Don C. Brunell: Cheap Gas Fueling Petrochemical Expansion

In Washington, an abundance of low cost, reliable hydropower spurs economic growth. It is a key reason why energy intensive industries locate here.

Today, our nation has a profusion of carbon-based energy. Unlike a decade ago when we relied upon imported natural gas and crude oil, fracking technology put us on the path to be the world’s largest producer of processed petroleum.

While fracked gas and oil are a boom to America’s economy, they are a big problem for traditional oil rich nations like Saudi Arabia and Russia.

The Wall Street Journal recently reported: “Aramco, one of the world’s most powerful and secretive companies, is undergoing an unprecedented makeover, as the oil-price rout hurts its revenue and uncertainty clouds the future of fossil-fuel demand.” (Aramco is short for Saudi Arabian Oil Co.)

The Saudi strategy is to shift from a heavy reliance on crude oil extraction to higher-valued refined motor fuels and petroleum-based feedstocks needed for manufacturing.

They recognize low crude and natural gas prices not only benefits motorists and homeowners, but are stimulating growth among petrochemical (chemical plants relying of oil and natural gas) producers. Those converting facilities provide raw materials for thousands of other manufacturers who make goods we use every day.

When crude was $80 a barrel, there wasn’t much incentive to divert capital to build chemical plants. However, that has changed dramatically with the protracted price collapse.

“Aramaco’s strategic goal is to create a global network of refining and petrochemical plants that let Saudi Arabia turn its biggest asset into hundreds of higher value products important to everyday life,” WSJ reports.

The Saudi giant needs to bring on new plants similar to its Arlanxeo operation. That large facility, located in a Dutch cornfield, converts oil into synthetic rubber for auto-engine hoses and plastic for wine corks.

Aramco is partnering with America’s Dow Chemical on one of the world’s largest petrochemical plants in eastern Saudi Arabia. It is scheduled to start-up in 2017.

Its leaders are even considering a public stock sale to finance its expansion. According to WSJ, “Saudi Arabia’s potential sale of shares in its state-owned oil giant could lead to a publicly listed company valued in the trillions of dollars, more than 10 times Apple Inc.’s peak of about $756 billion.”

In Scotland, it is a different story. Petrochemical producers, such as Ineos, are running short of North Sea gas to make ethylene—the feedstock used in the production of plastic products.

Ineos is now supplying its Grangemouth operation near Edinburgh with U.S. shale gas. That gas is drawn from the Marcellus shale deposits in western Pennsylvania, converted to ethane in the Philadelphia area, and sent 3,500 miles by tanker ships across the Atlantic.

Even though natural gas produces less carbon pollution and was the preferred fuel during the fight over banning coal, opponents now want to replace it with “clean energy” from solar and wind sources. If they are successful, feedstocks would likely dry up for petrochemical processors.

Today, people give little thought as to how the products they need every day are made. Generally, they don’t know about all of the petroleum-based products in their cars, offices and homes.

Without petroleum, tires, dashboards and engine components would be missing from our cars, trucks and airplanes. Those brightly colored kayaks, made entirely petrochemicals, would not dot our rivers, lakes and seashores.

Banning carbon-based substances is not just about climate change, it is about packaging for food safety, sterilized disposable products for health care, fertilizers for crop production and new fabrics for clothing.

It’s about family wage jobs, healthy economies and our way of life in today’s world.

(Don C. Brunell is a business analyst, writer and columnist. He retired as president of the Association of Washington Business, the state’s oldest and largest business organization, and now lives in Vancouver. He can be contacted at [email protected].)