Quote of the Day
“The best way to destroy an enemy is to make him a friend.”
Abraham Lincoln
Overview
Petrochemical Index Drops • Oil Exports Encouraged As Bill Passes House • 0% Interest Not Forever • Keystone Pipeline Still Alive • EPA Ozone Regulations are Problematic • Cuba Opens for Business
The summer proved to be more dramatic than usual with a nearly disastrous stock market crash, devaluation of Chinese currency, the lowest oil prices in at least three years, and an American economy that is working its way up, one small step at a time. Nonetheless, with a failing global economy, and a strong US dollar hurting exports, will the decision to not raise the interest rates haunt us in the future by possibly setting the stage for inflation? Oil and gas drillers are going through a period of mergers and acquisitions to survive the continued slump in prices. The EPA continues to impose regulations that burden manufacturers in a fragile economy that is doing all it can to recover, and states are writing their own environmental laws to keep their residents safe. The DOD insists that the failed $500 million dollar foreign military training program is a necessity and must continue. A new set of rules governs Americans wishing to do business in and with Cuba as the crippling embargos are lifted and commerce with the island is getting ready to commence for the first time in more than half a century. The good news is that despite an unpredictable future and a fluctuating economic environment, the chemical industry appears to be robust, and all indices predict prosperity for some time to come.
Chemical Industry News
August ICIS Global Petrochemical Index (IPEX) drops 8.7% as Asia Prices Fall
According to recent ICIS data, primary olefins and aromatics prices fell sharply as the major polyolefins in northeast Asia drove the ICIS global petrochemical index down by 8.7% in the month of August. This was the sharpest drop in the index since the beginning of the year. The global IPEX for the month is down 31% on the year.
After a quiet week following the US Labor Day holiday, styrene spot prices held steady although trade was thin. ICIS spot price has fallen for eight consecutive weeks since the middle of July, mirroring the fall on benzene.
Producers settled August styrene contracts at an average of 3 cents/lb below July prices, with decreases mostly ranging from 2-5 cents/lb. Larger buyers achieved prices in the upper end of that range. According to data released this week by the US International Trade Commission (ITC), the US exported 10% more styrene year to date through July than in the same period a year earlier.
According to the American Chemistry Council’s Specialty Chemicals Market Volume Index, nineteen specialty chemical segments realized year-over-year growth in August, despite drops in oilfield and mining chemicals. On a three-month moving average basis, plastic additives and electronic chemicals grew the most. Year over year, “gains are fairly widespread among most market and functional specialty chemical segments, and, in some cases, they are improving,” the ACC said.
Thailand-based conglomerate Siam Cement Group (SCG) is predicted struggle with softening chemical margins and inventory losses in the near future, but analysts say that it still should post record profit this year. Profit in 2015 will get support from its petrochemicals business due to strong demand in southeast Asia.
According to ICIS data, US ethylene margins fell 9.5% for the week ended 11 September. Margins for ethane-based spot ethylene dropped to 15.42 cents/lb ($340/tonne) from 17.04 cents/lb from the previous week. This is the lowest those margins have been since November 2011.
Eight non-government organizations (NGOs) have urged US Senate leaders Mitch McConnell (R-Kentucky) and Minority Leader Harry Reid (D-Nevada) to bring the bill updating the country’s chemical management law to the floor for consideration as soon as possible. The public health, environment, animal welfare and workers’ groups said that the Toxic Substances Control Act is “badly broken” and the Udall-Vitter bill (S 697) should be an urgent priority.
As part of a United Nations global climate agreement, the European Union will push for the world to reach carbon neutrality by the end of the century. That would entail curbing emissions by 50% from 1990 levels by midcentury according to Bloomberg data. EU member states originally agreed to push for making the world carbon-neutral by the end of the century.
In line with recommendations from the Intergovernmental Panel on Climate Change, or IPCC, a UN-organized body of thousands of scientists and environment ministers from the EU’s 28 nations want the agreement to include a 2050 target of reducing global emissions by 50 percent from 1990 levels.
The Federal Trade Commission has hit five providers of environmental seals, and dozens of businesses displaying the seals, with warning letters because of concerns that the eco-labels do not comply with the FTC’s Green Guides. The seals were allegedly in disagreement with the guidelines that bar marketers from making environmental claims without using “clear and prominent language” substantiating the claims being made.
