11-11-13 Meeting of the La Porte Development Corporation Board of Directors

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THE HOUSTON SHIP CHANN H services vessels from 1.54 counlries — more 117an any other U.S. port (right), OCTC Tubular oivner David Siverling (below, right) and Vice President for C-)perations Bill McWhorter (beloY4� left), at their plant. Rapid econornic growth is often accompanied by new challenges, This round of expansion will he no exception, but the resulting real estate opportunities in and around cast Harris County may be some of the best in years. Early Drivers arty economic drivers favoring netro- tchemical developi-nent near the ship, channel included" the ready availability of product (Oil and gas) and easy access to a rail and waterborne delivery sys- tern. installation of a vast pipeline network further diversified the area's distribution capabilities. An interstate highway link completed the integrated transportation network, Much of the chemistry developed to produce other vital products from oil and gas was initiated during the war years of the 1940s. The Bayport Industrial District, created in 1970, is now among the largest private industrial complexes in the country, with more than 60 chemical plants. Roughly 160 companies have acquired facilities along the ship charmel between the turning basin and Baybours Cut. Current Booin The primary feedstocks for the petrochernical industry are natural gas, natural gas liquids (NGLs) such as butane, propane and ethane, and naptha derive([ from crude oil. For decades, petrochemical production had been steadily drifting away from the United States toward. C111Cfging markets such as India or Indonesia, where feedstock prices and internationn.1 transports - tion costs were cheaper. The discovery of shale gas and the resulting drop in U.S. natural gas prices, has totally changed the global dynamics of the petrochemical industry. The Arnerican Chemistry Coup cilstates that when the ratio of the price of oil per barrel to the price of natural gas per MCF (thousand cubic feet) is more than 7 to 1, the competitiveness of Gulf Coast petrochemical products is enhanced. The'CI. & oil to gas ratio increased from S. to I in 2003 to more than 20 to 1, in 2011 The ratio has becoine extremely favorable for U.S, production of petrochemicals, plastics and other chemical products derived from natural gas and NGLs. A recent report by the Houston Branch of the Dallas Federal Reserve found that prices for the NGLs ethane and propane had tumbled 410 percent to their lowest levels in at least two decades by 2012. In the United States, over 85 percent of ethylene, the major building block of most plastics, is derived from NGLs. The rest of the world primarily uses much more expensive naptlia, The Fed report also stated that U.S. ethylene capacity is poised to increase almost 33 percent by 2017, pending completion of all new plants, expansions, enhancements and. restarts of shutdown focilitics, that have been announced, Texas accounts for 72 percent of U.S. ethylene capacity, The report contends that the increase in domestic ethylene production will outstrip projected domestic demand growth in the next several years. As a result, U.S. petrochemical exports, p � particularly from Texas, will expand significantly. 'This is more good news for the Port of Houston. Synera nterdependence plays as big part in understanding the appeal to companies, big and small, that have chosen to locate in the EAHPR. For example, steam generated in one facility may be used to generate electricity for mimher. Gases produced in refining or processing applications like hydrogen may be used in a nearby chernical plant as a feedstock for specialty chemicals. The Conirlections between the flixrns are massive. Interest in the region from foreign companies has always been strong and should continue to improve with the increase in available domestic feedstocks (see map). Foreign direct in- vestment in plants and facilities can be attributed to a number of factors. "The Japanese originally chose this area to locate facili- tie-, based on availability of raw rnaterials, the workforce:, the support industries, low energy costs and reasonable taxes,"