95% of the chemicals manufactured today are based on either oil or natural gas. For some chemicals, oil or natural gas can comprise 80% of the cost to produce as they are both the raw material and the energy source. In response to the shale gas tsunami, companies such as Dow Chemical, Shell Chemical, Westlake, Lyondellbasell and others are investing billions in new chemical plants. 

The American Chemistry Council calculates that nearly 100 chemical industry investments valued at $71.7 billion have been announced through the end of March 2013. They also estimate that roughly half the investments to date are from firms based outside of the U.S. The U.S. shale gas tsunami is understood by the chemical industry, and especially by foreign companies, represented by the billions invested. This creates a wave of opportunity for manufacturing companies who provide the reactors, separation columns, control systems and other specialty equipment for the chemical industry.  

The next and even bigger wave will be from the four fold price reduction caused by shale gas passing through the chemical industry. In Shale gas: Reshaping the US chemicals industry, a October 2012 PwC white paper in which TopLine Analytics was a contributing author, we examined the economics of ethylene. The chart below illustrates the dramatic impact on ethylene economics. Considering that ethylene is the number one chemical globally, the effects will be widespread. 

These conclusions were confirmed by the American Chemistry Council in their May 2013 report: Shale gas, Competitiveness, and New US Chemical Industry Investment: An Analysis Based on Announced Projects. The ACC chart on ethylene production costs, displayed below, confirms the dramatic shift in U.S. economics from 2005 to 2012.  In these few years the U.S. has moved from the high cost producer to low cost producer, now with essentially Middle East cost economics.