June 16, 2011 / 4:55 PM / in 8 years

U.S. gas glut fuels chemical plant building boom

HOUSTON (Reuters) - Not too long ago chemical industry insiders would joke about when the next U.S. chemical plant would be built. The answer, the punch line always went, was never.

That has radically changed in the past year as cheap U.S. natural gas prices have given America’s chemical industry a large cost advantage over European rivals, many of whom make chemicals from crude oil.

The price of ethylene has jumped 70 percent in the past eight months alone, according to industry newsletter PetroChem Wire. Ethylene is the most basic of commodity chemicals and is found in plastic, paint, glue and thousands of other products. It can best be compared with what flour is to a bakery.

Now a frenzy is afoot to build new U.S. chemical plants, known inside the industry as crackers, to take advantage of those prices.

“We’re sitting on this amazing gift that’s been given to us with shale gas,” Marvin Odum, president of Royal Dutch Shell Plc’s (RDSa.L) Shell Oil Co, said at the Reuters Global Energy and Climate Summit this week. “The market has changed rapidly in the past few years, especially in terms of supply.”

Shell and Dow Chemical Co (DOW.N) both announced plans earlier this year to build new crackers. LyondellBasell Industries NV (LYB.N) recently said it would improve efficiency of its existing ethylene plants.

Fluor Corp (FLR.N), which does engineering work for many large energy and chemical companies, said five of its clients are thinking about re-opening or building new ethylene plants.

“The whole shale gas play has the potential to change things,” Peter Oosterveer, Fluor’s president of energy and chemicals, said at the Reuters Summit. “It’s a really interesting development.”

LyondellBasell sees North American shale gas as a “competitive advantage” for the United States.

“There’s room for multiple crackers to be built in the U.S. and still be profitable,” LyondellBasell Chief Executive Jim Gallogly said at the Reuters Summit, held in the Reuters offices in Houston. “The ethylene margin in the U.S. market is very strong right now.”

PetroChem Wire’s Kathy Hall sees the trend as a positive for the industry and transparency in general.

“The U.S. ethylene market is going through nothing short of a revolution,” she said.

Reporting by Ernest Scheyder, Matt Daily, Erwin Seba, Chris Baltimore, Anna Driver, Matt Robinson, Kristen Hays, Braden Reddall, Bruce Nichols and Michael Erman, editing by Gerald E. McCormick

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