There’s hardly a place in the world more attractive today to petrochemical investment dollars than North America, an IHS Chemical executive said Tuesday.

The U.S. and Canadian natural gas revolution has boosted the fortunes of producers and pipeliners, and it has offered the hopes of fortunes from potential exports. Petrochemical investors read the news. They know where there’s money to be made, said Mark Eramo. He spoke Tuesday at the 92nd Annual Gas Processors Association Convention in San Antonio.

Information spreads across the “petrochemical world…very, very rapidly,” he told the audience. “North America clearly is back…not just for ethylene, but for basic chemicals investments…”

Most of the dollars are flowing to the United States, and specifically, the Gulf Coast region. But plenty of opportunities exist for new and expanded processing plants in major basins across the country, Eramo said.

“There is competition for resources and investments,” but there are beaucoup investors with beaucoup money. “Construction companies, labor, services, resources…will be stretched very, very thin over the next decade.”

All kinds of natural gas liquids (NGL) are drawing suitors, but the biggest attraction is ethane.

“Ethane is the largest building block because it finds its way into many durable and nondurable goods,” said the IHS executive. “The health of the ethane industry is a good proxy for the petrochemicals industry. When you talk about petrochemical investment, you talk about the United States…”

Many draw a line from the unconventional gas fields straight to petrochemicals, but it’s a bit more complicated.

“Ample feedstock supplies are shifting North America’s petrochemical investment into high gear,” said Eramo. However, more than just overflowing gas stocks are drawing the dollars. The lure has been sustained by low gas prices and the margin advantage over crude oil feedstocks.

“News about crude oil and natural gas are the first things the petrochemical folks are reading about every day, those things and the economy,” said Eramo. “Costs of supply and demand are the key drivers in manufacturing. Billions of dollars are spent on investment…and that’s what they look at. This is what really will matter over the next five to 10 years.”

Consumers “will demand some products that are based on bio feedstocks, and these will be part of the discussion. But at the end of the day, natural gas is where the money is and that is what will drive petrochemicals…You will hear some talk about biochemical plants and ‘green’ chem plants, but today, and over the next five years, they will be a fraction of the petrochemical industry.”

It’s the economics, people.

“The dynamic created by the shale phenomena in North America in crude oil prices versus the natural gas price ratio has gone from a scenario in 2000 when there was parity with crude, to now where there is a 20-30% rate of return” on gas projects. “It’s never existed in this region before. It’s what makes these investments very profitable.”

As long as natural gas prices hold their margin advantage over crude, “North America remains in the driver’s seat. It’s about the consumption of durable and nondurable goods. It’s not what’s in the pipeline. It’s what drives demand.”

For petrochemical producers, “energy costs drive the investment decision…Clearly, there are a lot of consumer goods and products manufacturing that have been shifted to the Asia-Pacific region, which puts us in the position of being a supplier to that region. This value chain really makes the industry work.”

One thing to keep in mind, he said, is where the growth in petrochemical supply and demand will be. The United States will share in the NGL bonanza with the Middle East, said Eramo.

“We will see a surge in the North American economy of 10-11 million metric tons of ethylene between 2010 and 2020, and the Middle East will continue to build. It won’t stop in those regions,” and together they will make up about 40% of global ethane capacity by 2020, according to IHS.

Investments are keyed to cost advantages and proximity to demand centers, and that makes North America prime real estate. “These are cost advantages that we’ve never seen before and we expect to see them sustained well into the future,” said Eramo.

Last year, the ethane advantage provided a 30 cent/pound price margin, said Eramo. “We used to think, in terms of margins, that if we got 10 cents, 12 cents combined that it was considered good reinvestment economics…in the ’80s and ’90s. We are suggesting that type of margin, 30 cents, can be sustained over time.”

Still, there are possible pitfalls. It won’t be because of a lack of supplies. “There’s a chance, as it happens, that we overbuild,” said Eramo. “If crackers and big projects don’t start up in the right time frame as they are projected to, we could see a period of overbuild in ’16, ’17, ’18…We will have to see how those projects frame up…

“The biggest constraint is not…capital. It’s there. The biggest constraint could be the resources to build: contractors, labor, materials…”

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