North America-based petrochemical companies are likely to enjoy a competitive advantage over their rivals based elsewhere for the next several years as a result of the US shale gas revolution, which provides both inexpensive feedstocks and fuel for the petchems industry, a senior Standard & Poor's analyst said Tuesday.
"The ability to extract low-cost ethane and put it through a steam cracker and create ethylene and all the derivatives, that's been very favorable for companies that have operated in North American versus companies in other parts of the world," Henry Fukuchi, director of ratings and analytics at S&P, said on the sidelines of the Benposium conference in Houston.
S&P and Platts are both units of McGraw-Hill Financial.
Global demand for petrochemicals has historically grown about 4% annually and Fukuchi said he expects that growth rate to remain constant for the next several years, driven by economic development in China and other emerging markets.
China will continue to account for a majority of the global demand growth despite concerns about a slowdown in the pace of its economic development, he said.
Gauging the future of petrochemical supply is trickier that predicting demand, because while there might be a number of announcements made promising additions of petchem manufacturing capacity, "there's really a lot of uncertainty in terms of how much of that comes to fruition," Fukuchi added.
"There's a good balance in terms of where those needs have to be met and where the production needs to be in order to make economic sense," he said.
The production of low-cost feedstock chemicals is not the only benefit that North American petchem producers are seeing from the prolific production from shale gas plays. Shale gas itself provides a reasonably priced fuel for their operations, Fukuchi said.
"A lot of the petrochemical and chemical companies are very energy-intensive so you have a very favorable perspective from the feedstock standpoint and from a fuel-cost perspective in terms of the capital intensity of these businesses," he said.
"So all in all, I think that this is going to continue to be a positive, at least for the next few years, for the North American producers versus the other companies that have assets in Western Europe that have costs that are relatively higher."
