By NIDAA BAKHSH
The US shale gas boom is reverberating across Britains
chemical industry, the nations second-largest export
The 20-billion pound ($33 billion) chemicals business is
losing sales to lower-cost competitors such as in the US,
where new supplies from domestic shale drilling have reduced
prices for natural gas
, the fuel used in
making chemicals such as plastics. By 2020, the chemicals
industry in the US will be 21% larger than in Europe, from
near parity now, according to the American Chemistry Council.
The price of gas, also used to make electricity, in the past
month averaged about two-thirds less in the US than in
Britain, the steepest discount in five years. Thats
giving Americans an edge over UK chemicals makers such as
Ineos Group, the largest. BASF, India
s Tata Chemicals and
Lotte Chemical Corp. of South Korea shut plants in Britain
The UK chemicals industry has responded by joining the oil
lobby in pushing the government to clear obstacles for
drilling shale rock. The threat to chemicals, among the most
energy-intensive industries, shows how the widening cost gap
risks inflicting further pain on a U.K. industrial sector
thats yet to recover from the financial crisis.
The chemical industrys ability to underpin
sustained growth in UK manufacturing is increasingly
determined by the need for competitive and secure supplies of
energy and feedstock
s, said Tom Crotty,
a director at Ineos. The safe exploitation of
unconventional gas is central to that supply.
Essar Energy, a unit of Mumbai-based Essar Group, is in talks
with shale gas suppliers in the UK, the company has said. It
uses gas to power processing plants and as feedstock
for its Stanlow refinery
and chemicals site in the
The UKs Chemical Industry Association has warned the
government that electricity is expected to make up 70% of
costs by 2020, from as much as 60% currently, risking
competitiveness, and has urged lawmakers to speed up the
development of shale. The group wrote to Chancellor of the
Exchequer George Osborne to broaden and deepen
measures and to close the gap with US operators.
A study by the British Geological Survey found fields in
northern Englands Bowland Basin may have enough shale
gas to meet demand for almost 50 years.
While the UK government is encouraging shale drilling through
lower taxes as reserves in the North Sea decline and imports
rise, drilling has barely started, stymied by planning
regulation and environmental pressure groups, who say exploration
can contaminate water.
Tata will close a soda ash and calcium chloride plant, the
company said on Dec. 9. Lotte said on Dec. 3 it will shut a
purified terephthalic, or PTA, plant, while Germanys
BASF said in October it will close its Paisley pigments
BASF, the worlds largest chemicals maker, said
Americas shale boom will be a challenge for Europe.
In the long term, this would result in a relocation of
energy-intensive companies with a knock-on effect for the
subsequent value chains, CEO Kurt Bock said in October.
The US has seen $100 billion of new investments in chemical
manufacturing as costs are as low as in the Middle East,
Steve Elliott, head of the UKs CIA, said by phone on
Dow Chemical, which had been expanding in the Middle East, is
returning home with plans to invest $4 billion to increase
capacity in the US. Celanese announced this week it was
closing plants in France and Spain and is continuing with a
plan to build a factory that makes methanol from gas in
Saudi Basic Industries Corp., also known as Sabic, is seeking
a partner to form a chemicals venture in the US to benefit
from low-cost shale gas supply, CEO Mohamed Al-Mady said last
month in Dubai.
Ineoss Grangemouth site in Scotland faced closure this
year, after months of losses, threatening more than 800 jobs
before a deal was made with workers to save the plant.
The company, based in Rolle, Switzerland, will be importing
from the US and is
building an import terminal to handle the increased flows. It
will close a unit at the site by 2015 to be able to operate a
newer plant at full capacity while expanding at its site in
The UKs chemicals industry, grouped with
pharmaceuticals, represents an eighth of all manufacturing
and is the fourth-largest after food, engineering and
transport, according to the chemical industry. Sales for the
sector amounted to 55 billion pounds in 2011, generating 20
billion pounds in added value for gross domestic product, it
said. It was the largest export earner last year after motor
vehicles and parts, according to government data.
Europe needs to catch up with the US and Asia in
, Sabics Al-Mady
said in a presentation in October.
This is necessary to ensure that it can regain a cost
leadership position to adequately serve its home market and
support the entire advanced manufacturing supply chain in
Europe, he said.