Chemical industry executives are believers in the North American shale gas miracle, and they're investing accordingly. But there's still time to blow it with bad policies and regulation, speakers at a Houston industry conference said.
"The shale gas story is being written right now as I speak," Shell Chemicals' Ben van Beurden said Wednesday at the IHS Chemical World Petrochemical Conference 2012. "It all sounds very promising, very rosy...It's not exactly entirely clear how this story will play out in petrochemicals."
So far, the shale consequence that has been of greatest interest to the petrochemical industry has been burgeoning supplies of ethane. Several parties, Shell among them, have announced projects to construct new plants to crack the ethane (see Shale Daily, March 16). But not all of these projects are expected to be built, at least not in the time frames initially proposed, van Beurden said.
In North America the demand for ethylene grows by about 750,000 tons per year, he said, necessitating the addition of a new cracker about every two years. Build more crackers than that and exports would have to balance the market. While the petrochemical industry grows its reliance on domestic ethane, there could be supply hiccups, as well, van Beurden cautioned. As low gas prices prompt producers to lay down gas rigs -- as has been the case of late -- ethane supplies could tighten, he said.
These risks are generally internal to the energy and chemical industries. However, the bigger threats to the U.S. shale gas story come from governments at the state and federal level in the form of regulation and bad policy.
"Shale gas will be monumental, maybe. It's still early enough in this process that success is not guaranteed," said Dow Chemical Co.'s Jim Fitterling, president of feedstocks, energy and corporate development. "As a nation and as an industry, we have the capacity to drop the ball on this."
It happened before, Fitterling said. About 15 years ago federal government policies drove up gas demand, and prices, to levels that drove chemical companies away to other countries. "None of us quit making product; we just started making it elsewhere," he said. "In a single decade there was a $26 billion swing in trade in the chemical industry away from the U.S. The only way to prevent that from happening again is to begin with a fresh script."
Fitterling said the chemical industry needs to "work with government" to ensure that lawmakers don't create policies that "artificially accelerate gas demand ahead of supply." Further, he said, natural gas can't be counted on to eliminate coal-fired power generation. It will replace some, but what is needed is an "all of the above" approach to energy.
Foes of hydraulic fracturing should not be allowed to derail the shale train either by constricting supply through regulation. "The gas is there for the taking if we do it responsibly and with the public's support," Fitterling said.
Finally, Fitterling said exports of liquefied natural gas (LNG) shouldn't occur to such a degree that they raise prices. "If we're going to export natural gas, let's export it in solid form," he said, as products made in the United States with gas and natural gas liquids as a fuel and feedstock.
While end-users such as the chemical sector might not like it, exports of LNG from the United States are seen as a forgone conclusion by two IHS analysts. The firm's chief economist, Nariman Behravesh, said, "it's almost inevitable...not if but how much. Something's gotta give, and it will, and it will be in terms of exports out of the U.S." Speaking with Behravesh at the conference, IHS' David Hobbs, chief energy strategist, called LNG exports "a no-brainer."