Plentiful shale gas promises to keep domestic polyolefin production costs among the
lowest in the world. What that will mean for resin prices is an open question. To shine some light on whether processors of PE, PP, and possibly other plastics are likely to see direct benefits of shale gas development in terms of lower or at least more stable resin pricing—and when—we turned to expert researchers and consultants at Texas-based IHS Chemical, Houston and Resin Technology, Inc., Fort Worth, Texas. We also asked two major polyolefin suppliers to comment on how resin prices may be affected, but they did not reply.
It was just a little over five years ago that natural gas prices were so high that some chemical manufacturers were shutting down U.S. operations. Now, U.S prices are only a fraction of those in other countries—the result of new ability to access natural gas trapped in shale formations via technologies such as hydraulic fracturing (“fracking”) and horizontal drilling. Natural gas, which is about one-third the cost of crude oil, contains large amounts of ethane, which is processed to make ethylene monomer, considered the workhorse of petrochemical building blocks, particularly for making PE, ethylene dichloride used in PVC, and styrene monomer for PS and other styrenic resins.
UNIQUE NORTH AMERICAN ADVANTAGE
A recent IHS study, IHS Chemical 2014 World Ethylene Analysis, analyzes global ethylene markets for 2008 to 2023. It concludes that while abundant North American shale energy resources are driving low-cost ethylene production and a competitive resurgence for the continent’s producers of ethylene and its derivatives, producers in the Middle East are facing the opposite and unfamiliar challenge of ethane supply limitations. “The U.S. ethylene industry and the ethylene industry in the Middle East have essentially traded places in terms of supply outlook in the past few years. There is a tremendous amount of U.S. capital investment under way, with units starting up beginning in 2017,” stated Steve Lewandowski, IHS director of olefins research and an author of the study.
Lewandowski pointed out that “once blessed with abundant supplies of cheap ethane, Middle East producers invested heavily in capacity additions, but this market shift, a lack of readily available ethane supplies, has effectively put a stop to new, low-cost ethane-based ethylene capacity and shifted investments to ethylene-based on LPG (liquefied petroleum gas) and naphtha feedstocks.”
This past July, Dr. Joseph Ertl, head of Germany’s plastics industry trade body, known as the WVK, noted that thanks to cheap shale gas, the U.S. has emerged as “a very serious competitor in manufacturing terms and [is] developing into a global hub for petrochemicals.If cheap gas, low-cost energy and low-cost petrochemical raw materials substantially improve the [local] conditions in the U.S., they will tend to worsen conditions in all the other economic areas.”