Exxon Mobil Announces Expansion Of Louisiana Petrochemical Plants

Exxon Mobil has announced plans to increase its petrochemical manufacturing output through the expansion of its Baton Rouge and Port Allen plants in Louisiana. A company official said that the expansion project will begin by the end of this year and is expected to be completed by 2014.

 The $215 million expansion project will take the company’s capital expenditures in Louisiana to over $1 billion in three years. In view of the expected increase in jobs created by the expansion, the state of Louisiana will be providing a $1.8 million modernization tax credit to the company, payable over the next five years.

The expansion project will replace the company’s existing base stock manufacturing and aviation lubricants blending and storage facility in Edison, New Jersey upon commencement of operations in 2014. It will also involve the construction of a “state-of-the-art” synthetic aviation oil blending center in the Port Allen plant. Exxon Mobil estimates that the expansion will support a 25% increase in its worldwide capacity of synthetic esters and alkylated naphthalene, for which it forecasts a global increase in demand going forward.

The refinery at Baton Rouge is one of the world’s largest petrochemical manufacturing plants, having an average refining capacity of 502,000 barrels per day as of 2011. It is staffed by over 1,800 employees and contractors, making it the second largest manufacturing employer in the state. Products produced by the plant include gasoline, diesel, jet fuel, aviation fuel and lubricants.

Expansion Supports Growth in Chemical Prime Product Sales

Exxon Mobil’s chemical prime product sales stood at around 25 million metric tons in 2011. Of this, 9.25 million metric tons (or 37%) were sold in the United States. An expansion of the Louisiana plants could cause a significant increase in prime product sales going forward.

The chemicals division had gross profits of $5.15 billion and capital expenditures of $1.45 billion in 2011, which means that chemical capex stood at around 28% of the division’s gross profits. We project this to decline to around 25% by the end of our forecast period.

Investments in expansion projects would lead to a substantial increase in chemical capital expenditures as a percentage of the division’s gross profits. However, assuming Exxon Mobil’s forecasts of increasing petrochemical product demand are accurate, the capex increase would be offset by a corresponding increase in gross margins.