Industryweek 4582 Shale Gas

Shale Gas Powering US Petrochemical Revival

June 11, 2013
"It's pretty simple: There's just so much feedstock that needs to find a home," said Chuck Carr, a petrochemical analyst at IHS, in Texas, the capital of the U.S. industry. "So everybody's saying, 'Hurry up to build something,' because at that natural gas price, it's just pure value."

HOUSTON—The U.S. petrochemical industry, in trouble just a few years ago, is making a spectacular comeback thanks to the boom in shale gas, shaking up the industry worldwide and spreading some discomfort through Asia and Europe.

"It's pretty simple: There's just so much feedstock that needs to find a home," said Chuck Carr, a petrochemical analyst at IHS, in Texas, the capital of the U.S. industry. "So everybody's saying, 'Hurry up to build something,' because at that natural gas price, it's just pure value."

The surge in gas production has pushed gas prices in the United States down since 2009, while oil prices have doubled since then.

The low price for gas as a fuel is already helping a comeback in U.S. industry. Natural gas sells for one third the price in Europe and one fifth that in Asia.

But that makes it even more a boon for the petrochemical industry, where gas is a core raw material for producing plastics and other basic industrial products.

In 2008, none of the members of the American Chemistry Council foresaw investing any more in the country.

Now, in the wake of the shale gas boom, the ACC lists 110 new investment projects for the U.S., worth some $77 billion.

Just in the past two months, 13 projects have been announced.

If all of those projects come to fruition, the ACC sees 46,000 new direct jobs, plus another 200,000 for subcontractors, in a sector that employs 800,000, compared with 1.1 million in 1981.

"I've been working for the chemical industry for almost 20 years now, and it's always been a story of moderating production," said Martha Moore, an ACC economist. "Now we're in a renaissance. Chemicals are at the forefront, but there's a rebirth of manufacturing in the United States. It's a very exciting time to be in the industry."

From Methane to 'Wet'

At the start of the boom, drillers mainly produced essentially methane gas. But faced with lower profitability, they began to focus on producing oil from shale and "wet gas," natural gas containing the feedstocks that petrochemical plants value more: butane, propane and especially ethane.

Those are extremely useful as substitutes for naptha, a component of oil often used as feedstock in chemicals plants—but now much more expensive.

Ethane costs today some one third the price of naptha.

The natural gas feedstock is transformed into polyethylene, polypropylene, butadiene, the base products for the global plastics and chemicals industry.

And, after a decade of offshoring the industry, companies now are stepping up their production of those products inside the United States.

Existing plants are working at full capacity; plants that were shut down are being started back up again; and others are boosting capacity, industry officials say.

And it is delivering profits. In a remarkable example, Lyondell Basell (IW 1000/84), the U.S. giant, has gone from bankruptcy in 2009 to record profits a year ago.

"If you look at the line 'United States' in the profits of the large petrochemical groups, you will see that it comprises often 80% of the total profits," said Patrick Pouyanne, president of the refining and chemicals division at Total (IW 1000/9), the French oil and gas giant.

Backlash Brewing?

But will the petrochemicals boom explode like a bubble, once the price of gas goes back up, especially if the United States allows producers to export gas and new gas-fired power plants lock up the supplies? Or could it be hurt by an environmental backlash to fracking, the key technique for exploiting shale gas?

"This is not our forecast, but the industry does have a record for overcapacity," said Walter Hart, another analyst at IHS.

In any event, production should keep up with a rise in demand. There is enough shale gas in the ground that can be produced profitably at the current price—around $4 per million BTU—to supply the country for 30 years, according to IHS.

"As soon as the price goes up a bit, someone opens a tap somewhere in the country" and adds more gas supply, Carr said.

Those under threat from the U.S. petrochemical renaissance include plants in Europe and Asia where feedstocks are more expensive.

In Asia, especially China, Carr said, "We already see the capacity [utilization] rates go down, to around 85%, when they used to be at 100% or 110%."

In Europe, where reaching 70% utilization is already a challenge, he sees plants shutting down capacity.

Competition from the Americans will only get tougher as the new plants come on stream, mostly over the 2017-2020 period.

That leaves a few years still to plan, "but there will not be any miracles," Total's Pouyanne said.

Copyright Agence France-Presse, 2013

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