A keystone of the U.S. economy, the chemical industry converts raw materials (oil, natural gas, air, water, metals, minerals) into more than 70,000 different products. Few goods are manufactured without some input from the chemical industry. Chemicals are used to make a wide variety of consumer goods, as well as thousands of products that are essential inputs to agriculture, manufacturing, construction, and service industries. Major industrial customers include rubber and plastic products, textiles, apparel, petroleum refining, pulp and paper, and metals.
The U.S. Energy Information Administration (EIA) estimates that there are over 9,500 chemical firms with more than 13,000 facilities operating in the country, with shipments of nearly $440 billion annually. The chemical industry records large trade surpluses, employs almost 900,000 people and is the second largest consumer of energy in manufacturing. The states of Texas, Louisiana, North Carolina and Illinois are the nation’s top chemical producers, with most production occurring along the U.S. Gulf Coast (USGC).
For many years, though, chemical production had been moving to other parts of the world, where supplies of oil and natural gas feed stocks were more plentiful and energy costs were much lower. Forecasts were dire as production at U.S. chemical plants was scaled back and some were shut down entirely.
However, the development of previously untapped domestic shale deposits have led to vast new supplies of oil and natural gas in the U.S. After years of high and volatile natural gas prices, shale gas has created a stable, low cost supply that changes the economics and provides a competitive advantage for U.S. manufacturers. Shale gas has radically improved the economics for the U.S. chemical industry, developing into an industry revival. By 2010, the USGC had become second only to the Middle East for low production costs. With ethane supplies tightening in the Middle East, the era of low-cost feed stocks in that region soon may be over.
The chemical industry reported growth of 8.8% in 2010 and 5% in 2011, with similar growth rates expected in 2012. Benefiting from the Marcellus Shale, chemical production in the Ohio Valley has been growing at faster rates than other parts of the country. The impact of abundant low-cost shale gas now extends beyond petrochemicals to production of other chemicals including fertilizers (ammonia and urea). Domestic urea and ammonia production growth is replacing imports, reducing costs for agriculture.
Over the past two years, chemical companies are reconsidering capital investment in North America and have announced a slew of projects, including several that are huge. Chevron Phillips Chemical is investing more than $5 billion expanding plants in the Houston, Texas vicinity. And Dow Chemical announced $4 billion of expansion along the Gulf Coast, including a new ethylene plant at its Freeport, Texas complex.
Last year, Royal Dutch Shell, one of the largest energy companies in the world, announced that it will build a $2 billion “world-scale” petrochemical plant north of Pittsburgh to turn Marcellus gas into other consumer and industrial products including plastics.
The chemical industry’s confidence in shale gas appears to be well justified. U.S. natural gas, oil and natural gas liquids (NGL) production continues to grow at astounding rates. Gas supplies have increased by about 3 trillion cubic feet per since 2008, far outpacing demand growth. Even though dry gas drilling has slowed this year, a backlog of previously drilled, stranded Marcellus and Eagle Ford Shale wells will soon be connected as pipelines are completed. Then there is still more associated gas production and the coming Utica Shale.
The Utica shale formation in Ohio may hold as much as 5.5 billion barrels of oil and 15.7 trillion cubic feet of natural gas, according to the state’s Department of Natural Resources. Amazing test data on the best Utica well to date - peak rates of 20.0 million cubic feet of natural gas and 2002 barrels of natural gas liquids per day – were released by Gulfport Energy Corp. The well is located in Belmont County, Ohio. Production rates of that magnitude suggest that the Ohio DNR estimates may be understated.
W. Norm Shade is the president of ACI Services Inc., headquartered in Cambridge, OH. ACI is a leader in the manufacture of custom engineered gas compressor products used throughout the world. Shade received BME and MSME degrees from The Ohio State University, graduating Summa Cum Laude in 1970, and he is a registered professional engineer in Ohio, Oklahoma and Texas.