This study illustrates how chemical industry managers gauge the transformation of the European chemical industry as a result of North American shale gas. The Stratley Shale Gas Team surveyed 60 operations executives and top managers from over 30 companies in Europe. The majority of the interviews were carried out face-to-face with a small number of phone interviews over a period of six months up to April 2014. The replies were subjected to both qualitative and quantitative analyses. Insights and conclusions from Stratley experts were also incorporated in order to align the interviewees’ statements in a broader context.

1. Shale gas
Danger recognised or
danger averted?
Learn from 60 top managers from more
than 30 chemical companies in Europe
bar
low high
03

3. These are challenging times for the chemical industry in Europe:
energy-intensive industries are under threat from higher costs due to
the ‘Energiewende’. Simultaneously, overseas companies are prof-
iting from less expensive North American shale gas.
Only a few years ago, the USA was one of the largest buyers of oil
and gas in the world’s markets. Now, the US and Canada can cover
almost all of their energy needs from domestic sources, and even act
as exporters.
Presently, hardly a day goes by without reports on shale gas. Thus,
what is the point of this study? The answer is simple – this study
allows those who are most impacted by the upheavals, those whose
daily actions determine the future of the industry, to voice their
opinions: i.e., the top managers of the companies most concerned.
Sixty decision-makers from 30 companies across Europe answered
the questions and made their opinions clear on the situation and
how they plan to respond.
The result is a deeply interesting and highly differentiated picture of
attitudes in an important core industry. It becomes clear that the
matter is far beyond the businesses of just a few individual compa-
nies. It is about the very existence of a significant part of the European
industrial landscape – and thus, in essence, the prosperity of Euro-
pean communities.
I am convinced that the chemical industry will master these chal-
lenges. The potential is there. Now is the time to set the right course
and recognise the opportunities which shale gas provides – for the
European chemical industry, too.
1
Dr Walter Bürger-Kley
Managing Partner, Stratley

5. The North american shale gas boom is not just a major topic for the global media industry;
it is also important for managers in the european chemical industry. In general, they see
shale gas as one of the top three issues in their companies. Shale gas is seen as a long-term
trend in the chemical industry with extensive repercussions for europe. Over 50% of the
interviewees expect competitive disadvantages for their european businesses as a result of
shale gas.
The managers’ main concern is access to less expensive raw materials and energy.
Whilst the petrochemical industry is investing mainly in the USa, the downstream is
concerned with re-working its procurement strategy in europe. The majority of managers in
the chemical industry are preoccupied with analysing the impacts of shale gas on their
company and deriving generalised measures for action.
eighty per cent of the participants believe that North american shale gas will have
negative impacts for the european chemical industry as a whole. Furthermore, they believe that
the european petrochemical and basic chemicals industries face particularly tough times.
approximately 30% also see the downstream industry impacted by shale gas. a large
majority feels that a restructuring of the industry is both necessary and highly probable.
In general, the european chemical industry is open to local shale gas extraction.
however, the extraction of european shale gas is not seen as a solution to equip europe for
global competition in the long term. There are clear calls for politicians to define the general
framework for a coherent european energy strategy.
Chemical industry managers see the future of the european chemical industry as
focusing on its strengths: the ability to innovate and specialise. Thus, it is time for compa-
nies in the european chemical industry to act. Those companies which act appropriately
now will be able to compete on the global stage in the medium to long term.
Summary
Methodology
This study illustrates how chemical industry managers gauge the transformation of the
european chemical industry as a result of North american shale gas. The Stratley Shale
gas Team surveyed 60 operations executives and top managers from over 30 companies in
europe. The majority of the interviews were carried out face-to-face with a small number of
telephone interviews over a period of six months up to april 2014. The replies were subjected
to both qualitative and quantitative analyses. Insights and conclusions from Stratley experts
were also incorporated in order to align the interviewees’ statements in a broader context.
3

