Onshore Energy Conference — Dubai Onshore Energy Conference — Dubai 02 | Page 53

THE pH REPORT
world markets. In turn, this confirms
our fears back in May (“Desert and
Middle Kingdoms aim for economic
transformation”, May 2016), that Saudi’s
low level of IT skills, and the domination of
religious teaching in its education system,
will drastically restrict its opportunities
for growth.
5. US hopes for PE/PVC exports
about to hit a stark reality
North American producers have now
started to bring online 2.2 million tonnes of
new polyethylene (PE) capacity, with Nova
Chemicals recently confirming the start-
up of their 450kt Linear Low Density plant
(LLDPE) in Canada. They will be followed
by Chevron Phillips, Dow Chemical,
ExxonMobil and Sasol, whilst new PVC
capacity is also due from the Occidental/
Mexichem joint venture as well as Shintech.
The problem, of course, is that there is no
obvious market for this volume, especially
as Sadara (the Saudi Aramco/Dow JV)
brought 1.1 million tonnes of new PE
capacity online in Saudi Arabia in Q4 2016.
The US PVC market peaked a decade ago at
the end of the subprime mania, as its main
use is in housebuilding. In polyethylene,
as Stephen Pryor, then President of
ExxonMobil warned 3 years ago:
“The reality is the US from a chemical
standpoint is a very mature market. We
have some demand growth domestically in
the US but it’s a % or two – it’s not strong
demand growth,” Pryor said, adding that
polyethylene hardly grew in the US in a
decade. “That is not going to change. The
domestic market is what is it and therefore,
part of these products, I would argue, most
of these products will have to be exported,”
Unfortunately, producers chose to go
ahead with these new investments on the
basis of 3 key assumptions which have now
proved incorrect:
 O
 il would always be priced above $100/
bbl, and so the use of shale gas as a
feedstock would provide long-term
competitive advantage
It seems clear that the US has
followed the UK into the Anger
stage of Elizabeth Kübler-Ross’
‘Paradigm of Loss’ model
 C
 hina would always be growing at
double digit rates and its import volumes
would always be increasing
  Globalisation would continue forever,
and so it was possible to supply Asian
markets from the other side of the world
It would have been bad enough if just
one of these core assumptions had proved
incorrect. The fact that all three have
disappointed means that the future has
become most uncertain indeed. We will
focus on this issue in more detail next
month, when full-year data is available. But
as charts 15 and 16 show for the January –
November period:
 US PE net exports only grew by 63kt
 US PVC net exports only grew by 137kt
Export volumes should have been
ramping up in 2016 – by at least 500kt for
PE and 250kt for PVC – to seed markets
for the flood of new material scheduled to
appear in 2017. It therefore seems almost
inevitable that a major pricing war will
break out later this year as producers
battle for market share, with consequent
impact on global industry profitability.
6. Conclusion: The world is about
to become a very different place
We have argued for some time that the
world is moving into a New Normal, driven
by the major and unprecedented changes
taking place in global demographics. More
recently, we suggested (‘Trump, Brexit
confirm It’s the demographics, stupid’,
November 2016) that this was likely to
prove a somewhat messy transition process
modelled on the ‘Paradigm of loss’ concept
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