US shale boom pushing UK chemical industry

Bloomberg/Fuel Fix:
The U.S. shale gas boom is reverberating across Britain’s chemical industry, the nation’s second-largest export earner.

The 20-billion pound ($33 billion) chemicals business is losing sales to lower-cost competitors such as in the U.S., where new supplies from domestic shale drilling have reduced prices for natural gas, the fuel used in making chemicals such as plastics. By 2020 the chemicals industry in the U.S. will be 21 percent larger than in Europe, from near parity now, according to the American Chemistry Council.

The price of gas, also used to make electricity, in the past month averaged about two-thirds less in the U.S. than in Britain, the steepest discount in five years. That’s giving Americans an edge over U.K. chemicals makers such as Ineos Group AG, the largest. BASF SE,India’s Tata Chemicals Ltd. and Lotte Chemical Corp. of South Korea shut plants in Britain this year.

The U.K. chemicals industry has responded by joining the oil lobby in pushing the government to clear obstacles for drilling shale rock. The threat to chemicals, among the most energy-intensive industries, shows how the widening cost gap risks inflicting further pain on a U.K. industrial sector that’s yet to recover from the financial crisis.

“The chemical industry’s ability to underpin sustained growth in U.K. manufacturing is increasingly determined by the need for competitive and secure supplies of energy and feedstocks,” said Tom Crotty, a director at Ineos. “The safe exploitation of unconventional gas is central to that supply.”

Essar Energy Plc, a unit of Mumbai-based Essar Group, is in talks with shale gas suppliers in the U.K., the company has said. It uses gas to power processing plants and as feedstock for its Stanlow refinery and chemicals site in the northwest.

The U.K.’s Chemical Industry Association has warned the government that electricity is expected to make up 70 percent of costs by 2020, from as much as 60 percent currently, risking competitiveness, and has urged lawmakers to speed up the development of shale. The group wrote to Chancellor of the Exchequer George Osborne to “broaden and deepen” measures and to close the gap with U.S. operators.

A study by the British Geological Survey found fields in northern England’s Bowland Basin may have enough shale gas to meet demand for almost 50 years.

While the U.K. government is encouraging shale drilling through lower taxes as reserves in the North Sea decline and imports rise, drilling has barely started, stymied by planning regulation and environmental pressure groups, who say exploration can contaminate water.
Not mentioned is the alternative of moving operations to the US.  Some German companies are already looking in that direction.  They and the government are going to have to overcome the anti energy left to get drilling in the UK where the environmental wackos have a loud contingent.


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