Chemical industry surging on U.S. gas

The North American chemical industry is rebounding from last decade’s economic declines as a surge in natural gas drilling means more raw materials are available at relatively low prices, energy analysts told IHS CERAWeek on Monday.

“The chemical industry is a very demand-centric business right now,” said Gary Adams, chief chemicals adviser for IHS.

Although North American petrochemical production peaked in 2004 at around 135 million tons, it later fell by 20 percent to roughly 108 million tons, Adams noted. The current resurgence is driving production capacity up — but it will take years to rebuild.

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That message is also being expressed in Washington, D.C., where Dow is leading a small group of manufacturers and chemical makers in campaigning against unlimited natural gas exports, for fear they could send domestic prices higher and weaken a competitive advantage now enjoyed by U.S. companies.

Some $80 million in planned capital investments in the U.S. are on the line, Dow vice president George Biltz has said.

Adams said he sees some $100 billion in new investment earmarked for North American chemical plants, driven by domestic availability and pricing. And those announcements seem to be coming on a daily basis, Adams said.

“It’s a revolution in manufacturing,” he said, adding that the transformation is “something the industry has not seen” in four decades, if not longer. “The opportunities are not opportunities of a lifetime, it’s of multiple lifetimes.”

“These companies are investing as quickly as they can,” he said. “The pace of investment is going to match the pace” at which feedstocks are available.

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Many of these plants are designed as multi-decade investments. Given the long-term plans and the big capital spending, it makes sense that some chemical industry executives are worried about the possibility of expanded natural gas exports, Adams said.

The Energy Department is tasked with vetting more than a dozen applications to export natural gas to Japan and other countries that don’t have free-trade agreements with the United States.

White House energy and environment adviser Heather Zichal last week confessed that the Obama administration’s Energy Department is trying to “wrap its head” around the issue, which just a few years ago — before the domestic drilling boom — was unthinkable.

Separately, Eric Fedewa, IHS’ director of automotive research, noted that the possibility of 23 new manufacturing facilities will drive bigger demand for raw materials — 33 percent more over 2010 demand.