Consequences of shale gas for the industry

Extraction of shale gas by hydraulic fracturing has significantly increased in recent years. Especially in the US, this form of production has rapidly gained importance and serves to fuel electrical energy and heat generation.

Fracking contributes to lower electricity costs in the US compared to other industrialized nations. In particular, this is returning energy-intensive industries in the US to a comfortable competitive position and could promote a re-industrialization of the recently battered US economy.

Impacts on the chemical industry and its products are expected to become apparent around 2017 when the pipelines and production facilities that are currently under construction will go into operation. Considerable changes are expected, especially in the commodities:

• In the US, more and more cost-effective gascrackers are being built; the importance of naphtha cracker swill decrease.
• There is a shift of production outputs towards ethylene. Propylene, butadiene and aromatics are becoming comparatively more expensive.
• Prices for polyethylene-type polymers (PE), particularly HDPE and LLDPE, will fall significantly below those for PP.

Plastics processors in the US will benefit from this development because, in addition to the good supply situation, low energy costs are assured, most likely prompting increased investments.

In Europe, however, many existing naphtha crackers have become unprofitable; investments in gas crackers hardly pay off any more. It can be observed today that the shift of production output towards butadiene has continued in a competitive environment.

European plastics processors will therefore have to source their needs increasingly on the world market since local / European production has declined. Also direct cooperation and development has become more difficult. The impact of fracking in Asia, especially in China, will depend on several factors:

• When and how will China exploit its non-conventional gas resources?
• Will CTO processes (coal to olefin) be developed? They are suitable for PP production, but their implementation is dampened for environmental and water protection reasons.
• How are propane crackers in the SEA states implemented? They offer an economical alternative in the face of increasing propylene prices.

Politics in particular will have a major impact on the outcome in these regions. The focus will be on maintaining individual countries’ own economic performance and further growth.

For engineering plastics or aromatics based on secondary products, however, only very minimal effects, or none at all, are expected since their value chain is barely connected to gas chemistry. Pending changes are not directly related to the boom triggered by fracking.

Also in the wake of the Crimean crisis, the topic of fracking has acquired special significance for Europe. The US plans to liquefy a certain amount of their gas production and to export it.

Basically, LNG deliveries might then help to increase the security of supply in Europe and to reduce dependency on Russia.

However, for US gas exporters, Europe does not take first place. A significantly higher price can be achieved in Asia than in Europe due to the high demand. On the other hand, US President Barack Obama has recently emphasized the geo-strategic dimension of gas supplies. This could lead to increased US efforts to rapidly deliver LNG to Europe in order to put Russia on a defensive economic footing.