Asian Chemical Connections

The mood at the recent NPRA International Petrochemical Conference in San Antonio, Texas, was mixed, despite all the economic gloom.

Some producers said they were still making money - especially those selling into manufacturing sectors benefiting from a rise in exports due to the weak dollar.

What's certain, of course, though is that things will get worse regardless of the health of the global economy. The down cycle is just around the corner.

But we could quite easily see, as this extended article below speculates, another period of under-investment following all the over-investment that markets will need to absorb over the next 3-4 years.

Plus ca change, plus c'est la meme chose.

Very interesting speech from Alan Kirkley, Vice President of Strategy and Portfolio for Shell Chemicals, which first of all goes over the predictable ground of where we are in the cycle and the threat from the Middle East.

However, he then makes the valid point - which I made earlier this week - that the end of the world has not necessarily arrived for the US and Europe.

There are some big question marks over how much more capacity the GCC region will be able to add post-2012, and perhaps even further afield as global LNG markets take off. Gas cracking may no longer as consistently benefit from feedstock at virtually give-away prices.

The likes of Shell and ExxonMobil have existing technology and know-how to make more highly competitive basic petrochemicals - and to take maximum advantage of the petrochemicals/refining interface.

Kirkley predicts that there will be an increasing use of hydrocracking to make petrochemicals, tapping into light ends that have a diminishing value in the gasoline pool and more revamping of catalytic cracking capacity towards olefin production.

Given the likely continued high cost of EPC and raw materials, anybody with a fully depreciated refinery requiring only relatively modest investment could be in a strong position.

But, of course, the first task is to survive the current downturn in one piece.

Economists refer to externalities as those factors that can influence growth but that are beyond the influence of humans to determine. As ar result, the members of this esteemed profession tend to ignore externalities.

If we've left it too late on the environment, then the environment is clearly such an externality that could limit demand growth in the future.

How will China provide enough water to ensure that growth spreads from east to west?

What happens if the environment has reached a dangerous tipping point where the damage we've inflicted leads to an out-of-control acceleration into catastrophe?

Take, for example, corn-based ethanol.

William Laurance of the Smithsonian Tropical Research Institute in Panama writes in the 12 April issue of the New Scientist that the huge increase in corn planting in the US to feed ethanol has led to less soya being planted.

The resultant rise in soya prices has led to forest destruction in the Amazon as Brazilian farmers clear trees to plant soya. "

The Amazonian forests help to generate their own rainfall, because the dense vegetation quickly recycles moisture and returns it to the atmosphere. As deforestation proceeds, however, less water vapour is recycled, so clouds and rainfall decrease. No one knows how far the Amazon can be pushed before it collapses in rage of droughts and forest fires."

Blimey, if deforestation already accounts - as we are told - for 20% of global emissions, what would this mean for the habitability of our planet?

Never mind - I don't care. I am off to read some wonderful analysis about the endless demand-growth prospects presented by China. Who cares as long as I can get my bonusby building this analysis into a report I can present to my boss?