of 2018 are focused on polypropylene (PP) with

ExxonMobil and Canada Kuwait Petrochemical designing major PP facilities,
and Braksem and Inter Pipeline currently building major PP facilities. These
facilities will likely begin exporting PP in or just after 2021.
LARGEST EXPORTING PORTS
With $129 billion in shipments, Texas is the largest chemical producing state
and Louisiana, with $51 billion in shipments, is the 4th largest chemical
producing state, according to the ACC.
Most of the major ethylene crackers coming online or already producing are in
the U.S. Gulf.
With these figures in mind, it is no surprise that Texas remains the largest
exporter, accounting for 89% of total U.S. resins exports in 2016 and 82% in
2017.
Louisiana and California are the next two biggest exporters of U.S. plastics.
While Louisiana was the second largest exporter in 2015 and 2016, California
has moved into the second largest exporter spot in 2017 and year to date
2018, sending more resins from the U.S. than Louisiana.
Total resin exports from California climbed to 367,103 tonnes in 2017, up

252% from 2015. The top destinations for product from California are Korea,
China, Hong Kong, Japan and Taiwan.


MORE PORTS TAKING MARKET SHARE
Meanwhile, concerns about container availability and vessel size, rail, truck,
and capacity have caused exporters to look for some other options outside of
the U.S. Gulf, just in case.
Some of the viable export options so far, which are also seeing significant
growth since the construction boom began, include Charleston, Savannah,
and New York/New Jersey.
The Port of Charleston got a head start on the game servicing its first railcar
from the U.S. Gulf in 2011 and then began making efforts to grow and support
this business.
The Port of Charleston is now servicing 17 import and export plastic resin
companies and has eight bagging and transloading facilities.
Some of the smaller ports in the U.S. Gulf are seeing substantial increases in
volume as well.
Georgia exported 6,243 tonnes of material in 2015, but moved up to 23,165

tonnes in 2017.
Florida exported 1,118 tonnes of material in 2015, but 21,912 tonnes in 2017.
Virginia saw a similar story, exporting 7,876 tonnes of resin in 2015, but 29,883
tonnes in 2017.
Petrochemical Supply Chain Even as several new ethylene and derivative units have begun operations in
2017 and the first half of 2018, construction of several new projects are
Houston Galleria, Houston, USA planned to begin this year.
Additional projects are expected to break ground in 2019 and 2020, with most
of this new capacity coming online around 2023.
CHALLENGES
TRADE WAR
The U.S. chemicals and plastics industry stands to lose $5 billion if the
U.S.-China disputes escalate, according to research by the American
Chemistry Council (ACC).
The threat of a trade war between the U.S. and China has been escalating
since the first half of 2018.
Earlier in April, China announced it would increase tariffs on 106 products

originated from the U.S. by 25%, including several chemicals, according to a
statement from China’s Ministry of Finance on April 4th.
The U.S. products targeted by the tariffs were worth nearly $50 billion in 2017,
and include items such as soybeans, cars and chemicals.
At least 44 of the 106 items are chemicals and include items such as propane,
ethane, polyethylene, base oils, polyethylene terephthalate, ethylene, polyvinyl
chloride, adhesives, rubber, acrylonitrile and more.
This announcement was preceded by mounting tension in March after U.S.

President Donald Trump announced global tariffs of 25% on steel and 10% on
aluminum.
The ACC has pointed out that China is one of the U.S. chemical industry’s most
important trading partners, importing 11%, or $3.2 billion, of all U.S. plastic
resins in 2017.
These proposed tariffs could impact up to $5 billion of the chemical industry’s

exports to China, Cal Dooley, the president and CEO of the ACC, testified
earlier in April before a congressional committee.
“China knows how competitive the U.S. chemicals industry is and has very likely
targeted U.S. chemicals exports because it is an area where the U.S. is poised
to grow the most,” Dooley explained in his written statement.
The U.S. chemicals industry had a trade surplus of $33 billion in 2017, and that
number could more than double to $73 billion by 2020 if the U.S. were to enact
smart policies and trade agreements that fully capitalized on industry’s global
competitive advantage, the ACC said.
For the first time in decades, the U.S. enjoys a competitive advantage in
Nov 15-16, 2018, Royal Sonesta chemicals and plastic production, made possible by affordable domestic
natural gas, the industry’s primary feedstock.
www.petchem-update.com/ Today, American chemical manufacturers account for 14% of all U.S. exports,
or $174 billion in 2016.
“Thanks to America’s shale gas revolution, in a little over a decade the U.S. has
gone from being one of the most expensive places to produce chemicals, to
one of the world’s lowest cost producers,” Dooley told lawmakers.
Approximately $194 billion in new chemicals and plastics production capacity

has been announced in the U.S. in the past eight years, according to the ACC.
“Much of the new capacity is intended for export, reflecting investors’ belief
that the U.S. is the most competitive platform from which to serve global
markets,” Dooley said.
CONGESTION
Availability of empty containers on the U.S. Gulf Coast is a top concern for
petrochemical producers that plan to grow their exports in the next few years
and the solution will involve ports, trucking and rail working together.
Petrochemical producers could face a shortage of empty containers “unless

ocean and rail carriers begin to look at other options,” Walter Kemmsies,
Managing Director, Economist and Chief Strategist, Ports, Airports & Global
Infrastructure for JLL’s U.S. Ports, Airports and Global Infrastructure Group, said.
“It’s not just a petrochemical issue. Container availability from the U.S. Gulf
could impact other high growth potential exports,” Kemmsies added. “The U.S.
Gulf Coast has very high export potential, at this point greater than import
flows. However, this may be changing.”
Cheap and abundant natural gas feedstock from shale led to the construction
boom and production of resins. Now, much of those resins will be going into
boxes for export.
In 2015, the chemical manufacturing sector had $184 billion in exports,

accounting for 14% of the value of all U.S. exports. According to the ACC,
chemical industry exports are expected to increase an average of 7% through
2021.
Exports of chemicals linked to shale gas are projected to reach $123 billion by
2030, notes ACC, more than double the total in 2014. That will drive the trade
surplus from these chemicals to increase from $19.5 billion to $48.3 billion by
2030.

