Shale gas is the “magic bullet” the U.S. petrochemical industry needs to make a full recovery from a decade of economic stagnation, according to Houston-based Chemical Market Resources Inc. (CMR), which advises the chemical, petrochemical and plastics industries.
In a 10-page report, “Shale Gas Impact on C2, C3 and C4 Downstream Derivatives,” consultants Balaji Singh and J.N. Swamy said shale gas will have separate impacts on ethylene, propylene and C4 derivatives with global implications, most of which may not materialize for the next five years but could peak in 2017.
“The development of shale gas access via major developments in horizontal drilling and fracking methods in the U.S have given the U.S a running start in monetizing shale gas,” the authors said. “The companies are moving forward en masse to capture the opportunity. Most of the countries of the world are also assessing their shale potential and will be ready to play in this sandbox sooner than later.”
Singh and Swamy added that most of the companies interested in monetizing shale gas have cash on hand because their financial performance in 2011 exceeded expectation, and the expected downturn in the petrochemical industry due to excess capacity in the Middle East and Asia never materialized.
The report identified six cracker investments, and nine expansion and debottlenecking projects that have been proposed: Formosa Plastics Corp., Point Comfort, TX, by 2016, with an ethylene capacity of 800,000 tons; Shell Chemical LP, Appalachia area by 2016, with an ethylene capacity of 1-1.5 million tons; Aither Chemicals LLC, Appalachia area by 2016, unknown capacity; Chevron Phillips Chemical Co. LP, Baytown, TX, by 2017 with a 1.5 million ton capacity; Dow Chemical Co., undisclosed in U.S. but likely Gulf Coast region by 2017, with 1-1.5 million tons of capacity; and Sasol Ltd., Lake Charles, LA, by 2017, with 1-1.4 million ton capacity.
Aither and Brazil’s Braskem are two of four companies considering plans to build an ethane cracker in West Virginia; the other two companies haven’t been disclosed (see NGI, March 26). Meanwhile, Shell Chemical has signed an option to purchase a 300-acre site in Pennsylvania for a petrochemical complex that presumably would include a “world-scale” cracker serving the Marcellus Shale region (see NGI, March 19). Shell has said such a facility would be capable of processing 60,000-80,000 b/d of ethane.
The report said companies involved with the expansion and debottlenecking projects included Dow, the UK’s INEOS, LyondellBasell, Westlake Chemical Corp., Williams and a joint venture between Germany’s BASF SE and France’s Total SA.
Although Singh and Swamy said the U.S. petrochemical industry should expect to see significant investments to monetize shale gas, they said it would be impossible for the North American market to absorb the additional derivative capacity once all of the projects come online. Consequently, at least a portion of production is expected to be exported to markets elsewhere.
“The U.S. Gulf Coast will in some ways become the next Middle East of the world, with a large amount of export oriented capacity destined for countries outside of North America,” the authors said, but they later added that “U.S. companies’ preference to sell into the domestic market, rather than export…[will trigger] a battle for market share. Since it is extremely difficult to buy market share, a downward movement in prices and margins is likely to occur.”
The report predicted that shale gas development would adversely impact future supplies of propylene — especially polypropylene — because of intermaterial competition from ethane. The authors found that low natural gas prices and high oil prices have caused the industry to reapportion its ethylene cracker mix from 70% ethane-30% liquids to 87% ethane-13% liquids, resulting in a big drop in propylene production.
Despite this, the authors sounded an optimistic tone for the future. “All in all, shale gas will have a transformative effect on the U.S. petrochemical industry, leading to new investments, more jobs and a greater sense of excitement in the industry,” they said. “Irrespective of whether some or all of the announcements come to fruition, the industry will see better than expected (pre-shale) times.”
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