Fuel Fix » U.S. petrochemical renaissance sows worry in Europe

The U.S. petrochemical resurgence is being closely watched in Europe where companies are wondering whether the deluge of North American shale gas will sap away their competitive advantage.

European chemical companies face greater pressure to rethink the way they do business if they want to compete against U.S. petrochemical plants, which are benefiting from vast new supplies of cheap natural gas created by technological advances in hydraulic fracturing and horizontal drilling, said Kurt Aerts, ExxonMobil Chemical’s vice president of global supply chain said Tuesday at a Houston event sponsored by the Port of Antwerp in Belgium.

Doubts have been swirling over whether European chemical companies will be able to stay afloat, plagued by high prices, stringent regulations and new competitors in the United States.

The chairman of the mutlinational chemical company Ineos, with headquarters in Switzerland, posted an open letter in March warning that Europe’s big chemical industry was headed for extinction.

“I recall the extinction of the European textile industry happening before my eyes as a young graduate at Courtaulds in the 1980s,” Jim Ratcliffe wrote. “Chemicals could go the same way. It could well be another European dinosaur.”

Ratcliffe noted that European gas costs three times as much as U.S. gas, and electricity costs 50 percent more. As U.S. petrochemical companies expand, Europe announces “closure after closure,” he wrote.

The shale boom has been a “game-changer” for the chemical industry, Aerts said, touching off a petrochemical building spree in the United States, as companies scramble to expand and retrofit their plants to capitalize on the cheap feedstock. European companies, however, primarily run on naphtha, which is typically derived from crude oil and is much more expensive.

They could import cheap gas from the United States, but doing so would require European chemical companies to make significant investments to upgrade infrastructure to accept the imports and be able to process the lighter feedstock, Wouter de Geest, CEO of chemical giant BASF’s operations in Belgium, said in a videotaped statement.

Instead, Europe’s chemical industry must slash production costs and invest in innovative ideas and technologies that make companies more efficient, Aerts said. Moderator Gürcan Gülen asked whether there was room for innovation and cost reductions in an industry as established as Europe’s chemical sector.

“You should never underestimate the ability of this industry to innovate,” said Ed Osterwald, partner at Competition Economists Group in Europe.

But the industry may not have to wait long to access the same cheap feedstocks that buoyed North American companies. Osterwald predicted that European countries, starting with the United Kingdom, would soon explore the same unconventional drilling and well completion techniques that allowed U.S. companies to free oil and gas trapped from once untouchable dense rock formations.

“The conventional wisdom that the shale revolution will never find its way to Europe, I think that’s rubbish,” Osterwald said. “It will happen.”

England sits atop oil deposits and shale formations in the region lie deeper underground than those in the United States, which could negate water contamination fears and other environmental concerns that Osterwald dismissed as nonsense.

“Once the British have done it and other Europeans see the economic development it will have, I think other parts of Europe will be explored, too,” he said.

Gülen agreed that the United Kingdom will likely explore unconventional production, but he doubted the trend would spread to other European countries where few rural, open spaces exist, raising the possibility for opposition from nearby residents.

“The U.S. is quite different,” he said. “People are drilling these wells in great big pastures where people aren’t living.”

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