By John Richardson
A LOT of the discussions taking place in and around last week’s American Fuel & Petrochemical Manufacturers International Petrochemical Conference (IPC) in San Antonio, Texas, was, of course, around oil prices.
Lower crude prices means less of a production cost advantage for the US petrochemicals industry, which is predominantly based on natural gas feedstocks.
But still, as my colleague Joe Chang outlines in this excellent Insight article, the mood of the US petchems business remains relatively bullish on the promise of continued abundant supplies of natural-gas liquids.
Whilst oil prices could well stay much below their H2 2014 levels for a great deal longer, the prevailing view was that this abundant gas supply would still lead to a big cost advantage for gas-based producers over their naphtha-based petrochemicals competitors.
The problem, in my view, is that a feedstock advantage is only really a feedstock advantage as long as you have markets strong-enough to absorb enough of your finished products. This is going to be a huge challenge for the US industry as it adds as much as 8.1m tonnes/year to its polyethylene (PE) capacity, which would be a 53% increase over existing capacity.
What worries me, from what I have read about discussions during the IPC, and from what I have heard from my contacts who attended the event, is that US producers seemed reluctant to engage in a debate about just how complex the demand growth environment has become over the last 12-18 months.
Perhaps this complex debate took place under the radar, in private meetings – or maybe it didn’t take place at all? Whatever the answer, I think the US industry, to borrow a US cliché, needs to “step up to the plate” and make public its thinking on the “New Normal” and what it means for global demand-growth prospects.
A good start towards this open debate were comments made during the IPIC by Jim Gallogly, the former CEO of LyondellBasell, when he advised US petrochemicals companies to think “very, very hard” about new investments.
But this was only a very good start, and so I suggest that an independent “permanent study group’ of researchers should be formed to look into all the complexities of the New Normal as it continues to develop. Their findings should constantly be made public so that petrochemicals company employees at all levels, logistics and service providers, investors and legislators etc. can also take part in this crucial debate.
And permanent study groups should also be set up in other regions. Or perhaps we should establish one global group?
US producers might instead choose to focus only on their next set of quarterly results. But therein lies the route to eventual failure – for not only US producers, but also for producers elsewhere.