The energy position of the globe looks much better than it did a few years ago,” stated IHS Vice Chairman Dr. Daniel Yergin. “The advent of shale gas and oil in North America has had a very large positive impact on the world economy in terms of energy supply and costs.”
Yergin noted the emergence of shale helped trigger the collapse in oil prices since mid-2014, which has also improved the feedstock position of the European petrochemical industry in ways that were not anticipated a year ago. For now, the oil price currently appears impervious to the many geopolitical dangers around the world, but this could change very quickly.
According to Yergin, who delivered the keynote address during the European Petrochemical Association’s (EPCA) 49th annual meeting, the world has entered a new era in energy terms with growing global supply surpassing demand from emerging economies as the main influence on markets.
“We have moved from the defining theme of the oil market being the growth of the emerging markets to it being the dramatic growth of shale,” Yergin told EPCA delegates.
In the article titled “Energy has entered a ‘new era of shale’ with big benefits for petrochemicals,” Yergin released his key takeaways from the keynote. One of those included pointing to the robust emerging market growth in the 2004-2014 timeframe — China’s economy, for example, expanded by 2.5 times, while the world economy expanded by 27 percent and Europe by only 10 percent. This economic expansion drove increased demand for oil and petrochemicals. Oil prices rose to levels of approximately $100/barrel in the early part of this decade. These factors fed fears of a shortage and made rising costs a major issue for consumers. “But during that period, shale was coming, and it has transformed the energy scenario,” elaborated Yergin.
Growing shale-based energy supplies, combined with a cooling of the main emerging economies (particularly China) and OPEC’s decision not to cut output, have pushed oil prices down “to levels below what many anticipated,” according to Yergin.
“Right now, there is a historic shift from limited supply and strong demand to ample supply and weaker demand, partly because of a disruptive technology (fracking for shale oil and gas),” said Yergin, who is also a Pulitzer Prize-winning author of “The Quest” and “The Prize.”
The development of fracking technology, initially for gas and then for oil, has resulted in almost doubling U.S. oil production since 2008 and an almost 50-percent hike in natural gas production over the past decade.
Lower oil price
According to Yergin, low prices have caused the oil industry to slash costs with estimated budget cuts averaging 10 percent to 15 percent among the major companies.
“Oil projects will be delayed, reviewed, postponed and canceled,” he said. But cheap, plentiful oil has brought big benefits to the worldwide petrochemical industry in 2015, particularly in Europe.
Europe has shale gas potential, but political obstacles prevent its development. IHS research indicates by the mid-2030s Germany could be getting 35 percent of its natural gas from domestic shale gas produced from nonsensitive areas, equivalent to current import levels from Norway or Russia.
“Currently, the impact of U.S. shale gas is pervasive, with big implications for petrochemicals,” Yergin said. He cited IHS Chemical’s estimate of the more than $100 billion in scheduled investments in what he called the “first wave” of petrochemical projects in the U.S.
“The United States will remain in a very competitive position in petrochemicals for a long time,” Yergin said. The potential “second wave” is going through a process of assessment.
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