What Does the Plastics Revolution Mean for Gas Producers?

It looks like the U.S. plastics revolution is upon us.

Many observers have been forecasting a petro-chemical boom in America. Driven by cheap natural gas as feedstock for the industry.

Last week, two major players in the chemicals space threw their weight behind the idea.

Sasol and Ineos announced they will build a 426,000 mt/year plant--likely on the Gulf Coast--to manufacture high-density polyethylene. A major input in plastics-making.

The announcement adds more fuel to the fire beneath the burgeoning U.S. chemicals sector.

Sasol has previously announced plans for two other Gulf Coast facilities to make low-density polyethylene.

All of this added polyethylene capacity could have some interesting effects for natural gas producers.

That's because America is right now experiencing a major glut of ethane--a natural gas liquid that E&P companies sell to end-users like Sasol, as an input for making polyethylene.

Because of increased drilling for natural gas liquids lately, there's been a lot of ethane on the market. To the point where ethane prices have fallen to almost nothing.

Developments like the one above thus make a lot of economic sense, able to cheaply source their inputs. But the increased demand could help to bring prices back up to some degree.

Which would be great news for producers who've seen their profits shrink as ethane has fallen.

A number of polyethylene facilities are now planned or being built. As the first ones get completed, we'll see what effect the plastics revolution has for gas producers.

Here's to fantastic plastic,

Dave Forest