6. The shale gas boom: a lot of hot air or the end of the
chemical industry as we know it?
In recent years, North american shale gas has achieved much attention as a new resource
across the world. Technological improvements in extraction from unconventional sources
sparked the birth of the shale gas boom. horizontal drilling and ‘hydraulic fracturing’ –abbre-
viated to ‘fracking’ – are particularly noteworthy in this context. In this process, countless fis-
sures are created in the rocks, making the efficient extraction of shale gas possible in the first
place. Currently, the USa is the only nation which extracts shale gas on a commercial scale,
despite its availability across the globe.
One of the main driving forces behind the efforts in the american oil and gas industry is
the political will to become less dependent on raw materials imports. The extensive extrac-
tion of less expensive shale gas has led to a decoupling of the gas price from the oil price in
the USa and driven it down to a level of approx. $5.00/MMBtu. In comparison, the gas price in
europe is much higher – at approx. $11.00/MMBtu currently (Japan, approx. $16.00/MMBtu).
(Source: World Bank: World DataBank, global economic monitor commodities, nominal prices:
March 2014; eIa website).
North american shale gas tends to be ‘wet’. along with methane, it also contains sig-
nificant amounts of natural gas liquids (Ngls), which are composed of ethane, propane and
butanes, amongst others. The higher alkanes, propane and butanes, are used in the thermal
market and petrochemical industry. They are also used as fuels, for liquid gas or as fuel com-
ponents, for example.
The availability and the low price level of shale gas-based ethane have led to naphtha
being pushed out as a raw material for crackers in North america in recent years. The main
cracker product – ethylene – can be manufactured at very attractive costs in this manner and
sold at a high margin. The availability of less expensive methane as an energy supply, on the
one hand, and ethylene as a raw material for the chemical and petrochemical industries, on
the other, has increased the attractiveness of North american sites enormously.
as a result, the North american chemical industry is currently experiencing a flood of
investments. Naphtha and flexi-crackers are being converted whilst new capacities for eth-
ylene and ethylene derivatives are being created. Due to the use of the lighter raw material,
ethane, extraction of the higher olefins and aromatics (benzene, toluene and xylene) from
North american crackers is decreasing.
The implications of the US shale gas boom are a matter of intense debate: will there be
a consolidation wave in european petrochemicals? To what extent will manufacturers of spe-
cialties in europe and the downstream chemical industry be impacted? how can the european
chemical industry withstand North american competition in the long term? Or is the so-called
North american shale gas boom perhaps just hot air?
4

7. 5
1.1 The shale gas boom is a long-term phenomenon and highly relevant for the
future of the industry
Shale gas hasn’t been just a North American issue for some time now. The significance which
European chemical industry managers place upon it illustrates this clearly: 81% of those inter-
viewed see shale gas as one of the top three issues for their companies (Figure 1).
The scope of the shale gas boom is one reason for this. The majority of those interviewed
believe that shale gas in North America will influence the global chemical industry for the next
two to three decades at least. They expect that gas will have a competitive price advantage over
crude oil (Figure 2).
However, they also believe that the natural gas price differential between North America and
Europe will decrease, as will the price differential between oil and natural gas. Managers expect
that the demand for natural gas in the USA will rise and that production costs to extract shale
gas will also increase.
Two factors drive demand for shale gas. On the one hand, it quenches the thirst for methane
in the thermal market. On the other hand, the ‘wet’ components – the NGLs – are extremely
interesting as raw materials for the petrochemicals and basic chemicals industries. These are
offset by rising production costs which are driven by increasing development costs per bore-
hole. The depth of the reserves and the characteristics of the overlying rock layers are the main
factors. However, improvements in shale gas technology counteract cost increases, making a
I.The situation is grave but not without hope – attitudes of
european chemical decision-makers
‘The impact of shale gas on Europe’s petrochemical sector could
threaten our supply chain.’
≥
figures 1 and 2
how important is the topic of shale gas for your company/your business right now?
Less relevant
topic
13%
Not a topic
at all
0%
Major topic
6%
Among the top
three topics 81%
I strongly disagree
I disagree I agree
I strongly agree
agreement Disagreement
15% 60% 25%
55% 43% 2%
0%100% 100%
0%100%
‘Shale gas in North america is just a
short-term trend.’
‘North american shale gas will maintain its
price advantage over crude at least up to
2020.’
100%

