Gas to Petrochemicals Puts Downward Pressure on Oil Demand

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Crude oil is used for a wide range of purposes.  As economical substitutes are found to replace crude oil in its various uses, demand for oil tends to decrease. This is exactly what is beginning to happen for the industrial uses of oil, including the huge global petrochemicals and plastics industry.

In the US, ethane taken from "wet gas" will soon be "cracked" to the lucrative plastics precursor ethylene. Both Aither and Shell are racing to build expensive new ethane crackers in the US natural gas regions.

An ethane cracker converts natural gas into the bedrock elements of plastic, such as ethane, ethylene and polyethylene, and opens two doors to a global market: selling ethane-related products to existing plastic manufacturers, and attracting ethane-based manufacturers.

"Look at any (ethane) cracker in the world and you'll see at least one plastic manufacturing plant next to it," said Paul Badger, professor of chemistry at Robert Morris University.
The world of plastic is an intriguing market to enter.

"Ethylene is the No. 1 petrochemical in the world and is in fairly high demand ... The market fluctuates at times, but the demand for plastic will always be there," Badger said. _TimesOnline

In the Persian Gulf region, gas-rich Qatar is increasing its petrochemical production from natural gas to take advantage of new demands and improved technologies.

Qatar can capitalise on a number of competitive advantages in the chemicals sector, most importantly the availability of the world's third-largest gas reserves, which provide low-cost domestic energy and feedstock, as well as smaller, but significant, crude oil resources.

These have led to the development of the petrochemicals and fertiliser industries in particular. When natural gas is processed, it generally produces around 90% methane and 10% ethane. Methane is used in the production of ammonia and urea fertilisers, while ethane is a feedstock for many petrochemicals. _Zawya

In fact, Qatar is spending roughly $25 billion to expand its petrochemical production.

We should also mention here that Qatar's operating Pearl gas to liquids (GTL) plant, financed and operated by Shell, is on track to generate $6 billion in profits per year, from the production of diesel from gas, lng, and other petrochemicals.

The Earth's complement of natural gas has barely been tapped. And once safe and economical means of tapping into the enormous gas hydrate resource have been developed, we will see an even more rapid global rush into GTL and petrochemicals from gas.

The substitution of alternative fuels and feedstocks in place of crude oil has just begun. And the economics of $100 a barrel oil -- despite the rapid devaluation of the Obama dollar -- favours an accelerated upward curve in new substitution technologies and applications. This can only put a downward pressure on demand for crude oil.