US shale gas helps manufacturers drive down raw material costs - PwC

09 October 2012 16:43  [Source: ICIS news]

HOUSTON (ICIS)--The expansion of US shale gas has the potential for US manufacturers to lower their raw materials and energy costs by as much as $11.6bn/year (€8.9bn/year) by 2025, consultants PricewaterhouseCoopers (PwC) said on Tuesday.

"As the US chemical industry expands natural gas liquids (NGL) conversion into a higher volume of downstream products, the positive impacts could flow through the value chain into other manufacturing sectors, particularly given that chemicals are used in an estimated 90% of all manufactured products," said Anthony Scamuffa, US Chemicals leader for PwC.

"Not only could the abundance of NGLs help drive reduced pricing for derivative products, it could also potentially drive domestic re-shoring activity and possibly bring about a favourable shift in the US balance of trade as ethylene capacity comes on line," Scamuffa said, citing findings of a PwC study, “Shale Gas: Reshaping the US Chemicals Industry.”

Garrett Gee, director of Chemical Advisory Services at PwC added that based on industry reports, PwC estimates that the US chemicals industry has invested $15bn in ethylene production, increasing capacity by 33%.  

“As these investments take hold yielding more supply, the US could become a major, global, low-cost provider of energy and feed stocks," Gee said.

"We are already seeing increased investment activity among multinational companies in building the infrastructure to export liquefied natural gas (LNG) products," he added.

Major oil and gas companies and upstream commodity industry participants are evaluating their business models and actively moving forward to take advantage of emerging shale gas opportunities, PwC said in the study.

Some producers are considering whether to restart mothballed assets, invest in green field projects, form strategic alliances, and expand and upgrade existing assets.

Many of these companies are also executing large capital projects, identifying engineering and construction resources, and establishing strategic sourcing agreements with NGL providers, PwC said.

Further downstream, specialty chemical entities are starting to feel the effects of natural gas and NGL prices on their business models.  

Moreover, as the commercial distribution of ethane and ethane-based raw materials increases, it could trigger new innovations and investment in new technologies. 

Research and development initiatives leveraging ethylene-based chemistries that replace petroleum-based products may predominate, PwC said.

Companies might also look for longer-term sourcing relationships and partnerships with raw material suppliers to help with developing new products, it added.

($1 = €0.77)

By: Stefan Baumgarten
+1 713 525 2653

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