Thursday, September 06, 2012

Fuel for the Fire

Another example of how the impact of the US energy boom goes far beyond the states where the oil and gas is being extracted. Egyptian Bets $1.4 Billion on Natural Gas—In Iowa:

Egypt's largest company announced plans to spend $1.4 billion building a fertilizer plant in Iowa, tapping into cheap U.S. natural-gas supplies and the nation's role as the world's most important food exporter.

Orascom Construction Industries opted to build the plant in the heart of the Corn Belt over a competing package of incentives from neighboring Illinois, highlighting the tough "beauty contests" between U.S. states for investment from domestic and overseas companies.

Natural gas is a key raw material used to produce fertilizer, particularly for use in growing corn, with demand expected to remain robust as farmers plant more acres amid record prices fueled by the U.S. drought.

The U.S. imports more than half of its nitrogen-based fertilizer, and the Iowa plant is seen by supporters as promoting what they call "food independence."

"This is probably the largest single country with a deficit in nitrogen," Orascom Construction Chief Executive Nassef Sawiris, a member of one of Egypt's most prominent business families, said in an interview.

Orascom Construction is one of the world's largest fertilizer makers, with operations focused in Egypt, Africa, Asia and Europe. It employs more than 72,000 people, with revenue of $5.5 billion in 2011.

Low gas prices have spurred other investments by chemical makers. Deerfield, Ill.-based CF Industries Inc., another big fertilizer producer, increased its projected capital spending on new nitrogen capacity to $2 billion through 2016, up from a prior forecast of $1 billion to $1.5 billion. Much of the capacity is expected to debut in 2015.

Dow Chemical Co. announced earlier this year it will build a multibillion-dollar plant to convert natural gas into the building blocks of plastic in Texas, creating 2,000 construction jobs before the plant is completed in 2017.

That news followed Royal Dutch Shell PLC's announcement it would build a similar, $2 billion chemicals plant near Pittsburgh, above the Marcellus Shale.

Oh, and for those who think taxes don't matter to a state's business climate:

Mr. Sawiris said that it rejected Illinois' overtures because of fears that corporate-tax rates would increase as the state tries to tackle its huge budget deficit. Companies last year threatened to relocate from Illinois before a last-minute compromise on corporate taxes.

"We were quite concerned, honestly, with Illinois' budget," he said. "We didn't feel like Illinois at this stage was the right place for we decided to locate on the other side of the river."