Low Priced Oil Impact on U.S. Chemicals
Extended low oil prices could slow U.S. petrochemical renaissance
Operator Tim Mouton inspects polymer pellets for quality at the LyondellBasell Bayport Polymers Plant, Monday, October 11, 2010 in Pasadena, TX. (Eric Smith/Houston Chronicle)
A drawn-out recovery for oil prices could stall the so-called “second wave” of the petrochemical boom in the Houston area and along the Gulf Coast, according to a new report released late Wednesday by the IHS consulting group.
The bountiful ethane that comes from natural gas liquids and U.S. shale production would become more scarce, according to the IHS Chemical report. Ethane is used to make ethylene, which which is the main building block for plastics.
Likewise, European and Asian plants that rely more on naphtha, which is essentially a more expensive alternative to ethane, would become more cost competitive and see a resurgence in value starting in about 2019. The result of which would mean a reduction in U.S. chemicals and plastics exports. As such, companies may “take a pause” regarding expansions and new projects in the U.S., said Don Bari, IHS Chemical’s vice president of technology and analytics, who authored the report.
A host of companies — Chevron Phillips Chemical, Exxon Mobil Chemical, LyondellBasell, Dow Chemical, BASF and more — are planning about $30 billion in petrochemical construction projects in the greater Houston area, seeking to take advantage of cheap prices for U.S. natural gas feedstocks.
Between 2010 and 2023, chemical companies have committed more than $100 billion in new expansion projects in the U.S., according to the American Chemistry Council.
Many international naphtha-based plants struggled for years, but should see a resurgence if oil prices do not rebound, Bari said, in part because the oil market drives price-setting mechanisms for many chemicals, plastics and fibers. Long-term oversupply of crude oil could keep prices from recovering for a decade or so.
“Oil price volatility is creating a nightmare for companies planning investments,” Bari said.
The U.S. petrochemical market should still remain strong in the coming years, he said, but other countries may fare better and offer increased global competition.
“It’s not that the U.S. won’t be advantaged, but not as advantaged,” he said.
Overall, the “winners” would be European and Asian naphtha-based chemical producers, and more South American polyethylene projects would likely move forward as well, according to the report.
“North America would be the losers in this equation,” the IHS Chemical report noted, “since the North American export position would be negatively impacted as its economic advantage shrinks.”
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