Overview:  The demand for everything chemical recovers quickly. The 2022 chemical investment outlook is promising. Victoria Meyer’s guest in this episode is Trey Hamblet, the VP of Chemicals Research for Industrial Info Resources. Trey talks with Victoria about insights and predictions on how chemical investments will fare in 2022. The best course of action is to tackle key investments that increase profitability. So far, logical constraints don’t hold back chemical investments, and technologies are developing green initiatives that garner huge public support. Do you want to know more about the 2022 chemical investment outlook? Tune in! 

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This is our first episode of 2022. I hope everybody is ready for a great year. I know that I am. To get things started with the show, make sure you subscribe to get the latest episodes every time. The other thing I’m excited about is we are launching The Chemical Community. The Chemical Community is an online community just for chemical industry professionals where we can engage in dialogue on topics related to key trends and an opportunity to discuss what you heard on the show and more.  There are going to be opportunities for live expert discussions, Q&As and much more. It’s also where you’re going to get the show notes from the show after the first two weeks. For the first couple of weeks, they’re going to be available live on the website and after that, they’ll go into The Chemical Community for you to get access. Visit  TheChemicalCommunity.com to get more information, sign up and join The Chemical Community.  In this episode, I am speaking with Trey Hamblet from Industrial Info Resources, otherwise known as IIR. He is an expert on chemical markets and specifically focuses on the capital and maintenance markets. For many years, he has been working with industrial market intelligence gathering and database management. I invited him to join us to share an outlook on what he expects to see in 2022 as we think about chemical markets both from a business and marketing perspective but also as we look at growth and investment. Trey, welcome to the show.  Thanks for having me. It’s a pleasure. I’m glad to have you here. First of all, why don’t you give us a real brief overview of IIR because a lot of people may or may not be familiar with it?  I’m glad to do so. I’ll share my screen. I had a couple of quick slides to demonstrate who we are. We’re a market intelligence provider for the industrial markets. In addition to the chemicals industry, we track all industrial markets like power, refining and pharmaceutical. We do this on a global scale with offices around the world. The industries that make up the industrial market as a whole.  As you’ve already said, I focus exclusively on the chemical processing industry for both North America and the globe. What’s unique about Industrial Info is we take all of the hundreds of researchers we have sitting on the planet on that map. We take all those individually identified projects that we’ve harvested. What’s the investment value? When will it take place? Who’s going to do it? What equipment will it require? What technologies will it require? We put all of that in a variety of formats for our clients from traditional databases where you search for projects and plants or you get outlook products, forecasts and in-market analytics to news and additional content. It’s a great organization. I’ve been here for many years. I’m very proud to share some of it with you.  Let’s talk a bit about you. How did you get started working in this space? This is not necessarily an area that I think a lot of people think about going into.  Some of it sounds cliche but maybe it was destiny. I’m not entirely certain. I was a very young man back in school and there was this very small company in Houston, Texas that was employing college students and offering to help pay for some of their education. I thought I have family in Houston, I’ve got a girlfriend and this company wants to pay for some education. I joined the company many years ago.  Our Founder and CEO, Ed Lewis is a very growth-oriented individual. He continued to give me the opportunity to grow at the company. Many years ago, we started these industry verticals. I got adopted into tracking that particular industry and it became a passion. I’ve had a nice career tracking big events and big companies in the chemical industry. It has always been a very exciting space and it has changed dramatically over the years that I followed it.  Let’s talk about recent events. What was the biggest surprise of 2021 versus where the year started or where you predicted or expected the year to go?  Everyone whether it be on a personal, professional or commercial scale was certainly hoping for something better than 2020 but it didn’t take much to be an improvement. 2021 from a chemical industry perspective, turned out to be more of a year of in-plant capital and also focus on maintenance projects. When we talk about what we ended up with versus what we started with, we went into 2021, not knowing how quickly it was going to recover. One of the good surprises is how quickly the consumer became resilient.  