“This therefore is not something we believe should be ignored given the UK’s import dependency projections.”
The gathering row between Qatar and its Arab neighbours does little to inspire confidence in the reliability of supply.
Middle East LNG is not however the sole overseas alternative to European piped product.
The explosion in US shale gas production and its initial penetration of the UK export market has been a game changer and not only for the oil and gas sector. The chemicals industry relies upon energy for raw materials in the form of feedstock as well as fuel. And for energy-intensive sectors especially, the more plentiful, reliable and low cost this is, the better the profit margins, efficiency and potential for reinvestment.
The shale gas boom has provided a greater abundance of supplies of natural gas and natural gas liquids, such as ethane and propane; the former particularly used as feedstock for the production of ethylene from which an array of products stem.
Shale gas-derived feedstocks remain significantly more cost-efficient than the widely-used naphtha, enabling US exporters to access more effectively the European market, including the United Kingdom.
This growing abundance coincided with years of rising energy and feedstock costs for the UK market, said the Chemistry Growth Partnership: “The chemical sector is both energy and trade intensive so this contribution critically depends on secure and competitively priced supplies of energy for use both as feedstock (raw material) and fuel. For large users, UK energy supplies are becoming uncompetitive and less secure.”
The well-documented closure of the UK’s only ethylene oxide plant back in 2009 increased the perception within the process sectors that government was failing to understand the key part that chemistry played in the economy. And, in turn, the role that energy as fuel and feedstock performed in the chemical industries.
As Ineos chairman Jim Ratcliffe put it previously: “There are no large economies in the world without a strong chemical industry because chemicals are so basic in all the products that we use.”
Lack of ethane supplies had left Ineos’ gas cracker at Grangemouth operating at just 40% of capacity. By contrast, the American Chemistry Council noted as early as 2013 that new ethane supplies had enabled some US crackers to run at 95% of capacity, with several large firms aiming to increase likewise.
Ineos has of course since harnessed its Grangemouth petrochemicals facility for the handling of US shale gas – imported with an investment cost of £450 million, this ensured a substantial increase in cracker activity.
Last month, Ineos announced plans to spend $1 billion on expanding its ethylene-producing crackers at Grangemouth and Rafnes, Norway to boost capacity for both to 1 million tonnes a year.
Parallel to this, it will develop, at a cost of $1 billion, a propane dehydrogenation unit sited in Europe for propylene production, intended to supply 75% of its estimated 1 million tonnes annual shortfall.
The abundance of US shale gas in particular, which has assisted this activity, will have a strengthening effect on process industries and increase their competitiveness and efficiency by reducing a major cost.
However, for some, the demise of the Rough facility highlighted a fundamental weakness inherent in the gas sector. Namely, dependence on non-domestic supply.
Whatever advantage imported American shale gas brings to the UK manufacturer, the certainty is that the same source will provide still more to their US counterpart, increasing trading effectiveness in the same international marketplace where British firms will need to compete post-Brexit.
UKOOG’s Cronin is adamant: “The solution for the UK in the medium term cannot be to transport gas across oceans and continents.”
With domestic output down 57% in 15 years, exploitation of the UK’s own shale gas reserves is key, he insists.
“Whilst the quantity of shale gas in the UK is not on the same scale as the United States, by realising the potential of shale gas we could provide the UK with a secure source of energy for the coming decades, create 64,000 jobs, create a new source of tax revenue and lower the UK’s overall carbon footprint by 10%.”
The solution for the UK in the medium term cannot be to transport gas across oceans and continents
Ken Cronin, chief executive, UKOOG
Ineos has led the way, integrating upstream, midstream and downstream oil and gas activity. Offshore it has purchased BP’s Forties pipeline and Kinneil terminal to gain control of 40% of UK North Sea oil and gas delivery. Its £1 billion acquisition of Danish firm Dong Energy’s upstream interests made Ineos the leading private company North Sea operator.
Yet its ambition – and that of firms including Cuadrilla – to tap the vast, unexploited shale market has the greatest potential, with an estimated 1,300 cubic feet in the north of England’s Bowland shale region – buoyed by the advent of horizontal drilling and improved hydraulic fracturing.
Down the supply chain, there is an array of UK companies already active in the US shale industry including Aggreko, the world’s largest temporary power provider, and pressure pumping equipment and services provider Weir Group.
In the petrochemicals sector, replacing the UK’s dwindling domestic supply of chemical feedstocks for which natural gas is a vital ingredient could safeguard up to 100,000 British jobs
Says Cronin: “By helping to manage energy costs for core sectors, growing shale gas production could play a vital role in reducing potential increases in gas prices caused by rising demand [abroad].
“In the petrochemicals sector, replacing the UK’s dwindling domestic supply of chemical feedstocks for which natural gas is a vital ingredient could safeguard up to 100,000 British jobs.” The sticking point for fracking remains political-environmental, with opposition parties firmly against.
Labour leader Jeremy Corbyn has consistently opposed fracking, though ex-ministers Yvette Cooper and Caroline Flint cautiously acknowledged in 2015 the possible benefits of a wellregulated regime in providing more secure supplies.
Members of the GMB union, that sponsors one in three of the party’s MPs, have urged a review of policy, while the choice of Labour former apprenticeships minister Iain Wright as chief executive of the North East of England Process Industry Cluster (NEPIC) is significant.
If Brexit, as predicted, ushers in a period of economic contraction and higher utility prices, the benefits of a properly regulated shale regime – community investment, lower fuel and feedstock prices underpinning jobs and industrial growth – may prove harder to counter.