Big booms and bracing busts are defining features of the oil and gas business, but rarely do experts give us a five-year warning to get ahead of the cycle.
The petrochemical industry is the latest to fall victim to irrational exuberance by overbuilding capacity. The recent construction boom along the Gulf Coast, including planned plants in Louisiana, will create a glut of plastic and chemicals in 2023 and keep the market oversupplied until 2030, holding down prices and profits, The Houston Chronicle reports.
This boom and bust cycle started like most: with enthusiastic drillers overproducing. Hydraulic fracturing and horizontal drilling made it possible to extract trillions of cubic feet of natural gas and billions of barrels of oil that most people thought could never be recovered economically.
The coming bust will extend to the natural gas and crude oil markets, experts predict. Even though natural gas and crude oil are the building blocks of modern life, turning them into plastics will not be as strong a business as some people hope.
While demand for plastic is expected to rise along with the global middle class, most firms predict it won’t be high enough to make full use of the new capacity coming online. If the economy should stutter, trade tensions worsen or consumer preferences change, demand could grow even slower than currently expected.
Another potential dent in future demand comes from the multibillion-dollar effort to develop new ways to recycle plastic, which, if successful, could undermine demand for new raw materials. If the plastics industry can recycle half as much as aluminum companies do, the world may never need any more plastic resin capacity than is currently planned. Read the full story.