Originally fracking dates back to the 1860’s, when the world was just beginning to get a flavour for gas and oil. It was a time when American civil war veteran, Col. Edward A. L. Roberts patented an “exploding torpedo” to help him extract oil and natural gas from the geological formations around Pennsylvania.

But it wasn’t until after the Second World War that fracking was truly advanced as a way of helping the extraction of natural gas. Methods were then further developed during the OPEC oil crisis of the 1970’s, as the rising cost of oil increased research in energy production and made new extraction methods economical.

But it was George P. Mitchell who took fracking to the modern level, earning the title ‘the father of fracking’ when natural gas was successfully tapped from shale deposits in Northern Texas in the 1990’s.

Today, 41 countries have the potential to make use of this resource, although only the US, Canada, Argentina and China are currently extracting shale gas on a commercial basis. The US and Canada are the world leaders in the volume produced and the technology used. Other nations with significant deposits include South Africa, India, Mexico, Ukraine and numerous countries in Europe from Poland to Austria to France.

Many of these countries are close to starting production others are still at the exploration phase, whilst others (such as the UK), face vocal public pressure to prevent production over environmental fears.

That aside, chemical company executives and investors have their eyes are on the US and Canada and the massive competitive advantage producers there are gaining as shale gas production increases. This impact has been outlined by PriceWaterhouseCooper (PWC) in their 2012 report ‘Shale gas: Reshaping the US chemicals industry’ when it made clear the huge difference on costs that had been made, stating, “For chemical companies, the impact of shale gas has been to decrease the costs of both raw materials and energy. The price of US natural gas declined from $12.50/MBTU in 2008 to approximately $3.00/MBTU in 2012, and prices are expected to decline further … as a result of excess inventory.”

This ‘excess inventory’, however, is not stopping expansion, with the 2014 Annual Energy Outlook by the EIA reporting that U.S. shale gas production will grow from 9.7 tcf in 2012 to 19.8 tcf in 2040.

Production is increasing, because shale gas not only provides a new energy resource, but also because it can be used as a valuable feed source for numerous chemical products. For example, a new drill set up near Charleston, South Carolina, is producing natural gas that is particularly high in ethane (up to 8% by volume). A plant built nearby ‘cracks’ the ethane by breaking it down at the molecular level, turning it into ethylene. As Kevin DiGregorio, executive director of the Chemical Alliance Zone in Charleston, says, “Ethylene is used to produce all sorts of things, from the cushions we sit on to the clothes we wear. Everything that’s not wood, or maybe brick, is made with chemicals … [of which] probably 40 to 60 percent of it is made from ethylene,” DiGregorio says. “It’s very, very important to our daily lives.”

What impact this will have on the chemicals industry is not immediately clear, as the development of wholesale shale gas production is still only 20 years old, but it seems that the effect will be significant and will vary from region to region.

Whether a country has access to shale gas or not, and what type and quality the deposits are, will effect industry leaders strategies. In general though, there are thought to be three main responses to a chemicals business, hoping to survive in a shale gas world.

1. Move closer to the shale gas supply. When as much as 70% of a chemical company’s costs are made up of raw materials and energy, companies are frequently relocating to be near a regular and cheap source of shale gas. According to the MiT Technology Review from 2011 to 2014 there were almost 200 new chemical plants and upgrades made in the US as a result of shale gas investment. This included a capital outlay of $124 billion, from firms such as ExxonMobil, Chevron and Dow Chemical.
2. Import shale gas to your plant. Whilst this maybe not the most effective method, it may be a cheaper way to stay competitive than the massive cost of relocating. Naturally, transportation costs of delivering shale gas to the process point would need to be considered, but as a recent study by Stefan Guertzgen, Global Director for Industry Solution (Marketing Chemicals) at SAP notes, “…the fact that companies like (multibillion dollar chemical producer) INEOS continue to import natural gas proves there is still an overall net gain in operating their assets and serving their markets based on shale gas feedstock.”
3. Develop new processes to stay competitive. If relocating and importing shale gas is not possible, then something else must change. If not, then competitors lower feedstock and energy costs will drive prices so low that other firms will not be able to compete.

To avoid this, innovation will be necessary. As Guertzgen explains, “Brazilian-based Braskem, one of the world’s largest producers of thermoplastic resins, has developed an ethylene value chain based on readily available bio-ethanol feedstock. Also, companies in China, as well as Sasol in South Africa, seek competitiveness by leveraging advancements in methanol-to-olefin technology.”

The effect of shale gas on the global chemical industry is so huge, that not responding to its development seems no longer to be an option. As the American Chemistry Council makes clear, “American chemistry relies on abundant, affordable natural gas as a source of energy and as a raw material, or ‘feedstock’, for countless chemical products. The relatively low price of natural gas gives U.S. manufacturers an advantage over competitors in other parts of the world that rely on a more expensive oil-based feedstock.”

But still the future is never certain, and in the world of fossil fuels, that includes supplies.

In his report “Natural Gas as a Chemical Industry Fuel and Feedstock”,  Jeffrey J. Siirola of the Eastman Chemical Company questions the future of gas, stating that “[It] Depends on how long shale gas remains plentiful and whether it is wet or dry. If plentiful and wet, then the existing US ethane-based chemical industry infrastructure will remain worldcompetitive. If plentiful but dry, new  chemistries will emerge, but based on methane steam reforming syngas.”

Either way, it seems that shale gas production may be the biggest game changer in the chemical industry in a generation. Already it is transforming businesses and whole communities in America as investment and profits increase. As PWC states, “Based on industry reports, we estimate that the US chemicals industry has invested $15 billion in ethylene production, increasing capacity by 33%. As these investments take hold, yielding more supply, the United States could become a major, global, low-cost provider of energy and feedstocks to the chemicals industry.”

Guertzgen agrees that not only will this change countries, but businesses will also win and lose based on their ability to react to the ‘shale gas revolution’. As he explains, “Chemical companies that are able to assess the changing landscape and respond with innovative technologies, processes, and products will emerge as the undisputed global leaders.”

If this is true, then the further development of shale gas around the world seems certain to happen, and the ripple effect it will have on the chemicals industry is likely to be more like a tsunami.