US Shale Boom Shakes UK’s $32 Billion Chemicals Industry

  • Date: 13/12/13
  • Nidaa Bakhsh, Bloomberg

The U.S. shale gas boom is reverberating across Britain’s chemical industry, the nation’s second-largest export earner. The U.K.’s Chemical Industry Association, has warned the government that electricity costs are expected to rise by 70 percent by 2020.

The 20-billion pound ($32 billion) chemicals business is losing sales to lower-cost competitors such as in the U.S., where new supplies from domestic shale drilling have reduced prices for natural gas, the fuel used in making chemicals such as plastics. By 2020 the chemicals industry in the U.S. will be 21 percent larger than in Europe, from near parity now, according to the American Chemistry Council.

The price of gas, also used to make electricity, in the past month averaged about two-thirds less in the U.S. than in Britain, the steepest discount in five years. That’s giving Americans an edge over U.K. chemicals makers such as Ineos AG, the largest. BASF, India’s Tata Chemicals Ltd. and Lotte Chemical Corp of South Korea have closed plants in Britain this year…

The U.K. chemicals industry has responded by joining the oil lobby in pushing the government to clear obstacles for drilling shale rock. The threat to chemicals, among the most energy-intensive industries, shows how the widening cost gap risks inflicting further pain on a U.K. industrial sector that’s yet to recover from the financial crisis.

“The chemical industry’s ability to underpin sustained growth in U.K. manufacturing is increasingly determined by the need for competitive and secure supplies of energy and feedstocks,” said Tom Crotty, a director at Ineos. “The safe exploitation of unconventional gas is central to that supply.”

The U.K.’s Chemical Industry Association, has warned the government that electricity costs are expected to rise by 70 percent by 2020, risking competitiveness, and has urged lawmakers to speed up the development of shale. The group wrote to Chancellor of the Exchequer George Osborne to “broaden and deepen” measures and to close the gap with U.S. operators.

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