PERSPECTIVE: SHALE GAS’S IMPACT ON CHEMICAL INDUSTRY
[ By Ennovance Capital - Chemicals, energy, water, healthcare and chemistry related industry focused private equity and other alternative assets investors www.ennovance.com ]
We believe that the Shale Revolution presents a once-in-a-lifetime opportunity unique to the United States that will have a profound impact on the chemicals industry. Nearly 100 projects announced as of Q1-2013, $72 billion in potential chemical industry capital investments, $67 billion in additional output by 2020 (with new & permanent federal, state, and local tax revenue of $14 billion from increased chemical industry output by 2020, according to ACC)!
The Shale Revolution will create 17,000 new high-paying and knowledge-intensive positions in the chemical industry, will result in a $32.8 billion increase in United States chemical production, will cause $16.2 billion in capital investments to build new petrochemical and derivatives capacity, and will lead to $132.4 billion in United States economic output related to increased chemical production and capital investment. The Energy Information Administration estimates that shale gas production will grow 113% from 2011 to 2040 and that its share of United States natural gas production will grow from 34% to 50%. The primary end market consumers during this period will be the electric power generation end market and the industrial end market.
The input cost advantage in North America that is being led by an increasing abundance of nat gas and helping both organic chemical producers through NGLs as well as the inorganics through lower energy costs (Middle East being the one exception), the North American chemicals landscape looks to be the most promising world-wide for years to come, justifying the heavy domestic investment that the industry is set to see. There is the potential for a raw material cost advantage of up to 60% for products in the ethane-ethylene value chain.
Key questions would remain in our ability to manage typical risks for a complex industry, such as environmental, regulatory, specialized credits and equity investment approach, proper tax treatments, infrastructure and access to realize the Shale gas driven potentials. What are your thoughts?
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2.
17,000 new high-paying jobs in the industry
$32.8 billion increase in US chemical
production
$16.2 billion in capital investments to build
new petrochemical and derivatives capacity
$83.4 billion in US economic output related to
increased chemical production
$49.0 billion in US economic output related to
US chemical industry capital investment
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5.
55 gigawatt reduction in coal-generated electricity
between 2010 and 2020 resulting from EPA
regulations
Between 2000 and 20011, natural gas use for
electric power generation grew from 5 trillion
cubic feet (Tcf) to 7 Tcf
Natural gas share of electricity generation grew
from 22% in 2009 to approximately 30% today
Coal generation declined from 45% in 2009 to 35%
today
The Energy Information Administration estimates
that roughly 9 Tcf will be used for electric power
generation by 2025
Source: Energy Information Administration
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6. Manufacturing Industry
2012
2015
2020
2025
Basic Organic Chemical
1.2%
4.9%
7.1%
9.5%
Basic Inorganic Chemical
0.8%
2.4%
3.9%
4.8%
Resins & Synthetic Material
1.7%
4.4%
6.0%
8.1%
Agricultural Chemical
1.2%
3.0%
6.9%
7.7%
Plastics & Rubber Products
1.5%
3.5%
4.1%
4.6%
Pharmaceutical & Medicine
0.8%
2.5%
2.4%
2.0%
Paints, Soaps, Toiletries & Misc.
1.8%
2.8%
3.4%
3.8%
Paper
0.6%
2.8%
3.0%
3.4%
Source: IHS Chemical
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8.
US becoming one of world’s lowest cost
ammonium producers due to increased shale
gas
Production capacity in US rose from 60% in
2006 to 90% in 2013
New or expanded production facilities between
2016 and 2018 will produce 6 million metric
tons of ammonia, and US presently imports 7
million metric tons of ammonia
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9.
Fracking involves 99.5% water and sand and
0.5% chemicals per well
Typical well requires 2.5 million gallons of water, 1.5
million pounds of sand
Types of chemicals include: acids, biocides,
corrosion inhibitors, friction reducers, gelling
agents, oxygen scavengers
Chemicals used include: methanol, benzene,
toluene, xylene, ethyl benzene, hydrogen
fluoride, sulfuric acid, and hundreds of others
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10.
Natural gas is used as a feedstock to make
methanol
China currently accounts for more than half of
the global methanol demand and will double
because of increased Chinese investment in
methanol-to-olefins production
US capacity is expected to rise from a low of
750,000 tons in 2007 to 7.6 million tons by 2017
because of increased shale production
The US could become a net exporter when the
new domestic capacity becomes active
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11.
Ethane cracking leads to higher proportion of
ethylene compared to propylene, butadiene,
and heavier aromatics than naphtha-based
cracking
Domestic naphtha-based crackers are being
converted to natural gas liquid crackers
Projects directly synthesizing heavier
derivatives now experiencing greater returns
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12.
Thousands of new jobs, billions in increased
production, capital investment, and production
Cheaper energy costs
US cost-advantages in ethylene production,
reducing input costs for manufacturers
Nitrogen fertilizer capacity increasing and
production becoming domesticized
Methanol export opportunity to China
Fracking requires substantial water treatment
Greater margins on heavier derivatives
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15.
$20 B - in NEW federal, state, and local tax
revenue during investment phase
(2010-2020)
$14 B - in NEW, PERMANENT federal, state, and
local tax revenue from increased chemical
industry output (by 2020)
Source: ACC
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16.
Environmental and human risk
Credit and equity investment cycle
Unsophisticated participant in a complex
industry (…gold rush)
Technology improvement needs
Regulatory framework
Infrastructure
Access
…..
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