Chevron Phillips Chemical in $15 billion bid to acquire Nova Chemicals

Chevron Phillips (CPCHEM), a joint venture (JV) between Chevron and Phillips 66, has made a US$15 billion bid to acquire Nova Chemicals, owned by UAE-based Mubadala. Commenting, Ashish Chitalia, Wood Mackenzie Chemicals Principal Analyst, said:

"With this acquisition, Chevron Phillips would become the third largest polyethylene producer in North America, following ExxonMobil Chemical Company and Dow Chemical Company. This deal would also result in Chevron Phillips becoming the largest producer of high-density polyethylene (HDPE) in North America, followed by LyondellBasell.

"There are synergies between both companies in the polyethylene and polystyrene sector. CPCHEM is a predominant producer of HDPE, while Nova Chemicals’ portfolio leans towards linear low density polyethylene (LLDPE). In terms of styrenics, CPCHEM is a major North American producer of polystyrene through its American Styrenics JV. American Styrenics accounts for around 28% of North American polystyrene capacity. Nova Chemicals, on the other hand, is a major producer of expanded polystyrene (EPS), with a capacity share of 22% in the region.

"Both companies have a great geographic market reach within North America. Chevron Phillips participates in the Middle East and Asian markets through JVs in Qatar, Saudi Arabia and Singapore. Both companies also provide a distinct edge in the technology sector. CPCHEM is a pioneer and a licensor of HDPE slurry loop technology, while Nova Chemicals is a major licensor of solution LLDPE technology. Finally, CPCHEM’s on-purpose and full range alpha olefins capacities would complement well with Nova’s significant exposure to comonomer alpha olefins for regional LLDPE production.

"Together, both companies would have total polyethylene capacity of 8.5 mmtpa. HDPE would account for 5.8 mmtpa, while LLDPE would be a little short of 2.5 mmtpa. In North America, both companies would account for 20% of the capacity share for total polyethylene. The combined capacity share would increase to around 25% for HDPE.

"The Nova Chemicals acquisition would increase ethylene merchant exposure for CPCHEM. After the recent ethylene capacity increase at Cedar Bayou, TX, CPCHEM was exposed to 500,000 tonnes of ethylene in the merchant market. Nova Chemicals, post its acquisition of Williams Geismar, became exposed to approximately 1 million tonnes of ethylene. Together, the companies would have ethylene volumes equivalent of a world-scale cracker size of 1.5 million tonnes.

"The petrochemical market is consolidating, with the main players – ExxonMobil, Saudi Aramco, LyondellBasell, and Dow Chemical Company - either expanding organically or through M&A. Since 2018, many petrochemical companies have been under pressure owing to the slow economic growth outlook, the credit crunch in India and China, US-China trade war and the plastic backlash. The deal with Nova Chemicals would allow Chevron and Phillips 66 to diversify further into this market, while increasing competitiveness and market reach. North American ethane feedstock advantage makes the region an ideal location for acquisitions and expansions in the ethylene-polyethylene sector.

"Such a deal would confirm the trend of Big Oil diversifying further into downstream, viewing the petrochemical sector as a growth engine and a means for margin security. However, CPCHEM and Nova Chemicals also complement in terms of products, including polyethylene and polystyrene, geographic footprint and technology. With up to 1.5 millions of merchant ethylene available to CPCHEM post-Nova Chemicals acquisition, the company would be in a strong position to leverage the second expansion wave on the Gulf Coast."