CONTAINER TRAFFIC
Global container traffic will surpass the 200 million TEU threshold for the first
time ever in 2017, according to the latest Drewry Global Container Port
Throughput Index.
The index shows that all regions experienced year-over-year improvement,

with the fastest growing regions being North America, up 12.6%; Latin America,
up 11.1%; and China, up 10.3%.
Port Houston’s TEU volumes as a percentage of total US TEU volumes

increased from 4.6% in 2010 to 5.2% in early 2017. Resins, plastics and
chemicals/minerals account for 46.7% of Port Houston’s TEU’s, according to a
report by JLM.
An estimated 250,000 TEU’s in new exports will be created as soon as 2019 as

newly delivered petrochemical projects ramp up production. By comparison,
Port Authority facilities handled 1.95 million container TEUs in 2014, of which
244,812 TEUs were plastics and resin exports.
“Among other factors, such as the small, albeit increasing, number of direct
services between the Gulf Coast and Asia, the U.S. Gulf population is not big
enough to collect sufficient imports in containers to reuse for these growing
exports. The industry has to consider other options such as drawing containers
from other sources,” Kemmsies said.
REPOSITIONING
It’s not so much a problem in container availability as it is getting the

containers to the U.S. Gulf.
Much of the imports that come into the U.S. are from Asia and arrive on the
U.S. West Coast in California.
“Many containers come from Asia. We unload the boxes. Sometimes they go
back to Asia, but mostly they stay empty,” Kemmsies said.
When imports arrive in California on ships, some product is moved by rail to

North Texas in the industrial park of Alliance near Dallas.
Rail carriers are repositioning these surplus empty containers from Dallas to
the Port of Long Beach and Port of Houston, mostly for Latin America-bound
exports, Kemmsies said.
“A lot of containers go back to the West coast empty out of Dallas, so it looks
like a good opportunity,” Kemmsies said.
2018 State of the U.S. Empty boxes are also available at the Ports of Savannah and Charleston on
Petrochemical Supply Chain the East Coast.
Houston Galleria, Houston, USA “Some of these efforts may require additional logistics depending on the
ultimate destination of the exports,” Kemmsies said. “If sending product to
Latin America, it makes sense to go straight there from the U.S. Gulf Coast.”
CONTAINER ALTERNATIVES
For many years, the U.S. maritime administration MARAD has been trying to
get the industry to move containers to barges so as not to worsen congestion
and highway maintenance costs.
“This has not worked well in the past. It has not been economically viable,”
Kemmsies said.
“However, recently it has become viable to move empty containers from

Memphis or another major inland container destination like Dallas to New
Orleans on the Mississippi River. Excess empty boxes are increasingly being
barged down the river to New Orleans.”
“The U.S. petrochemical industry is causing some interesting changes in the

port industry,” Kemmsies added.
The Memphis, Tennessee to New Orleans, Louisiana route is one of the very few
routes where containers are moved by barge without public sector subsidies,
according to Kemmsies.
Other areas attracting containerized imports are Mobile and New Orleans.
Walmart opened a super, regional import distribution center in Mobile,

Alabama in the Spring of 2018.
The purpose of the center is to receive containers of merchandise from Asia

and redistribute the products to Walmart stores across the south. The facility is
expected to bring substantial business to Mobile’s container terminal at the
port.
Only five mor of these Walmart import centers exist. They are in Mira Loma,
California near Los Angeles, Baytown Texas near Houston, Elwood, Illinois near
Chicago, Williamsburg, Virginia, and Statesboro, Georgia.
COST OF CONTAINER ISSUES
But repositioning equipment is an operating expense for ocean carriers and

can negatively impact the revenue a container can generate.
Containerized imports pay a higher rate than containerized exports. If an

2018 State of the U.S. empty container is diverted to move exports to a destination that does not
send a lot of imports to the U.S., then it will have to be repositioned. The lower
Nov 15-16, 2018, Royal Sonesta revenue earned on the containerized export is unlikely to offset the revenue lost
while the container is repositioned, according to Kemmsies.
“To convince a carrier to take containers off you must pay a significant
petrochemical-supplychain/ repositioning fee,” Kemmsies said. “Repositioning fees can be higher than the
ocean freight rate depending on the route and potential time that the
container will remain empty and therefore not generating revenues.”
All the port authorities are making major efforts to support exporters, often
stepping way out of their comfort zone to help and meet growing export
demand, Kemmsies said.
“10 years ago economic forecasts were that exports would grow a lot from the
U.S.,” Kemmsies said.
“Exports did grow a lot, but not enough at least in part because of logistics
problems. The petrochemical industry in the U.S will need to find a way to
overcome these problems, potentially assisted by port authorities.”
PORT LIMITATIONS
Although much of the current focus has been on pipeline constraints limiting
the amount of crude oil that can reach the U.S. Gulf Coast, potential shipping
limitations are also a concern.
U.S. crude oil exports averaged 1.1 million barrels/day in 2017, an increase of
527,000 barrels/day from 2016, according to the U.S. Energy Information
Administration (EIA).
This acceleration in export growth happened even though U.S. Gulf Coast
ports cannot fully load Very Large Crude Carriers (VLCC), the largest and most
economic vessels used for crude oil transportation.
Instead, export growth was achieved by using smaller and less cost-effective
ships.
Capable of carrying approximately 2 million barrels of crude oil, VLCCs

require large ports with sufficient width and depth of waterways for safe
navigation.
All U.S. ports in the Gulf Coast that actively trade petroleum are located in
inland harbors and connected to the open ocean via shipping channels or
navigable rivers.
Although these channels and rivers are regularly dredged to maintain depth
and safe navigation, they are not deep enough for the safe navigation of deep
2018 State of the U.S. draft vessels, such as fully loaded VLCCs.

