Shale production in USA has increased from practically nothing in 2000 to more than 13 billion cubic feet per day, or about 30% of the country�s natural-gas supply, heading toward 50% in coming years. There has been an increase in growth in drilling for shale oil and NGLs in USA over the past two years. US ethane supplies are forecasted to double by 2016, compared with the levels seen before the shale boom, to over 1.4 mln bpd. As a result, the US ethylene industry has seen a revival and restart of idled units, amid significant capacity expansions by either debottlenecking or new world-scale crackers. Several large scale ethylene makers in the US have made their foray into shale gas. As per Nexant, this increased production has been the primary driver for renewed profitability and growth in the North American petrochemical industry. Companies are now considering major capacity additions in the United States for the first time in decades. This is in response to rising margins and enhanced U.S. competitiveness due to attractively priced ethane relative to the cost of naphtha, the principal steam cracker feedstock in other major markets. Specifically, multiple brownfield capacity additions are being considered as well as several greenfield projects in the U.S. Gulf Coast and U.S. Northeast near the Marcellus shale gas resource. These major capacity additions are being developed even though growth in North American demand for ethylene derivatives over the next five to ten years is not expected to be able to absorb more than minor increases in regional production. Rising US ethane production is fuelling expectations that Middle Eastern producers might soon be fighting to preserve their hold on the European market. Fitch sees the increased availability of cheap natural gas liquids (NGL) feedstocks as a critical factor supporting the competitive position of North American commodity chemicals makers as it will push them down the cost curve vs global competitors. Technology to force natural gas from its underground source rock, shale, has transformed the energy picture of the United States in the past six years, and China-sitting on reserves some 50% larger than those of the U.S.- has taken note, as per National Geographic. China�s technically recoverable reserves are estimated at 1,275 trillion cubic feet vs the 2,000 trillion cubic feet estimated for North America. Issues that might limit this potential include a lack of water resources around China�s western shale reserves and the deep nature of some basins, coupled with hilly terrain. China lacks the extensive pipeline network that has enabled the United States to so quickly bring its new natural gas bounty to market. These factors combined with Chinese companies� relative inexperience are likely to make such projects more costly than their US counterparts and for this reason, Booz & Co expects that Chinese shale gas projects will not result in a substantial increase in production until 2020. The shale gas revolution underway in USA and China has not been replicated in Europe. Countries in the European Union have barely broken ground on shale gas, with some 20 test drills compared with estimates of almost 35,000 sites in the United States, as per Reuters. Though a disadvantage to the petrochemical industry, it could prove to be the unlikely saviour of long-term EU efforts to spur renewables and curb greenhouse gases. In Europe, gas is likely to mean conventional gas for the foreseeable future as the barriers to shale stay high. Higher population density and different rules on land and resources ownership explain in part why progress has been so much slower in shale exploration in Europe than in the United States. Environmental impact studies are under way in several countries to examine fracking. Interestingly EIA has down revised the estimated unproven technically recoverable resource of US shale gas to 482 trillion cubic feet, down from an earlier estimate of 827 trillion feet.
The rise of shale gas in the US has started to make an impact on the differential between propylene and ethylene, as per gtforum.com. As ethane starts getting increasingly utilized as a feedstock for ethylene cracking in USA due to its abundance, it will lead to reduced use of naphtha as a feedstock, thus causing shortage of propylene. Pricing of propylene relative to ethylene have started to widen in North America. The US market could see a 45% increase in ethylene supply by 2025, giving US petrochemical producers a significant competitive advantage. Products will be exported to Europe at a more competitive price. It will have some impact on the production in Europe, especially if the market is long. This is expected to result in significant long-term implications, including the possibility of US ethylene derivatives competing in the European market with supply from the Middle East, as per Oil and Gas Journal. Naphtha is the key feedstock used in Europe for ethylene production. Crackers in the region are ridden with problems of inefficient production that US polyethylene exports could potentially displace. However, currently, Europe is an important export market for the Middle East. Encroaching into the European market by US exports constitutes a potential threat and will play a vital role in the dynamics of the Middle East. It will be a challenge for Middle Eastern producers to defend market share while preserving margins. Interestingly, the Middle Eastern producers are beginning to lose their competitive cost advantage as faced with reduced ethane avails, they increasingly use naphtha sourced from the open markets. Since Asian producers do not have any feedstock advantage, they do not pose a challenge to their European counterparts. However, growing capacities in the region scheduled to come onstream over the next few years will increase the APAC region�s petrochemical self sufficiency and reduce imports, resulting in larger availability of polymer exports from the Middle East to Europe. Crackers in Asia have the advantage of cheaper labour but since freight cost from Asia to Europe are very high, it restricts material flows. A presentation from Asia Pacific Energy Consulting recently suggested that China might become a net importer of naphtha over the 2015�2020 period, while noting that naphtha demand has grown at a faster rate than that of gasoline in the East of Suez region. Two factors that are expected to slow the growth in China�s need for petrochemical feedstocks are the exploitation of its own shale gas resources and the current push for coal-olefins projects. China�s technically recoverable reserves are estimated at 1,275 trillion cubic feet. China�s five-year plan calls for coal-to-methanol projects to account for 20% of China olefin production.
The future of the petrochemical feedstock market and its impact on the petrochemical industry across the world is uncertain. However, current trends are the rise of US shale gas, expected to result in increased exports of US ethylene-based products to Europe and Latin America. However, the situation is complicated by the potential for new petrochemical capacity in Latin America and Asia, which may work to increase the amount of competition between American and Middle Eastern suppliers for the high-margin European market. The future of the European petrochemical feedstock mix is unclear. A series of European Commission roadmaps envisage virtually carbon-neutral power generation by 2050. Unless carbon capture and storage can be developed on a commercial scale, that means gas as a fuel has a limited future and should not be invested in too heavily. Environmentalists are especially against shale gas, whose environmental credentials are questioned in Europe.