8. clear prediction on production costs developments almost impossible. These two trends will
lead to an increase in the price of North American shale gas. Additional future demand may
also be driven by LNG exports.
Overall, there is a broad consensus that the significant cost advantages in North America
will remain.
1.2 Managers fear decreasing competitiveness of their european businesses
More than half of the managers see the competitiveness of their European production sites in
danger (59%, Figure 3). They fear disadvantages in relation to raw materials and energy costs,
as well as increasing competitive pressure in their export markets. They already see a partial
reverse of trade between Europe and North America today. The massive expansion of ethane
cracker capacities and the respective downstream in the USA will only serve to intensify this
negative effect in the future.
Fourteen per cent of those interviewed also see shale gas as an opportunity. Companies in Europe
which supply the shale gas producers in North America with additives and oil and gas field
chemicals could profit. In addition, the overall improvement in US industry could provide new
markets.
As far as the influence of shale gas on energy costs is concerned, almost 80% of those inter-
viewed expect to be at a disadvantage as competitors in North America pay much less for their
energy. Those responsible for production sites in Germany, in particular, see politics as a specific
additional price driver for energy costs – e.g., via the ‘Energiewende’.
The impact of shale gas on energy costs is just one aspect of the shale gas scenario. The
second important discussion topic in the European chemical industry is the security of petro-
chemical raw materials supplies. Concerns about the availability of less expensive raw materials
are, however, less than the fears about the strong disadvantage in energy costs. Most of those
interviewed expect that key raw materials will be harder to procure or manufacture and only at
higher prices.
Along with the implications for C2 derivatives, many managers see the future of the C3+ value
chain in Europe under threat from North American shale gas. They expect that the supply of
higher olefins will dwindle – not only due to the shortage caused by ethane crackers in North
America, but also due to the erosion of the European petrochemical industry which can al-
ready be seen today. Managers have different views on the significance of the changing raw
materials situation for the competitiveness of their European sites. Fifty-two per cent of the
study participants expect that raw materials costs will be higher in the future and that it will
be difficult to pass the costs on to their customers. Thus, they will automatically suffer a loss of
margin (Figure 3, bottom right).
In contrast, 35% expect no ill effects from rising raw materials costs. Although a few doubt
that prices for monomers (cracker products) will rise, some managers do not see a corresponding
impact on their businesses. They cite three reasons: 1) The higher costs can be passed on to their
customers. 2) Due to their global set-up, profits and losses can be compensated across different
regions. 3) Their products are not impacted by shale gas.
6
‘Manufacturers in the US benefit from cheaper production routes.’
(Non-C2 player)
‘C4+ prices will rise, but we will have an advantage in Europe over the US.’
‘We face a certain substitution risk for our products due to shale.’≥
≥
≥

9. A third group of ‘optimists’ can be found alongside those ‘concerned’ about raw materials
costs, and the ‘unconcerned’ (13%, Figure 3). The ‘optimists’ expect that European producers
may even profit from less expensive raw materials, LNG or ethane, via imports from North
America, for example.
Most chemical industry managers are fully aware of the significance of shale gas for their
European activities and confirm that the issue will only become more contentious in the future.
Without a doubt, the more the participants occupy themselves with shale gas, the higher their
expectations of its significance – and the more critical their opinion of its implications for their
European sites.
From the companies’ viewpoint, both the risks and the opportunities of shale gas are abun-
dantly clear. However, what does that mean for managing their businesses? How do the managers
react to these risks? What are they doing to participate in the shale gas boom?
7
‘We run crackers in Europe, so shale is an opportunity and
a threat at the same time.’
≥
figure 3
how will the effects of shale gas in North america impact the overall competitiveness of your
company/business area in europe?
Negative
4%
Positive
0%
Slightly positive
14%
Neutral
27%
Slightly negative
55%
negative positiveneutral
…and on the level of energy prices?
…and on the level of raw material
availability/costs?
0% 20% 40% 60% 80% 100%
81% 15% 4%
0% 20% 40% 60% 80% 100%
52% 35% 13%

10. 8
2.1 Concrete action by european chemical players (as yet un)seen
European chemical industry managers are paying a lot of attention to shale gas, and many see
an urgent need for action (Chapter 1). Four out of five discussion partners confirm that their
companies are taking internal measures in reaction to the North American shale gas boom.
Discussions reveal that the intensity of activity varies greatly across the industry. Many
companies are still in a very early orientation phase – despite the relevance of the issue for their
businesses (Figure 4).
Forty-two per cent of those surveyed are currently occupied with the analysis of the conse-
quences of North American shale gas for their business and examining potential measures. Only
30% are developing concrete action steps, of which only 15% have already implemented, or are in
the process of implementing, specific projects.
2.2 The petrochemicals industry is investing in less expensive US ethane;
the downstream is re-working its procurement strategy
The position of a company in the value chain influences the activities it pursues as a reaction
to shale gas. Those who are directly impacted by the shale gas boom are trying to participate
in the attractive North American production conditions – where possible. Upstream compa-
nies are investing – either in North America to convert crackers to use ethane as a raw material,
or in Europe to facilitate access to less expensive raw materials. Both courses of action aim to
ensure competitiveness in ethylene (Figure 5).
Other investments at European petrochemicals sites aim to optimise product output or
forward integrate to improve value creation. This applies in particular to monomers. Value
creation for producers of pure monomers is rising as availability drops and prices increase.
The hope is that those who invest early on will profit from these investments in the medium
to long term.
II. Nothing remains the same – strategic options and potential
in a dramatically changing industrial landscape
figure 4
assessment on progress of activities and measures related to shale gas
Detailing phase 30%
Advanced/implemented
projects 15%
13% Not active at all
Early phase/Analysis
42%
Level of actions