To circumvent depth restrictions, VLCCs transporting crude oil to or from the
Houston Galleria, Houston, USA U.S. Gulf Coast have typically used partial loadings and ship-to-ship transfers.
The ship-to-ship transfer process known as lightering occurs when a larger

petrochemical-supplychain/ vessel partially unloads onto a smaller vessel, while reverse lightering occurs
when smaller vessels load onto a larger vessel.
These transfers take place in designated lightering zones and points that exist
outside many of the largest U.S. petroleum ports.
Currently, most U.S. Gulf Coast petroleum ports can accept vessels with
capacities of approximately 500,000 barrels of crude oil (AFRAMAX), while the
number of ports that can accept vessels with capacities of approximately
900,000–1 million barrels (SUEZMAX) are limited. Therefore, four AFRAMAX
sized vessels or two SUEZMAX vessels are required to carry the same amount
of crude oil as a single VLCC.
The inability to fully load larger and more cost-effective vessels has pricing
implications for U.S. crude oil exports. Using several smaller ships requires a
wider price spread between U.S. crude oil and international crude oil prices to
compensate for the lower economies of scale and costs associated with
reverse lightering and partial loadings.
The costs associated with using a smaller vessel are less of a factor for exports
over shorter distances such as within the Atlantic basin than exports over
longer distances such as to Asia. As exports to Asia are a growing share of
total U.S. crude oil exports, these costs will grow in importance.
By comparison, other nations that export large volumes of crude oil generally
have deeper and wider navigable waterways that are not located in
inland/onshore harbors. For example, in Yanbu, Saudi Arabia, located along
the Red Sea, the crude oil export facility uses a jetty trestle that extends out to
berths in water deep enough to fully load VLCCs.
In addition, the largest crude oil export facility in Saudi Arabia, located at Ras
Tanura, uses a combination of jetty trestles, single point mooring facilities, and
other facilities to load multiple sizes of vessels.
PORT DEPTH AND CRUDE OIL EXPORT FACILITY

EXAMPLES
The Louisiana Offshore Oil Port (LOOP), located offshore southern Louisiana in
the Gulf of Mexico, is currently the only U.S. facility capable of accommodating
a fully loaded VLCC. LOOP, which has storage, undersea pipelines, and single
point mooring facilities in deep water. LOOP was exclusively used as an import
facility until it was modified to allow exports.
2018 State of the U.S. 2018 weekly U.S. exports of crude oil have surpassed 2 million barrels/day in
the weeks ending February 16, March 30, April 20, and April 27, 2018. Trade
Nov 15-16, 2018, Royal Sonesta press reports indicate the weeks of February 16, and March 30, 2018,
corresponded with weeks in which LOOP loaded a VLCC for export.
However, LOOP lacks access to the areas experiencing growth in crude oil
petrochemical-supplychain/ production such as in the Permian Basin of West Texas and Southeastern New
Mexico. In addition, LOOP is still used primarily for imports of medium-sour

crude oil preferred by refineries in the U.S. Gulf Coast.
(Source: U.S. Energy Information Administration)
EIA U.S. crude oil exports

(million barrels/day)


HURRICANE LESSONS
As the U.S. becomes a top exporter, port, packaging and infrastructure

investment are at all-time highs and the need to improve the resiliency of the
supply chain post major weather events are more important than ever.
Learnings on areas such as storage, raw materials, supply chain and safety
from the challenges caused by Hurricane Harvey should spur strategic
downstream decisions.
Allocations, force majeures, evacuations, explosions and fires at Texas

chemical plants inundated by Hurricane Harvey’s floodwaters should be a
wake-up call to the industry about improving safety and supply chain
management, Ramanan Krishnamoorti, Chief Energy Officer at the University
of Houston said.
“The industry must consider how to look at multiple barriers of defense when
putting high capex manufacturing dollars in a hurricane and flooding prone
environment,” Krishnamoorti said.
Krishnamoorti said these barriers include using information technology,

rethinking the supply chain, improving front and back end engineering and
improving storage options.
Harvey Impact


