Friday, September 30, 2011

Peak Oil: Meet Increasing Substitution of Gas for Oil in Plastics

As crude oil is increasingly replaced by substitutes in transportation, plastics, heating, etc. the demand for oil will continue to shrink. With supplies and reserves of oil growing every year, a downward pressure on prices should continue. Here is more on substituting gas for oil in plastics production:
Leading the charge is Nova Chemicals, a Calgary-based company that has secured a crucial lifeline for its sprawling Ontario chemical complex through access to the prolific Marcellus natural gas fields in the United States.

...Nova – which traces its roots to Alberta’s gas gathering system – has signed deals with Sunoco Pipeline LP and two Marcellus shale gas producers to ship ethane – which is derived from natural gas liquids – to its ethylene plant in Corunna, near Sarnia, Ont., from southwest Pennsylvania. By doing so, the company will replace its ethane feedstock derived from high-priced crude oil from Western Canada with a source produced from low-cost natural gas in the United States.

...For Nova and other North American petrochemical operations, the shale gas boom has proven a godsend, coming at a time when the industry was encountering increasing difficulty competing with major chemical operators in the Middle East and Asia.

...Dow Chemical Co. has announced plans to spend $4-billion (U.S.) to construct a “cracker” – which processes ethane into ethylene – on the Gulf Coast, re-open an idled one, and build two propylene plants. Royal Dutch Shell PLC is considering building a plant in economically depressed Appalachia, close to the Marcellus fields. Germany’s Bayer AG is in talks with several companies to construct new ethane crackers in West Virginia, while Chevron Phillips Chemical and Dutch-based LyondellBasell have said they are considering expanding operations in the U.S. _Globe&Mail
As more of the industrial infrastructure becomes tied to the vast new unconventional gas resources, the entire economic picture of these industries will change. This will throw most predictions of oil demand off, sometimes significantly.

Substitution for oil is still in the early stages. As gas-to-liquids, coal-to-liquids, kerogens-to-liquids, biomass to liquids, and methane hydrates to liquids begin to pick up steam, the price of oil will experience significant down-pressure due to loss of demand.

The only thing that could retard this process at this time is an all-out production blitz by any oil producers with excess capacity. That would include Saudi Arabia, Russia, Iraq, and perhaps Venezuela and Brazil. By forcing down oil prices before alternative substitutes could gain traction, OPEC and other oil dictatorships might well slow down this overall process. But given the societal dependency on oil which underlies these dictatorships, such a preemptive strategic move is unlikely.

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