The massive buildup of petrochemical capacity, based on shale gas, in North America is a long-term competitive threat to Europe’s chemical business, says Tom Crotty, group director at Ineos. In a keynote speech Wednesday at IHS Chemical’s Europe, Mideast, and Africa aromatics and olefins conference, taking place in Athens, Crotty said that the European chemical industry needs to urgently combat the threat. “The very survival of the chemicals industry and other energy-intensive industries is at stake,” Crotty told delegates at the IHS conference.
Ethylene production costs in the United States and Western Europe were comparable to those in 2005, but, with the advent of US shale gas, ethylene costs are today three times higher in Western Europe than in the United States, Crotty says. US ethylene costs are even on a par with those in the Mideast. “Western European manufacturers are struggling to compete,” Crotty says.
The $120 billion of planned investments in chemical capacity in the United States through 2022 is a huge challenge for Europe considering overall US chemical capacity already exceeds European capacity and the gap certain to widen significantly by the end of this decade. “Market share will be captured from Europe,” Crotty says.
Europe’s petrochemical industry will inevitably rationalize—mainly through closing uneconomical production sites, as well as M&A—as the sector struggles to cope with intensifying competition from US producers, Crotty says. Europe can take measures to boost its competitiveness. “There will be an impact, but we need to respond and mitigate the impact,” Crotty says.
Options available to petrochemical producers in Europe include improving performance by investing to reduce operating costs and concentrating on specific specialty sectors, Crotty says. But gaining access to better feedstock and energy costs is the key to survival for European companies, he says. This measure involves importing feedstock from lower-cost regions, such as the United States, and, crucially, producing shale gas in Europe, Crotty says.
Ineos and several other petrochemical companies have announced plans to import shale-based ethane from the United States for consumption at converted steam crackers in Europe. There is enormous potential for more companies to do the same, Crotty says. “Only 4 of about 45 European crackers are gas crackers,” he says.
Importing cheap feedstock will help Europe to be competitive in the medium term, Crotty says. “But we need a long-term solution,” he says. Developing the European Union’s shale resources would play a major part in making Europe’s energy and feedstock prices competitive, Crotty says.
In the United Kingdom, which has some of the biggest estimated shale resources in the European Union, “utilizing a national asset for national benefit” would generate exchequer revenue, improve the balance of payments, create wealth and jobs, exert downward pressure on gas prices, and guarantee security of energy and feedstock supply. However, Crotty recognizes that public concern is high and that the industry needs to win the support of local communities.
Ineos has, in recent years, made clear its ambition to become a leading player in an eventual shale-gas industry in the United Kingdom. The company is striving to convince the UK public that “we can extract shale gas safely and without damage,” Crotty says.
Ineos has committed to ensuring that local communities benefit from the company’s planned shale-gas investments. It has offered to share 6% of its shale gas revenues with homeowners, landowners, and communities near its wells. The company has estimated that it will “give away more than £2.5 billion” ($3.88 million) from its new shale gas business, Crotty says. Those living within 100 square kilometers of an Ineos project would typically share £375 million over the project’s life, of which homeowners and landowners directly above the well would share 4% of the revenue, or about £250 million, with communities living near to the well sharing 2%, or typically £125 million.
By Ian Young