11. 2.3 Resource shortage slows the US investment wave – implementation time and
project costs on the increase
Whilst two thirds of the managers feel that the investment potential in North America is funda-
mentally attractive, opportunities for their realisation are studied very carefully. Not all planned
investments – independent of their value chain position – have actually been carried out or are
about to be. Whilst the ‘early movers’ have already been able to complete their projects, a con-
tinuation of the US investment wave in its previous form is questionable.
A lack of qualified employees is a significant hurdle for many companies’ activities. This lack
of manpower leads to both lengthening implementation times and rising project costs. Players
in the ethylene downstream which are not backward integrated also have to ask themselves
whether or not they can actually profit from lower ethylene costs in North America. Or, will
the margin perhaps remain in the coffers of the ethylene producers and the integrated value
chain steps?
Downstream producers who are not integrated into monomers are currently mainly
preoccupied with purchasing and procurement of their raw materials. The issues vary greatly
across the industry. Purchasing organisation heads are occupied with questions about potential
inter-regional arbitrage windows and the security of supply from their current suppliers. Rene-
gotiation of contracts with regard to duration and pricing is also a current topic.
Companies can react quickly to the changing situation through their purchasing organi-
sations. The scope of these measures is, however, somewhat short-term and cannot replace a
long-term strategy as the answer to shale gas challenges.
9
‘We missed the boat.’≥
figure 5
What measures has your company/business area already taken due to North american shale gas?
0 5 10 15 20
Investment (feedstock + market access)
Sourcing optimisation
Product portfolio optimisation (e.g., innovation and specialisation)
Restructuring/reorganisation
Value chain optimisation
Communication to regulatory bodies
Any analyses/monitoring
Increasing efficiency of operations
No comment/I don't know
No activities so far
Multiple nominations possible

12. 2.4 Supply security across the entire value chain under review
Security of supply is the most important issue as far as experts are concerned. It is important to
examine the influence of shale gas on each individual supplier in this context. Which supplier
will have the edge due to their production route? What is the situation in upstream value
chain steps?
Up to now, only a few have fixed their minds upon these questions. The value chain right
back to the borehole is seldom examined. Those who examine the value chain in its entirety
frequently discover that it depends on perhaps one or very few petrochemical raw materials
which, in turn, are highly influenced by shale gas. Very few companies go so far as to switch
suppliers, replace raw materials or even adjust their product portfolios as a consequence of
this inter-dependency (Figure 5). Companies which are prepared to take these steps also see
the impacts on research and development and the necessity to take into account changing raw
materials trends on this level.
Only very few companies actually plan steps in the other direction in order to secure access to
less expensive raw materials – for example, through strategic partnerships and participation in
on-purpose technologies. The significance of on-purpose processes is a matter of contention.
On the one hand, individual study participants see the importance of crackers deteriorating due
to on-purpose paths. On the other hand, others see this as being too expensive in the near future
to have a significant impact on the established production structures in the chemical industry.
The issue of energy costs remains, along with raw materials supply, a security issue for
many companies – independent of their position along the value chain. As a consequence, energy
conservation measures accompanied by intensified lobbying are on the agenda: companies are
trying to sensitise politicians and the general public to their energy cost concerns and competi-
tive risks. The interviewees see this type of opinion building as being very important in order to
facilitate affordable energy in the future.
2.5 european sites continue to lose appeal for new investments
North American shale gas is the initiator of a tidal wave of investment in petrochemicals and
basic chemicals. Ethylene manufacturers are investing in both their crackers and in the infra-
structure to gain access to the attractive US ethylene margins via less expensive ethane feedstock.
The fact that a significant portion of this investment is occurring in the USA poses a problem
for European sites in the medium to long term. This ‘emigration’ of internal financial means to
North America could lead to an orphaning of the European chemical industry.
There are two reasons for investment decisions in a specific region: either production costs (raw
materials, energy) are attractive, or demand is increasing sharply. Both factors are currently driv-
ing investments – also independently of shale gas – both in North and South America, and in
Asia. Europe risks being left behind.
So what are the immediate impacts of North American shale gas when examining the
consequences for energy costs and the shift in cracker output? And, what indirect long-term
changes do chemical industry managers expect for the European chemical industry?
10
‘Internal investments are shifted to the US.’
‘You have to check the supply chain all the way back to the well-head.’≥
≥