Oil & Gas
API President Gerard Pushes US Oil Export Advantages
American Institute President and CEO Jack Gerard said that allowing crude oil exports can help the US seize its long-term opportunity to compete in the global marketplace and become a swing producer. Several analysts said that oil exports would create jobs, resolve the irony in lifting sanctions on Iran, drive oil and gasoline prices lower and bring billions of dollars in savings for consumers. In spite of an economic downturn, US producers will still be major participants, depending on how the US plans to prevail over political differences and “bring that epicenter of energy power right here at home,” Gerard said.
According to an American Petroleum Institute poll, the Keystone XL pipeline continues to receive support from a majority of American voters. Seventy-eight percent of registered voters surveyed believed the project would bolster US economic security and 68% were in favor of building the pipeline. Results of the survey revealed that most voters “are more likely to support a candidate who supports approving Keystone XL,” said Cindy Schild, senior manager for oil sands and refining and executive director for Oil Sands Fact Check at API.
A Deloitte report said that the pace of mergers and acquisitions activity in the natural gas and oil industries will probably improve from the end of this year through next year amid sustained low oil prices. The industry generated $153 billion from 169 deals in the first seven months of the year. Sixty-on percent were from exploration and production and approximately 14% was from the midstream sector, according to the report.
New England states would benefit from lower electricity costs through three proposed natural gas pipeline projects in the region according to a New Hampshire Public Utilities Commission report, but the greatest benefit would come from the Northeast Energy Direct proposed by Kinder Morgan unit Tennessee Gas Pipeline. According to the commission’s estimates, the project would have a benefit to cost ratio of 5.25 to 7.
The House Energy and Commerce Committee voted 31-19 to pass legislation to lift the ban on crude oil exports. “Numerous studies, including those from the Congressional Budget Office, Government Accountability Office and Energy Information Administration, all conclude that (allowing) oil exports would be a net jobs creator,” said Committee Chairman Fred Upton, R-Mich.
Economy, Business & Politics
Does Zero % Interest Mean Forever? Not According to the Fed
In late 2008, when the Federal Reserve drove its target interest rate to near zero, it initiated an economic debate focused on the risks of having nowhere lower to go, and specifically, the financial bubbles it might fuel.
Although six years have passed with few bubbles in sight, a new risk has made its presence known; the proverbial temporary zero has elevated in status to be an effective anchor on interest rates that is much more difficult to abandon than the Fed ever expected. Nonetheless, Fed officials emphatically say that the US can and will eventually break ranks with the rest of the pack, but their latest decision to hold was fraught with caution concerning the new butterfly-effect economy, where a market ripple in China could tighten US financial conditions and cause the Fed to change its course.
Congress Refuses to Abandon Failed $500 Million Program to Fight ISIS in Syria
Senate Armed Services Committee Chair John McCain (R-AZ) said: “Just because they failed doesn’t mean you shouldn’t do it.” That was right before he labeled the Syria effort “an abject failure.”
House Armed Services Committee chair Mac Thornberry (R-TX) iterated similar sentiments. “If you look around the world, we’re going to have to do lots of training and equipping and assisting. Some things have worked pretty well, some things have not and we need to understand that because we’re going to do a lot more of it,” he said.
The DOD has not put the brakes on the thus far completely ineffectual effort. Undersecretary of Defense for Policy Christine Wormuth told lawmakers that close to 100 more rebels are in training today.
The Pentagon is conducting a thorough assessment of the program, a major component of President Obama’s anti-ISIS strategy. Although a timeline has not been set for when the internal review might end, lawmakers believe that the department is “painfully aware of their skepticism”.
“It’s certainly time to reevaluate what we’re doing,” said Sen. Jack Reed (RI), the Armed Services panel’s top Democrat. “One of the realities that everyone mentions is that there has to be some indigenous force on the ground . . . I think we have to exhaust that option before anything else.”
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Considering its abundance of oil and natural gas supplies, a report from Columbia University’s Center on Global Energy Policy said that the US should open itself up to engagement with other countries in order to sustain energy security and encourage competition. The exportation of domestic oil while importing heavy crude would also “move trapped surpluses to global markets, strengthen the US stance against resource nationalism in other countries, and contribute to a global market environment that promotes economic growth in the United States,” the report said.
