Yuhuang Chemical Inc, a North American subsidiary of Shandong Yuhuang Chemical Co Ltd, is trying to cash in on the low shale gas and energy costs in Louisiana by producing methanol for the growing Chinese market.

The company announced last week it was investing $1.85 billion in a methanol manufacturing complex along the Mississippi River in St James Parish, about an hour drive from the center of New Orleans.

The three-phase project will include building a facility in phases one and two that will produce 3 million tons of methanol annually, and phase three will see construction of a methanol derivatives plant to produce intermediate chemicals, according to Charlie Yao, CEO of Yuhuang Chemical.

Most of the project's methanol will be exported by large ships to China's coastal areas, while 20 to 30 percent of the methanol will be shipped by barge and rail and sold in the North American market.

Yao believes the first overseas investment by Shandong Yuhuang makes a lot of sense, citing the low cost of natural gas in Louisiana due to the shale-gas revolution, the low cost of electricity, an ample supply of water along the Mississippi River and a close location for international shipping.

He said although the capital cost might be higher in Louisiana than in China and the supply chain is long, sending methanol back to China's coastal areas via big ships of 30,000 to 50,000 deadweight tonnage will make it "highly competitive" compared with methanol manufacturers in China, mostly in west China, who rely on trucks and rail for transport.

"The big methanol market along the Chinese coast is what we are aiming at," Yao told China Daily.

He praised the Louisiana government for building good infrastructure to support the development of the chemical industry. The main natural gas pipeline is less than a kilometer from the proposed methanol facility.

Yuhuang Chemical has secured an option to buy more than 1,100 acres of land for the project next to the Plains All-American Pipeline terminal.

The Louisiana government, which began discussing the potential project with Yuhuang Chemical in February, has offered the company a competitive incentive package that includes two performance-based grants: $9.5 million to be paid over five years beginning in 2017 to offset infrastructure costs of the project and $1.75 million to be paid over 10 years to partially defray costs of necessary riverfront access and development, in addition to enjoying the state's favorable job training and tax policies.

Yao described these as "milestones" for the project. He revealed that engineering design has begun and the company is aiming for ground-breaking in 2015 instead of the publicly announced more conservative date of 2016.

China Huanqiu, known as HQC and a subsidiary of the state-owned China National Petroleum Company, has been hired by Yuhuang as the project's engineering firm. HQC has licensed methanol technology from Air Liquide Global E&C Solutions, according to reports.

Yao acknowledged that applying for construction permits will take about six to eight months, and said two companies, including the California-based URS, have been working on this.

Yao, a former Shell executive who joined Yuhuang Chemical in April, said that the company will strictly follow the local laws and regulations.

He said the company, now ranked 465 among the top 500 Chinese companies, is well funded but will use bank loans in the project.

It is estimated that the first phase, to be completed by 2018, will cost $850 million and the second phase will require more than $700 million. The third phase will require less investment, according to Yao.

Wang Jinshu, chairman and founder of the Shandong Yuhuang Chemical Co Ltd, expressed confidence in the project, regarding it as a large platform in the US for more and large investment in the future, Yao said.

With sales of $4 billion and more than 5,600 employees in 2013, Shandong Yuhuang ranked 25th in China's chemical industry, after growing from a small village factory of 80,000 yuan ($12,700) in assets in 1986.

The project is expected to create 400 new direct jobs with an average salary of $85,000, plus benefits. The Louisiana Economic Development (LED) estimates that it will also result in 2,365 new indirect jobs. At the peak of building activity, the company estimates that the project will generate 2,100 construction jobs.

LED Secretary Stephen Moret described the project as representing the first major greefield foreign direct investment by a Chinese company in the state.

"For that reason alone, as a key FDI (foreign direct investment) project, it's highly significant," he told China Daily. "We're delighted that Yuhuang Chemical recognized Louisiana as a great location because of its highly developed infrastructure and logistics and because of its talented workforce with many decades of experience in the chemical manufacturing business."

Chemical manufacturing is a thriving industry in Louisiana, with one recent study putting the total annual value of chemical shipments from the state to other markets at more than $58 billion, according to LED.

Moret is optimistic that Louisiana will land additional, highly significant FDI projects from China, especially in the chemical industry.

"Our state continues to raise the bar for attracting high-quality, world-class foreign direct investment projects," Louisiana Governor Bobby Jindal said in a press release about the Yuhuang Chemical project.

chenweihua@chinadailyusa.com