13. 11
3.1 Petrochemicals and basic chemicals on the brink
Over 80% of study participants expect that North American shale gas will have a negative im-
pact on the European chemical industry. More than 20% expect a massive negative impact on
domestic industry (Figure 6).
Scenarios range from the closure of individual assets to a drip by drip erosion of the en-
tire petrochemicals and basic chemicals industries – with no end in sight. Both developments
would force the European chemicals industry to shrink. More than 70% of the managers ques-
tioned expressed this during open discussions. They base their concerns, above all, on ever-
intensifying competition. North American ethylene derivatives and basic chemicals from the
C1 value chain, and basic polymers also, will attack European products intensely in the future.
Additionally, intensifying competitive pressure in export markets can be expected from Near
East competitors in the coming years.
A relocation of production to the USA is expected in addition to the increasing competi-
tion from North American and Near Eastern products. This trend will be further intensified by
the reluctance of investments in Europe – a factor which is not just limited to companies in raw
materials and energy intensive sectors.
Thus, two trends are working in tandem: a lack of growth from new investments and ca-
pacity closure in the European chemical industry which can already be observed. What are the
options for the sector based on this situation? Managers fear that the industry may no longer
keep abreast of technological developments and, with them, the potential to compete on the
global stage.
III. The future is on its way – but for whom?
figure 6
What do you think? how will North american shale gas influence european chemical
operations/sites?
Negative
21%
Positive
2%
Slightly positive
4%
Neutral
10%
Slightly negative
63%

14. 12
‘What happens to our customers: emigration, consolidation, closures?’
The vast majority (over 80%, Figure 7) are of the opinion that the North American cost advan-
tage as a result of shale gas is very likely to cause massive restructuring of the European chemical
industry. During the discussions, it became apparent that minimal restructuring of the industry
will probably not suffice.
The threat to the petrochemicals and basic chemicals industry is confirmed by almost
90%. In spite of the fact that many participants do not see shale gas as the cause of new move-
ments (thus, 10% see the impacts as being neutral, Figure 6), it is seen as a catalyst of already
existing developments. Thus, managers agree that the European petrochemicals and basic chemi-
cals industries face tough times ahead. Sites in Southern Europe are in particular danger, as are
small, technically outdated and non-integrated assets.
A shake-out may well prove positive for the ‘survivors’. Market cleansing through removal
of over capacities not only improves the competitive situation for the remaining cracker opera-
tors, it also has a positive impact on the pricing of their products.
3.2 Why the downstream industry will not get off lightly
Restructuring of the European chemical industry will begin in the raw materials intensive sec-
tor. However, the downstream will also be affected, although somewhat less. Thirty per cent of
the participants feel that there will be consequences for the downstream; the majority of them
(28%) see this as highly likely.
The smaller share of raw materials costs in overall costs and the low substitutability of products
protect the specialties. Higher demand for specialties in the North American market is seen by
some interviewees as a positive result of the shale gas boom (6%, Figure 6).
Along with the cost advantage of production in North America and the lack of new in-
vestment, ‘indirect’ effects were also frequently discussed. To what extent will ‘domino effects’
impact individual players, sites, clusters or ultimately the European chemical industry as a
whole? Which players will exit first and what consequences will that have for their customers
and suppliers?
≥
figure 7
Impact of North american shale gas on the european chemical sector
I strongly disagree I disagree I agree
agreement Disagreement
17%
2%
17% 53% 2%
31% 62%
27% 56%
0%100% 50% 50% 100%
28%
4%
‘The cost advantages of the North American chemical
industry due to shale gas will lead to a deep restruc-
turing process of the European chemical industry on
the medium term.’
‘European petrochemicals and basic chemicals will be
impacted by North American shale gas.’
‘European speciality chemicals will be impacted by
North American shale gas.’
I strongly agree

15. 13
Managers are asking themselves the question ‘What protection does a cluster actually offer?’
Should a player – either impacted or motivated by shale gas – exit, the other players in the Ver-
bund structure will feel the consequences. This, in turn, will lead to questions not just about
absorbing materials flows, but also about site costs. The fixed costs at a site for infrastructure,
security, supplies and waste are the same – no matter how many companies are located at the site.
3.3 Chemical industry managers say ‘yes’ and ‘no’ to shale gas extraction
in europe
Driven by high energy costs and concerns over missing out on a technological/raw materials
revolution, most participants support shale gas extraction via ‘fracking’ in Europe. Eighty per
cent support production as long as it is economically viable and the environmental risks are
calculable and justifiable.
Despite their overall broad support, managers feel that other regions have progressed fur-
ther in developing technology and implementing it in commercial scale extraction. China is
at the top of the list – well ahead of Canada placed second (Figure 8). Due to the extent of the
resources and the political drive in China, the interviewees assume deep Chinese interest in shale
gas extraction. However, it is unlikely that the North American shale gas boom can simply be
copied. The challenging geological formations combined with the lack of infrastructure in Chi-
na are hurdles which, in contrast to the USA, have to be overcome first.
Together with China, Canada and South America will initiate large-scale shale gas produc-
tion. In the interviewees’ opinion, Australia is, as yet, behind Europe due to its large conventional
gas reserves. The Near East and Africa are expected to follow later on – but for other reasons.
The influence of European shale gas on the domestic chemical industry’s competitiveness
is seen from differing perspectives. Two thirds expect falling energy prices as a result of shale
gas. One third sees this theory somewhat more critically. These managers expect much higher
production costs for domestic shale gas in comparison with the costs in North America. Thus,
they expect that shale gas will not lead to a reduction in European gas prices. A select few partici-
pants found it important to emphasise that European shale gas is different than North Ameri-
can shale gas – the reserves in Europe are probably largely ‘dry’. The higher alkanes which can
serve as a raw material for the chemical industry are only present in small quantities.
figure 8
Which countries or regions will become the next major producers of shale gas?
China
Canada
South America
Europe
Australia
Middle East
Africa
Multiple nominations possible
29
18
15
12
10
8
3
0 5 10 15 20 25 30

