The discovery of massive shale gas resources has brought about a major increase in U.S. natural gas reserves. This development has particular significance for the chemical and plastics industries. When natural gas is passed through crackers, abundant, low cost supplies of some feedstocks result. The emergence of shale gas brings into question the economic viability of renewable chemicals and biobased plastics, especially high volume PE, PP and PET. Shale gas plants produce ethane. Ethane-based plants can produce ethylene for roughly half the amount of naphtha based plants. This wide price disparity between ethane and naphtha has provided U.S. chemical firms with a massive cost advantage and plenty of incentive to relocate back to the United States. Bioplastics manufacturers are emerging as unlikely beneficiaries of the abundance of U.S. shale gas, as per Reuters. U.S. polyethylene producers are already big beneficiaries of the shale gas boom. This is because ethane is primarily produced when passing natural gas through crackers. On converting the low cost ethane into ethylene, U.S. PE producers now have a major feedstock advantage. However, more complex hydrocarbons derived from crude oil are becoming more expensive and their supply more volatile, adding urgency to a drive by specialty chemical companies to make bio plastics.

Increasing environmental awareness, activism and consumer interest have led to a sufficient number of rules and regulations enacted which, ultimately, have a dampening effect on the consumption growth rates for some mainstay flexible packaging products (and, ultimately, the raw materials going into those applications). While the impact today is relatively small, a report by IHS noted that the issue merits close attention, especially if consumer preferences for greener alternatives continue to grow in years to come. With that in mind, the development of "green" sources for the production of plastics is advancing steadily and is generating the first tangible results. Braskem started operations in September 2010 at a facility in Brazil that produces polyethylene from sugarcane. Customers include major consumer product companies that will use the sugarcane-based polyethylene resins for packaging of cosmetics and container closures. A second project for the production of biopolymer, also in Brazil, was recently announced jointly by Dow and Mitsui and Co., with start-up scheduled for 2016. Major chemical companies such as BASF, Mitsubishi Chemical, Lanxess and Solvay have teamed up with biotech firms to work on new strains of bacteria and fungi that can turn plant material into chemical building blocks.

Morgan Stanley said the global bioplastics market could grow by as much as 40% pa on average through 2020 to become a US$30 bln industry, in the "bull-case" scenario. While concern about oil scarcity and consumer demand for renewable products have been long-term drivers of bioplastics research, production of shale gas by hydraulic fracturing (fracking) has added to the investment case. To make the best of the 50% plunge in U.S. natural gas prices over the past four years, the U.S. petrochemical industry is building new steam crackers to convert gas into ethylene. The American Fuel & Petrochemical Manufacturers association cited estimates that ethylene capacity could expand by 30% by 2017 and keep on growing. This puts steam crackers that feed on naphtha, a distillate of more expensive crude oil, at a disadvantage. Naphtha crackers are by far the main contributors of heavier petrochemicals such as propylene or butadiene, which have more carbon atoms per molecule than ethylene. A continued shift to ethane cracking will lead to an ongoing shortage of higher carbon chemicals such as propylene or butadiene. The availability of heavier petrochemical precursors has become a major concern among procurement departments of European specialty chemicals makers. In 2009, ethylene cost about 70% more per metric ton than butadiene, but it has become about 30% cheaper than butadiene this year, according to Kepler Capital Markets.

German synthetic-rubber maker Lanxess, the world's largest consumer of butadiene expects that butadiene prices will remain volatile at high levels. Interestingly, this could encourage alternative technologies. Last year, Lanxess secured a stake in U.S. biotech group Gevo, which is working to ferment sugar into a type of four-carbon alcohol that can be further processed into butadiene. Besides efforts are being made to develop dedicated butadiene production from natural gas. Over the next four years, the main impetus for an increase in bioplastics production will have nothing to do with shale gas. Instead, it will be driven by Coca-Cola's aim to switch to a renewable, plant-based bottle from the ethylene that goes into PET. But over the long-term, the predominant push will be to develop bio-based substitutes for heavier, oil-based feedstocks such as propylene, butadiene or benzene. Almost all of the commercial development projects currently under way - dozens overall - are targeting these substances. While consumers tend to prefer renewable-labeled goods, they will pay little more than the price of petroleum-based equivalents.

