Freshly rebuilt US chemicals sector poised to outgrow Europe

The chemical industries in the US and EU are at the precipice of a major divergence. We believe that a structural advantage for the US, borne initially of the shale gas boom of the 2010s and more recently from the shift of European consumption towards LNG, will create a growing wedge between the two regions over the medium term. This applies directly to basic chemicals, which use natural gas directly as a feedstock and for industrial heating purposes, with ramifications for more specialised chemicals production which are themselves downstream of basic chemicals.

What you will learn:

• New drilling and extraction techniques developed in the US 15 years ago unlocked a bountiful and cheap source of natural gas. This triggered large-scale investment in chemicals sector projects, like crackers, aimed at taking advantage of the increased and cheaper supply of shale gas, estimated by the American Chemistry Council at $208 billion between 2010 and 2022. This boosted the growth rate of US sector investment over that time period relative to Europe.
• The investment boom came at a fortuitous time for a US chemicals sector that had been devastated by the global financial crisis of 2008/2009. Key downstream sectors, including rubber & plastics and construction, were severely damaged by the recession. Poor demand prompted closures of chemicals-producing facilities, kept operating rates low, and generally contributed to weak production that obscured the supply-side expansion happening in the 2010s.
• There are signs that the investment is starting to bear fruit: US chemicals output experienced a level shift up since 2021. Some of this is due to a faster and more broad-based demand recovery in the US that Europe should be able to catch up to. However, the energy crisis left enduring scars in the form of structurally higher energy prices in Europe. This, coupled with a more stringent and punitive European climate transition policy, should give the US a growth advantage.