With the days of readily available, cheap natural gas apparently at an end, plastics and chemicals makers will have to look elsewhere to meet their raw material needs.
Answers to the dilemma came from a number of industry experts at the CMAI World Petrochemical Conference, March 24-25 in Houston.
Popular options include converting liquefied natural gas, doing further exploration in the Rocky Mountains and deep-water areas of the Gulf of Mexico and constructing a natural gas pipeline from Alaska.
James Gallogly, president and chief executive officer of Chevron Phillips Chemical Co. LP, pointed out that LNG-derived natural gas could sell for as little as $3 per million Btu. By comparison, current U.S. market prices are around $5.50. Those high costs - after years of prices below $2.50 - have pushed resin costs up along with them. Natural gas is used in 70 percent of U.S. polyethylene production.
The challenge there is in the low number of LNG receiving locations in the United States and the lengthy permitting program - as long as four years - needed for new ones, said Gallogly, whose Houston-based firm is a major PE producer.
Gallogly also contends that a pipeline to vast natural gas fields in Alaska ``would increase U.S. reserves by 20 percent.''
Bill Sanderson, president of Houston's Purvin & Gertz energy consulting firm, agreed that alternate natural gas sources are needed to meet future U.S. demand. Sanderson said he expects crude oil prices - currently around $35 per barrel - to drop under $30 by mid-2004 and stay close to that level through 2005.
Natural gas prices also will drop, Sanderson said, but they are likely to stay at about $5 through 2015.
Chevron Phillips is dealing with the issue by advancing on two fronts: It opened a major new high density PE plant in Pasadena, Texas, last year and is working on major petrochemical projects with partners in Qatar and Saudi Arabia, where feedstocks are far more affordable.
The Pasadena plant, a joint venture with BP Solvay, is the largest ever built using the loop-slurry process. The plant has annual capacity of 700 million pounds.
``We've built a great plastic processing industry in this country and we need to make that competitive,'' Gallogly said. ``We always remember that the U.S. is the biggest market and that we need to give our customers the kind of resources they need to be competitive.''
The current economic environment ``has placed pricing strength and profit at the wellhead and at Wal-Mart, but not anywhere in between,'' said Gary Adams, president of Chemical Market Associates Inc. of Houston.
In spite of the tightness, Adams said many chemicals and plastics firms began to recover financially in late 2003. He added that ``strong market conditions will be widespread'' by the end of 2004 and that earnings ``will accelerate at least through 2006.''
``We're in a significant capacity-absorption period,'' Adams said. ``But polyethylene is moving into a five- or six-year period of growth that will see global production grow [7.7 billion pounds] by 2006.''