To drive down costs, bioplastics developers are depending on the booming biofuels industry, relying on enzymes already developed by companies such as Novozymes and DuPont to break starch into sugars. These sugars, rather than being fermented into ethanol fuel, can be used to feed microorganisms bred to churn out the chemical building blocks used to produce plastics. Industries eagerly await advances in the enzymes industry to turn cellulose and wood from agricultural waste into fermentable carbohydrates to defuse the debate.Steady progress in bioengineering over the past decade has fanned hopes that bioplastics can become cost-competitive with the petrochemicals sector, which had a 50-year head start. While bio-plastics represent only 1% of the total plastics market today, NanoMarkets' report projects that amount will grow to 7% by 2020. Market drivers include recyclability of bio-based PA, PE and PET and the bio-degradability/compostability of other bio-plastics. The sector will benefit from European and Japanese mandates favoring compostable/recyclable materials, also the involvement of big name firms such as BASF and Dow Chemical which are investing billions of dollars into bio-plastics. To reach full potential, bio-plastics must come down in price; today they are two-to-three times the price of fossil-based plastics. This sector is also highly capital intensive. For every 1 mln ton of bio-plastics production capacity, at least US$1.25 billion is invested. Cost reductions will be achieved through economies of scale and by using less expensive feedstocks; switching to cassava for bio-PLA will reduce feedstock cost by 70%. Another factor that will help bio-plastics will be ongoing technical improvements such as better barrier coatings.

A market study by Frost & Sullivan sees great chances for bioplastics as cost effective mass products. Frost & Sullivan expects the profits from bioplastics on the European Market to grow up to EUR 475.5 mln in 2016 (from a profit of EUR 142,6 mln in 2016). The survey sees increasing prices for raw materials and a growing consciousness for the environmental impact of packaging waste as the driving forces behind this growth. Due to the competitive pressure on the plastics market, bioplastics still have difficulties with competing with cheaper oil based plastics. The unstable politic situation in several Middle East countries and volatility of crude oil price from the relative stable prices in the mid-nineties could well make alternative resources for plastics more competitive. Some of the difficulties with cost-efficient production could nevertheless be overcome if bioplastics are produced as a mass product by the big players on the synthetics market. Focusing on increased production capacities and the efficient use of them could well help to overcome the difference in price between biopolymers and conventional plastics;" explains Sujatha Vijayan, Research Analyst of Frost & Sullivan. "This will generate growths on the market and help to find replacements for oil-based polymers in numerous applications." But also administrations could play an important part in the break-through of biopolymers: by offering tax privileges or legal regulations in favour of bioplastics, Frost & Sullivan.

European committees COPA (Committee of Agricultural Organisation in the European Union) and COGEGA (General Committee for the Agricultural Cooperation in the European Union) have published an assessment of the potential of bioplastics that indicates a potential 2,000,000 tpa market in Europe:

Catering products:  450,000 tpa
Organic waste bags: 100,000 tpa
Biodegradable mulch foils: 130,000 tpa
Biodegradable foils for diapers 80,000 tpa
Diapers, 100% biodegradable: 240,000 tpa
Foil packaging: 400,000 tpa
Vegetable packaging: 400,000 tpa
Tyre components: 200,000 tpa
Total 2,000,000 tpa

Environmentally conscious consumers grow more and more aware of the problems with recycling packaging waste and the scarcity of raw materials. Therefore, degradable bioplastics could play an important role when packing food, medicals or consumer goods. But also packaging of agricultural or gardening products could well become an important market for degradable bio-foils.