Houston Galleria, Houston, USA Image: Space Science and Engineering Center, University of Wisconsin-Madison
According to the Federal Emergency Management Administration (FEMA), the

storm, which tore through Texas and Louisiana on August 25, 2017, is
responsible for the worst flooding in U.S. history, and is the costliest natural
disaster in U.S. history.
Estimates put the damage at $190 billion, more than Hurricane Katrina in
2005 and Hurricane Sandy in 2012 combined, according to AccuWeather.
As Texas and Louisiana work quickly to restart chemical plants, repair critical
logistics and recover from the damage caused by Hurricane Harvey, the
challenges are just beginning in terms of supply chain, allocations, and even
safety issues.
“The industry does a remarkable job shutting down production and restarting
when necessary, but it must go beyond that. It needs to put multiple layers of
protection down,” Krishnamoorti said.
“The industry must do more than just protect the plants, but also protect the
neighborhoods and really focus on safety, he added. "There has to be a
realistic assessment of worst case scenarios and appropriate planning for the
same.”
SAFETY PRIORITIES
The flooded Arkema plant in Crosby, Texas. Image: Arkema
“These storms can create colossal damage to the plants and the
2018 State of the U.S. neighborhoods that surround them. Many of the people living in these
Petrochemical Supply Chain neighborhoods work at the plants.”
Houston Galleria, Houston, USA The disaster at Texas Arkema is an example of this, Krishnamoorti added.
“They wanted to protect the product but have lost more than product now.”
A 1.5-mile evacuation was necessary around the Arkema liquid organic

peroxides plant in Crosby, Texas following fires and explosions after
refrigeration systems at the plant failed to function following flooding.
The plant produces liquid organic peroxides which, if not refrigerated, can
decompose and catch fire. Flooding caused by Hurricane Harvey impeded the
cooling of the chemicals, in spite of mobilizing mobile refrigeration units.
“We must consider how to use engineering and best practices to solve both
product and raw material challenges to avoid disasters and problems,”
Krishnamoorti said.
STORM PRECAUTIONS
The U.S. Coast Guard flew over The Port of Beaumont, ExxonMobil and the
Jefferson Rail Port along the Neches River on September 1 to assess if harmful
products were released into the area. Photo: U.S. Coast Guard Charly Hengen.
The petrochemical industry has worked hard to modernize the refining and
chemical infrastructure and emergency plans in recent years, especially as
new construction and expansions have accelerated because of low cost
natural gas liquid (NGL) feedstock.
Chemical facilities are designed and built with major storms in mind, the ACC
said.
Petrochemical Supply Chain Specific construction elements can include reinforced manufacturing
equipment that helps improve the overall structural integrity of a facility in
Houston Galleria, Houston, USA accordance with industrial building standards for hurricanes. Dikes and levees
are incorporated to reduce the risk of chemical releases.
“These plants are steel piping systems on massive concrete foundations,
designed to withstand heavy storm surge. In storm surge, the plants might be
at risk if water rises above the concrete foundation, reaching electrical motors.
It might take a couple of weeks to change them out after the storm,” said Bill
Gilmer, director of the University of Houston’s Institute for Regional Forecasting
said.
If Harvey had come up the Houston Ship Channel or a storm surge of salt
water had happened, it would be a different situation now. The Harvey attack
on Texas is mostly freshwater flooding, not salt water, Krishnamoorti said.
The Mississippi River refineries that were down for six or eight months after
Hurricane Katrina saw storm surge that reached their control rooms, requiring
a rewiring of the plant’s electrical systems.
Harvey never generated this kind of surge in Houston, nor any threat of serious
damage to these plants. The Ship Channel should restart slowly but normally,
Gilmer explained.
MUCH STILL NEEDED
Image: Christian Long
“The problem here will be the

restart of complex
continuous-processing systems,
compounded by the fact that
many Houston chemical plants
are suppliers for one another,”
Gilmer said.
In a research note on August 25,

2017, days before the flooding
hit Houston and Southeast Texas,
Kevin McCarthy of Vertical
Research Partners wrote, “By way
of background, petrochemical
plants are engineered to
withstand hurricane force winds,
so direct wind damage to plants
is more the exception than the rule. In our experience, the primary risk tends to
be potential for flooding, and Harvey appears quite dangerous.”
2018 State of the U.S. “The prospect of this level of water has high potential to wreak havoc with
utilities, rails, ports, barge access and the ability of personnel to access sites
Nov 15-16, 2018, Royal Sonesta across southern Texas,” McCarthy continued.
The chemical plants in Texas went through all the right steps to shut down,
according to Krishnamoorti.
STORAGE
Image: Christian Long
“Almost everywhere the

problem is with storage.
It is a less glamorous
thing to consider, but it
must be included in
capex plans.”
Manufacturing has
recovered quickly after
major storms including
Hurricanes Ike and Rita,
now owners need to focus on front and back end engineering as second wave
construction plans are laid, Krishnamoorti said.
“The industry can use data analytics to modernize and plan the supply chain
better. We should strategize how to add additional barriers to protect and
ensure our products and communities,” Krishnamoorti said.
DRIVER SHORTAGE
Trucking is the primary transportation mode used by the chemicals industry,

representing more than half of overall industry shipments, according to the
American Chemistry Council.
But the industry remains concerned about their ability to secure qualified truck
drivers. This problem has been exacerbated by tighter hours-of-service rules,
mandated by the Federal Motor Carrier Safely Administration (under
CSA2010), which limit the amount of time a driver can spend on the road.
The average age of drivers is 52 years and yearly driver retirements will
account for 37% of new driver demand over the next decade, according to
The American Trucking Association (ATA) that.
At this rate of retirement, it may be difficult to maintain even the current

number of qualified truckers.
The requirements to become a driver are challenging which often turns recruits
away before the process to hire is finished.
Nov 15-16, 2018, Royal Sonesta Drivers for the chemical industry must pass a TSA security threat assessment, a
background check that takes up to three months to complete, and undergo
security training to earn a
www.petchem-update.com/ Transportation Worker Identification Credential (TWIC) before they can enter
many chemical manufacturing facilities.
In addition, drivers must meet age and safety-record requirements for hazmat
endorsements and interstate shipments.
In a 2017 PwC transportation survey of 68 leading chemical companies,

respondents reported that, on average, they experienced scheduling delays of
more than a day to secure trucks. Smaller companies reported more difficulty
in arranging transport.
When asked about the future, approximately 70% of chemical company

respondents voiced concern about truck hours of service and driver
availability.
PROJECT OUTLOOK
Several U.S. major petrochemical projects to emerge from the natural gas
boom reached their final stages of production at the tail end of 2017 and into
the first half of 2018, just as a second wave of building begins.
The US chemical industry’s renaissance continues in 2018 with capital

spending expected to rise by more than 6% from 2017.
In its Shale Gas Industrial Expansion Logistics Database (SHIELD), PLG