We saw the demand for plastics. We saw the demand for everything chemical recover very quickly. We’re all seeing that both commercially, personally and professionally in supply chain constraints, etc. There are not enough certain materials and no means to move those materials. One of the big surprises was how resilient many of the global markets were in the demand picture. Coming out of 2020, where everybody was anxious to restart, it wasn’t quite as simple to restart everything to the full scale that it once was, the commodity surprises, etc.  If you are reading this episode, you may want to kick on over to YouTube and check out the YouTube version where you’re going to be able to see these charts.  This looks like a busy bar graph but it’s what we have in Industrial Info identified as a potential spend opportunity versus what became a reality going all the way back to 2010. The gray bars up the top, in 2014 forward, equaled to about $50 billion worth of potential construction start spends in each of those years. It is evident of the NGL revolution and the excitement ar ound our cost advantage on the global stage. There are very cheap and inexpensive chemical commodities we can manufacture here.  You then get the reality. What can you see move forward of all that? These are the blue bars. In 2013 or 2014 forward, we see spending become a reality that’s twice what it was in prior years and that’s again thanks to NGLs. There were hiccups on the road with the commodity collapse in 2016 and COVID in 2020 but you do see that improvement in 2021. We had a nice increase. We’re getting back up there. We’re seeing things tick up.  What you see in ’22 and ’23, the huge orange bars that show active project spend in that potential $50 billion or greater range, no one is saying uncle. For those of you that are either developers developing a project or a plan owner, you’ve got projects that you’ve been keeping alive now for 5, 6 or 7 years waiting for that perfect opportunity to execute it. There’s a great deal of optimism that our place on the global stage as a chemical industry is going to remain more competitive than the Middle East, Europe, Latin America, China and many regions.  The reality becomes what we get in 2022. There are a tremendous number of megaprojects. It’s what I call projects that have a value of $500 million or more. A lot of those projects are going to get kicked again to the right. We hope we see an improvement in 2022 that continues our growth of what we started to see in 2021. Is labor going to be an issue with this? When I think about our ability to execute on projects, a lot of it is tied to the ability to have labor. The people that do the physical work, installations, etc. How much is labor going to influence this?  I get asked that question quite often. If you think about it, labor is not a new constraint on the industry. Labor challenges are something that we’ve been faced with since the beginning of the NGL explosion back in 2013 and 2014 and the industry has dealt with it quite well. There were a lot of challenges and learning experiences in those first few years like workers jumping ship for per diem fees, travel rates, hourly increases, etc. It’s going to continue to be a challenge but do I anticipate it being a bigger challenge than what the industries have overcome? I don’t. I think we’ll continue to face the challenges that we’ve become very accustomed to and it probably plays an equal role as to where it has in past years.  Let’s turn to 2022. What’s the economic overview and outlook that you see for 2022? How does that affect the chemical industry?  I’ll start with maybe this brief mention of commodity prices. This is a price chart for some of the key commodities. Ethylene is the bottom blue line and it’s a building block commodity for the chemical industry. We’ve seen that resurgence in demand that I mentioned earlier and it has kicked up the prices for plastics and all the polyolefin chains. Ethylene has come back down a little bit now that we’ve gotten most of those fleet of plants operational again.  The commodity prices are probably going to be a little bit of an advantage to some degree because it’s increasing margins and we’ve got some expectations that we’re going to get rewarded for the investments we make in new capacity and new construction. We’re going to see some significant projects, probably CP Chem, on their next ethylene two project.  We’ve been tracking a very large project of them also in Baytown that they came out publicly and confirmed as well. There are going to be a few large projects but I think a good portion of 2022 is going to be rekindling the engineering design, economic evaluations and cost analysis.  We’re getting ourselves prepared to see potentially another round of petrochem construction that’ll be a shovel in the ground in 2023.  In fact, what’s been interesting is somebody I’ve talked to had commented that there was not as much announcements and economic activity around investing in chemicals as they would have otherwise seen during peak markets. There’s such tightness that we’ve seen in high prices but it sounds like what you’re saying is there’s a bit of latent demand and we’re going to see the underpinnings of it coming up over in 2022. We have to remind ourselves that we’ve got 9.5 billion pounds of new ethylene capacity that is starting up here in the next few months. We’ve got a tremendous increase. We’ve got a world-scale methanol unit from Methanex that’ll be putting products into the commodities market soon. It’s under construction in Louisiana. You’ve got three or so huge ethylene plants, Shell in the Northeast. There are some others here in Texas that are going to be putting a tremendous amount of capacity into the market. It’s not like we don’t have the new capacity or new investments. We still have a tremendous amount of this currently underway.  