Energy Intensive Industries: A Tale of Woe?
At Unconventional Gas Aberdeen 2014, Gary Haywood, Director, INEOS, offered a “perspective of the industrial scale consumer in petrochemical business.” He said his speech would start as a “tale of woe.”
INEOS, he explained, was a world-scale producer of chemicals, with 15,000 employees, and 54 million tons of chemicals capacity. The company had lots of capacity in Europe, where it had started in the late 1990s. Now, however, Mr. Haywood reported that the company's facility in Houston had been affected by what was happening in North America: the so-called “shale gas revolution.”
He mentioned the many chemicals that went into packaging, and the role shale gas could play as a feedstock for such an industry. “For us, as a chemical company, what's happened in the US has been the thing that has impacted us,” he observed.
Referring to the beginnings of the shale gas boom on a diagram, he said: “This sharp increase in production of shale gas is the reason for the impact.
“This is what has happened to the gas price,” he remarked. “So, when you look at European versus US gas prices, for a long part of our history they were fairly well connected and somewhat related to oil.
“But what we've seen happen since the US shale took off, we've seen the US gas price disconnect from the European gas price, which is due to a number of reasons, some of them infrastructure and regulatory reasons in the US that impact the pricing that US industry is paying, and I think that, over time, it will somewhat equilibrate.”
He pointed out that the US had approved six new LNG export facilities for construction over the next 5-6 years. “So, things like this will, no doubt, affect that difference, but there is a significant difference there and it has had a profound impact on the economics of chemical production.”
A chart presented by Mr. Haywood depicted the influence on feedstock and how energy costs were a significant part of the cost for things that people use every day. To illustrate the change in the global cost curve for ethylene and renewed US competitiveness, he showed the curves from 2005 and 2012.
The US chemical industry had responded, he said, announcing projects to the tune of USD 72 billion in investment, and over half a million new permanent jobs.
Meanwhile, things were not looking good for the European chemicals industry. What could European petrochemical manufacturers do? he asked. Rationalization, closure of uneconomical sites, or mergers were in store. “That will happen and is happening,” he said, reminding that companies such as INEOS had to remain efficient and focus on growth.
“The key thing is we want to access cheaper feedstock, cheaper energy to try and compete with what's happening on in the US,” he explained.
In Europe, he reported, INEOS had completed a large number of deals for ethane used as feedstock for the company's crackers, even 15-year deals with US producers like Range Resources and Consol Energy; ships were being built to transport the ethane, and tanks were being constructed in Rafnes, Norway and in Grangemouth in Scotland.
Of the strategy, he explained, “It's a way that we can seize an advantage from what's happening in the US, bring that advantage onshore in Europe and at least maintain competitiveness at a couple of the gas crackers in Europe that can process that gas – and that retains jobs and the contribution in Europe, although the gas is coming from the US.
“It's not a permanent solution for those crackers – we need some onshore production, so what can UK and EU shale deliver is really the thing that we as a company are looking very hard at,” said Mr. Haywood.
The very survival of energy intensive industries in Europe – things like refineries, glass, cement, paper or any industry that used lots of fuel – would need more competitive and secure energy supplies, meaning that the effective and efficient production of shale gas would be very important for such industries.
Drew Leifheit is Natural Gas Europe's New Media Specialist.