Petrochemical Execs Gather in Texas

Those attending the closing luncheon at the National Petrochemical & Refiners Association's (NPRA) International Petrochemical Conference, held April 3–5 in San Antonio, didn't have to go through the heavy security that they did in 2004, when former president George H. W. Bush was the honored guest. This year's guest, Federal Reserve Board Chairman Alan Greenspan, addressed the crowd via satellite.

Neither did Greenspan warm up the crowd with a string of jokes like Bush did a year ago. Instead, Greenspan simply emerged on the massive screen against the serene backdrop of a bookcase and potted plant and got right to business. "Markets for oil and natural gas have been subject to a degree of strain over the past year not experienced for a generation," he began.

Greenspan predicted that high energy prices would eventually drive the economy toward fuel efficiency. He talked about the need to import liquefied natural gas (LNG) to dampen U.S. natural gas prices.

The Federal Reserve chairman also expressed his hope regarding hydrocarbon sources such as the Alberta oil sands, U.S. oil shale, coal-bed methane, and even U.S. reserves of natural gas hydrates--which may hold some 200 quadrillion cu ft of natural gas, compared with 6 quadrillion cu ft of global conventional gas reserves. "In many respects," he said, "the unconventional is increasingly becoming the conventional."

Greenspan closed his talk by observing that "developments in energy markets will remain central in determining the longer run health of our nation's economy." The remark wasn't news for the audience of mostly energy and petrochemical executives, for whom the greatest business uncertainty today is energy prices, but attendees were still pleased that the head of the Federal Reserve shares their concerns.

Despite the worries about energy, there were obvious signs the petrochemical industry is in a far better position in 2005 than in previous years. NPRA had 3,300 attendees, up from the 3,100 seen last year and the highest attendance, organizers said, since 2001.

And when asked, most attendees said business has certainly picked up. Some petrochemical customers, however, complained of high prices and even shortages in some materials.

Dan F. Smith, president and chief executive officer of Lyondell Chemical, sounded an optimistic tone in one of the conference's keynote addresses, maintaining that the pessimism of the last petrochemical downturn proved largely unfounded. "Some have said the industry is threatened, that we're going to be shut down by imports, and even that the industry won't be viable in the U.S. in the future," he said. "But I don't see it that way at all."

Smith noted some challenges, such as the uniquely high natural gas prices in North America. But, like Greenspan, he expressed faith that market forces would solve the problem by triggering more imports of LNG. He also noted that the emerging global market for natural gas could provide Middle Eastern countries with an alternative to supplying it to local petrochemical plants at below-market prices. "Before too long," he said, "Middle East producers are going to decide that it no longer makes sense to give gas away."

The other keynote speaker, Wang Jiming, vice chairman of China Petroleum & Chemical Corp. (Sinopec), was also optimistic. He projected that China's petrochemical industry will continue to grow at an 8–9% annual rate. He did stress a need for China to sharpen its competitiveness, however, namely through the development of homespun technology in refining and petrochemicals.

Alaska Gov. Frank H. Murkowski gave an overview of plans to pipe natural gas down to the contiguous 48 states. Because of federal legislation, he said, "the political hurdles have been overcome" to a project that would tap 37 trillion cu ft of natural gas via a 4.5 billion cu-ft-per-day pipeline. He said the project would cost some $18 billion to $20 billion--$3 billion to $4 billion in steel alone--and open in the 2012–14 time frame.

Energy wasn't the only long-term concern expressed in San Antonio. For instance, at a forum organized by the Chemical Heritage Foundation, William S. Stavropoulos, chairman of Dow Chemical, said the current prosperity of the industry tempts petrochemical makers to build too much capacity and repeat the "boom and bust pattern" typical of the industry. "Ironically," he said, "I can think of no better challenges than the one that we're facing immediately today: the prospect of good times."

Stavropoulos also spoke about innovation. "While it's unfair to say that our industry has not made any progress on innovation, we must face the reality that the innovation pipeline--by which I mean new breakthroughs in products and processes--has slowed." He blamed the dilemma on the industry's cyclical profitability and on the disconnect between the lab and the marketplace.

Albert Chao, who received the 2005 Petrochemical Heritage Award on behalf of his father, Westlake Chemical founder T. T. Chao, had his own thoughts on innovation in a question-and-answer session following his talk. As president of Westlake, he noted the high output of science university graduates from India and China versus the U.S. "They could be the future petrochemical center of the world," he said.