Traditionally, petrochemicals were produced from naphtha, one of the products derived from petroleum refineries. Naphtha crackers, which broke the hydrocarbon down into basic chemical building blocks, were found all over the world, but given that a high proportion of manufacturing since the 1980s has been based in Asia, most of the world’s naphtha demand came from there too. Either through refining it themselves, or importing naphtha directly, countries like Japan, Taiwan, South Korea, Singapore, Thailand and China created huge petrochemical industries based on this.
Now two things have happened since. The US shale revolution, and then the US’s resurging “Make in America” campaign by President Trump.
Last week, Formosa Petrochemical announced that it was seeking official permission from the state of Louisiana to move ahead with its US$9.4 billion petrochemical complex. In parallel with that project at St. James Parish, the Taiwanese chemical giant is also planning an additional US$5 billion in investment to expand capacity at its Texas petrochemicals facilities. Exxon also announced this week that it is expanding its manufacturing capacity along the U.S. Gulf Coast through planned investments of $20 billion over a 10-year period to take advantage of the American energy revolution. The projects, at 11 proposed and existing sites, are expected to generate thousands of new high-paying jobs and $20 billion in increased economic activity in Texas and Louisiana highlighting the company’s “Growing the Gulf” (officially announced in 2013) initiative in a keynote speech at the CERAWeek 2017 conference. “The United States is a leading producer of oil and natural gas, which is incentivizing U.S. manufacturing to invest and grow, we are using new, abundant domestic energy supplies to provide products to the world at a competitive advantage resulting from lower costs and abundant raw materials. In this way, an upstream technology breakthrough has led to a downstream manufacturing renaissance.”
It may just appear that investors are gaining confidence in expanding in the US after the Trump administration promised a more lenient ecosystem for permits and regulation, particularly in the more environmentally-sensitive industries. While that itself is true – the Formosa St. James Parish project was first announced in September 2015, but some inertia from the amount of permits required kicked in over the feasibility stage – taken from a wider perspective, it is also a sign of another milestone: the US is now probably one of the world’s cheapest places to produce petrochemicals.
And now it seems that internationally-minded petrochemical producers are asking themselves: instead of shipping US ethane, propane and butane halfway across the world, why not refine them into petrochemicals in the US themselves, moving up the value chain? Betting that there may be in an expansion in the US manufacturing base under Donald Trump, this appears to be the logic of Formosa Petrochemical and till recently Exxon. And they aren’t the only ones. OxyChem and MexiChem recently started up a joint venture NGL cracker in Texas, and Shell has its Appalachia project in Pennsylvania, using ethane derived from Appalachian Marcellus and Utica shale. The stage seems set for a resurgence in US petrochemical production, and oddly enough, we may have to thank Donald Trump for that.
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According to the Nigeria National Petroleum Corporation (NNPC), Nigeria has the world’s 9th largest natural gas reserves (192 TCF of gas reserves). As at 2018, Nigeria exported over 1tcf of gas as Liquefied Natural Gas (LNG) to several countries. However domestically, we produce less than 4,000MW of power for over 180million people.
Think about this – imagine every Nigerian holding a 20W light bulb, that’s how much power we generate in Nigeria. In comparison, South Africa generates 42,000MW of power for a population of 57 million. We have the capacity to produce over 2 million Metric Tonnes of fertilizer (primarily urea) per year but we still import fertilizer. The Federal Government’s initiative to rejuvenate the agriculture sector is definitely the right thing to do for our economy, but fertilizer must be readily available to support the industry. Why do we import fertilizer when we have so much gas?
I could go on and on with these statistics, but you can see where I’m going with this so I won’t belabor the point. I will leave you with this mental image: imagine a man that lives with his family on the banks of a river that has fresh, clean water. Rather than collect and use this water directly from the river, he treks over 20km each day to buy bottled water from a company that collects the same water, bottles it and sells to him at a profit. This is the tragedy on Nigeria and it should make us all very sad.
