By John Richardson
NOBODY saw the shale gas technological breakthroughs coming and thus the revival of the US petrochemicals industry took everybody by surprise.
Today the accepted wisdom is that the US industry will remain a license to print money for many years to come.
But as we have discussed before, the substantial amount of ethylene derivatives exports that will result from the capacity expansions will have to find a home in an increasingly uncertain and volatile global economy. There will be no return to the economic golden era of the late 1990s through to 2007 where, barring a few minor recessions, all that producers had to do was build and sufficient demand was virtually guaranteed.
Equally uncertain is the outlook for natural-gas availability and therefore, of course, ethane feedstock costs in the US. The US faces a choice of whether to allow huge amounts of gas surpluses to be exported in the form of liquefied natural gas (LNG), or to use gas as a means of achieving Mitt Romney's promise of energy independence.
"In North America, there is some 150 million tonnes/year of new LNG projects being planned of which, perhaps, 30-40 million tonnes/year will actually go ahead," said Tony Regan, oil and gas consultant with Singapore-based Tri-Zen International. (see above table of US projects only).
"Many projects, for energy security reasons, might not receive US Department of Environment approval to export to countries that don't have free-trade deals with the US. This would weaken their viability."
But even if Regan is right, the shale gas industry, as recent asset writedowns have indicated, is very unprofitable.
In an extraordinary collection of emails gathered by the New York Times, industry observers and participants variously describe shale gas as a "giant Ponzi scheme", and as another example of Wall Street talking up investment returns, just as was the case with the dot com bubble. An unprofitable industry will need to consolidate in order to make money, resulting in a long term increase in gas pricing.
The shale gas technological breakthroughs of a few years ago demonstrate how quickly competitive advantage can shift.