Advantage US?

By Malini Hariharan

The advent of shale gas and a fall in natural gas prices has already altered the fortunes of US ethane-based petrochemical producers. And now a new report says that the advantage is here to stay.

The Energy Information Agency (EIA) estimates that the US has 1,744 tcf (trillion cubic feet) of technically recoverable gas of which 550 tcf is shale gas. Based on the country’s 2007 production rate there is enough gas to supply the US for the next 90 years, says Ahmed Hassan of Alembic Global Advisors.

His analysis shows that shale gas becomes economically viable to drill at prices above $5/mmbbtu which suggests that there is scope for upward momentum in current US gas prices.

US Shale Gas economic viability analysis (USD’000 unless otherwise stated)

“From a chemical industry perspective as long as natural gas prices remain at or near $5/mmBtu and crude oil prices remain above $70/ bbl the US industry will be extremely advantaged. Under such an energy price regime our proprietary global ethylene cost curve pegs average US ethane based production costs at $650/tonne (29c/lb) comparable to the newly starting up Saudi mixed feed facilities at $500/tonne (23c/lb) but well below marginal naphtha based costs of USD1,250-1,350/tonne (57-61c/lb) and current price levels of USD870/tonne (40c/lb),” he writes.

A continued disconnect between crude oil and natural gas prices means that US producers would remain substantially advantaged relative to naphtha based marginal producers which today account for over half of global supply.

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