Several indigenous companies like Nestoil were born and grown by the opportunities created by the local and international oil majors – NNPC and its subsidiaries – NGC, NAPIMS, Shell, Mobil, Agip, NDPHC. Nestoil’s main focus is the Engineering Procurement Construction and Commissioning of oil and gas pipelines and flowstations, essentially, infrastructure that supports upstream companies to produce and transport oil and natural gas, as well as and downstream companies to store and move their product. In our 28 years of doing business, we have built over 300km of pipelines of various sizes through the harshest terrain, ranging from dry land to seasonal swamp, to pure swamps, as well as some of the toughest and most volatile and hostile communities in Nigeria. I would be remiss if I do not use this opportunity to say a big thank you to those companies that gave us the opportunity to serve you. The over 2,000 direct staff and over 50,000 indirect staff we employ thank you. We are very grateful for the past opportunities given to us, and look forward to future opportunities that we can get.
Headline crude prices for the week beginning 15 July 2019 – Brent: US$66/b; WTI: US$59/b
Headlines of the week
Unplanned crude oil production outages for the Organization of the Petroleum Exporting Countries (OPEC) averaged 2.5 million barrels per day (b/d) in the first half of 2019, the highest six-month average since the end of 2015. EIA estimates that in June, Iran alone accounted for more than 60% (1.7 million b/d) of all OPEC unplanned outages.
EIA differentiates among declines in production resulting from unplanned production outages, permanent losses of production capacity, and voluntary production cutbacks for OPEC members. Only the first of those categories is included in the historical unplanned production outage estimates that EIA publishes in its monthly Short-Term Energy Outlook (STEO).
Unplanned production outages include, but are not limited to, sanctions, armed conflicts, political disputes, labor actions, natural disasters, and unplanned maintenance. Unplanned outages can be short-lived or last for a number of years, but as long as the production capacity is not lost, EIA tracks these disruptions as outages rather than lost capacity.
Loss of production capacity includes natural capacity declines and declines resulting from irreparable damage that are unlikely to return within one year. This lost capacity cannot contribute to global supply without significant investment and lead time.
Voluntary cutbacks are associated with OPEC production agreements and only apply to OPEC members. Voluntary cutbacks count toward the country’s spare capacity but are not counted as unplanned production outages.
EIA defines spare crude oil production capacity—which only applies to OPEC members adhering to OPEC production agreements—as potential oil production that could be brought online within 30 days and sustained for at least 90 days, consistent with sound business practices. EIA does not include unplanned crude oil production outages in its assessment of spare production capacity.
As an example, EIA considers Iranian production declines that result from U.S. sanctions to be unplanned production outages, making Iran a significant contributor to the total OPEC unplanned crude oil production outages. During the fourth quarter of 2015, before the Joint Comprehensive Plan of Action became effective in January 2016, EIA estimated that an average 800,000 b/d of Iranian production was disrupted. In the first quarter of 2019, the first full quarter since U.S. sanctions on Iran were re-imposed in November 2018, Iranian disruptions averaged 1.2 million b/d.
Another long-term contributor to EIA’s estimate of OPEC unplanned crude oil production outages is the Partitioned Neutral Zone (PNZ) between Kuwait and Saudi Arabia. Production halted there in 2014 because of a political dispute between the two countries. EIA attributes half of the PNZ’s estimated 500,000 b/d production capacity to each country.
In the July 2019 STEO, EIA only considered about 100,000 b/d of Venezuela’s 130,000 b/d production decline from January to February as an unplanned crude oil production outage. After a series of ongoing nationwide power outages in Venezuela that began on March 7 and cut electricity to the country's oil-producing areas, EIA estimates that PdVSA, Venezuela’s national oil company, could not restart the disrupted production because of deteriorating infrastructure, and the previously disrupted 100,000 b/d became lost capacity.