Shale Gas Revolution Could Stem Decline in Chemical Production in the US
New applications of existing natural gas extraction technologies are providing significant advantages for US-based chemical companies. The on-going shale gas revolution in the US is shifting market dynamics in the Global Chemical industry. As per estimates, the US has approximately 25 trillion cubic metres of technically recoverable reserves of shale gas. This has now been […]
New applications of existing natural gas extraction technologies are providing significant advantages for US-based chemical companies.
The on-going shale gas revolution in the US is shifting market dynamics in the Global Chemical industry. As per estimates, the US has approximately 25 trillion cubic metres of technically recoverable reserves of shale gas. This has now been made accessible by advances in extraction technology. The abundance and accessibility of shale gas is expected to reduce the cost of natural gas in the US, thus providing the country with a significant competitive advantage in the energy-intensive Chemical industry. Over the next few years, the US is expected to transition from being a net chemical importer to a product exporter as a result of an influx of low-cost feedstock, thereby leading to rapid growth in its Chemical sector.
What Does this Mean for the Global Chemical Industry?
The shale gas revolution has breathed life into the struggling Chemical industry in the US. It has provided a key competitive advantage and restored the potential for growth. Just five years ago, the chemical industry experienced a decline and chemical companies were looking to invest in the Middle East, while becoming more specialized downstream. Nowadays, the US is positioned as an attractive place to invest, both for domestic and international chemical companies. Recently, chemical producers initiated plans to strengthen their positions in the US market, and several companies are beginning to set up operations in the US.
Clean Energy for the Future
Natural gas is emerging as a cleaner alternative to coal as environmental regulations are becoming increasingly stringent. Growth in the domestic production of shale gas has provided the US with a stable supply of natural gas for fuel and power, which has enabled increased coal exports to countries such as England, Germany, France, and Turkey. This gives the country the opportunity to reduce greenhouse emissions, while strengthening its export market.
How Does this Affect the Middle East?
Currently, the Middle East is viewed as a long-term energy and feedstock supplier, as well as a key supply point for China. However, the shale gas revolution has altered the investment climate for major players in the Middle East. The cheap feedstock, transparent market pricing, skilled workforce, and good track record offered by US-based suppliers have changed the market dynamics by shifting supply to North America, while demand increases in Europe and the APAC region.
The European Decline
The boom in US-based shale gas production and export presents companies in Europe with significant challenges. There is a significant lack of cheap feedstock in Europe, especially as countries such as Germany and France have implemented bans on fracking. Remaining competitive in the Chemical industry depends heavily on maintaining viable and cost-effective energy and feedstock, forcing Europe to import coal and natural gas. The shale gas revolution in the US has increased the pressure on Europe to come up with a solution, and has exacerbated the struggle for European chemical companies to remain competitive globally.
How Will this Affect Markets in Asia?
Asia is home to many of the fastest growing markets in the chemical industry. Therefore, access to viable feedstock is important for companies in Asia. Major energy importers in Asia (China, Japan, and South Korea) are rushing to invest in the affordable feedstock being pumped out of the US. Although China wants to become self-sufficient, the country is expected to remain a net importer of feedstock until 2020.
The Chemical industry in India is still relatively small; however, a few large players have recently increased their scale of operations. India-based companies are expected to significantly increase investments in the Chemical sectors in the US and Europe over the next few years.
The Bright Future for US-based Chemical Producers
The boom in shale gas has made the US an attractive choice for both domestic and international chemical companies. The cost advantage of cheap natural gas feedstock has provided companies operating in the US with a significant competitive advantage over those operating in Europe, Asia, and the Middle East. Poised as an attractive production center, the US has propelled itself from imminent decline to a position of growth and self-sufficiency.