“Reports of my death……

China, Company Strategy, Economics, Environment, Middle East, Technology, US

twain1.jpg

are greatly exaggerated” wrote Mark Twain who twice had the misfortune (or perhaps good fortune, given that he was still breathing!) to read his obituary in newspapers.

A full list of all those whose deaths were reported prematurely is included here in this A-Z of journalistic blunders from Wikipedia.

The same could be said of the US commodity chemicals industry. Until very recently, just about everyone was predicting that the States would fairly soon shift from a net export to a net import position due to higher gas prices, the build-up of very competitive capacity elsewhere and the constant drift of manufacturing overseas. The country’s chemicals industry has lost 120,000 jobs with 3 million jobs lost in manufacturing over the last five years.

But what’s changed over the last few months is gas prices which have become relatively cheap compared with crude and the weak dollar. This has created what consultants predict will be the “last hurrah” for the US styrene industry ahead of the big slew of new Middle East capacity due on stream soon.

Further consolidation is expected once the Middle East wipes out the advantage US styrene producers currently enjoy over competitors supplied by naphtha-based C2s.

From a carbon footprint point of view, it does seem ridiculous that oil is shipped from the Middle East to make benzene in South Korea and the C8s are then shipped to the US. The US combines the benzene with its competitive gas-based ethylene to make styrene which is then shipped to Europe – already a net importer of commodity chemicals.

But the carbon footprint argument, along with rising freight costs, could offer a lifeline to the US chemicals industry in general. There has been much talk of “reverse globalisation” recently. This might lead to the economic justification for building new commodity chemicals capacity in the US and elsewhere in the West.

The other new competitive advantage being enjoyed by the US industryis the fall in gasoline demand (although this the result of the ratherlarger problem of a weak domestic economy!), resulting in greateravailability of petrochemical feedstock.

Allen Kirkley, Vice President Strategy and Portfolio at Shell Chemicals,believes that petrochemical feedstock from refineries might be moreplentiful in the longer term as second-generation biofuels replacegasoline.

He sees an opportunity for making increased use of light ends no longer needed in the gasoline pool.

Revamping catalytic cracking towards olefins production will alsobecome increasingly attractive, particularly in Europe, but also inNorth America at a later date, adds Kirkley. Read this blog next weekfor a full interview with the senior executive.

A US industry source says: “Consultants have been predicting thatthe US would shift into a net export position for a long time, buttheir predictions have always been five years away. The forecasts arestill five years away thanks to these recent factors.”

A well-integrated refinery/petrochemical complex in the US mightnever be able to compete with a gas-based complex in the Middle East.

This is not be the point. If the US refinery/petrochemical majorscan stay significantly further to the left of the cost curve thanpoorly integrated producers, this might be enough to not only survive;perhaps even new investments might be justified.

The Middle East is also no longer as cheap a place to buildpetrochemicals because of rising feedstock and construction costs.Crackers coming on stream in 2005-15 are mainly mixed feed – liquefiedpetroleum gas and ethane – because of a long term ethane shortage inthe Gulf Co-operation Council region. Ethane is more plentifulelsewhere but it can be a little tricky investing in countries such asLibya, Algeria and Kazakhstan.

Environmental concerns could still scupper growth in US petrochemical capacity, and might even hinder minor revamping work.

The other big issue is, of course, the long term cost of crude.

Renewed drilling in the outer-continental shelf would help, but to what extent would this ease global crude prices?

Coal gasification – making better use of the abundant coal reserves in the US – might make more sense. Again, though, environmental lobbyists could get in the way.

Commercialisation of carbon capture and storage technologies couldhelp win the environmental argument in favour of both oil andcoal-based petrochemicals.

It’s early days to predict a long term resurgence of the US petrochemicals industry.

But the obituary writers should at the very least display a little more caution.

*

PREVIOUS POST

Can I have those coconuts, please?

27/08/2008

Winston Churchill, Joseph Kennedy, David Strahan,The Last Oil Shock, New Scienti...

Learn more
NEXT POST

Gustav points to a much bigger problem

01/09/2008

Gustav, Hana, US Gulf, Mexico, demand destrruction, demand relocation, Jeffrey R...

Learn more
More posts
China’s policy dilemma: raising local demand while protecting exports
13/09/2020

  By John Richardson IN THIS Western-centric world, a huge amount of ink is split over the cons...

Read
China’s polyethylene demand good so far in 2020 but beware of risks ahead
10/09/2020

Note that all the comparisons in this post are on a year-on-year basis unless otherwise stated By Jo...

Read
Ah, I see: China’s booming demand mystery a little closer to being solved
08/09/2020

  Note that all the data comparisons below are on a year-on-year basis By John Richardson THE P...

Read
The China polyester mystery continues in a world turned upside down
07/09/2020

By John Richardson SOMETHING very strange is happening in China’s polyester industry which has eno...

Read
China will struggle to boost local retail sales during rest of 2020 with export outlook uncertain
04/09/2020

By John Richardson IF IT were easy, then there would be an oversupply of owners of large yachts in M...

Read
Pandemic and the developing world: No quick and easy solutions
01/09/2020

By John Richardson POVERTY alleviation in low-income developing countries could be set back a decade...

Read
The pandemic and petrochemicals demand: a whole new approach is required
30/08/2020

By John Richardson MONITORING demand has never been harder because of the pandemic. One of my collea...

Read
China’s limited policy options to help lower-paid workers make 2020 retail sales recovery unlikely
25/08/2020

All the data comparisons below are on a year-on-year basis By John Richardson AS I’VE been flaggin...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more