Commentary: US shale gas and China coal clash in petrochemical battle

The US is building petrochemical projects based on shale gas with an eye towards exports. But large net importer China is also looking to cheap coal-to-olefins to boost capacity.

Two huge dynamics in global petrochemicals are on a collision course, and the clash could reshape the future of production and trade flows. The dynamics in question are US shale gas and China coal-to-olefins (CTO).

Both have their detractors, but the fact is that US gas production is rising from shale gas, and China is building CTO plants amid falling coal prices. Both US shale gas and Chinese coal are advantaged feedstocks versus oil-based naphtha in petrochemical and polymers production, with shale gas in the lead.

China is seeking to capitalise on coal-to-olefins Copyright: Rex Features

The US will be a net exporter of natural gas, “essentially forever”, said Kevin Swift, chief economist of the American Chemistry Council (ACC), at the 7th ICIS World Chemical Purchasing Summit in Boston, Massachusetts, US in mid-September. The same could be said for polymers.

With a 50-60% cost advantage for US chemical producers versus those in western Europe and Asia, which mostly rely on naphtha feedstock, the US is undertaking 197 chemical projects based on the shale gas advantage, representing investment of around $125bn, noted Swift. The ACC ultimately forecasts $150bn in chemical projects with peak investment outlays in 2017.

US shale gas will have broad-ranging impacts, boosting the overall manufacturing sector, which will in turn absorb some of the new capacity. However, a good slug of that capacity is targeted for export – to Latin America, Europe and Asia. Swift estimates that 65-75% of the new capacity set to come on in the US Gulf Coast will be exported, largely in the form of plastic resin.

US chemical producers will gain global market share, at the expense of their European counterparts, said Swift.

However, China is also making a low-cost feedstock push with CTO. There are 17 CTO plants planned to start up in 2014-2017, representing 9.2m tonnes/year of combined ethylene and propylene capacity, noted David Hanna, ICIS Asia business development manager, at the Purchasing Summit. On the methanol-to-olefins (MTO) side, there are eight such planned plants over the same period for 4.5m tonnes/year of combined ethylene and propylene capacity.

And by 2015, China could have 10 new polyethylene (PE) plants based on CTO/MTO ethylene, representing 2.7m tonnes/year of capacity. China’s peak in CTO and PE expansion in 2015, well ahead of the planned US project peak in 2017, could disrupt US PE export plans, said Hanna.