George Mitchell of Devon Energy - The "Father of Shale Gas"
By John Richardson
US polyethylene (PE) input costs will be 50% less than those in Europe and Asia beyond 2012, says a new report by Morgan Stanley.
The extraordinary gap in competitiveness is the result of the shale gas revolution that has sharply reduced US ethane costs.
Not so long ethane was above $11/mBTU in the States, but since the tipping point was surpassed on shale-gas technology, prices have ranged between $4-5/mBTU, resulting in a dramatic of US cracker feedstock slates.
Next year, though, Morgan Stanley expects natural gas liquids (NGL) supply to tighten in the US before lengthening again in 2012.
Last month we reported on a crisis of plenty for Northeast US shale-gas producers as they attempt to find a home for ethane which they view as a contaminant. The petrochemical feedstock could be moved by pipeline to Canada or liquefied and shipped to the Gulf Coast.
Once upon a time, just three years ago, Dow Chemical's weakness was that a big chunk of its production was based in the US.
But now Morgan Stanley says: "Longer term, Dow remains the most leveraged stock in our coverage universe relative to the Gulf Coast advantage that is forming within the global petrochemical industry".
When we spoke to Ben van Beurden, executive vice president of Shell Chemicals, earlier this year he told the blog that it was too early to talk about capacity being expanded in the States to cash-in on the ethane advantage.
Shell has been doing the opposite - reducing its US ethylene capacity while reversing its liquids/gas feedstock mix: It has gone from 75:25 liquid:gas feed to roughly 25:75 liquid:gas feed today.
But interestingly, in discussions that the blog held with senior Asian industry executives earlier this week, doubts were raised over the commitment of a US company to a steam cracker project in the region.
"We are not sure how serious they really are as a more viable option might be to build in the US," one of the industry sources told us.
And yesterday another of our sources told us of the here and now - i.e. the strength of US PE exports to China in September.
"Shipments to China totaled more than 200,000 tonnes last month, representing the second biggest-volume exports from anywhere in the world. This was the result both of low gas prices and the fall in the US dollar.
"The South Koreans and Japanese had slipped out of the top five and Singapore was way down, and so I don't know what these three countries were doing with all their material."
This all illustrates the importance of keeping track of changes in technology in order to improve the accuracy of forecasts.
The blog can only observe from the sidelines and wonder how this is done, but keeping track must surely involve taking into account the work of the outliers, those who defy conventional wisdom.
In the case of shale gas, this would have meant listening to and believing George Mitchell of Devon Energy at a time when his colleagues thought him a little eccentric. His vision has helped transform the industry's economics.