Consulting estimates that at least 100 projects have been commissioned since
2011 valued at $51.1 billion. Another 76 projects will likely start up by the end
of 2019, valued at $45.1 billion. And 48 2nd wave projects with likely start-up
between 2020 and 2025 are valued at $48.5 billion.
Texas and Louisiana will dominate the buildout. Processed gas, ethylene,
methanol, and resins will account for 80% of product volume output,
according to PLG.


Even as several new ethylene and derivative units have begun operations in
2017 and the first half of 2018, construction of several new projects is planned
to begin this year.
Additional projects are expected to break ground in 2019 and 2020, with most
of this new capacity coming online around 2023.
U.S. ETHYLENE PROJECTS
ETHYLENE
COMPANY CAPACITY DOWNSTREAM START-UP LOCATION
(KT/YEAR)
OXY CHEM/ 550 FEED EXISTING 2017 TEXAS

MEXICHEM PLANT
DOW DUPONT 1,500 POLYETHYLENE, 2017 TEXAS

ELASTOMERS
CHEVRON 1,500 POLYETHYLENE 2018 TEXAS

PHILLIPS
EXXONMOBIL 1,500 POLYETHYLENE 2018 TEXAS
FORMOSA 1,250 POLYETHYLENE, 2018 TEXAS

PLASTICS ETHYLENE GLYCOLS
SASOL 1,500 POLYETHYLENE, 2019 LOUISIANA

ETHYLENE OXIDE,
ETHYLENE GLYCOL,
DETERGENT
ALCOHOLS,
ETHOXYLATES
SHINTECH/ 500 EXPAND POLYVINYL 2019 LOUISIANA

SHIN-ETSU CHLORIDE AND
VINYL CHLORIDE
MONOMER
CAPACITY
LACC (LOTTE 1,000 MONO ETHYLENE 2020 LOUISIANA

AND AXIALL) GLYCOL
TOTAL/BOREALIS/ 1,000 POLYETHYLENE 2020 TEXAS

NOVA
SHELL 1,500 POLYETHYLENE 2021 PENNSYLVANIA
EXXONMOBIL/ 1,800 POLYETHYLENS, FID 2018 TEXAS

SABIC MONO ETHYLENE
GLYCOL


U.S. ETHYLENE EXPANSIONS
ETHYLENE
COMPANY CAPACITY START-UP LOCATION COMMENTS
(KT/YEAR)
LYONDELLBASELL 360 2014 LAPORTE, TEXAS
LYONDELLBASELL 113 2015 CHANNELVIEW,

TEXAS
DOW 250 2016 LOUISIANA

CHEMICAL
INDORAMA 420 2018 LOUISIANA RESTART
LYONDELLBASELL 360 2017 CORPUS CHRISTI,

TEXAS
As natural gas liquids (NGL) growth accelerates in the U.S., the feedstock
advantage will likely fuel additional investment decisions for mega projects
along the Gulf Coast and Northeast, Phillips 66 executives said during their
first quarter earnings call.
“U.S. NGL production continues to grow. We think this is set to accelerate given
the drilling activity that we see,” Phillips 66 CEO Greg Garland said during the
investor presentation. “We believe that the U.S. is going to remain advantaged
in the global energy markets.”
TECHNOLOGICAL INNOVATIONS
BLOCKCHAIN
Port Houston is the first port to participate in a pilot program led by IBM and
Danish shipper Maersk which aims to commercialize blockchain technology in
the global oil, gas and petrochemical supply chain.
A blockchain solution from IBM and Maersk will help manage and track the
paper trail of tens of millions of shipping containers across the world by
digitizing the supply chain process from end-to-end to enhance transparency
and secure sharing of information among trading partners.
Blockchain is the shared accounting ledgers made famous by Bitcoin.
2018 State of the U.S. The as-yet unnamed venture between IBM and Maersk intends to help
shippers, ports, customs offices, banks, chemical and product manufacturers
Nov 15-16, 2018, Royal Sonesta and other stakeholders in global supply chains track freight as well as replace
related paperwork with tamper-resistant digital records.
When adopted at scale, the solution has the potential to save the industry
petrochemical-supplychain/ billions of dollars, IBM said.
“The projects we are doing with IBM aim at exploring a disruptive technology
such as blockchain to solve real customer problems and create new innovative
business models for the entire industry,” said Ibrahim Gokcen, chief digital
officer, Maersk in a statement.
PORT HOUSTON
Port Houston will be the first port in the U.S. to join in the Maersk IBM
blockchain pilot program, a partnership that positions it to bring the power of
cryptocurrency to the sector.
“Ports are critical links in the supply chain and creating more visibility of
information to our customers and users of Port Houston facilities only
enhances the efficiency of the movement of cargo,” Port Houston Executive
Director Roger Guenther said.
“We are excited to be the port chosen to be a part of this pilot project and
have begun to preliminary test the exchange of information through this
technology during the initial phase,” Guenther said.
Port Houston joins other blockchain players such as Dow DuPont, Petroteq,
Riot Blockchain, Marathon Patent Group, and Wipro Limited.
Major downstream consumers such as General Motors and Procter and

