Sabic Not Worried About Shale??

"Ladies and gentlemen... I've traveled over half our state to be here tonight. I couldn't get away sooner because my new well was coming in at Coyote Hills and I had to see about it. That well is now flowing at two thousand barrels and it's paying me an income of five thousand dollars a week. I have two others drilling and I have sixteen producing at Antelope. So, ladies and gentlemen... if I say I'm an oil man you will agree. You have a great chance here, but bear in mind, you can lose it all if you're not careful. Out of all men that beg for a chance to drill your lots, maybe one in twenty will be oilmen; the rest will be speculators-that's men trying to get between you and the oilmen-to get some of the money that ought by rights come to you. Even if you find one that has money, and means to drill, he'll maybe know nothing about drilling and he'll have to hire out the job on contract, and then you're depending on a contractor that's trying to rush the job through so he can get another contract just as quick as he can. This is... the way that this works. " Daniel Planview, There Wil Be Blood

Is the US Shale Gas Story A Threat to Saudi’s Cost Advantage? Management believes that the impact of shale gas on the global chemicals market is overstated. SABIC thinks the shale gas would give US producers more cost advantage in a global context, but will not be a game changer to the petrochemicals industry. This is because shale gas contains mostly C1, which is generally used as a fuel and could fit with ammonia and methanol production, not ethylene. It can produce olefins through methanol (through methanol to olefins technology - such as in China) but this will remain a local industry with its competition with pure crackers in exports markets highly unlikely.

-SABIC’s VP believes the US shale gas production will be mostly directed to LNG projects, which is typically used for fuel not to produce chemicals due to relatively lower mmBtu values than those required for the chemicals industry.

Someone sent me this in response to my Saudi Shale piece. It's an excerpt taken from some analysts(not sure who) notes from a meeting with SABIC management. The person who sent this to me was wondering whether this calls into question some of the things I mentioned in my piece. I don't think so. Here is why……

1) The Marcellus Basin, which is the hottest shale play right now in North America is very much liquids rich with several wells testing up 16% ethane content. That's pretty impressive when you consider that peak ethane content for associated gas wells in Saudi was in the 16-20% range, and that as Saudi fields have matured the content has fallen closer to the 8-12% range.

2) Ethane is a problem for NG producers right now because there is TOO MUCH of it, as there is insufficient pipeline capacity and gas processing infrastructure in place to handle it. Since current pipelines are not capable of handling the high BTU gas this poses a problem and an incentive to boost NGL infrastructure in the Northeast.

3) You also have an end demand issue with ethane that you don't have with other NGL's. Propane cane be sold into the home heating market, and butane and natural gasoline can be sold to northeastern refineries. Ethane needs pipelines to make it to crackers in the petchem market, and that is predominately a Gulf Coast business. So, the Northeastern ethane, despite its abundance, has no real market right now.

Put these three factors together and you understand why some people might disagree with the statement that shale will not lead to competition with pure crackers in the export market.

And you don't need to stop there. The Utica Basin is also liquids rich and thus poses the same problem for natural gas producers. Add in that Chesapeake has clearly stated that it is shifting its focus towards liquids rich shale gas plays, and I have a hard time believing that ethylene capacity in the United States is not set to surge over the next few years.

That is not to say that Sabic management might not be right. Methanol to olefins does make a lot of sense for the mostly drier shale plays, and so does direct lng. But the regional problem right now with ethane tied to the Marcellus renders that moot. If the liquids rich northeast plays are not going to be a threat to ethylene producers in the GCC it will be because gas production over five years out of the Marcellus and Utica disappoints and ethane prices spike, and not because the market is not moving in that direction.