16. 14
3.4 Call for politicians to solve the problem with a sound energy concept and
more technological acceptance
Even if there is no short-term competitive advantage as a result of European shale gas, European
shale gas should be pursued for strategic reasons. However, managers identified three main
hurdles to European shale gas production: public opinion and a lack of acceptance, regulatory
barriers and environmental risks.
Discussions on shale gas in Europe are of a particularly emotional nature. The public’s
doubts about this allegedly unsafe technology are grave. Many people are worried about envi-
ronmental and health risks as a result of ‘fracking’. According to the interviewees, politicians
are not contributing to a more objective discussion; they expect a clear legal framework based
on a rational evaluation of the potentials and risks of shale gas extraction.
Besides acceptance of shale gas, a lack of available infrastructure is cited in fourth place
(by almost 30%) as a hurdle. This is then followed by production costs. Less than 5% see the
quality of the gas as a serious barrier to commercial shale gas extraction in Europe.
Over 80% feel that the reaction of political decision-makers to the challenges facing the
European chemical industry is inappropriate. They demand an underlying European energy
strategy.
3.5 Securing the future through focusing on innovative ability and specialisation
The chemical industry itself must also rise to the challenge along with politicians and the public.
Is the chemical industry doing enough to meet the challenges of shale gas? What are the key
issues of the future which will allow Europe’s chemical industry to remain competitive?
Almost 40% demand a more active approach to changes in global competition. How-
ever, all agree that increasing the reactive speed of the industry is no mean task. Capital-
intensive assets – planned over decades – are at the heart of the chemical industry. Processes
cannot be simply adjusted, and plants are only mobile to a limited extent. Nonetheless,
these managers call for stronger use and expansion of the European chemical industry’s
strengths, such as its market size, infrastructure and innovative ability.
How can the European chemical industry remain competitive in the future? One strength
is named again and again (Figure 9): differentiation through innovation and specialisation.
This includes more emphasis on specialties, but not just specialties. Even though the presumed
higher product margins may appear appealing, specialties on their own will not utilise all the
existing plant capacity.
There is more to innovation and specialisation than just a pure product view. It also has
to do with processes, services and business models which drive differentiation and help increase
competitiveness. The utilisation of alternative raw materials (‘green raw materials’) also receives
more attention in this context.
After differentiation, increasing efficiency (‘operational excellence’) is the next most impor-
tant topic for managers. The objective is to reduce costs – through improved processes, less
material and energy inputs, optimised processing. The chemical landscape needs to change:
managers see a consolidated, globalised industry as the necessary future outcome of current
developments. This will be the only path for companies to follow to exploit good opportu-
nities in global markets and position themselves optimally. They expect a continuing trend
toward clusters and Verbunds within the regions.
‘Stop complaining and get on with it!’≥

17. A social and political environment which is industry-friendly is one of the most important con-
tributors to a strong chemical industry. Public acceptance of the chemical industry is an impor-
tant aspect, along with competitive energy and access to raw materials. Introduction of new raw
materials sources and technologies is often refused – without an objective analysis of the options.
The planning of new plants or pipelines also frequently leads to difficult, long drawn-out discus-
sions between the industry and the public. This scepticism towards technology in many European
countries is seen as a major problem overall.
However, only a very few interviewees named extraction of European shale gas as a success fac-
tor. What is the most important insight gained from the questions on the future of the European
chemical industry? Copying the shale gas boom in Europe does not seem practicable and would
notbeaforward-lookingsolutionforEurope’schemicalindustry.Also,onlytheindustryitselfcan
resist the threat of restructuring by concentrating on its own strengths.
15
figure 9
Under the influence of North american shale gas, how can the european chemical industry survive
the increasing competition in the future?
Innovation/specialisation
Efficiency improvement
Industry consolidation & restructuring
Internationalisation
Supportive environment
Feedstock strategy
Increasing level of integration (Verbund)
Domestic shale gas production
0 5 10 15 20 25 30 35 40
‘Europe has to define the future.’≥