Gamble are exploring ways to use the technology to streamline
record-keeping for their supply chains as well, IBM said in a statement.
Meanwhile, Port Houston is at the center of a major export tsunami taking

place on the U.S. Gulf and has been investing millions in infrastructure, services
and innovation.
Port Houston facilities reached the highest total tonnage in Port history of
38.3m tons in 2017, surpassing the previous record of 37.8m tons set in 2014.
It was also a record-setting year for container business. Port Houston handled
2.46 Million TEU for 2017; the previous record was set in 2016 with a volume of
2.18m TEUs (nearly a 13% increase year over year).
“Port Houston is the right place to handle this export of resins that is primarily
originated here. Our goals as supply chain professionals is to look at cost and
streamlining that supply chain, making it agile and getting that product
moving,” said John Moseley, Senior Director, Trade Development at Port of
Houston Authority.
Petrochemical Supply Chain Port Houston has invested $1 billion over the last five years to develop
infrastructure to handle growth. Another $200 million is earmarked over the
Houston Galleria, Houston, USA next two years to handle future growth.
INNOVATIVE SOLUTION
As exports from the U.S. accelerate, international trading parties are

requesting both improved workflow and better visibility.
“Traceability and transparency are some of the most important foundations of

logistics,” Guenther said.
A single vessel can carry thousands of shipments, and on top of the costs to
move the paperwork, the documentation to support it can be delayed, lost or
misplaced, leading to further complications.
Maersk found in 2014 that just a simple shipment of refrigerated goods from
East Africa to Europe can go through nearly 30 people and organizations,
including more than 200 different interactions and communications among
them.
A blockchain application in logistics is centered on creating a digital

distributed ledger to create a single electronic place where the myriad of
shipment documents are housed.
The shared ledger is updated and validated in real time with each network
participant; enabling equal visibility of the shipment activities in real time
including the location, ownership, and condition of the freight.
HOW IT WORKS
Blockchain, an immutable, security rich and transparent shared network,

provides each participant end-to-end visibility based on their level of
permission.
Each participant in a supply chain ecosystem can view the progress of goods
through the supply chain, understanding where a container is in transit. They
can also see the status of customs documents, or view bills of lading and other
data.
No one party can modify, delete or even append any record without the
consensus from others on the network.
According to IBM, this level of transparency helps reduce fraud and errors,
reduce the time products spend in the transit and shipping process, improve
2018 State of the U.S. inventory management and ultimately reduce waste and cost.
“We believe that this new supply chain solution will be a transformative
Houston Galleria, Houston, USA technology with the potential to completely disrupt and change the way global
trade is done,” Bridget van Kralingen, senior vice president, Industry Platforms,
IBM said in a statement.
The solution developed by Maersk and IBM is based on the open source Linux
Foundation's open source Hyperledger Fabric. IBM hosts the solution on the
IBM Cloud and the IBM high-security business network, delivered via IBM
Bluemix.
The solution is expected to be widely available to support multiple parties

across the ocean shipping industry ecosystem later this year, IBM said.
AUTOMATED SYSTEMS
Growing oil and petrochemical exports from the U.S. Gulf and an intensified
shortage of container availability have triggered the use of the first cohesive
automated network between port, trucking and cargo shipper in Texas.
Intermodal software provider Compcare Services, The Port of Houston,

Sunburst Truck Lines and Packwell are working together to form a cohesive,
complete platform that will enable data collaboration between the port,
container terminals and supply chain stakeholders in real time.
The platform is expected to help beneficial cargo owners (BCOs) and their
logistics partners reduce the time they spend manually searching for
information and planning their operations by directly integrating data securely
between all systems.
The result will be a streamlined and automated process that eliminates

manually searching websites, emails, phone calls and spreadsheets typically
used to collect and share information about containerized cargo moving
through the supply chain.
EXTENDED PORT HOURS
As exports from the U.S. Gulf grow, container availability remains an issue and
lost time manually searching for containers equals lost time for the supply
chain. The Port of Houston recently extended its operating hours from 6 p.m. to
10 p.m. to help alleviate some of the pressure.
From a trucking standpoint, availability of containers at the port is a big issue.

Compcare previously developed tools that screen scrape websites at ports.
The program will login as the truck driver, look for containers and automatically
trace results in real time.
“The truck driver needs to know when containers will be available. When you
are picking up 100s of containers a day, it is very taxing to do this manually.
This program allows it to happen automatically saving time and money in the
long run,” Hickman said.
TRUCK AND PORT COLLABORATION
However, not all the ports appreciate this, claiming the screen scrape process
taxes their internal systems when data on 1000s of containers starts getting
tossed around.
The Port of Houston is one port that does provide real time container
availability updates electronically now, but the feeds are not totally complete,
Hickman said.
The Port of Houston already has an Application Programming Interface (API) in