President Barack Obama recently acknowledged that the Environmental Protection Agency’s (EPA) pending ozone standard decision causes “legitimate economic issues that have to be considered.” Nonetheless, the agency doesn’t have a lot of room to navigate, as “this is an existing statute . . . and we are charged with implementing it based on the science that’s presented to us,” he said. The EPA is proposing a stricter ozone standard, going from 75 parts per billion to between 65 and 70 ppb by 2025. The ruling is due by the end of September.
The Pipeline and Hazardous Materials Safety Administration (PHMSA) will more than likely issue a draft safety rule to govern the transport of oil and other hazardous liquids through pipelines, Administrator Marie Therese Dominguez said. Dominguez expects the rule, which cleared the White House, to “spark a robust dialogue moving forward about pipeline safety in the United States,” according to a report by the Associated Press.
A Bloomberg report said that a reduction in the blending volumes of cellulosic ethanol required by the Environmental Protection Agency (EPA) under the Renewable Fuel Standard could lead to adverse financial consequences for the producers of cellulosic ethanol, according to a letter to President Barack Obama signed by Novozymes, Abengoa, and Enerkem. “If you add all that up, you’re close to $14 billion in investments,” Novozymes President of Americas Adam Monroe said in a conference call. “Certainly the business model wasn’t to build one plant and you’re done.”
A Fiscal Times Article said that Boehner may have found a way out of the budget standoff. “There are a lot of steps in this process,” Boehner said Thursday at a press conference after the GOP conference. “You will see a lot of steps in the coming weeks, and certainly reconciliation is a distinct possibility as well.”
Without doubt, reconciliation is a compelling option for GOP leaders who are torn between worrying about the party being blamed for shutting down the government, and pacifying the hardliners who are stirred up over a series of secretly recorded videos that allegedly show Planned Parenthood officials talking about selling body parts from aborted fetuses.
Only a simple majority is required for reconciliation to pass the Senate. This means that Democrats can’t filibuster a measure used under the tactic. In the Senate, it can only be used for one budget reconciliation each year. In 2010, the Democrats used budget reconciliation to pass Obamacare.
The GOP-controlled House recently voted to allow leaders to invoke “martial law” in another bid to show how serious they are about avoiding a shutdown. The tactic allows leaders to bring a spending bill designed to avoid a shutdown to the floor on the same day that it clears the House Rules Committee, skipping the usual one-day wait that it usually requires to do so.
President Obama has issued a new set of rules for American companies hoping to do business with Cuba, effectively dismantling a significant portion of the economic embargo that has crippled the island for more than half a century. American companies are now allowed to establish businesses in Cuba where they can hire local employees, and transferring money to and from the island will be much easier than it has been in the past. “A stronger, more open US-Cuba relationship has the potential to create economic opportunities for both Americans and Cubans alike,” US Treasury Secretary Jack Lew said.
Despite pending federal legislation, several US states are making their own chemical laws, many with an emphasis on green chemistry. According to the National Law Review, California’s Department of Toxic Substances Control has authorized a number of chemical laws. Maine, Vermont, Oregon, Minnesota, and Washington State have also enacted statewide green chemistry laws. The laws require notifications, and in some cases, alternative analyses and set restrictions are mandatory.
American Petroleum Institute Senior Director of Regulatory and Scientific Affairs Howard Feldman said that almost half of over 3,000 counties in the US will be placed in noncompliance status if the Environmental Protection Agency imposes ozone standards of 68 parts per billion, the limit previously speculated by some publications. According to a report by the Washington, D.C. Examiner, Feldman went on to say that the EPA should instead prioritize allowing counties to comply with the current standards before imposing new ones.
A USA Today article reported that the Agriculture Department along with the Environmental Protection Agency said that the current administration has set a goal of cutting US food waste in half over the next 15 years through consumer education programs and partnerships with food companies. “By reducing wasted food in landfills, we cut harmful methane emissions that fuel climate change, conserve our natural resources and protect our planet for future generations,” said EPA Administrator Gina McCarthy