18. 16
4.1 Shale gas has not (yet) made it onto the strategic agenda
Most chemical industry managers are aware of the significance of shale gas for their businesses.
Themanagersalsofeelthattheissuewillbecomemoreimportantinthefuture.Theconsequences
for the industry as a whole are viewed with even more apprehension.
It is somewhat surprising that shale gas has not made it onto the top management’s stra-
tegic agenda – despite the fact that highly experienced managers and teams in the various de-
partments are investigating its effects. In fact, shale gas frequently remains as an operative issue
which is dealt with using short-term measures.
One reason for this lies in the fact that shale gas is not the only cause of the challenges
facing the European chemical industry – it is simply an accelerator of already existing trends.
A lack of growth in Europe and resource shortages is nothing new. Additionally, the painful
consequences of the shale gas boom on the European chemical industry have not fully arrived.
It is imperative that shale gas is placed on the companies’ strategic agenda and receives the
necessary top management’s attention.
4.2 Focus on rising energy costs – risks to raw materials supplies
under-estimated
Raw materials costs – mainly driven by raw materials availability – make up a significant
proportion of the overall costs of a product in the petrochemicals and basic chemicals
industry. This does not quite hold true for the price of raw materials in the case of specialties;
it does, however, apply to their availability. Therefore, why does the impact of shale gas on the
availability of raw materials receive so little attention?
There are two possible reasons:
Time lag of impacts
In contrast to the influences on raw materials, managers feel the squeeze of high European
energy prices right now – the grave consequences of the gradually changing raw materials
situation goes, as yet, unnoticed. The extent of the global shift, limited availability and
expected price increases will only come to bear in the coming years as a consequence of
the North American downstream expansion – thus, they are somewhat delayed.
Problems somewhere on down the road do not receive attention (yet). Company manage-
ment is structured along quarterly performance and annual returns, thus managers con-
centrate on current tasks and acute challenges which require immediate action.
high complexity of impacts
The influence of shale gas on the availability of higher olefins and their derivatives must be
seen in the wider context of other raw materials sources and global trends. For example, C3
and BTX aromatics are not only procured from crackers, but also from refineries or on-pur-
pose production. This necessitates a complex cost analysis which reflects global capacities,
various technological developments (e.g., propane dehydration) as well as demand curves.
IV. Conclusion: Danger identified but not avoided
≥
≥

19. 17
Besides the raw material costs, investments in new as well as existing plants and assets are nec-
essary. These expenses influence both manufacturing costs and product pricing – the latter also
being influenced by demand. When demand is high in relation to the availability of a chemical
raw material, prices will increase.
4.3 Discrepancy between tentative actions and strategic requirements
There is broad general consensus about the necessary strategic measures for the future.
Differentiation through specialisation and innovation is at the top of managers’ lists. There is,
however, a distinct discrepancy between measures which have actually been acted upon and
managers’ intentions (Figure 10). Access to less expensive ethane as a cracker feedstock, and in
particular, the procurement of raw materials is at the centre of today’s activities. When it
comes to the top six measures to retain future competitiveness, the latter is barely even
mentioned. Innovation and specialisation are more in the midfield of today’s activities whilst
they are at the forefront of future activities.
Managers clearly cite the issues facing the European chemical industry. However, today’s
priorities differ somewhat from those in the future.
4.4 Can innovation save the european chemical industry?
all options must be put on the table
Approximately one third of the interviewees primarily refers to product innovation and focus
on specialties when asked about the topic of innovation. However, all agree that a specialty strat-
egy for the European chemical industry as a whole is neither practicable nor desirable. Even
without shale gas, product innovation and differentiation is important to defend and improve a
company’s own competitive position. Resource shortages or looming price increases cannot be
Innovation/specialisation
Efficiency improvement
Consolidation & restructuring
Internationalisation
Lobbying
Access tolow-cost feedstock and feedstock flexibility
Sourcing strategy
20 10 0 10 20 30 40 50
figure 10
Measures taken/future of the chemical industry
Under the influence of North American shale gas, how can the European chemical industry survive the
increasing competition in the future?
What measures has your company/business area already implemented in Europe due to
North American shale gas?