I’m going to go off-topic here for you. We’ll see where this goes. What about the other infrastructure needed to support that growth? The talk of the town across every industry and even individuals in non-chemical and non-industrial lives understand this whole issue around supply chain availability. It’s the ability to move products back and forth. When we think about all of this growth that’s going to happen in chemicals and petrochemicals and the billions of pounds of products coming online, do we have enough of the logistics and supply chain infrastructure to support it? Has there been enough investment in that space?  When you think about specifically the chemicals industry and the United States, traditionally, you think about Houston, Texas. You’re not thinking about the Port of LA, which is having tremendous problems. You’re not thinking about East Coast ports, etc. Although there are chemical commodities that go in and out of both the East and the West Coast. We have fertilizers that flow in and out of the East Coast to Europe and whatnot to some degree but you traditionally think of Houston. I’ve visited with the Houston Port Authority on a number of occasions and we have a world-scale operation. I can’t think of the gentleman’s name. He’s a former captain.  Is it Bill Diehl?  Yeah. If you’ve ever listened to his presentation, he’s very enthusiastic about what he does. He has reiterated the technology and the infrastructure that they planned and scheduled on how they can turn ships faster than any port around the world. I feel like our home region, which is where a bulk of the petrochem and especially with chemical commodities coming in and out of the states, has done a tremendous job.  On the flip side of that though, similar to the labor issue, I remember attending numerous planning meetings with different organizations for the last few years. A lot of the discussions that they were challenged with were qualified drivers for hazardous materials across state lines and interstate drivers, etc. Again, it’s not a new challenge. It’s something that has been a challenge for the industry for many years. I’m not of the opinion that those logistic constraints are something that rain in or hold back our investments. I think we’re pretty adaptive to those sorts of challenges. You think those things will get resolved and we’ll continue progressing forward.  It’s part of what makes things somewhat more expensive and a little longer to achieve. We have economies of scale here in the US for chemicals that other countries enjoy having so we will persevere through those things. I’m certain of it.  What does the role of green play in these investments? There’s a lot of talk about chemical recycling, etc. There’s green hydrogen and green chemistries. How does green factor in?  I’ll start the discussion around the green hydrogen or the Power-to-X. Most people, I think, by now probably appreciate what it is. I remember a few years ago where I was sitting when someone said, “We need to start tracking this Power-to-X trend.” I thought they said power and they had this X variable. It didn’t say chemical so it doesn’t apply to me. It’s not mine. I’ve learned it is because we’re taking this renewable energy like wind solar or hydro and producing a green hydrogen commodity, which a few years ago became something that was a lot of boardrooms or C-suite discussion about how do we get there, what is it and how do we capitalize on it.  We started seeing that discussion come out of the boardrooms and closer to a project planning room and a planning discussion. As this slide illustrates, we’ve got 300 plus and I think we’re closer to 400 plus projects around the world that are just specifically green hydrogen and that’s $100 plus billion around the world. It is very much becoming a part of the discussion. The green hydrogen, depending on what region in the world you’re in, is being used for a number of things.  It is either to take that hydrogen and produce ammonia. The ammonia is for potentially an Ag purpose but then also in Europe, it’s simply a factor that it’s simpler to store ammonia and transport it. There are logistic networks that are already in place for ammonia. Going all the way to methanol, we’ve seen technologies developed by taking green hydrogen all the way to sustainable aviation fuel and things that resembled petroleum wax. The chemistry that’s being developed is mind-boggling on how they’re taking this green hydrogen and getting down to something like petroleum wax. Here in the States, it’s so far being targeted towards fuel cells for transportation, moving equipment, etc.  There are almost 400 projects. Are these the biggest companies doing the work? How does green trickle down to small and midsize companies?  I have a slide but I didn’t prepare it for this interview. I have a slide that shows a top 10 and 20 lists of who these companies are. It’s similar to what I recall when NGLs boomed here in the US. We had a lot of companies we’d never heard of that were proposing huge projects like Badlands NGL. We had all these companies that were coming out of the woodwork. It’s similar here in the Power-to-X space. We’re seeing a lot of new companies and investors that are saying, “This is going to be something. We need to be one of the first to arrive in this market.”  