Energy starts “Era of shale”, says IHS Vice Chair

IHS Vice Chairman Daniel Yergin says that energy is entering an “era of shale” in his address at the European Petrochemical Association’s (EPCA) 49th annual meeting in Berlin last October 5 2015.

Era of shale

The advent of shale gas and oil in North America has had a very large positive impact on the world economy, in terms of energy supply and costs. “The energy position of the globe looks much better” than it did only a few years ago, Daniel Yergin noted.

The emergence of shale was one of the main triggers of the collapse in oil prices since mid-2014, which has also improved the feedstock position of the European petrochemical industry in ways that were not anticipated a year ago. For now, the oil price currently appears impervious to the many geopolitical dangers around the world, but this could change very quickly.

The world has entered a new era in energy terms, with growing global supply surpassing demand from emerging economies as the main influence on markets, Yergin told EPCA delegates. “We have moved from the defining theme of the oil market being the growth of the emerging markets to its being the dramatic growth of shale,” Yergin said.
Nearing the end for oil

Geopolitics have historically had a huge influence on the price of oil. And the world today faces big geopolitical risks, ranging from flashpoints in the Mideast, such as Iran, Iraq, Syria, and Yemen, to the migrant crisis in Europe and tensions between the West and Russia. But, because of ample supply, these risks are currently not factored into the price of oil, and thus are not offsetting  the fall in the oil price to its current low levels, although an unexpected turn of events could cause this scenario to change, Yergin said.

Low prices have caused the oil industry to slash costs with estimated budget cuts averaging 10 percent to 15 percent among the major companies, Yergin said. “Oil projects will be delayed, reviewed, postponed and cancelled,” he said. But cheap, plentiful oil has brought big benefits to the worldwide petrochemical industry in 2015, particularly in Europe.

Europe has shale gas potential, but political obstacles prevent its development, he said. IHS  research indicates that by the mid- 2030s Germany could be getting 35 of its natural gas from domestic shale gas produced from non-sensitive areas, equivalent to current import levels from Norway or Russia.

European Shale Future

The petchem feedstock position of Europe, where naphtha remains the dominant raw material, has also improved with the fall in oil prices, but this benefit is likely to erode over time, Yergin said. “The oil collapse dividend for petrochemicals in Europe will be an asset that fades over time versus natural gas-based petrochemicals in the United States,” he said.

But, overall, he pointed to continued growth for petrochemicals worldwide. He cited IHS Chemical research that forecasts that the worldwide petrochemical demand will be 40 percent bigger overall in 10 years than it is today. “The world needs what the petrochemical industry makes and it will need much more in the future,” he told the EPCA delegates.