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Shale: An Existential Threat From Within

Friday July 5, 2019

1. Petrochemicals underperform oil

- The oil majors have undertaken massive investments in petrochemical projects, viewing plastics as a more durable investment than simply producing crude oil. With the spread of electric vehicles and peak demand looming, the soaring use of plastics is seen as one of the last refuges for oil companies.

- But chemical prices have underperformed oil and natural gas liquids since 2014, according to Bank of America Merrill Lynch. “The petchem market has struggled to regain the premium it commanded over oil and NGLs ever since,” the bank said. “More recently, as oil rebounded from 4Q18 lows, NGLs and petchems continued to decline.”

- Production of oil, gas and natural gas liquids has skyrocketed, but much of it remained trapped in the U.S. As a result, companies have invested in major petrochemical capacities, such as ethane crackers. But the products they produce – ethylene and polyethylene – are also somewhat trapped.

- “US export and downstream infrastructure has stranded NGLs, causing prices to collapse, particularly for ethane, which is now trading around $0.16 per gallon, down nearly 50% from the start of the year and approaching natural gas value,” Bank of America said.

- The infrastructure bottlenecks will likely be ironed out over the next few years, but the economic deterioration now has demand up in the air.

- “In…




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