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On the Alert for Shale Gas Production Increase in the US
Korean Petrochemical Companies
On the Alert for Shale Gas Production Increase in the US
  • By matthew
  • August 5, 2013, 04:48
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Tower for drilling horizontally into the Marcellus Shale Formation for natural gas in Pennsylvania, USA. (photo courtesy of Ruhrfisch/Wikimedia Commons)
Tower for drilling horizontally into the Marcellus Shale Formation for natural gas in Pennsylvania, USA. (photo courtesy of Ruhrfisch/Wikimedia Commons)

 

It has been pointed out that countermeasures should be sought to cope with the increase in the production of shale gas in the United States. Korean petrochemical companies manufacture products based on naphtha, whereas their American counterparts use shale gas, which is cheaper than naphtha. The government and the industry are both seeking measures, but some experts are claiming that shale gas-based production would have a less-than-expected impact.

Korean petrochemical manufacturers are expected to take a direct hit from the increased production of shale gas due to the difference in the prices of the raw materials. Korean companies process naphtha, which is obtained by refining crude oil, to produce finished goods. Meanwhile, US companies use ethane that is produced by processing shale gas. The thing is, the former is twice more expensive than the latter. At present, the price of naphtha is approximately US$1,000 per ton, but that of ethane is around US$500 a ton. Those in the Middle East region produce chemical products from natural gas. Though the material costs about US$200 per ton, the quality of the finished goods is poorer than that of the others.

“In the long term, there could be a significant difference in terms of price competitiveness if the US increases its production of shale gas,” said an official at the Ministry of Trade, Industry and Energy, adding, “The key is what products non-Korean manufacturers are going to supply in the Chinese market, which is the largest market for Korean petrochemical manufacturers.”

According to the ministry, China accounts for 47% of Korea’s export of petrochemical products. Chinese companies are stepping up their production, and those in the Middle East are continuing to supply cheap products to the Chinese market as well.

Industry experts’ views are split on the possible impact to the domestic industry. Some of them are arguing that US-produced goods would threaten the local industry with their competitive pricing. “The price of shale gas-based products is around 60% of that of naphtha-based ones,” said a local industry insider, continuing, “We have no option to resort to if our competitors make full use of the price advantage.”

In the meantime, the others are claiming that it would be not that easy for North American petrochemical companies to cut the price of their products when the expenses for shipping to China are taken into consideration. They are also saying that the cost of shale gas could go up if the demand for it increases.

“A number of production facilities are under construction in the United States now, and the demand for the raw material is expected to go up from 2016, when the construction projects are scheduled to be completed,” one of them remarked, adding, “Then, the price will begin to rise.”

Another opinion is that focus should be put on the point of time when shale gas in China starts to be developed. “It is likely that most of the shale gas produced in the US will be consumed in the US, given that petrochemical products are consumed in each producer country in most cases,” said a market analyst. He went on to say, “In this context, shale gas in China could be more fatal than that in the US but, fortunately for Korea, it will take more time for China to work on its shale gas due to its technological immaturity.”

SK Innovation pointed out, “Shale gas could be a threat, but a new business chance at the same time,” adding, “We are currently going over its potential impacts both in the short and long term, along with the possible investment opportunities it will present down the road.”