US chemicals sector to keep global cost advantage for decades, study finds
The American Chemistry Council (ACC) lauded an IHS report released Wednesday that predicts a lasting competitive advantage for the US chemical industry thanks to plentiful, affordable natural gas -- part of a manufacturing renaissance that includes industrial expansion and new jobs.
The unconventional revolution is contributing to a shift in global competitiveness for the United States by unlocking new production cost advantages, the report said, which is particularly pronounced in energy-intensive industries, such as chemicals. The chemical industry will enjoy a profound and sustained competitive advantage that is expected to last for decades," according to the report.
This report from IHS affirms that revitalization of Americas chemical industry will endure, said Cal Dooley, chief executive for the ACC.
Natural gas supply growth is leading to unprecedented investment and capacity expansion in the United States, in stark contrast with other areas," he added. "We are truly the bright spot around the world.
While North American basic chemical and plastics production is expected to more than double by 2020, Western Europes will fall by about one-third, according to IHS projections.
By 2025, unconventional energy will help lead to as much as $100 billion in investment in US chemical and plastics facilities and boost industry capacity by nearly 89 million tons, IHS data showed. A recent ACC report found that investment has already begun, with dozens of companies planning shale-related projects.
As of this week, 126 chemical industry projects representing $84 billion in capital investment has been announced -- 54% of which is foreign direct investment in the US.
Robust supplies of natural gas liquids (NGLs), especially ethane, are key to the chemical industrys newfound competitiveness. NGLs are the principal feedstock for basic chemical and plastics in the US, while companies overseas mostly use naphtha, which is oil-based.
Since feedstock comprises about 75% of production cost, lower prices favor US chemical makers in global markets. IHS foresees NGL growth reaching 3.8 million bpd by 2020 -- a 100% increase over current levels. The positive outlook for NGLs is driving much of the chemical industrys investment and expansion by building confidence in a long-term advantage.
Unconventional energy will help drive a manufacturing renaissance beyond Americas chemical industry as industries benefit from lower costs for energy, electricity and raw materials. Over the forecast period 2012 2025, improving cost competitiveness for domestic manufacturers will lead to increased US industrial production, the report said. The increase is equivalent to $258 billion in new manufacturing output in 2020 and $328 billion in 2025.
The IHS report, Americas New Energy Future: The Unconventional Oil and Gas Revolution and the U.S. EconomyVolume 3: A Manufacturing Renaissance, cautioned that governmental policies could limit the nations ability to reap the rewards of shale gas development. Restrictive regulations have the potential to fundamentally alter the break-even economics of extraction, pace of development, or access to these energy resources, and could slow or reverse the manufacturing renaissance, it said.
The ACC said it shares those concerns. Government policies will play an important role in ensuring the United States optimizes its competitive advantage, grows its economy and creates jobs, Dooley said.
The ACC has testified that needed policies include access to natural gas reserves on government and private lands, continuing state-based regulation of unconventional production, reliable infrastructure to transport supplies and accelerated depreciation schedules for chemical industry investments in plant and equipment.
More details on the report can be found at the IHS website.
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