US Shale Revolution Puts Squeeze On Europe’s Chemical Industry
European petrochemical makers risk being squeezed between low-cost producers in the Middle East and a resurgent chemicals industry in the US, where feedstock and energy prices have plummeted following shale gas discoveries.
After a decade of almost zero capacity expansion in US petrochemicals, shale gas has prompted the likes of Dow Chemical, LyondellBasell, Chevron Phillips and ExxonMobil Chemical to invest billions of dollars in ethane cracker capacity on the US Gulf Coast.
Fresh US supplies of petrochemicals – primarily ethylene derivatives such as polyethylene and PVC – will hit global export markets in coming years. Meanwhile, Middle Eastern chemical companies that have long had a big feedstock and energy cost advantage over Europe may struggle to export to a more competitive US and seek European customers instead.
Environmental concerns and greater population density have so far prevented Europe developing its own shale gas reserves, which threatens to leave European chemical producers at a competitive disadvantage in the near term. Natural gas prices in the US are roughly a third of the Europe price.
In Europe, petrochemical companies tend to run costly, crude oil-derived naphtha crackers. Although some economists believe that crude oil and natural gas spreads will eventually narrow, US companies are cashing in.
Bernstein Research estimates that the combination of high oil prices and cheap gas has boosted the profits of US chemical companies running ethane crackers by an annual $6bn, or roughly 14 per cent of the entire US industry’s profits in 2011.