Chemicals boom comes to U.S. while Europe’s output stagnates

Chemical factory
Source: DollarPhotoClub

According to a new American Chemistry Council (ACC) study, America’s affordable and abundant supplies of natural gas will fuel $63 billion in chemical exports growth by 2030.

Meanwhile, European chemical output was stagnant, edging ahead just 0.3 per cent in 2014 on a year-on-year basis, according to the latest Cefic Chemicals Trends Report.

The report – Fueling Export Growth: U.S. Net Export Trade Forecast for Key Chemistries to 2030  – hailed a new golden era for U.S. manufacturing, with the shale revolution creating a multi-decade opportunity for increased petrochemical production and exports.

The report predicts gross exports of chemicals to double from $60 billion in 2014 to $123 billion, while net exports are projected to grow from $19.5 billion in 2014 to $48 billion in 2030. On a commodity basis, the biggest driver of the improving U.S. trade surplus will be plastics (reaching $21.5 billion of net exports by 2030, an increase of $15 billion) and specialties (reaching $20.5 billion, an increase of $9.3 billion), with moderate growth in intermediates (reaching $9.15 billion, an increase of $3.1 billion).

The U.S. manufacturing renaissance is officially a fact, with petrochemical giants moving production back to the U.S. from overseas, because of much lower U.S. natural gas prices. The methanol industry is a prime example of the shale-fuelled boom in U.S. downstream.

Last month, Canada’s Methanex, the world’s largest methanol producer, began making methanol at its new 1 million ton per year plant in Geismar, Louisiana, which had been relocated from the company’s previous production site in Punta Arenas, Chile. In addition, the company intends to relocate another plant from Chile to Geismar, and to grow its methanol capacity by 3 million tons over the next three years.

“As late as mid 1990s, we had fairly stable and balanced methanol demand in the US,” tim Vail, the CEO of G2X Energy explained during a presentation at the Monetizing C1 Methane Feedstocks conference in Houston. “In the late 2000s, we saw the tremendous gas [price] spike…and many plants not only shut down, but they were also disassembled and moved [from North America]. We were literally to the point where only two or three plants remained.”

This all changed with the abundance of cheap natural gas flowing from America’s shale plays.

“Gas prices plummeted again, and now the US is the world’s largest producer of natural gas and one of the cheapest,” Vail said. “Now we’re starting to see that methanol capacity come back.”

This return of methanol producers to the U.S. is not without challenges. Methanol plants are expensive to build, although this did not stop some early entrants into the industry. These include – apart from Metanex – OCI and Celanese, all of which have projects ongoing.

Selling the methanol might also not be straight-forward. Only this week, Iran has announced a near-completion of the world’s largest methanol plant, which is geared to compete with American methanol and LNG.

Despite the challenges, however, the news is good for U.S. manufacturing. Chemical companies have begun or are planning 223 shale-related projects to date, including eight announced in December, representing a cumulative investment of $137 billion. Gross exports of chemical products, including plastics, are projected to double, from $60 billion in 2014 to $123 billion by 2030.

Most importantly, the ACC report argues that the success of U.S. E&P firms in shale gas and oil exploitation are unique to the U.S. in most cases and unlikely to be soon matched anywhere else in the world. Even with the recent drop in oil prices, the industry continues to enjoy a distinct competitive advantage in global markets (with an oil-to-natural-gas ratio of approximately 18:1).

This is in sharp contrast to the European chemical sector, for which growth was pretty much stagnant. Latest monthly data show a 1.2 per cent contraction in December 2014 compared with December 2013, and just 0.3 per cent in 2014 on a year-on-year basis.

According to the latest Cefic Chemicals Trends Report, anaemic growth during the full year 2014 was hampered by shrinking petrochemicals output, down 4.0 per cent during the year 2014 compared to 2013.

Cefic Director General Hubert Mandery said: “Flat growth in 2014 was partly due to sagging exports. Any help from the recent dips in lower oil prices have not solved a greater long- term problem of ensuring reliable energy supplies at competitive prices.”

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