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Shale Revolution Accelerates American Chemicals Industry

Tim Maverick, Wall Street Daily

It certainly is a good time for the $800-billion U.S. chemicals industry. The shale gas revolution has literally turned the global chemicals industry on its head.

Chemicals Industry Accelerated by the Shale Revolution

According to the American Chemistry Council (ACC), U.S. chemical production will continue to expand this year and next. The ACC forecast year-over-year output growth of 3.2% for 2015 and 3% for 2016, and foresees even better times ahead. It expects the domestic chemical industry’s growth to exceed that of the nation as a whole in the years to come.

The ACC sees the industry becoming a growth engine for the economy, forecasting a rise in the 5% range in the 2017-to-2019 period. It also expects record trade surpluses for the industry by 2020.

The chemicals industry owes most of its recent success to one crucial factor.

Shale Revolution = Chemical Renaissance

The game-changing innovation of fracking has unlocked reserves trapped in shale formations across the United States. Fracking has released abundant and cheap natural gas and natural gas liquids (NGL), such as ethane, which have revived the U.S. chemicals industry.

You see, U.S. companies now enjoy a huge advantage over foreign competitors that use naphtha as a feedstock. Naphtha is derived from crude oil, and is still expensive relative to NGLs.

The shale gas revolution has literally turned the global chemicals industry on its head.

Less than a decade ago, the outlook for producers of domestic bulk chemicals, such as ethylene, was grim, with production capabilities being shipped overseas.

But now, more and more investment in U.S. production capacity is either underway or in various stages of planning.

An Investment Catalyst

According to the ACC, 238 U.S. chemicals companies have announced investment projects worth a total of $145 billion.

That’s up from $90 billion in announced projects as of mid-2014.

Capital spending in the industry soared 64% from 2010 to 2014, to $33.4 billion. The ACC expects spending to jump another 37% to $45.8 billion by 2018.

Note that about 61% of the announced investment in U.S. chemicals production is coming from foreign companies.

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