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 researchers from Chemical Market Resources Inc. (CMR), a Houston firm that advises the chemical, petrochemical and plastics industries.
In a 10-page report, “Shale Gas Impact on C2, C3 and C4 Downstream Derivatives,” 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.
“At least eight companies have either already announced or are looking at major ethylene and ethylene derivative expansions — [through] debottlenecking and new crackers — in North America,” the authors said. “Polyethylene will be the dominant derivative for the shale gas, with EDC [ethylene dichloride], and to a much lesser extent, EO/EG [ethylene oxide/ethylene glycol] and selected alpha olefins as alternatives.”
The report identified six of the eight cracker investments, and nine expansion and debottlenecking projects that have been proposed. According to CMR, the cracker investments and their locations reportedly are:
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 Shale Daily, July 18). 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 Shale Daily, March 16). 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.
“Due to the presence of large volumes of ethane in shale gas, ethylene will be the clear beneficiary,” the authors said. “With expectations of a secular trend of low natural gas prices in the medium to long-term, cracking NGLs [natural gas liquids] will be the most advantageous for the cracker operators. This trend is evident from the rapid shift to lighter feedstocks in the last two years due to the shale gas effects on natural gas prices relative to crude oil.”
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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