'Strong LNG values could hurt petchem industry'

16 June 2008 07:34  [Source: ICIS news]

SINGAPORE (ICIS news)--A projected rise in demand for liquefied natural gas (LNG) could spell trouble for petrochemical operators who are trying to use it as feedstock instead of naphtha, industry watchers said on Monday.

Demand for LNG was projected to rise to more than double of today’s LNG production levels by 2030, Andy Swiger, President of US major ExxonMobil had said at the Asia Oil and Gas Conference last week.

"Natural gas will continue to play an important and indispensable part in the global energy mix, demand will steadily increase over the next quarter-century reflecting the economic attractiveness [of LNG] as an efficient energy source with relatively low carbon intensity," Swiger said.

LNG would be an important energy source in future as coal could face significant challenges until technologies such as carbon capture and sequestration (CCS), which helps reduce carbon intensity, were ready for use, said James A Slutz, deputy assistant secretary of the US Department of Energy.

This may cause a surge in demand, which could undermine the petrochemical industry’s efforts to use LNG as a feedstock instead of naphtha, which has been hitting fresh highs every week.

While the US chemicals industry has been heavily dependent on LNG feedstock, Asian companies were now moving into the field through methanol-to-olefins (MTO) and methanol-to-propylene (MTP) technologies.

The US Energy Department recently revised its outlook for natural gas prices, saying that natgas will average around $11/m Btu for both 2008 and 2009 and the industry has already seen several shutdowns citing high feedstock costs.

Natural gas prices at Henry Hub closed last week at $12.625/m Btu, according to global petrochemical market intelligence service ICIS pricing.

"I agree that LNG demand as an energy source will rise in due time, the petrochemical industry might have to re-look using it as a feedstock in the future" said an industry source.

Young-Jin Yoon, Director for gas industry of the South Korea's Ministry of Knowledge and Economy, said the country has developed a set of energy visions in response to the surge in crude and LNG values.

"All this and don’t forget, China and India are not in the game yet", said another market watcher.

Tong Zi Ming has contributed to this article

By: Bohan Loh
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