The Yanks Are Coming, Again

John Hinderaker over at Powerline caught something that I should have. It happens. He quotes the Science and Environmental Policy Project’s The Week That Was:

Mr Hilton discusses the highly successful UK petrochemical firm Ineos. The firm may invest €2 billion (£1.76 billion) expanding its European petrochemicals capacity, possibly in Belgium. But location is only part of the issue. As Mr. Hilton states:

Once you have built a major chemical complex, your main (in many ways, your only) worry is the cost of the raw material you need to feed into it. This can account for half or more of total production costs, and is similarly crucial for other energy ­intensive industries such as refining, iron and steel, glass, cement and paper.

Until a few years ago Europe and America paid more or less the same amount for their petrochemical feedstock — the US had a slight advantage but not so great after transport and other costs had been factored in. (Middle East plants, sited right by the oilfields, did have such a price advantage but lacked scale.)

This is no longer the case thanks to the fundamental changes across the Atlantic. The Marcellus field, which spreads over several states and is just one of many in the US, produces 15 billion cubic feet of gas a day which is almost twice the UK’s entire consumption. But the result is that US prices have disconnected from the rest of the world and the subsequent feedstock prices have given American chemical plants so vast a price advantage that, on paper at least, there’s no way Europe can compete. It is staring down the barrel of bankruptcy, not now, but in a few short years, unless it can find some way to get its raw ­material costs down to American levels.

Thus far, the effect has been muted — and the European industry has had a little time — because the US petrochemical industry was originally not built for indigenous US gas and oil supplies but instead located near ports and configured to process supplies of oil from the Middle East.

But this is changing fast. There has been virtually no big petrochemical investment in Europe in the past decade whereas in the US since 2010 some $85 billion of petrochemicals projects have been completed or are under construction. Spending on chemical capacity to 2022 will exceed $124 billion, according to the American Chemistry Council, creating 485,000 jobs during construction and more than 500,000 permanent jobs, adding between $80 billion and $120 billion in economic output. After years where chemical capacity has run neck and neck with Europe, the American industry is about to dwarf it.

Makes all the sense in the world, when one thinks about it. And it’s true all through the energy sector. When I started this blog, we, in America, were paying about $5/gallon for gasoline (mostly slightly less) while Britain was paying about £4/Liter, if I recall. The BBC says they are now paying £1.19/Liter while we are paying ~$2/Gallon. But there are almost 4 liters in a gallon, and while I don’t remember what the pound was worth 6 years ago, I suspect it was considerably more than $1.28. And while we’re OK on Gasoline, we’re pretty much awash in Natural Gas, to the point that we are using it to replace coal in electrical generation, because it burns cleaner, while exporting coal to China.

So often I say here that America was built on abundant (and increasingly cheap) energy. I don’t usually document it because it seems pretty obvious to me, but it really is. Think about why such companies as Amazon, which are really little other than overgrown mercantile houses (in itself a concept we pioneered a hundred and fifty years ago with such firms as Sears, Roebuck, and Co.) both started and prospered so mightily here.

This will, I think become obvious quicker in chemical plants (do remember that the fertilizer we use on crops, another field that the US/Canada dominate, are products of chemical plants). Fracking is going a long way towards making America competitive with anybody in the world, again. And if you combine that with the traditional American propensity for innovation, well, the limits of our return become hard to discern.

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About NEO
Lineman, Electrician, Industrial Control technician, Staking Engineer, Inspector, Quality Assurance Manager, Chief Operations Officer

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