Greg Haas Speaker Interview
“Oil price volatility has curtailed the appetite for new investment across the upstream exploration and production as well as the midstream industry. But the uncertainty has also driven delays, cancellations, and indefinite postponements downstream.”
Greg Haas, Director Integrated Oil & Gas, Stratas Advisors
At the Global Petrochemicals Summit you’ll be speaking about global petrochemicals amid stumbling U.S. NGL growth, can you tell us a little bit about what you’ll be discussing?
Lower hydrocarbon prices have led U.S. upstream explorers and producers to dramatically cut drilling and completion spending across the country. We have deeply cut our forecasts for U.S. hydrocarbon production with these spending cuts. Notably for the global petrochemicals industry, our forecasts show a clear downturn in U.S. NGL production. Less U.S. NGL output means less feedstock supply for domestic petrochemical and refining industries. And just as U.S. NGL supply growth stumbles, new plants nearing completion will reset growth of U.S. NGL consumption. But we see offshore markets also being affected because we forecast a significant downward revision in the availability of excess NGL available for export from the U.S.
What affect has the oil price volatility over the past year or so had on the U.S refining and petrochemical sector?
Oil price volatility has curtailed the appetite for new investment across the upstream exploration and production as well as the midstream industry. But the uncertainty has also driven delays, cancellations, and indefinite postponements downstream. Examples can be found in projects related to new or expansion capacity for propylene dehydrogenation, ethylene, refining, gas to liquids, and more. In addition to lower interest and slower decision making related to big capital expenditures, we have seen margins compress as hydrocarbon prices have fallen. Crude oil, NGLs, natural gas, refined products, petrochemicals, and more have seen a shift to lower prices and tighter margins.
To preserve cash and margins during this “lower for longer” price environment, refiners and petrochemical operators are exercising tighter discipline on capital and operating expenditures. The economics of projects conceived at $100/bbl oil are not likely to be the same when oil is at $50/bbl. And when differentials and cost levels are half of where they used to be, fewer arbitrage opportunities are found between markets. Competitive advantages and global trade flows between the U.S. and other countries involved in the international refining and petrochemical industries have profoundly shifted as well.
Shell recently announced it was moving forward with it Pennsylvania petrochemical complex, do you see this as a significant moment for the U.S petrochemical industry? Are we going to see more projects like this over the next decade?
Shell’s announcement of a positive decision to invest in the Pennsylvania petrochemical complex is a highly significant development. The multi-billion dollar plant represents a world-scale facility being developed by a multinational integrated energy and petrochemical firm. This will also be the first new U.S. ethylene cracker to be built outside of the U.S. Gulf Coast in decades. It will source highly discounted ethane feedstock and natural gas fuel from the Utica and Marcellus shale plays. If other North American inland petrochemical project developers follow suit (PTT, Braskem, Williams, Pembina others), there will be less need to export U.S. produced excess ethane and propane to offshore markets from the U.S. Gulf or East Coasts. That could lower the availability of light NGL-based feedstocks around the globe. At the same time, the cost-advantaged petchem production from new U.S. manufacturing facilities like Shell’s will find their way to global markets. Impacting both the global industry’s cost and revenue regimes, advantaged North American inland petchem plants could drive global petchem margins down. Stratas Advisors will detail more in the talk in Lisbon.