How to react the shale gas boom?

23 September 2013 00:00  [Source: ICB]

Shale gas has become a global phenomenon. Following successful and extensive exploitation in the US, other major global regions are exploring the potential, from Europe to Latin America to China and even the Middle East.

But nowhere does the story or the practice seem as straightforward as in North America, where shale has become an established “game changer” in many aspects. It is delivering cheaper natural gas and energy; spurring plans for massive expansions of petrochemical, methanol and fertilizer capacities; and prompting the idea of US energy independence and even gas exports.

Chesapeake Energy Corporation

Chesapeake Energy Corporation

A new age is dawning for US producers

All these are, of course, interdependent, as these various sectors, and indeed transport, compete for their share of the shale gas and the added margins it can bring to business.

In the chemical sector, many of the planned new US cracker projects are moving forward and are on track for completion by around 2017, according to ICIS Chemical Business editor Joseph Chang, who recently delivered a webcast presentation on the topic.

He noted that there are seven major new cracker projects planned in the US by Dow Chemical, Sasol, Chevron Phillips Chemical, ExxonMobil Chemical, Formosa Plastics, Occidental Chemical/Mexichem and Shell Chemical. Six crackers are planned for the US Gulf Coast; the seventh is Shell’s project in Monaca, Pennsylvania, near the Marcellus shale gas formation in the northeast US.

BUT DEMAND IS BOOMING TOO

But, he adds, while the US petrochemical sector is counting on years of cheap natural gas as a feedstock, there will be increasing demand draws from a number of sources: utilities, transportation, gas-to-liquids, liquefied natural gas (LNG) exports and even exports of natural gas liquids (NGLs).

There are also eight propane dehydrogenation (PDH) projects planned in North America, seven in the US. Six have targeted start-up dates between 2015-2018. These projects will use propane to produce propylene, an olefin by-product from naphtha cracking and gasoline refining that will be in short supply as the US petrochemical feedstock slate shifts to lighter gas-based feeds.

Consultants at A.T. Kearney have recently analysed the impacts of the North American shale phenomenon, both regionally and 
locally. Partner and co-leader of the chemical practice at A.T. Kearney, Andrew Walberer, comments that “shale gas will have significant long-term effects on the global petrochemical industry”.

Those impacts, he adds “and the associated strategic decisions needed to manage them, vary based on a company’s position, ambition and what will happen to the shale gas ecosystem in the long term.”

For instance, some upstream chemical companies will move to exploit the feedstock benefits cheap shale gas brings. Others further down the chain towards specialties have a number of potential growth opportunities, such as selling into the shale gas ecosystem, selling to export industries such as metals and materials and selling to “re-shoring” industries.

On the last point, says Walberer, A.T. Kearney foresees potential re-shoring of a portion of the $600bn-800bn of goods currently imported by the US, especially products with a high proportion of costs in hydrocarbon feedstock, energy or shipping, as well as products with a close trade-off between value chain risks and labour costs.

SHAKING UP GLOBAL MARKETS

The significant long-term effects on the global chemical industry will be seen either through increased competitiveness of North American chemicals production in global markets or through reduced volumes of US imports, especially in the fertilizer sector.

These developments and trends pose several key questions for producers in the North American region:

  • What are the impacts on various petrochemical value chains – using ethylene, propylene and C4 feedstocks – as crackers switch increasingly to ethane cracking?
  • Where will all the new downstream supply/capacity go – how much can the domestic market absorb and where will the exports go?
  • What impacts will there be on global NGL flows, as shale producers seek wider markets for their output and overseas chemical producers look to source cheaper raw materials?
  • What are some of the roadblocks, beyond regulations, that could limit the full potential of this resource for the industry?

These and related issues will be discussed next month in a keynote presentation by Andrew Walberer at the annual Pittsburgh Chemical Day on 1 October, entitled “The Effect of NGLs from Unconventional Sources on the Chemical Industry”.

ICIS and A.T. Kearney are also proposing to hold a roundtable discussion on shale gas at the event, to be moderated by ICIS global editor John Baker.


By: John Baker
+44 20 8652 3214



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