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IHS CERAWeek: Shale Boom Spurs U.S. Chemicals Industry

The expanding U.S. supply of natural gas is providing a win-win for chemicals producers, their suppliers and customers. It's "an unbelievable opportunity," Jim Teague, COO of Enterprise Products Partners, told an industry audience in Houston.

"The United States has an infrastructure advantage that has been joined with a resource advantage...The next 10 years are going to be pretty exciting," Teague said. He took some of the credit for providing the pipeline and processing infrastructure support, saying Enterprise is "putting our money where our mouth is." The company invested $4 billion last year in infrastructure and is planning to spend another $4 billion.

Just in the Eagle Ford Shale in South Texas, Teague said Enterprise will spend up to $4 billion on pipeline and processing infrastructure with three-quarters of that total investment involving gas (1 Bcf) and liquids (100,000 b/d), including one or two processing facilities for just one basin.

Teague was a member of a fairly bullish panel that included a major chemicals manufacturer and an end-user who spoke at the IHS CERAWeek conference in Houston Wednesday. All cited growth in shale gas plays and low-cost gas and liquids for rejuvenating the U.S. chemicals industry and the plastics-based products manufacturers that depend on petrochemicals.

The panel moderator, IHS chief advisor for chemicals Gary Adams, said that with low gas prices U.S.-based chemicals are now almost competitive with those produced in the Middle East, which has long been the sector's global leader.

A turnaround for the U.S. chemical industry can't come soon enough. According to data compiled from the American Chemistry Council, the U.S. share of global chemical shipments declined in each year between 2000 and 2010. The U.S. share of global chemical shipments declined from 26% in 2000 to 17.5% in 2010.

Mark Lashier, executive vice president with Chevron Phillips Chemical Co., said that before the shale boom his company was looking overseas for its growth -- particularly in the Middle East -- but its focus has shifted back to the United States. "There is shale gas all over the world, but there is no place like North America with the infrastructure to take advantage of the resources."

Representing end-users of ethane and ethylene raw materials, Jim Morris, vice president with Heritage Bag Co. said that in recent years his company and others that transform chemicals into various products have experienced high relative prices and heavy volatility for polymers. "Both prices and volatility are real demand killers," he said.

A few years ago no new polymer plants were anticipated for the United States; they were expected to be built in the Middle East. But with the advent of shale all that has changed, Morris said. "Now we have a new dynamic, and it is a very exciting one for us."

There are some clouds on the horizon, however. Lashier and the others said the growing buildup in chemical production capacity will require more exports from the United States. Domestic demand is only about half of what it was 20 years ago, they said.

"As we look at the supplies and we look at the need for more fracking, we're seeing that we are going to have to be exporting," Teague said..

At the same time, the shale boom and low gas prices are creating what Morris called "re-shoring" in which manufacturing to some extent is returning to the United States, and this bodes well for both the domestic energy and chemicals sectors.

Signs of a resurgence in the U.S. chemical manufacturing industry are everywhere. Dow Chemical Co. on Wednesday authorized final engineering and lead-time equipment spending for a new, world-scale propylene production facility in Texas, which will take advantage of increasing supplies of U.S. shale gas as a feedstock (see Shale Daily, March 8a).

The decision to authorize spending comes less than a year after the Midland, MI-based chemical giant launched an ambitious plan to increase ethylene and propylene production, as well as integrate U.S. operations, into feedstock "opportunities" because of robust shale gas supplies (see Shale Daily, April 25, 2011).

DCP Midstream LLC, the Denver-based infrastructure and natural gas liquids operator, is also buoyed by the resurgence of U.S.-based chemical companies, according to DCP President Bill Waldheim (see Shale Daily, March 8b). The privately held firm, which is jointly owned by ConocoPhillips and Spectra Energy, has discussed nearly $4 billion in new infrastructure investments, mostly in the south-central energy center of the United States. Waldheim said in a recent interview that another $2 billion is probably in the cards over the next three to five years.

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