place and Packwell and Sunburst have systems in place as well. So, the main
goal is bringing it all together in one cohesive effort, and putting the jigsaw
puzzle pieces together for real time collaboration.
“The number one goal needs to be for ports and trucking companies to work
together so we don’t tax the system. Ports need to provide this data
electronically,” Hickman said.
The executives behind the collaboration believe this integration will save at
least one hour of time and the potential to save thousands of dollars per load,
because of reduced errors and reduced manual time searching for containers.
“This is a game changer for the industry. It will save time for the driver when the
information is preloaded and sent,” Hickman said. “Getting the information
correct between the loader and getting the feed from the Port of Houston to
ensure the correct cargo is picked up and taken to the correct place could
save thousands of dollars per cargo.”
REAL TIME DATA
Once a container is ready, the Port of Houston network will send a direct feed
into the collaborative network. Truck drivers will enter in their requests and the
network will help to match containers to drivers.
“Information from the truck driver coupled with the direct feed from the Port
will feed into the cargo shipper Packwell and let them know that we are
coming with a particular container,” Hickman said.
“This expedites the process because they know the trucker is on the way and
can prepare for the arrival.”
2018 State of the U.S. If the wrong container is loaded and taken to the wrong destination, then it
Petrochemical Supply Chain must be returned and that costs time and money. If the wrong container is
loaded and gets all the way to the port and it’s the wrong one, that cost even
Houston Galleria, Houston, USA more time and money to have to turn around and reship the cargo to its
intended destination.
The new programming will provide real time data such as vessel arrival,
terminal location, container availability/status, current location, and other
pertinent shipment and terminal information.
Rather than constantly searching for updates, the collaboration allows

container status and availability information to be communicated directly
between systems so that personnel only need to monitor exceptions and
possible issues.
TRUCKING
Collaboration by all three sectors was key to bringing this network together,
Hickman explained.
“There needs to be a willingness by all parties to work together: the ports, the
trucking industry, the container sector,” Hickman said. “If we can get electronic
data interchanges (EDIs) on board and all BCOs to accept the paperless
process, things will be much more efficient.”
Communication is important, and this means between all the parties,

especially the trucking sector, Hickman said.
“For many years, trucking has not had a voice or say in this. Getting trucking
involved has made a world of difference,” Hickman said. “Get buy in from the
drivers and this will help you get everyone on board.”
The trucking sector is a backbone of the American economy. 70% of the

nation’s freight, representing more than $725 billion in annual revenue, are
moved by the trucking industry. Freight levels are forecast to grow more than
40% by 2045, and energy and oil use are set to rise by 20% in the next 25 years,
according to a report by Securing America’s Future Energy (SAFE).
Long Beach case study
The Long Beach Container Terminal (LBCT) is an example of a group that has
made great progress on implementing their digital strategy and as a result is a
top destination for trucking, Hickman said.
LBCT is fully automated and drivers want to go there because it means they
get in quickly and with the correct containers. This means more drive time,
more business and more money.
Petrochemical Supply Chain “They are nearly 100% automated and the drivers love going there. Trucking is
largely an owner/operator business. Owner/ops can refuse business at any
Houston Galleria, Houston, USA time if they don’t like the way things are done or they are not making money or
wasting time on something,” Hickman said.
www.petchem-update.com/ “At a time when the industry is facing a driver shortage, this is more important
than ever,” Hickman added.
PAPERLESS
The oil and petrochemical industry has for years relied on manual processes
for things such as equipment installation, repairs, logistics, maintenance and
waste disposal. The problems make their way all the way to distribution where
terminals are running 20-30-year-old software, or no software at all, and
running paper bill of ladings.
Customers end up with accuracy issues and confusion over deliveries. Delivery
time is lost, and costs increase.
Shaun Leone, president of Sunburst Truck Lines, saw the issue with errors and
lost time and invested in technology to ensure a smooth process from order to
delivery, from fleet to dispatch at his Houston based trucking company.
Working together with Compcare, Sunburst Truck Lines put a paperless

approach in place that handles delivery tracking, electronic invoicing, tablet
dispatch, automatic delivery notification and easy scheduling.
“The entire industry needs to get on board with going paperless. If we can get
less human interaction in places where possible, there won’t be as many steps,
so accuracy, productivity and timing is improved,” Leone said.
AUTONOMOUS DRIVING
Autonomous technology (AT) is moving into the trucking industry and could
optimize logistics while reducing driver shortage and safety risks.
“Autonomous vehicles will be one of the most profound changes next to

perhaps computers that we have seen in our lifetime,” said Robert Hooper,
CEO of Atlantic Logistics.
Embark has been testing its AT truck on Nevada public highways since 2017.
Both Uber- owned Otto and Daimler owned Freightliner Inspiration have been
testing their AT prototypes as well.
“While most of the spectacle has been around passenger vehicles, we believe
that commercial trucking, the backbone of our economy, stands to reap
untold benefits by deploying autonomous trucks - particularly during the “long
haul” stretches,” Embark states on its website.
2018 State of the U.S. Mining company Rio Tinto already uses driverless trucks to move iron ore in two
Petrochemical Supply Chain Australian mines, saying it is cheaper and safer than using human drivers.
Houston Galleria, Houston, USA More than 30 companies are now researching and developing autonomous
vehicle technology, according to CB Insights.
COSTS SAVINGS
Driverless trucking would eventually halve industry costs, according to

investment group Morgan Stanley, who declared 2017 “the year of the
autonomous truck” in a January research note. Morgan Stanley went on to
write that the freight industry could save as much as $168 billion annually by
adopting AT.
“The fuel efficiencies of autonomous vehicles will be huge. With autonomous

vehicles, you lose idling at a truck stop which consumes one gallon per hour,”
Hooper said.
“Also, many trucks already have speed limiters due to safety and fuel efficiency,
many max out 65 miles per hour (mph). For every mph over 55 mph, you
reduce miles per gallon (mpg) consumption by .1. So, a differential of 55 mph
to 70 mph would save 1.5 mpg per truck. That will add up to a tremendous
amount of savings when you multiple that across every truck in the US.”
Technological efficiencies would lead to a reduction in fuel usage as well,

