((CHEManager Europe 5/2013))      Fuel and Feedstock     In its activities, the chemical industry uses significant amounts of natural gas, both as fuel and as feedstock. The arrival of shale gas in the US market has had an enormous impact on the gas price (from $8 per mBTU in 2005 to 3 $/m BTU in 2012), giving the US a major boost in competitiveness. Within the same time frame, gas prices in the EU have increased by more than 80%. The availability of advantaged shale gas is providing the US with the opportunity to become an export market, both for LNG (energy use), NGLs (feedstock use) and finished petrochemicals (Fig. 1).
The US terminals that were mainly constructed to import LNG are being refurbished to become export terminals. The export potential of US shale gas is expected to mitigate some of the impact on the European market, potentially leading to more competitive energy and feedstock prices.

The Petrochemicals Value Chain    Petrochemicals constitute the building blocks of the entire chemical industry. They represent directly 25% of EU chemicals sales but support a value chain that amounts to more than 80% of European chemical industry sales. The impact of shale gas on petrochemicals production is illustrated with the case of ethylene (Fig. 2). Ethylene is the largest basic building block for the chemical industry and largest volume organic chemical produced (~130 million t/y).

Changing Cost Basis    In 2005 naphtha-based ethylene in Europe had a cost basis which was similar to ethane-based ethylene in the US. In 2012, the cost difference between the two regions became 700$/t. On a European market of 20 million tons, this represents a cost advantage for the US of $14 billion per year. With a transportation cost between the two regions of 100-300 $/t, this makes Europe very cost-defensive compared to the US (in addition to the Middle East, which was an already existing situation).
In summary, seven years ago Europe was in a comparable cost situation to the United States for the production of ethylene (the most advantageous was the Middle East, which has maintained its position). Now, with the emergence of shale gas in the US, Europe is essentially a "laggard" region from the cost competitiveness point of view (Fig. 3).

Domino Effect      This shift in Europe's competitiveness impacts the entire ethylene value chain, making it globally uncompetitive. This could lead to a gradual petrochemical industry delocalization from Europe to regions like the US and the Middle East.
In addition to the impact on the petrochemical industry and its direct customers, there could potentially be an impact down the value chain, on the manufacturing industry in general (Fig. 4).
The impact will be twofold: Firstly, downstream industries will be confronted with more costly petrochemical-based raw materials. Secondly, downstream industries will see an impact on gas and also electricity markets.
These two factors will strongly affect the first column in Fig. 4, but will do so gradually along the value chain, in a "domino effect'. The result can be a gradual move out of Europe of these value chains, with the resulting loss of wealth and employment.