Asian stocks to lead the way to year's end, Fed seen pulling back - Reuters Poll. Full Article
Confused while buying stocks? Get buy, sell or hold recommendations from VantageTrade. Full Coverage
U.S. shale gas boom brings bad news for Europe's oil refiners
* U.S. petchem industry switches to shale gas from naphtha
* Global naphtha glut grows, flows change
* Prices hit multi-month lows, increasing EU refiners' pain
By Julia Payne and Jessica Donati
LONDON, July 26 (Reuters) - European oil refiners are set to lose a vital export market because the U.S. petrochemical industry is shifting away from reliance on oil products, notably naphtha, and using cheap and abundant shale gas instead.
Exports to the United States and Asia are often the last ray of hope for European refiners, crippled by high oil prices, poor refining margins and depressed economies at home.
The past few years have seen minimal exports of European gasoline to the United States because fewer Americans than normal have taken to the roads in the holiday driving seasons.
But even if gasoline flows to the United States pick up as the economy gains strength, exports of the key feedstock for the petrochemical industry, naphtha, may never fully recover because of the shale gas boom.
Naphtha is a major ingredient in making both the motor fuel gasoline and ethylene used for plastics production.
The U.S. plastics-producing industry is increasingly shifting away from oil-derived naphtha, choosing instead to run plants on gases butane or propane. It is also investing billions in plants that run on ethane, made from cheap shale gas.
"The new capacity in the U.S. will use ethane and replace some of the naphtha cracking plants," said Pierre de Kettenis, the executive director for the petrochemistry programme at the European Chemical Industry Council.
Plastics is just one industry that is experiencing the effect of the U.S. shale revolution, which saw gas output soaring in the past decade and prices dropping to all-time lows.
Techniques for extracting gas have revolutionised the U.S. natural gas industry by giving companies access to vast new reserves that could supply the country's demand for 100 years, according to industry experts.
The U.S. plastics industry is expanding for the first time in decades as factories are able to cut production costs and compete on a global scale.
Its switch from naphtha to cheaper alternatives is causing a major reshuffle in global naphtha flows.
Europe produces more naphtha than it needs with traders saying some 600,000-800,000 tonnes per month are available for exports. Traditionally, three quarters of those volumes were going to Asia and a quarter to the United States.
However, at least five cargoes of naphtha are crossing the Atlantic to Europe this month in what traders say is a reversal of the usual flow of trade.
"There is a new supply pattern emerging... the U.S. Gulf and Caribbean is massively oversupplied, more so than Europe," said a naphtha trader at a trading house. Producers in the Caribbean basin are also normally exporters to the U.S. markets.
European and Asian naphtha prices hit near 18-month lows in June as traders cited global economic concerns and weak plastics demand as well as a mounting global glut of the product.
"There is a naphtha crisis worldwide," said another naphtha trader.
Before the current price collapse, naphtha has traditionally traded at level close to gasoline, making it one of the most important products in refiners' value chain.
European traders say they are no longer counting on Asia, the engine of oil demand growth of the past decade, to consume all the unwanted naphtha as buyers are scaling down purchases to cope with a slowdown in China.
Traders are also finding it harder to sell surplus naphtha to Brazil, which normally mops up any cargoes left over in Europe.
"We will not pull any spot barrels (from Europe). The reason is that shale gas is making naphtha look better (cheaper) from the U.S. and the Caribbean," said a Brazil-based trader.
Experts predict the global naphtha glut will grow over time as U.S. refiners will struggle to place it domestically and ramp up exports.
In the past three years, the U.S. split between ethane and naphtha used in ethylene production has tipped to around 80-20 from 50-50, according to the association of American Fuel and Petrochemical Manufacturers.
The ratio is set to tip further over the next six years as companies including Dow Chemical and Exxon Mobil are planning $25 billion worth of new projects, which will mainly run on shale gas.
- Tweet this
- Share this
- Digg this