Logistics was been a key topic at the ACC Annual Meeting. Accenture highlighted major transportation challenges
The US shale boom could face a logistical nightmare of sorts in the coming years that constrains the expansion due to increased costs caused by a shortage of transportation modes for feedstocks and products, said LyondellBasell CEO Jim Gallogly.
Increased production of crude, shale gas and associated natural gas liquids (NGLs) will require increased logistical assets such as pipelines, railcars and ships to move chemicals and products in and out of the US, said Jim Gallogly, who made his comments at the American Chemistry Council’s (ACC) Annual Meeting in Colorado Springs, Colorado, US.
“We’re going to have to have the ability to move that production – some offshore through export, some of course to markets here in the United States,” said Gallogly. “You see that issue already in crude oil going into the refining sector. At this point and time, moving around some of the NGLs is more complicated from some of the new developments. We’re waiting on pipelines here and there to normalise getting that newfound production in the right place.”
US producers already have experienced difficulties in shipping oil, ethanol and petrochemical products via rail and road due to increased demand for railcars and trucks. In the absence of new pipelines to transport product, which have proven somewhat difficult to get built due to regulatory and financial commitment issues, railcars and trucks have filled the void in the near term.
That will only increase in the future, and along with it, costs, said Mark Rohr, CEO of Celanese.
“I’m an anxious type of guy, so I’m a little worried about inflation… We’re all going to be trying to steer those railcars, for example,” Rohr said.
Logistics has been a key topic at this year’s Annual Meeting, with a panel discussion on the topic on 3 June hosted by US consulting firm Accenture highlighting the transportation challenges facing the petrochemical industry in the near and long term.
SUPPLY CHAIN DISRUPTION
Accenture sees a supply chain disruption coming as the shale boom continues to translate into greater petrochemical and derivative products production.
The increased domestic production in the coming years will greatly outstrip consumption and thus lead to more exports of petrochemicals and derivatives from the US, but the country does not have the supply chain infrastructure at present to efficiently do that, said Paul Bjacek, head of chemicals and natural resources research at Accenture.
Bjacek pointed to the high demand for shipping containers in the port of Houston in Texas, while the ports of Los Angeles and Long Beach in California empty out containers of imported products and ship them back empty due to lack of product shipped back to Asia.
One main reason for the supply chain challenges facing the US is that, unlike the Middle East, it has not in the past set itself up as a strategic exporter, said Kurt Eichhorn, strategy and mergers leader for the chemicals industry at Accenture.
“I think [the Middle East] grew up with the intent to export. The model was an export model – the infrastructure was there, the intent was there,” Eichhorn said.
“If you look at the US, we’re going into a different phase here. We’ve always been an exporter but now we’re really becoming a strategic exporter. It really changes the game. But we don’t really have a supply chain and the infrastructure there designed around that,” he added.
To maximise their profits in the shale boom, companies will need to devise a sustainable, low-cost supply chain, Eichhorn said. Governments within the US will need to be involved in helping with infrastructure, while companies will have to build their own capabilities around their own supply chains, he said.
“We’ve spent a lot of time thinking about all of the great things to the plant gate, but then taking it from the plant gate and getting it to the customer efficiently I think is the area that… needs greater emphasis or focus,” Eichhorn said.
“Innovation is something that is needed here… This will drive some innovation,” he added.