Celanese Cypher: Why Did the State Contribute $2 Million?


by James A. Bacon

Celanese Corporation has announced that it will invest $150 million at its Giles County chemical plant to replace coal-fired boilers with natural gas-fired boilers. The project, in conjunction with unspecified “other efforts” at the site, will create 22 full-time Celanese positions and employ 200 construction workers.

Noting that Virginia competed against “global options” for the Giles County investment, a press release issued by the Governor’s Office stated that Governor Bob McDonnell approved a $500,000 grant from the Governor’s Opportunity Fund and a $1.5 million performance-based grant from the Virginia Investment Partnership program.

This story raises at least two sets of questions.

First, why did Celanese decide to replace its coal-fired boilers? Is it simply because natural gas is the cheaper option, or do edicts from the Environmental Protection Agency make it prohibitively expensive to stick with coal? Does this decision advance the narrative that Obama administration regulations are killing the coal industry… or refute it? The press release offers few clues.

“Natural gas is a cleaner energy source, thus reducing the company’s carbon footprint,” said Jim Cheng, Secretary of Commerce and Trade. “Celanese is excited about the opportunity this project represents, particularly in the areas of improved reliability and favorable progress against our environmental and sustainability goals,” said Lou Purvis, vice president and general manager of Celanese Acetate. Both quotes imply, but do not state outright, that environmental factors were a paramount consideration. Yet no one cites EPA regulations as a deal driver.

On the other hand, McDonnell said this: “Converting the Giles County facility to natural gas demonstrates that the company is really investing in the future of the operation. This tremendous investment will allow the plant to improve its energy production capability, while positioning Celanese for profitable growth and job creation in the years ahead.” That suggests, without explicitly saying so, that energy cost savings were the driving force. If so, that undermines the blame-Obama-for-killing-coal narrative.

The second set of questions relates to the $2 million in state subsidies. If natural gas is cheaper and cleaner than coal, and Celanese is making the switch in order to drive down costs and/or reduce its environmental footprint, why the necessity for state support? It’s hard to believe that the state’s $2 million contribution was decisive in tilting the $150 million investment to Giles County.

And what’s this about competing against “global options”? What global options? How many other Celanese plants around the world produce cellulose acetate tow, a raw material for cigarette filters and ink reservoirs for fiber-tip pens? Furthermore, how many other Celanese plants around the world are in a position to benefit from the super-low price of natural gas in the eastern United States made possible by the fracking revolution?

Certainly not the acetate factory in Derby, England, which Celanese had scheduled for shut down — talk about a coincidence — today. Reports the Derby Times: “Announcing the closure plans in 2010, its American owners, Celanese Corporation, cited high energy costs and a shift in demand to the Far East as the reasons behind the decision.”

I have a sneaking suspicion that the McDonnell administration just got hustled out of $2 million to support an investment that Celanese would have made anyway. Perhaps I’m wrong. But there is nothing in the press release to suggest that the project was truly up for grabs and that state support is warranted. I will update readers if I find out otherwise.

3 Responses to Celanese Cypher: Why Did the State Contribute $2 Million?

  1. http://narasimhancs.files.wordpress.com/2012/04/coal-vs-nat-gas-price.jpe?w=450&h=308

    Not sure about the motivations for the state kicking in $2 million, but it’s pretty clear that, if a company needs to make an investment in a new or updated plant, natural gas is the way to go. I was unable to find a more up-to-date chart than the one above, but it’s become fairly clear that natural gas has become, and will continue to be, an increasingly cost-effective means of power generation. And don’t forget, coal plants are more expensive to build and operate than natgas plants on a per kwh basis. The reduction in GHGs is just a welcome secondary effect of switching to a more cost-effective fossil fuel energy source.

  2. re: did Obama and the job killing EPA cause this?

    If they did, would Bob McDonnell keep it to himself?

    :-)

    re: nat gas vs coal. didn’t the article say “replace”?

    re: hustle

    tell me what’s the difference between this and Solyndra.

  3. “tell me what’s the difference between this and Solyndra.”

    $498M?

Leave a Reply