Annual Economic Outlook – Chemical Industry View

U.S. Energy Information Administration released annual economic outlook throwing light on the current and future. The study released has taken various scenarios into consideration while projecting the trends of consumption and production numbers in various energy sources. Given below are some key takeaways from the study.

  • The US Turning Energy Exporter: the agency has said that the current and ongoing projects shall produce more than enough energy to suffice domestic needs, while exporting the natural gas to neighbors and other countries, where the US has cost advantage. Within supply pipelines-based supply is expected grow exponentially in coming decade. The competition is expected to hinder export growth by around 2030 with increased international competition and domestic Mexico production making US shale financially relatively unattractive.
  • Domestic Electricity Generation Changing Fuels: The domestic electricity generation in the US is expected to change its fuel structure with increasing stress over coal powered plants and growing viability of renewable and natural gas projects. The two sources which currently hold 52% source share (34% natural gas & 18% renewable) are expected to even expand it to 70% (39% natural gas & 31% renewable) by 2050. Further within renewable sources, around half of the contribution is expected to come from solar PV by 2050.
  • Stagnating energy demands: The agency has estimated that the overall demand for energy by various industries such as transportation, commercial, residential, industrial, and electric power, shall be stagnating even though the economy will continue to grow. The study predicted that the continuous pressure from government and environmental agencies shall result in increased efficiencies, thus balancing out the growth demand from end-user growth. Largest such efficiency has been estimated to come from transportation wherein energy unit required to drive one highway vehicle-mile travelled will decrease by 32% from 2018 to 2050.
  • Crude Oil & Natural Gas Price: The agency estimated that the crude oil prices in reference case are expected to attain $100 level by 2030 reaching gradually towards $120 by 2050. The natural gas prices are expected to increase relatively faster post 2030 with further rise in demand in domestic market. Although the prices seen during 2005 to 2008 are not expected to be seen again even by 2050 as per the agency estimates.

Overall, the U.S. Energy Information Administration released study has provided decent idea on where the market is standing further clarifying the point wherein the US is not looking outside exporters to fulfill domestic needs, rather it is going to export cheaper natural gas while increasing efficiencies in the domestic consumption areas. From chemical industry point of view, this given good hope to petrochemical producers with relatively good share available for chemical conversion and that too at relatively cheaper cost (although for limited time till 2030). The uncertainties of trade-war impact on domestic market and any unexpected policy changes (in case trump or his successor attempts) among others, have not been taken into consideration. But overall, when everything stabilizes and dust settles, the opportunity window is there for petrochemical producers and renewable energy participants.

– Ankur Kalra,
Manager – Chemicals & Materials,
Infoholic Research