US shale gas and petchems

By Malini Hariharan

The blog would like to share an interesting analysis in the latest issue of ICIS Chemical Business on the impact of US shale gas on petrochemical producers in the region.

Profitability has of course improved as seen in the results posted by majors such as LyondellBasell.

Shale gas production in the US has grown eightfold in the past 10 years, and now accounts for some 12% of total gas production, writes William Tittle of Nexant.

This growth in production has pushed down natural gas prices which are currently about one-quarter that of oil on an equivalent energy basis.

And at low natural gas costs, there is even more incentive to extract ethane from the gas. US ethane production has increased by one-third to 17m tonnes/year in the past five years and 63% of 2010 US ethylene production of 24m tonne was based on ethane, up from 46% five years ago, points out Tittle.

The availability of cheap ethane has boosted the export competitiveness of US companies. Back in 2004, ethane-based US high-density polyethylene (HDPE) producers had the second highest cost structure in the world.

But now integrated HDPE cash costs from ethane have moved dramatically down the global cost curve, points out Tittle. US producers are among the lowest cost producers in the world, after Saudi ethane, ethane/propane and Canadian ethane-based companies.

The return to profitable operations has already prompted producers to plan for increased use of ethane in the future. That’s an easy decision to make.

But a tougher question as Tittle points out is whether to increase capacity significantly when the incremental market to be served is the export market.

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