Hooper explained.
“Efficient drivers add 30% to their fuel efficiency,” Hooper said. “Well the
computers will be efficient…no feathering, no rough acceleration, etc. So, we
should see dramatic reductions in fuel usage by trucks. Of course, there will be
shift from trains to over the road when the trucks are able to drive 24/7 with no
driver constraints or costs as well.”
The cost savings when a full-time driver is no longer needed is substantial,

Hooper said.
“Driver pay averages $35,000 a year for short haul operations, and up to
$125,000/year for long haul and specialized deliveries,” Hooper said.
STARTUP COSTS
The cost to add AT technology to a big rig has been estimated at $23,000 and
higher, according to consulting firm Roland Berger. Insurance costs will rise as
well.
Insurance coverage for autonomous vehicles will bring $81 billion in new
premiums to the U.S. auto insurance industry over the next eight years, driven
2018 State of the U.S. by risks related to cybersecurity, software and hardware and by the need for
Petrochemical Supply Chain additional public infrastructure coverage, according to a report from
Accenture and Stevens Institute of Technology released in May.
Law enforcement regulations, training and potential hacker threats are some
of the other costs challenges the industry will need to overcome, the American
Transportation Research Institute (ATRI) said.
However, support and oversight are growing. The U.S. Department of

Transportation has created a committee on automation led by General Motors
CEO Mary Barra and Los Angeles Mayor Eric Garcetti.
INFRASTRUCTURE CHALLENGES
One weak link is the infrastructure needed to support AT vehicles of any kind,
the ATRI said.
Lane markings must be visible to video camera systems. Signage must be

correct, visible and appropriate. Pavement quality may also cause issues.
The chemical industry will likely incur an additional $7 billion in transportation

costs annually related to congestion and delays by 2025 if the transportation
network is not upgraded and expanded to meet the volumes expected over
the next decade, according to an analysis by PwC issued in 2017.
DRIVER SHORTAGE
Truck driving may become a more attractive career as automation relieves

some of the stress of the job, and the new technology may incentivize younger
individuals to pursue a career in trucking, ATRI said in a recent report on AT
truck trends.
The trucking industry faces not only a shortfall of qualified drivers, but also an
aging workforce.
The American Trucking Association (ATA) predicts that by 2024 the driver
shortage will increase from a recent 48,000 driving jobs to 175,000.
ATRI said the number of truck drivers between the ages of 25-34 has dropped
by nearly 50%. In many cases, the void has been filled by older drivers.
Drivers will still be needed regardless of the type of truck, but roles will evolve
with more emphasis on shipper/client relationship, equipment management,
route management, cargo management, and hazmat tasks.
"Even in transporting chemicals and hazmat materials, semi-autonomous

trucking will make a huge impact on productivity," Hooper said.
Petrochemical Supply Chain "Drivers will be able to rest, work on paperwork and their iPad while the truck is
driving and then take over as necessary. Driving is hard work. Drivers are gone
Houston Galleria, Houston, USA for long periods of time and must be alert for several hours. Semi-autonomous
trucking will allow drivers to be more productive and get needed rest”
petrochemical-supplychain/ Trucking Industry Challenges and AT solutions
Source: ATRI
SEMI-AUTONOMOUS TRUCKS
Daimler Trucks North America (DTNA) Freightliner Inspiration truck and

Uber-owned Otto’s prototype both rely on a truck autopilot system, with a
human driver still present in the cab.
The technology is classified as Level 3 by the U.S. National Highway Traffic

Safety Administration (NHTSA), with Level 4 being full automation and no
driver. Level 3 means vehicle systems can control all driving tasks under limited
conditions, but a driver must be able to assume operations when prompted.
Daimler’s Highway Pilot system uses radar sensors and cameras to detect
objects and lane markings around the truck and take over steering, braking
and accelerating from the driver.
“Due to the nature of transporting petrochemicals and hazmat regulations, it

will be much longer if ever before chemicals can be transported without a
driver.
“It may be that if you are running with autonomous trucking, you will find it
Houston Galleria, Houston, USA safer and more productive, but you still have to have a driver in case of issues,
and for hazmat certification laws.
"I think that will hinder fully autonomous trucking being adopted in
petrochemicals right away," Hooper said. "Semi-autonomous trucking is more
likely"
Levels of Automation
CONCLUSION
Considering new projects announced in 2018, the ACC now believes that the
announced new U.S. chemical and plastics projects are expected to increase
petrochemical capacity by more than 50 million tonnes of new chemical
output each year.
The new capacity is projected to result in an additional 1.8 million annual

shipments by 2020 across all modes of transportation, adding an additional
270,000 railcars, 723,000 truck FTLs, and 808,000 marine TEUs each year.
These major capacity additions stand to play a key role in supply chain
decisions and investments. While the growth is a boom for the petrochemical
industry, it highlights the need to address key transportation, storage,
infrastructure, and global trade issues that will impact the supply chain.
Exports are now critical in the oversupplied U.S. plastics market and will
Nov 15-16, 2018, Royal Sonesta become even more significant in the next few years as additional capacity
comes online.
The U.S. supply chain has worked hard and invested millions to prepare for the
export tsunami. Innovative solutions have been developed to handle port

congestion, and container availability. New technologies are being
implemented to speed up the processes. Every major trucking, rail, barge, and
port has invested money and resources into their own areas. Ports, truck and
rail are stepping up to help one another.
Addressing these challenges and an impending driver shortage are key to a

successful U.S. supply chain and will require the cooperation of owners,
government, shippers and more to ensure full success of the U.S. chemicals
renaissance.



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2018 State of the U.S.