Analysis: U.S. plastics from gas threaten European petchem industry

Fri Jun 14, 2013 6:45am EDT
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By Ludwig Burger

FRANKFURT (Reuters) - The oil-dependent European petrochemicals industry could be in for a body blow as U.S. rivals seek to get a wider range of raw materials out of cheap shale gas to make more plastics, coatings and adhesives.

U.S. players including Dow Chemical (DOW.N: Quote) and Enterprise Products Partners (EPD.N: Quote) are building facilities to convert gas into propylene, a key building block for advanced materials that has so far required the oil distillate naphtha as feedstock.

This could further squeeze margins and endanger jobs at European plants that convert naphtha into precursor chemicals ethylene and propylene, the backbone of the more than 130 billion euro ($167 billion) petrochemical industry in Europe.

The European facilities, run by global players including BASF (BASFn.DE: Quote), Sabic 2010.SE, Ineos INEOSG.UL and LyondellBasell (LYB.N: Quote), are particularly vulnerable to any price decline in propylene, which goes into acrylic glass, insulation foam and construction glues, as extra U.S. output has already slashed the price of ethylene.

Forty-eight of these sites, called steam crackers, are spread across Europe, mainly in Benelux, Germany and France.

The companies that run them can shift investment elsewhere, but jobs will be at risk in Europe; the industry employs 115,000 directly and up to 460,000 indirectly, in a region that hit a record 11 percent unemployment in April.

According to a Bernstein Research note last month, BASF is eyeing a $600 million investment in a new U.S. gas-to-propylene plant. The company declined to comment.

Shale gas - natural gas from hydraulic fracturing, or fracking - has allowed the U.S. chemical industry to use cheap energy and boost output of ethylene, a basic hydrocarbon precursor for solvents, packaging plastics and detergents that can be extracted from gas.   Continued...

A factory of German chemical company BASF is pictured in Ludwigshafen February 24, 2012. REUTERS/Alex Domanski