20. 18
compensated for by downstream measures – the problem must be tackled at its upstream source.
Thus, a long-term strategy must be based on the deliberate use of all degrees of innovation.
The trend toward ethane as a cracker feedstock as a result of the shale gas boom and the
strong C1 chemical industry in North America are leading to a global shift in the raw materials
situation in the chemical industry. This, in turn, has deep implications for the value chain.
In our opinion, the value chains must be examined right back to the borehole. This is the
only way to understand and analyse raw materials interdependencies and how they are influ-
enced by shale gas. In doing so, it is important to include by-products and not just the main
products in the various production paths. Price declines induced by shale gas for just one main
by-product can render a complete manufacturing path uneconomic. In such instances, process
innovation may prove to be a viable answer to shale gas. Along with the optimisation of reaction
products, this approach also holds further potential to reduce energy and materials used. This
would allow companies to offset energy cost disadvantages and help alleviate the risk of raw
materials shortages as a result of shale gas. From a strategic point of view, backward integration
or a raw materials alliance is a viable option.
The use of non-conventional resources or manufacturing processes to supply raw ma-
terials is the third field of activity in innovation. It is important to not only examine which raw
materials and paths are technologically possible, but also which are commercially attractive.
Should there be no attractive option to reduce dependence on a critical raw material, companies
may even be forced to adapt their product portfolios.
European chemical companies already have all the requirements to remain competitive in
the long term. Stiff competition on cost level also provides opportunities for the future. The in-
creased pressure to introduce innovations and gain access to more efficient raw materials could
drive companies to take up the challenge themselves. Instead of waiting for broad initiatives
from their own sector or politicians, the European chemical sector as a whole should actively
engage with their processes and business models to remain competitive. In the medium to long
term, European chemical players can profit from current developments and defend or even im-
prove their strong position in the global competition – providing they take on the challenges
posed by shale gas!

21. 19
abbreviations and definitions
Frequently known as ‘fracking’. A process in which a mixture of water,
sand and chemicals is injected under high pressure into rock layers to create
fissures in shale and thus make shale gas extraction possible
Liquefied Natural Gas
Natural gas is cooled to a liquid at −162° C, thus reducing the volume by a
factor of 600
1,000,000 Btu (British Thermal Unit)
1 MMBtu is roughly equivalent to the energy content of 1 Mcf (1,000 cubic
feet, approx. 28,3 m3
) shale gas. 1MMBtu can be used to heat 3 m3
of water
from 20° to 100° C, 1 Btu = 1055 J
A mixture of various hydrocarbons with between 5.0 and 12 carbon atoms
When compared with dry natural gas – which mainly consists of methane
(usually >95%) – wet natural gas contains significant proportions of NGLs.
Currently, there is no clear definition
Natural Gas Liquids – all hydrocarbons which occur along with methane
when extracting natural gas/shale gas: ethane, propane, butane, pentane, as
well as other heavy alkanes
Propanedehydrogenation – production of on-purpose propylene
Natural gas trapped in shale which can be extracted via ‘fracking’
Saturated hydrocarbons, primarily naphtha and ethane, are heated to high
temperatures using steam and broken down into usually unsaturated hydro-
carbons
hydraulic
Fracturing
lNg
MMBtu
Naphtha
PDh
Shale gas
Steam cracking
Wet natural gas
Ngl

22. acknowledgements
We would like to thank all of the companies and their representatives who participated in the study. This study
would not have been possible without these valuable contributions from European chemical industry managers.
Thank you!
Disclaimer
This study is based mainly on the opinions of company executives from internationally-oriented European compa-
nies. Small- and medium-sized companies from these sectors and petroleum companies were not included in this
study – therefore, the results of the study may not be applicable to them.
All rights reserved. The text and/or graphics in this study may not be copied, reproduced, transmitted, published or
distributed in any other way, either wholly or in part, without the prior written consent of Stratley AG.
about Stratley
Stratley is a globally active top management consultancy with offices in Europe, The Middle East, and China. We
advise companies in the chemicals and primary industries, as well as associated sectors.
Stratley focuses on the development and implementation of corporate and business strategies, marketing excel-
lence issues, large-scale organisational transformation, and strategic issues relating to chemical parks, sites and
services.
We follow an implementation-oriented, strategic consulting approach and select highly experienced consultants
to work together with our clients’ teams. We have access to a broad network of industry and functional experts
in the chemical industry. Our unique combination of clients, consultants and industry experts guarantees imple-
mentable solutions which work in practice.
Due to our focus, we at Stratley regularly examine current topics and issues in the chemical industry. Stratley
has been investigating shale gas, its implications for the chemical industry and potential options for action for a
number of years now.
authors
20
Dr Walter Bürger-Kley
Managing Partner
w.buerger-kley@stratley.com
Dr Kristina hackelöer
Consultant and Industrial Chemistry Expert
k.hackeloeer@stratley.com
Dr Peter Schache
Consultant and Shale Gas Expert
p.schache@stratley.com

23. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission
of Stratley AG. © 2014 by Stratley AG

24. SHALEGAS|Dangerrecognisedordangeraverted?