The US petrochemicals industry retains advantages in the global market even as oil prices — and oil-based feedstock prices — decline, a panel of experts from industry consultant Deloitte said Wednesday.
Petrochemicals prices have some correlation to oil prices, meaning the recent low oil prices will hurt revenues for certain products and companies, but the US industry’s use of natural gas-based feedstock will remain a positive, said John England, Deloitte vice chairman and leader of its oil and gas practice.
US cracker margins for ethane remained competitive Wednesday at $731.06/mt, compared with $550.67/mt for naphtha, according to Platts data. “The oil to natural gas spread has been a signal to the market,” England said.
“The spread has been out of whack, and this has led to [US] petrochemicals investment” to take advantage of cheaper gas-based feedstocks.
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England said the petrochemicals industry may see some downturn, but added that several large US cracker projects have progressed as the economics of those projects continue to look favorable.
Investments in petrochemicals, he said, represented a way to take advantage of an arbitrage between natural gas and oil prices.
Deloitte independent senior advisor Peter Robertson said the spread between gas and oil has started to shrink, but added that gas prices should remain low for “a long time.”
Producing petrochemicals using low-price natural gas and competing against products made from oil will be a good business for the foreseeable future, he said.
While the economics of several petrochemicals projects remain favorable, Robertson said planned LNG projects may fall victim to companies’ efforts to reduce capital.
“New LNG projects will be getting scrutiny,” Robertson said. “There will be a slowdown in future projects.”
In regard to the wider energy complex, lower oil prices would lead to an increased focus on operational efficiency and cost reductions in the energy industry, panel members said.
In addition to England and Robertson, panelists included Deloitte partner and M&A transactions practice leader Melinda Yee and Deloitte principal and oil and gas operations and supply chain practice leader Rick Carr.
Merger-and-acquisition activity may also increase, as companies with strong balance sheets seek strategic assets from distressed players, Yee said.
Lower oil prices may also open opportunities for talent acquisition, as companies use fallout in the industry to address the talent concerns that have arisen in recent years.
The challenges the industry faces will force innovation and improvements, which will lead to a more efficient industry in the future, the panel members said.
– Platts.com
