AFPM: On the verge of renaissance

02 April 2012 00:00  [Source: ICB]

Large-scale shale gas extraction is having a stimulating effect on US petrochemicals and the economy as a whole, says AFPM president Charlie Drevna

The US petrochemicals sector and a broad range of other industries are on the verge of a manufacturing renaissance, the likes of which hasn't been seen in decades, believes AFPM president Charlie Drevna, but only if we play our cards right and if politicians don't stack the deck.

 Shale gas was explored at last year

Shale gas was explored at last year's IPC by Brian Habacivch of Fellon-McCord, but is taking an even higher profile at this year's event

Copyright: Ben Sklar

"I haven't see this kind of optimism in this industry in a long time," Drevna says, referring to opportunities now opening to US petrochemical producers and downstream chemical makers that couldn't have been imagined just five or six years ago.

"I have one word," he says, "shale."

The combination of horizontal drilling and hydraulic fracturing (fracking) that has revolutionized the North American natural gas and petroleum sectors has, virtually overnight, reversed US industrial fortunes. According to the Colorado School of Mines and its Potential Gas Committee, the US alone is believed to have enough natural gas resources to meet the nation's 22,000bn cubic feet annual gas consumption demand for almost 100 years.

The US Energy Department's Energy Information Administration agrees, saying that US natural gas resources have expanded at a pace not seen since the 1960s, with almost all of that growth attributed to shale gas developments. The advent of shale gas has been a major factor in bringing natural gas prices down to the $2/MMBtu range from $6-8/MMBtu just a few years ago and in sharp contrast to gas spot prices that were crowding $15/MMBtu barely a decade earlier.

The "shale gale", as it has been called, has restored a critical feedstock cost advantage for US petrochemical firms, which now can produce petrochemicals and industrial chemicals more efficiently and economically than almost any region of the world, save perhaps the Middle East.

"We are sitting on several of the largest deposits of natural gas liquids in the world," Drevna says. Those natural gas liquids, he adds, are rich in ethane, propane and butane, and the new rush of those low-cost petrochemical feedstocks has triggered the first world-scale cracker projects in the US in more than a generation.

"If we do this responsibly, and if we do this right," Drevna says, "the US will experience a manufacturing renaissance the likes of which we haven't experienced in many decades." And, he emphasizes, it could be a renaissance not just for petrochemicals and downstream chemical makers but also for a wide field of chemical-consuming industries and even beyond, to manufacturers whose production processes are critically energy dependent.

That broad potential boon of the shale gale is a story that must be told, says Drevna. "Our nation needs to take advantage of the opportunities that responsible shale development offers, and having policymakers and the public understand what is involved in every step of the process is critical in obtaining this goal.

"There is a general lack of understanding of the critical components of the entire manufacturing supply chain and how it will play into the manufacturing renaissance that could be realised if we play our cards right."

But that manufacturing renaissance could be at risk, he adds. "The industry is faced with a number of challenges, one of them being educating the public at large, including policymakers, opinion leaders and consumers, on how the manufacturing supply chain works."

Another challenge, Drevna says, is the Obama administration's continued attempts to circumvent the authority of Congress. "This administration continually attempts to use federal agencies to create policy that often conflicts with the intent of Congress. For example, Congress clearly determined that a cap-and-trade system for carbon dioxide was not in the best interests of the country - yet the EPA [Environmental Protection Agency], the environmental arm of this administration, is attempting to bypass Congress and the public to establish its own cap-and-trade system, and doing so during one of the worst economic landscapes ever," Drevna warns.

He also singles out the administration's permitting policies and processes, arguing that "the permitting process has turned into a constant obstacles course and issues that are created solely to prohibit projects from advancing. The permitting process in this country makes it extremely difficult for the US to compete with other locations for petrochemical facilities, and we are highly concerned that the process could hinder our ability to take advantage of the shale development."

Drevna notes that while the shale gale has restored a feedstock cost advantage for US petrochemicals, the window of opportunity will not be open forever. "We are now in a cost position to compete with any region in the world when it comes to petrochemical manufacturing but the longer we have to wait to build petrochemical manufacturing and related facilities, the more we risk losing our competitive advantage."

In addition to a raft of EPA regulatory initiatives and project permitting delays, Drevna is critical of Obama administration efforts to deny to energy, refining and petrochemical industries tax benefits that are available to all manufacturers. In what Drevna calls the "Obama administration's war against the hydrocarbon molecule", the repeated efforts to single-out process industries for special punitive tax policies "is discriminatory and harmful to consumers and workers."

As with the administration's end-run around Congress in greenhouse gas-related rule-making, Drevna sees a similar extra-legislative effort to target fracking, which, with horizontal drilling, is key to shale gas development.

"This is another area where federal agencies are trying to bypass Congress," he says. "In the many meetings that we and others have had with members of Congress, there is no indication that Congress will take up hydraulic fracturing. This is one area in which both sides of the aisle appear to agree: Congress wants to leave fracking regulation to the states. The Obama administration, however, has eight different agencies trying to elbow their way into the regulatory picture."

Federal inquiries or investigations into fracking are being pursued by EPA, the Department of Energy, the Department of the Interior, the Agriculture Department, the Department of Defense, the Department of Transportation, the Department of Health and Human Services and the Securities and Exchange Commission.

In the face of these challenges, Drevna says, AFPM wants to bring the full panoply of manufacturing muscle to the fight. "AFPM wants to change the nature of the discussion from being solely focused on ethylene production and expand the conversation to include the whole manufacturing supply chain," he says. "That's why one of our most significant challenges is educating people about manufacturing from a holistic point of view.

"Many AFPM members are integrated companies that produce value-added goods from ethylene," he notes, "and we will encourage other partners in the supply chain to join us in our education efforts." Part of that effort will be to encourage state governments to see the renaissance potential.

He says AFPM and its allies hope to encourage state governments to use incentives "to entice downstream manufacturers to locate here in the US instead of looking abroad."

Despite the challenges posed by regulators and policymakers and a public largely unaware of how manufacturing and supply chains work, Drevna says he is optimistic. "It's very rare to find yourself in the middle of a renaissance," he says. "I look forward to the next several years with great anticipation."

Welcome to San Antonio, to the first International Petrochemical Conference of our 110-year-old association under our new name, the American Fuel & Petrochemical Manufacturers, the new NPRA.

AFPM better represents who we are and places more emphasis on manufacturers. We manufacture fuel and petrochemicals, here in the US and around the world. We proudly provide and support millions of jobs worldwide, and produce the products that billions of consumers have come to rely on.

We also proudly serve our member companies. The IPC is an important event that gives them the opportunity to connect with their peers, forge valuable relationships and explore ways to grow their companies.

The event this year is characterized by the importance of shale gas development and its implications for the global petrochemical industry. The anticipated growth in this area is expected to lead to significant global industry expansion. The IPC program offers attendees opportunities to learn from global shale experts about shale gas development and other issues facing the petrochemical industry today.

Our keynote speakers include the former US vice president Richard B. "Dick" Cheney and political strategist Michael Murphy, a partner at strategic communications and advocacy firm Revolution Agency and a contributing editor at TIME magazine. They promise to provide interesting and insightful commentary on today's political landscape and our industry.

Thank you for joining us and for your continued support of AFPM.

Charles T. Drevna
American Fuel & Petrochemical Manufacturers (AFPM)

Charlie Drevna welcomes you all

By: Joe Kamalick
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