GPCA: Nova CEO forecasts sunrise phase for North American petchems sector
Dubai (Platts)--29Nov2012/628 am EST/1128 GMT
The first barrel of ethane from the Bakken field will go to Nova
Chemicals' Joffre, Alberta facility to be value added and converted into
polyethylene next year, which explains why CEO Randy Woelfel described
himself at an industry event in Dubai on Thursday as very excited by all that
is happening currently in the North American shale oil and gas sector.
Talking at the seventh Gulf Petrochemicals and Chemical Association
forum, Woelfel pointed out that the company was well placed to exploit all
that the developing shale oil and gas sector has to offer as its 2.8 million
mt/year Joffre facility, which had the biggest ethylene production capacity
when it was built in 2000, is close to the Bakken and Montney shale plays as
well as the oil sands.
Its other plant at Sarnia, Ontario, the 1.5 billion lb/year (680,000
mt/year) Corunna cracker, is near the Marcellus and Utica shale plays in
Pennsylvania. In its NOVA 2020 strategic plan released a little over a year
ago, Nova Chemicals, a wholly owned subsidiary of Abu Dhabi's International
Petroleum Investment Company, had said it planned to take advantage of
emerging feedstock supply from Marcellus and expand its ethylene and
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At the GPCA forum on Thursday, Woelfel credited the availability of
water, knowledge and already existing infrastructure with offering North
America a big advantage in developing its shale gas reserves. The new gas
will go to export -- there are 15 LNG export projects in some stage of
discussion -- power generation and industrial demand, but a major chunk will
go into petrochemical production, he said.
Looking at conventional feedstocks, he pointed out that traditionally
the price of oil to gas has fluctuated in the 6:1 energy parity ratio, adding
that in the second quarter of this year, in a dramatic shift, the oil to gas
ratio spiked to 50:1. "Even as we relaxed back to something that seems a bit
more steady state with gas at $3.50/Mcf and crude oil at $85/barrel for WTI,
we are still at 25, well about fuel parity," he said.
Incrementally, as gas becomes easier to access and crude oil stays
expensive, in North America "the playing field will tilt and stay tilted
toward gas for years to come," he added.
In 2004, in terms of any petrochemical feedstock, North America lacked
competitiveness, Woelfel pointed out. In 2008, the situation was the same but
in 2012, it is a different ballgame, he added.
Even as Saudi Arabia remains the most profitable in petrochemical
production, retaining its cost advantage, the US Gulf Coast and Canada are
closing the gap, Woelfel said. The US Gulf Coast especially has rapidly
forged ahead to optimize the amount of pure ethane it can use as feedstock
and "today the industry is sitting on something in excess of 70% of pure
ethane with essentially the balance of the industry running propane and
butane," he added.
Last month, PwC said in a report that shale gas could enable "US
manufacturers to lower their raw materials and energy costs as much as $11.6
billion annually by 2025."
Considering how much longer other regions will take to reach the stage
the North American shale gas sector is at today in terms of development and
momentum, it looks set to retain its lead position, Woelfel said at the
second day of GPCA's annual forum. "So ethylene producers are naturally very
excited. We have gone from being a sunset industry to suddenly a sunrise
business." he added.
The last world-scale polyethylene plant in North America was built by
Nova and that was in 2000. All the announcements of new projects and
expansions means a 40% increase in PE production just by the end of this
decade, Woelfel said. Based on industry reports, PwC estimated in its October
report that the US chemicals industry has invested $15 billion in ethylene
production, increasing capacity by 33%.
While a lot of the output will be consumed domestically, which is
expected to grow tracking industrial growth at 2-4%, the rest will be coming
to world markets, he warned, asking the industry to fasten its seat belts as
North America certainly thinks it can compete against Asia and the Middle
REGULATION NOT A SHOW-STOPPER
Shale gas does lead to strong responses from regulators and the
community, Woelfel said. Well safety, water usage, land destruction are all
hot topics, but he sees increasing knowledge and communication as making
people become more comfortable with the sector. And the money they get in the
mailbox is a help, he said, adding that on balance "the regulatory
environment is not a show-stopper."
As shale gas turns traditional flow paths on its head, there is a lot of
investment being made in infrastructure. He pointed out that the advantage
the US has of a well developed, highly responsive and profit-oriented capital
market gives it an edge.
Talking of a brave new world, Woelfel said that if he was the one giving
advice to a young Dustin Hoffman in the 1967 Oscar-winning film The Graduate,
he would whisper "shale" instead of "plastics" as the business to be in.
Summing up the advantages of the shale gas boom, Woelfel said: "There is
a lot of good news for a lot of industries, but no better news for one
industry than for petrochemicals."
--E Shailaja Nair, firstname.lastname@example.org
--Edited by Maurice Geller, email@example.com