The expansion of the US shale gas market
could potentially drive significant benefits to the US
chemicals industry, including decreased raw material and energy
costs, according to a new report from professional services
firm PricewaterhouseCoopers (PwC).
In the report, titled Shale Gas: Reshaping the US Chemicals
Industry, PwC estimates the potential impact of shale
gas on US manufacturing could enable US manufacturers to lower
their raw materials and energy costs as much as $11.6 billion
annually by 2025.
Before natural gas from shale can be transported efficiently
and sold commercially, impurities must be extracted. The
by-products of this process, known as natural
gas liquids (NGL), include hydrocarbons such as ethane,
butane and propane.
The chemical sector uses NGLs to produce a variety of
derivatives that ultimately become raw materials for multiple
manufacturing sectors. In the case of ethane, they convert it
to ethylene - the most significant single chemical in terms of
volume and value - and then a range of downstream products.
A sampling of manufacturing sectors that ultimately benefit
from greater capacity and more attractive pricing of NGLs spans
apparel and accessories, computers and electronics, machinery,
textile and fabrics and transportation equipment, among others,
As the US chemical
industry expands NGL conversion into a higher volume of
downstream products, the positive impacts could flow through
the value chain into other manufacturing sectors, particularly
given that chemicals are used in an estimated 90% of all
manufactured products, said Anthony J. Scamuffa, US
chemicals leader for PwC.
Not only could the abundance of NGLs help drive
reduced pricing for derivative products, it could also
potentially drive domestic re-shoring activity and possibly
bring about a favorable shift in the US balance of trade as
ethylene capacity comes on line.
Major oil and gas companies and upstream commodity industry
participants are evaluating their business models and actively
moving forward to take advantage of emerging shale gas
opportunities, according to PwC officials.
Some are considering whether to restart mothballed assets,
invest in green field projects, form strategic alliances,
and expand and upgrade existing assets. Many of these companies
are also executing large capital projects, identifying engineering
and construction resources, and
establishing strategic sourcing agreements with NGL
Further downstream, specialty chemical entities are starting
to feel the effects of natural
gas and NGL prices on their business models, PwC said.
Moreover, as the commercial distribution of ethane and
ethane-based raw materials increases, it could trigger new
innovations and investment in new technologies.
Research and development initiatives leveraging
ethylene-based chemistries that replace petroleum-based
products may predominate, PwC says. Companies might also look
for longer-term sourcing relationships and partnerships with
raw material suppliers to help with developing new
Based on industry reports, we estimate that the US
chemicals industry has invested $15 billion in ethylene
production, increasing capacity by 33%. As these investments
take hold yielding more supply, the US could become a major,
global, low-cost provider of energy and feedstocks, said Garrett Gee,
director of chemical advisory services at PwC.
We are already seeing increased investment activity
among multinational companies in building the infrastructure to
export liquefied natural
gas (LNG) products.
As manufacturers replace petroleum-based raw materials with
products based on ethylene, their cost structures should also
change significantly, as well as supply and demand for certain
This pattern may be repeated for other petroleum-based raw
materials, many of which are used in building, construction, adhesives, paint,
coatings, plastics, packaging and carpeting.
If the changes brought about by shale gas take hold in the
chemicals industry, PwC says they will also create a need for
specialty steels, reactors, pumps, valves, fittings, control
systems, storage tanks, and other equipment, as well as the
services of engineering and construction firms.
Another possible outcome is that chemical products will
increasingly become a substitute for more expensive materials,
such as metals, glass, wood, leather and textiles.
There is no doubt that the significant increase in NGL
production could drive change across the US chemicals industry,
but the full potential of the market will depend on a number of
factors, said Scamuffa.
According to a New York Times article by
Michael Levi in August, these factors include domestic
tolerance for expanded hydraulic fracturing and its waste
products, as well as the political and economic ramifications
of exporting LNG.
The implications of the shale gas boom for the
chemicals sector also vary by company, so management teams need
to consider their individual situation and business options,
including the risks and opportunities presented by the
abundance of shale gas.