US Petchems Face Competing Gas Interests

USshalegasACC.pngBy John Richardson

A MAJOR political battle is taking place in the US over the future of the booming natural gas industry which could well have major implications for the country’s petrochemicals industry.

There was angry reaction from Dow Chemical CEO Andrew Liveris on 6 December over the contents of a Department of Energy (DOE) report on US liquefied natural gas (LNG) exports.

The report promotes the economic virtues of granting more approvals for LNG projects. It estimates that exports could deliver a $47bn boost to the economy.

But Liveris said that the report was “flawed, misleading, and based on outdated, inaccurate and incomplete economic data,” and that it failed to give due consideration to the importance of manufacturing in the US economy.

“Manufacturing is the largest user of natural gas in the US, and creates more jobs and more value to the US economy from natural gas than any other sector,” he continued

“The value of every unit of energy used by the manufacturing sector is multiplied by as many as 20 times from the production of thousands of high value products though the value chain. Compare this to the 1-time value created by exporting energy as liquefied natural gas.

“Furthermore, for every manufacturing job created on the factory floor 5-8 more are created in the larger economy.”

He talked of a US manufacturing revival, spurred by lower US energy costs. There are other factors behind the revival, as we discussed last week.

The chart above provides visual support for Liveris’s arguments about the benefits that cheap gas can deliver downstream of petrochemicals.

The New York Times newspaper, in this 15 December editorial, took a very different view to Liveris when it wrote: “While the (DOE) report dwells largely on economic issues, exports would also help to lower emissions linked to global climate change by giving countries like India, China, Japan and Germany access to a cleaner energy source than coal.

“Greater gas exports could also factor into American foreign policy. By offering countries like India and China access to cheap American gas, Washington could make it more palatable for them to join in supporting sanctions against Iran, for instance. And it could give the United States new leverage in trade negotiations.”

Another geopolitical dimension has been added to the debate by US Senator Richard Lugar.

“Senator Lugar (Republican-Indiana) introduced a bill this week that essentially would establish an energy free trade agreement between the US and each of the 28 member nations of the North Atlantic Treaty Organisation (NATO),” wrote my colleague Joe Kamalick in this 13 December article.

“He said the legislation, titled the Liquefied Natural Gas for NATO Act (LNG-NATO Act), was needed to protect US security interests by insulating US European allies from energy blackmail at the hands of Russia.”

If passed, the bill would make the 15 US LNG projects a great deal more viable.

This all adds to our argument that the viability of the numerous US cracker projects is far from being a slam dunk.

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