I had not heard conversations from the big firms like Chevron, Exxon and Dow that were considering this technology. Of late, I’ve been seeing and hearing that conversation in those organizations and they include in their 3-year and 5-year planning discussions the installation of electrolysis units to produce green commodities, where these green commodities even become supplemental feedstock options for some of their large petrochemical plants.  What about the geography of this? I know that we’re seeing investment here in North America. Is it a North America and Europe-focused investment at this point? Is it a global investment profile? What do you see?  I took some quick notes when I was doing the query. I wish I had updated this slide because there are about 400 projects. 250 of those 400 projects are all in Europe. Europe’s a big part of that stage. There’s an entire series and discussion we could do on why but the EU and that region have been big on pushing these green commodities. Oceania, Australia and that region have been big with about 50 of those projects. You then get into regions like ours, Latin America and others, which have a handful in comparison although we’re starting to see that number grow almost weekly. The geography is centered around where it originated, which is in Europe.  That makes sense, especially given the sustainability and environmental focus around it.  We didn’t talk about the recycling chemical. I remember several years ago finding companies that were looking at these very small $5 million, $10 million and $15 million plants to take post-consumer plastic, put it into the thermal process and produce a plastic oil they would sell to someone. It was a handful of them. We saw very few of them. It was very experimental and it was something we thought, “How will they ever scale this?” You have the Alliance to End Plastic Waste sponsored by Lyondell, DOW and all the big parties of the chemical industry.  It has become a much larger focus that we’ve created a product code to track that commodity or that process within our own database. I don’t have the account score off the top of my head but if I look at it globally, there’s a substantial number of those projects that we’re tracking around the world where some of the big ones like Chevron, Exxon and others are looking at installing these  at a scale that they take the recycled plastic back to a molecular level and they use it as a feedstock in their crackers to supplement their feed. It is very quickly becoming a consistent trend.  We’re fortunate here in the US that we have an infrastructure. One of the biggest challenges in listening to the shareholders of Alliance to End Plastic Waste is the infrastructure to collect the material and get it back to a point where it can be processed. We’re very fortunate that you, me and most people put a container on a curb. We recycle a mass where that infrastructure doesn’t exist around the world. I think as that organization helps to put that infrastructure in place around the world, it’ll grow even faster.  It’s interesting because the largest, particularly consumer product companies, who are using a lot of these plastic materials for packaging and etc., have set some very strong goals and targets around the amount of recycled material or post-consumer recycling. To get there is a huge investment and it’s not the investment from a chemical recycling perspective but it’s the investment at the collection points. I think that’s going to be the biggest challenge.  It’s around education and having the recycling infrastructure and the collection infrastructure because even in the US, where recycling is readily available, it’s not well understood. It varies from neighborhood to neighborhood, town to town or city to city. There needs to be a lot more cohesion and I know that, as you say, Alliance to End Plastic Waste is doing a lot to try to support that as well as some of our other industry groups.  What else do you see happening as we go forward into 2022? What should we be watching for?  I put a slide up here that I’ve used a couple of times. I guess the broadest way of answering the question is the green commodities I made reference to earlier when I said they’re leaving the boardrooms and they’re entering planning rooms. I tell our clients and prospects that although I think Power-to-X, green hydrogen and plastic recycling is something you may not have billable hours for in the next 6 to 12 months.  When you attend your discussions and planning meetings with owners, you’re going to start hearing about this more consistently. We want to make sure they’re aware of the trends. I think that’s something that’s going to continue to be a part of a growing conversation in 2022. We’ve seen the maintenance spend to be a huge priority. The footprint of the chemical industry has gotten significantly larger over the last few years.  