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EPCA Review
BULKDISTRIBUTOR
January/February 2016
Battling black gold volatility
Hydrocarbons and the chemical industry was the theme of the 2015 EPCA Annual Meeting held in the German capital Berlin
E
PCA president Tom Crotty welcomed delegates to the 49th
annual meeting, noting that more than 2,800 delegates
were registered, a record for the event.
Crotty explained that the title of this year’s meeting - reflected a
key concern, the impact of hydrocarbon feedstocks. He reflected on
how the exploitation of shale gas in the USA has turned the industry
on its head, but questioned whether this resource could be exploited
in Europe in the face of public concerns or opposition.
He also wondered how the oil price collapse will play out, and how
it might impact the development of renewables, which were an
economic alternative energy source while oil was trading at US$150200 a barrel but look less attractive at current prices.
“Will we still be prepared to subsidise renewables?” he asked.
“And how will the regulators proceed in their efforts to mitigate the
impacts of global warming?”
Total view
Philippe Sauquet, president of refining and chemicals, and
executive committee member at French oil major Total presented a
picture of oil price volatility over the period since 1970, noting the
three price peaks – with oil at over $100/barrel – in 1979, 2008 and
the ‘plateau years’ from 2011-14”. “Last year, however, prices
collapsed as Saudi Arabia refused to cut production in a move
designed to maintain its market share. Are we at the beginning of a
new oil cycle?” Sauquet wondered. “And where do we go from
here? Nobody knows.”
In terms of oil & gas supply, Sauquet said that technology –
particularly shale oil and gas extraction technology – had unlocked
the huge potential of unconventional energy resources and extended
global liquids resources to well beyond 100 years and gas resources
to over 140 years. “This is having a huge impact on petrochemicals
markets and rejuvenated the North American industry,” he
continued. Looking ahead, there are abundant sources of both
ethane and propane in North America, with over 12 million tons of
new ethylene capacity expected on stream by 2020.
Of course, these developments pose significant challenges for
European polymer plants, which previously faced competition
primarily from the Middle East alone. With oil at $100/barrel, both
US and Middle East-based ethane crackers enjoy significant full cost
and cash cost advantages over European naphtha crackers. And
while a $60 oil price sees this full cost advantage greatly reduced,
the cash cost differential remains a serious issue.
Faced with this competitive environment, Europe has some key
decisions to make if it wants to retain a petrochemicals sector,
Sauquet said. While accepting that opposition to shale gas
exploitation remains a barrier to both initial exploration and eventual
production – a barrier that the industry should nevertheless
endeavour to challenge in pursuit of cheaper energy and feedstocks
– more pressing is the need to prevent the EU further handicapping
its regional petrochemicals industry with regulations and tariffs.
USA swings
After a three-year period of apparent stability between 2011 and
2014, when oil stayed close to $100/barrel, current prices ($45-50/
barrel at the time of the event) were at levels most people never
expected, said IHS vice-chairman and Pulitzer Prize winner Daniel
Yergin. What’s more, the market is far more volatile and the USA is
now the swing producer.
Widely acknowledged for his global energy expertise, including
books such as The Prize and most recently The Quest, Yergin told the
audience that he sees a shift occurring from the ‘BRIC1 Era’, in
which China in particular exerted a massive influence on energy
markets, to a new ‘shale era’, which is having a defining impact on
world energy and petrochemicals.
China was responsible for 45 percent of the growth in oil
demand during this era, and 52 per cent of the growth in basic
chemicals and plastics. And across the BRIC countries,
petrochemicals demand was growing at around 10 percent a year,
Daniel Yergin saw a shift occurring from the BRIC1 Era to a new shale era
compared with 2 percent for the rest of the world.
Conversely, shale gas and tight oil have transformed both the USA’s
energy reserves and its economy. They were responsible for over 2
million jobs before the oil price collapse, and - according to former
Federal Reserve chair, Ben Bernanke - been the most positive thing
to happen to the US economy since 2008. It has been generating
$100 billion in new investments in the chemical sector in the USA.
Looking ahead, Yergin saw a period of slower global economic
growth, as China moves from high GDP growth to medium-to-high
growth, and weaker energy demand. He noted that despite weaker
demand, OPEC has not cut oil supplies, deciding instead to let the
market determine price while also ending the subsidisation of high
cost oil production.
In terms of energy industry investment, Yergin said: “There are a
lot of projects being reviewed, postponed or cancelled.”
However, he saw a steady increase in energy supplies – from
Canada’s oi