December 26, 2012 6:18 pm

Europe told it risks missing shale boom

Drilling for Shale Gas©Gabriel Szabo/Guzelian

Europe risks losing new petrochemical investments to the US and other countries because of its reluctance to embrace shale gas, the head of the industry’s biggest company has warned.

“Some European countries already made the decision not to go into shale gas, so naturally when they do that there will not be development,” said Mohamed al-Mady, chief executive of Saudi Arabia’s Sabic, the world’s biggest petrochemical group by market value. “I think the trend you will see [is] more investors going to North America, China and the Middle East.”

The US gas production boom – opened up by advances in hydraulic fracturing, or fracking, of shale rock – has provided two important benefits to petrochemicals companies.

It has driven down gas prices, making electricity cheaper for the energy-hungry industry. US shale gas also often contains ethane, a compound that can be converted into the ethylene used to make many of the chemical industry’s products, including plastics.

In an interview with the Financial Times, Mr Mady pointed out that this had led to a big expansion in petrochemical facilities in the US, where Sabic is eyeing potential investments to take advantage of cheap shale gas.

In Europe, however, a number of countries including France have banned fracking because of concerns about its impact on water supplies and other environmental issues.

Earlier this month the UK gave the go-ahead to hydraulic fracturing, under tight regulatory conditions, a year after the practice was suspended when an exploration company triggered two small earth tremors in Lancashire. Poland has been keen to allow exploration for shale gas, but it is still unclear if countries outside the US will be able to enjoy the same transformative economic benefits of the American shale boom.

Mr Mady said the concern about hydraulic fracturing in parts of Europe was understandable in “a place of natural beauty and tourism”. “I’m sure they are looking for the bigger picture,” he said.

Some European companies have, however, taken action to import the advantages of the US shale boom. The Ineos chemicals group recently announced it had signed a deal to ship US ethane to some of its European plants, where it will be used to replace more expensive liquid petroleum gas.

“The last two years has seen a significant stimulation to the petrochemicals industry in the USA because of shale gas extraction,” said Richard Longden, Inneos group communications manager. “Cheaper and more secure raw materials will also help stimulate the petrochemicals industry in the UK – a sector that so many everyday products rely on.”

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