US Euphoria

By John Richardson

THE shale gas advantage, along with the revival of the US economy, made for a euphoric atmosphere at last week’s International Petrochemicals Conference (IPC)* in San Antonio, Texas.

China was only a blip on the corner of the radar screen because the talk was so domestic-focused.

The only doubts expressed were over whether regulatory restrictions over permitting for fracking, and the risk that the US will become a major exporter of liquefied Natural Gas (LNG) thereby reducing feedstock supply for petrochemicals, might spoil the party. There was obviously a political sub-text here with the US presidential elections just around the corner.

Contrast this with a discussion the blog had in Singapore recently with a senior polyolefin industry executive, who said: “All the projects being planned in the US and elsewhere will not go ahead.

“There are too many uncertainties over China, and over the global economy in general, for every company to take the risk. If all of them do commit to their planned investments, by 2016-17 we are going to see a big oversupply problem.

“The US will not be able to export all the surplus volumes that are being planned. They are already facing tougher competition in Latin America from displaced Middle East and South Korean volumes from China, and this is going to get worse.

The traditional approach has been “if we have the feedstock advantage let’s build, and let’s build big as demand will take care of itself”.

Most US chemicals companies laid-off their in-house economists during the 1990s and early 2000s because growth seemed so assured, we were told by a US management consultant.

“They just had to take growth estimates from the International Monetary Fund, or another official body, and could rightly assume that the numbers would be roughly right,” he said.

“It would certainly be the case that the general direction would be right of these estimates from official bodies – i.e. upwards.”

But we argue in our e-book, Boom, Gloom & The New Normal, that we have entered a period of great economic uncertainty.

China is an excellent example of this. Few people predicted the weakness in its petrochemicals markets over the last 12 months.

And who can say with any degree of certainty that the US economy, which will have to soak-up most of this extra petrochemicals volume, will enjoy a strong and sustained recovery?

Pause for thought, at least.

*The IPC was organised by the American Fuel and Petrochemical Manufacturers (AFPM).

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