A Dow Chemical Co. executive said he believes the chemical industry will need several additional Bcf/d of natural gas in as little as two-years’ time, when a long list of petrochemical plant projects begin to come online. It’s a demand that should be easy to meet, he said, as long as the United States hasn’t given away its competitive advantage in the marketplace — a gift from shale gas — through the undisciplined export of liquefied natural gas (LNG).
George Biltz, vice president of Dow’s energy and climate change division, told NGI’s Shale Daily in a recent sitdown that the Midland, MI-based company has identified more than 90 capital investment projects — a combined investment of about $80 billion — that are in the planning phase nationwide, all of which have been made possible by the bounty of natural gas in the United States.
“Of those [90-some projects], dozens are petrochemical projects that we estimate will require 3 Bcf/d to power,” Biltz said. “We believe the rest of the list, representing other energy intensive projects, will require an additional 3-4 Bcf/d. That list, and the demand it represents, continues to grow.”
According to Dow, as of September there were 66 projects planned to create products in the chemical and fertilizer industries. These include Dow’s $4 billion in plans, from 2012 to 2018, to build or expand facilities in St. Charles, LA, and Freeport, TX, for the manufacture of ethylene, propylene, new chlor alkali and herbicides.
Dow said another 18 projects were planned for the steel and aluminum industries, followed by six in plastics, four in tires, three in natural gas-to-liquids, and one each in glass and machinery. All were estimated to come online between 2012 and 2017.
“We believe the increased demand will be seen as early as 2015-2020. In fact, it is already happening. The chemical industry has already invested $15 billion in expanding ethylene capacity,” Biltz said. He added that Dow believes most of the feedstock will be needed in the Gulf Coast region, specifically Louisiana and Texas.
“We [also] estimate that 25% of the additional chemical products created will be exported, and we are seeing steady trend growth,” Biltz said. “If we can maintain the competitive advantage in natural gas, we would expect this pattern to continue.”
That’s a sentiment shared by other Dow executives over the past two months, including CEO Andrew N. Liveris; Brian Ames, Dow’s vice president for olefins, aromatics and alternative technologies business; and Ken Bromfield, Dow’s North American commercial director for energy (see Shale Daily, Oct. 25; Sept. 25; Aug. 27). Like Biltz, they warned that allowing too much natural gas to be exported as LNG could give away the nation’s competitive advantage on the world stage.
“Our position is a little more nuanced than most,” Biltz said. “We’re trying to advocate for a prudent point of view. Let’s find a fair amount [of LNG] to export that allows gas to go offshore and helps create demand for people that are producing gas. But let’s not put so much gas offshore that we suddenly import the oil index pricing and destroy this massive competitive advantage we have as a country.
“This is the biggest competitive advantage I’ve seen in my 33 years in the industry for a country. It’s just incredible. And I think the fact that we don’t talk much about it, and that we don’t necessarily understand the impact to manufacturing, is a potential risk to losing it.”
Biltz added that Dow and many economists hold that the most effective use of natural gas is through manufacturing. “Nothing takes a cubic foot of gas and impacts the economy the way manufacturing can,” he said. “You look at the economists and they say that when you take a cubic foot of gas and burn it there is a 1x impact on GDP. You can export it for a 1x impact on GDP, too. But we think one of the very best ways is to use it for manufacturing, which will have an 5x to 20x impact on GDP.”
Exporting LNG could also create price volatility, Biltz warned, such as the decade from 2000 to 2010.
“It forced us to close some plants,” Biltz said. “It chased a lot of manufacturing offshore. It chased fertilizer offshore and others. About 6 million manufacturing jobs left this country between 2000 and 2010, primarily due to the volatility and higher prices of natural gas. Our highest price we paid was around $14/million Btu. Relative to all of the 1990s, it was $2.50/million Btu.”
Biltz said he thought it was good that other countries such as Australia, China and Poland were working to develop their shale basins. He said their decisions on LNG exports would have uncertain, but far-reaching, impacts.
“There’s a tremendous amount of uncertainty around shale in the rest of the world,” Biltz said. “It’s still a relatively new phenomenon. We’re going to learn a lot over the next two to five years about who’s got what, where. My general perspective is that the more energy we unleash from the earth, the better that is overall in terms of everyone’s energy security. And given that energy security is the cause of international tension in a lot of cases, I think additional energy discoveries and the ability to unleash energy is generally a good thing.
“How it plays back into LNG is something that’s going to have to play itself out. The Australians have shown a real penchant for exporting their LNG. My sense is that they’re asking themselves if that’s always the right thing to do, and if they shouldn’t give some more thought to how they use natural gas in their country. They haven’t really had a comprehensive energy plan, just as the U.S. doesn’t have a comprehensive energy plan.”
Biltz added that Dow very strongly believes that the United States should adopt an energy strategy, “and if not a strategy at least an energy narrative, something more than an ad hoc policy that goes item by item. It’s something that the U.S. could really spend a little more time putting together and finding some agreement on.
“I think both President [Barack] Obama and Gov. [Mitt] Romney have pointed to this and have rightfully said we have a unique opportunity in the history of this country to get energy right, to achieve some measure of energy independence. All of the other questions about who exports to whom, all of those questions will play out. But at the core, the U.S. needs to know what it wants to get out of its energy.”
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