Enthusiasm For Low-Cost US Natural Gas

President Obama made big play of the boon that is low natural gas prices and what it would bring the US.

However, while there has been much excitement, evidence of the boost to industry is only now emerging.

Few examples, though, could be more telling than that of the world’s second-largest chemical producer by revenue, Dow Chemical.

As margins have narrowed in Europe and Asia – where feedstock is based on more expensive oil-based Naptha – Dow, along with other chemicals firms, is investing heavily in converting plants to run on shale gas-based ethane feedstock.

Natural gas prices are currently $3.85 per mmBtu in the U.S., well below Asian spot liquid natural gas prices of $16.15 per mmBtu, according to Reuters.

As a clear vote in the long-term cost advantages that shale gas will bring, Dow is building several new specialty production plants on the US Gulf Coast as it seeks to produce lower-priced plastics onshore for use in the transportation and telecommunications markets, according to the International Business Times.

Illustrating how such investments spin off into the wider economy, Dow Chemical advised that up to 5,000 jobs would be created in the construction phase, and that investment by one firm can stimulate activity in others. The article quoted Nikkei Business Daily reports stating that two Japanese chemical companies – oil refiner Idemitsu Kosan and trading company Mitsui & Co. – plan to partner with Dow to build a 100 billion yen ($1.05 billion) petrochemical plant in Texas to be online as early as 2017 and use Dow-supplied ethylene.

The new plant will be right next to Dow’s planned plant. A Houston Business Journal article quotes Dow as saying the investments will boost Dow’s support for up to 35,000 jobs in the wider U.S. economy following these Gulf Coast expansions.

Investments are said to be in the order of US$4 billion. They will include the production of ethylene, some of which will go as a feedstock to the JV operation with the Japanese firms, and then take back alpha olefins from the JV for use in Dow’s performance plastics division.

Dow Chemical’s investment is one of many flooding into the Texas Gulf Coast area. Chevron Phillips is investing billions in an ethane cracker and polyethylene plant, while ExxonMobil is considering plans to build a multibillion-dollar chemical plant at its existing Baytown complex. The plant is expected to produce 1.5 million tons of ethylene per year.

Estimates of the boost to U.S. GDP vary, and are at best speculative. But investments by the chemical industry are a clear sign from just one section of manufacturing of the impact low natural gas prices will have over the next decade.

Steel production, power generation, cement manufacture…the list goes on of industries that could derive very significant global advantages from being based in the U.S.

Unlike oil, natural gas prices are geographically sticky, meaning low prices in the U.S do not translate into low prices in Europe or Asia - keeping the benefits close to home.

by Stuart Burns