By John Richardson

Access to cheap feedstock, access to cheap feedstock and access to cheap feedstock might seem like the three most-important elements to any petrochemicals strategy.

Thus, for many in the US, adding capacity based on abundant and therefore low-cost ethane, thanks to the shale-gas revolution, adds up. US ethylene capacity could be increased by as much as 29 percent by 2017.

But, assuming that a fairly high percentage of ethylene derivatives capacity will have to be exported, another equally important consideration, next to low-cost raw material, has to be whether overseas markets will be able to absorb these volumes.

Petrochemicals capacity in emerging countries can be added for strategic and nation-building reasons, rather than for profit, and so proposed new US capacity has to also be evaluated on this basis.

Coal-to-chemicals is strategic in China, as it will boost the country’s energy independence, even though the process is expensive and causes significant damage to the environment. Thus, many of the China coal-based projects detailed here, in this article from ICIS Chemical Business, could still go ahead even though they may not stack-up in terms of dollars and cents. Sinopec, the state-owned energy, refining and chemicals major, is now also involved in coal-to-chemicals, which suggests an acceleration in investment.

Further, we believe that the global economy, in its transition to the New Normal, is undergoing major changes. The type of growth we saw during the early 1990s to 2007 “golden era” can no longer be re-assured.

And turning our focus to the US economy, a multi-year plan is needed to revive US manufacturing in order to create the domestic demand sufficient to absorb all of these new local crackers and downstream plants.

But, as Jeffrey Sachs, in his excellent book, The Price of Civilisation, points out, the US is in the midst of a 30-year revolt against taxes and government. There is a great deal of pressure for lower taxes, especially for the rich, and for less government spending – in the belief that these measures will, by themselves, by sufficient to bring the budget deficit under control.

Where, however, are the jobs going to come from for America’s working and middle classes – the 99 percent represented by the Occupy Wall Street movement – without more government involvement in the economy?

Manufacturing industry need to be reconfigured to supply “the products of the future” for the following three customer groups:

*The increasing size of the New Old 55+ generation in the West.

*The number of young Westerners struggling with higher unemployment.

*The increasing number of people moving out of poverty in the developing world.

Peter Spitz, who founded the consultancy ChemSystems, and who worked in the chemicals industry in research and engineering roles, warns, in this excellent blog post, that the US is falling behind on innovation.

Apart from shale gas and shale oil technologies, which have created a significant number of new jobs, Spitz warns that there are “no comparable ‘breakthroughs’ in other areas of domestic manufacture, as far as I can tell, and a lot of concern continues to be expressed about the loss of manufacturing jobs to countries in the developing world.”

He uses as an example from history, where US innovation helped to create jobs, when he writes:

Innovations in the application of car paints and finishes were made in the US, as well as in Europe, in response to the need to reduce or eliminate the smog-producing solvents used for spraying paint resins on cars.

This led to the development of powder coatings that could be applied electro-statically and then cured under heat to form a ‘skin’ that is tougher than conventional paint.

This technology is now used worldwide, undoubtedly including the manufacture of Buicks by General Motors in China and by VW in Mexico. But Honda, BMW, Volkswagen, Toyota and other ‘foreign’ firms are also using it to build cars in the U.S. That’s how the system works.”

Spitz stresses that the US still has huge potential in manufacturing because of its history of innovation and good intellectual property-right protection.

These are all themes we explore in more detail in chapter 8 of our e-book, Boom, Gloom & The New Normal, and the forthcoming chapters 9 and 10.

US petrochemical companies, as they eye all that abundant shale-gas based ethane, might well have a long-term outlook for US employment prospects that puts some of these doubts to rest. It would be fascinating to hear the details…..


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