That has not only increased the amount of maintenance but if you look at the technologies and the demands that the C-Suite has on accountability, sustainability, cost, etc., maintenance has become a huge priority. In-plant capital spend was a big part of the spend for 2021. When you think back to that slide, there’s another potential $50 billion worth of construction starts for 2022 but yet we know that net number will likely come down to maybe a $20 billion number. About $16 billion of that earmark now is in-plant capital. There are automation, retrofits and rehabilitation. How much of this has influenced and I think about certainly North America, the US Gulf Coast which is where a lot of our chemical capabilities and capacity is. We had the freeze. Winter Storm Uri knocked out a large swath of Texas and Louisiana power and plants in February 2021. Also, Hurricane Ida impacted Louisiana. How much of that in-plant spend  was dedicated to just repairs because of issues versus taking and helping the clients move the next step forward? Do you have an idea around that based on your conversations?  I don’t have an idea of what that number is but I would tell you that it is not a substantial part of it. This might sound odd but if you think about it, there are very few years where we don’t have a significant disruption in the Texas, Louisiana, Alabama and Mississippi Coast. We had several years of a double whammy. If you look at Louisiana a few years ago, 2 or 3 hurricanes landed within the same strike zone within 2 or 3 weeks of each other. We always have these unforeseen weather or other uncontrolled events. I don’t think that those events played a significant role in spiking the in-plant capital.  I think the in-plant capital became almost a necessary function. Meaning, that when we got to 2021, the C-Suite wasn’t releasing billions of dollars for grassroots projects and unit additions as they had in prior years because everybody’s still trying to understand how stable is the landscape or how the firm is the footing economically, socially and demand.  We saw commodity prices rise and people said, “Demand is going to recover. That seems obvious so let’s do those must-do projects and let’s also tackle those key investments that we know are going to increase profitability in.” I’ve made it this whole conversation and haven’t used the three letters, ESG. I’m surprised I haven’t because that’ll be a big topic in our discussion in January of 2022 when we do our market outlook.  We have our annual outlook coming up in January 2022 here in Sugar Land and a large portion of it is focused on ESG, which includes plastic recycling and green energy. It’s the umbrella for some of those things that we’ve talked about already. I think some of those in-plant capital investments are also ESG-motivated. Where do we capture a mission? Where do we hold ourselves accountable even if it’s not decreasing in emission? How do we calculate and hold ourselves accountable for it?  What are three things that we should be watching out for in 2022? If you were putting your crystal ball to work, what are the things that you think are going to be impactful to the chemical industry in 2022?  A significant portion of that is represented in the slide. The consumer is continuing to spend, inflate and elevate demand. You and I were talking about Amazon deliveries and our doorbell going off routinely throughout the day. You look at that packaging habits. Those are all indicative of chemical demand because of the plastics they are packaged in or the chemicals, etc.  The consumer is a big part of that and if we continue to see strength in the consumer, that’s going to spell good for the chemical industry. The green initiatives or ESG movements, which we’ve gone over numerous times already, are going to become commonplace discussions in every planning meeting and then the traditional growth. I was listening to one of the executives in Chevron talk at an event in Pasadena.  I don’t recall whether it was their own analytics team that put this number together or where he picked it up from but he quoted the fact that there are another 350 million people that will be in our population over the next 20 to 25 years. That’s a whole other United States spread across the globe. If you look at the traditional growth like housing, agriculture and population growth, that’s going to continue to be tremendous for the chemical industry. It’s traditional growth, green initiatives and the strength of the consumer.  Do you see demand destroyers out there? Is it the same turned upside down?  I don’t know that I’ve been asked that question before but if there was a demand destroyer, we all know what five letters would be and it’s COVID. It appears that even with these newest strains that it’s not bringing us to our knees. It’s hard to predict an element we hadn’t seen before. That was a big one. I hope there’s not another one of that size out on the horizon for us.  Trey, this has been great. I appreciate you joining us and sharing your insights and outlook for 2022. Thanks for joining the show.  I very much enjoyed it.  Thanks for reading. Please share this episode with your friends and colleagues and don’t forget to like, share and follow us.  Important Links: 
  • TheChemicalCommunity.com 
  • Industrial Info Resources 
  • YouTube – The Chemical Show 
  • Alliance to End Plastic Waste 
  • https://www.LinkedIn.com/in/treyhamblet/
About Trey Hamblet  Over 28 years of experience in Industrial Market Intelligence gathering and database management. More than 20-years monitoring capital and maintenance project spending for the global chemical processing industry while managing research teams world-wide. Over 15-years researching commodity markets including petrochemicals and natural gas processing. Keynote speaker for Industrial Info Resources and several chemical industry focus groups and member organizations.

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