FOCUS ON: New Energy Sources - The Revolution of Shale Gas

Question: There is great interest in the questions of shale gas for the petrochemical industry. One of the main producers, Ineos, has already ordered two additional ships for the transport of ethane gas from the USA. When will the first deliveries arrive in Europe?

Rainer Martin: The first commercial quantities have already been coming here in the first Quarter 2016.

Question: Where does the gas come from and what is your view on it?

RM: The Marcellus field in the USA has not provided any gas for 6 years and now produces a volume of 16 billion cubic feet, which represents around 450 million cubic meters per day. In Great Britain, 6 billion cubic feet are currently used every day. This means that only one field in America produces two and a half times as much gas as the UK or Germany need altogether. The fracking industry has reached a critical mass and is moving further extremely fast.

In the UK, in Germany and in other European countries, we are still often in the exploratory phase. We do have large reserves in the layers of shale, but the green light for larger production volume is not yet foreseeable.  However a few investors have invested in Scotland with extraction permits.

Question: What are the main reasons for large-scale extraction in America?

RM: In the American model, the financial benefits are predominantly shared. Over there you have unlimited access rights to the resources in the ground as soon as you own a piece of land. In most of Europe you only own the surface. Commercial manufacturers join the affected landowners in the USA, not for the profit, but very effective with hydrocarbons actually extracted. It means that in practice 6% go to local communities and landowners in any case. It works well, even if at first glance it does not seem very good for all. 

Question: How does the development in Europe look?

RM: Most Europeans are rather neutral about shale gas so that the more negative voices are heard loud and clear. Mistakes made in the early stages of exploiting shale gas have been portrayed as sustainable environmental damage. But on the other hand, public opinion in the USA is very favourable to shale gas exploitation as it involves money both for individuals and local communities.

Question: Some US corporations are also in other countries, such as Argentina, but also operating close to Europe, for instance in Algeria. How do you see the exploitation projected in these countries?

RM: My knowledge of the status quo in these countries is rather low. I can only tell you that the shale gas production in America was and is extremely successful. Around half of the energy consumption in the US already comes from shale gas deposits. In Europe, we are in trouble because too little has been achieved in this direction, although we do have a lot of deposits. It is as easy as it sounds: this is why our current costs are twice higher for electricity and three times higher for gas as in America, and for the chemical industry it is extremely difficult. For years, global players have no longer invested in Europa, but have turned to America because the conditions there are much better.

Question: What does this mean for the future of basic chemicals in Europe?

RM: It is not difficult to understand, and not difficult to achieve: we need to invest in fracking and create conditions similar to that of America. Over there over 1.2 million springs are exploited in which a very deep hole is drilled and then widened horizontally and layers are broken out. This is where we are today with our technology. Allow me to comment on the costs, which in Europe have been for the past 10 years three times what was spent for fracking in the USA; as a result, the USA have funded half of the energy needed while we only cover 5% of the demand with costs three time as high. It seems that American politicians are smarter their European colleagues.

Question: In your view, is shale-gas production the only way out of this situation for Europe?

RM: Whilst the generation of renewable energy for the production of cheap energy cannot be condemned, there are only two solutions: nuclear power or fracking. Both are currently rejected and submitted to high environmental taxes. Brussels has prevented the restructuring of the industry and businesses are likely to remain small. In comparison with the American conditions, the consequences are that chemical companies quite simply have few opportunities at the moment.

Question: How do you see the supply of intermediate products in the medium-term future?

RM: Because of political uncertainties – as we don’t know what the next British or German governments would do – I am convinced that we will still have to import gas from America for the next 10 years at least. Things will change once there are shale gas exploitations close to Europe. It is very difficult to predict how long it will last. As soon as this works, the supply chain will adapt accordingly.

 

Rainer Martin

Rainer Martin is a certified Procurement Manager for Materials Management, and since 2011, an expert in global sourcing at Expense Reduction Analysts.

 Rainer has 26 years’ experience in indirect procurement for Wella AG, in charge of 40 cost categories. Since 2000, he has been in charge of technical procurement and, during the acquisition by Procter & Gamble, of the procurement of components for the consumer goods (Braun, Oral B and Gillette), as well as supervising strategic projects within the P&G supply chain. 

His expertise lies in the cost optimisation of plastics (granulates, tools and especially parts) and in the global sourcing of components.

 

 

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