SHALE GAS PRODUCTION
The US, Canada and China will become major producers of shale gas, with the US emerging as the clear global winner in the exploitation of these reserves. The US chemical industry will continue to benefit from a feedstock cost advantage compared with Asia and Europe, which rely so much more on naphtha. Rising estimates of shale gas resources have helped to increase total US natural gas reserves by almost 50% over the past decade.
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NATGAS: US VERSUS EUROPE
As this chart shows, since shale gas started to become available in the US around 2008-2009, natural gas prices have fallen, then remained stable there. US prices have become disconnected from the oil price, unlike in Europe where prices have remained more tied to oil prices. This is obvious from the sharp rise in UK prices in recent months as the oil price has rallied. Cheaper natural gas means cheaper ethane for US chemical producers, giving them an advantage.
NATURAL GAS PROJECTIONS
Shale gas production in the US is expected to increase more than fivefold between 2007 and 2035, more than offsetting the decline in conventional natural gas production. The chemical industry is likely to benefit from the long-term continued availability of cheap ethane feedstocks. In Canada, production of shale gas is expected to reverse its decline. Reserves of shale gas in Europe are smaller than the US, and their development faces various challenges.
NAPHTHA
Forward planning for petrochemical production and pricing has become increasingly difficult as oil, and therefore naphtha, prices have become incredibly volatile. With predictions in a range of $35-95/bbl for crude oil in 2011 (see ICIS Chemical Business, 3 January 2011, page 24) and up to $200/bbl in the long term, we are unlikely to experience a lessening of this phenomenon. This is driving the search for less volatile, alternative feedstocks.
EIA OIL FORECAST
These forecasts show the range considered realistic by the US Energy Information Administration (EIA). With such a range in place here and with other forecasters also varying wildly, chemical producers can do little more than put an educated guess into their scenarios to inform forward planning. Commentators suggest speculators and traders are a major factor in increasing oil price volatility. Non-petrochemical feedstocks now seem more attractive.
EIA OIL RESERVES
As this graph shows, over half (around 56%) of the world's proven oil reserves are located in the Middle East. Almost 80% of the world's oil reserves are located in just eight countries. Of these, only Canada and Russia are not members of the OPEC cartel. The Middle East has become a big user of ethane associated with oil fields as a chemical feedstock, but this may have reached its peak.
COAL PROJECTIONS
China is the clear global leader in coal production, and is predicted to accelerate coal production significantly over the EIA forecast period. The country will account for 75% of the increase in global production over the period. This has implications for the chemical industry: coal-to-chemicals technologies are developing quickly and new plants are planned to take advantage of China's coal deposits. Australia and New Zealand will also increase their production.
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