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Everybody, Peter Zayn here coming to you from Walla, Walla, Washington.
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Today we're talking about the Iran War and the impact that it's having on petrochemicals.
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The way most of the world decides to make petrochemicals is they start with crude oil
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and they refine it in an intermediate product called naptha.
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And that naptha, then it goes on and is processed into tens of thousands of things
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that we all use every day.
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That's not how it operates in the United States.
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In the United States, because of the shell revolution,
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we have basically a bottomless supply of natural gas.
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Based on whose math you're using, roughly one third of the natural gas that is produced
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in the United States, is produced as a waste product or at least as an associated production
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of oil, which means that in the United States, natural gas is significantly cheaper compared
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So in the rest of the world, pre-war, the ratio between oil and natural gas on a clork
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point of view was about five to one and the United States, it's closer to two to one.
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So we use natural gas to produce products that everyone else would use naptha for.
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Well, what has happened two things.
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Number one, all that natural gas means that the United States can produce most petrochemicals
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at a significant cost advantage versus everyone else.
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Second, with the Iran war going on now, there's a global shortage of oil to the tune about
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10 to 12 million barrels a day.
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So everyone else's hardware is designed to turn oil into naptha into petrochemical products.
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But all of a sudden, the price of oil and the availability of oil means that basically
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everyone in the East Asian rim, and very soon everyone in Europe, simply can't access
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the product they need at all, and they don't have access to enough natural gas in the first
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place to switch over.
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And even if they did, they'd have to change their hardware to be able to do it.
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So the United States is becoming, from an economic point of view, the only real functional
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large-scale supplier of the butadiene and methanol groups, which is where we already
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had a huge advantage, and that's things like a particle board and silicones and octane
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for gasoline and nitrogen fertilizers and mellamine plastics, a lot of things like that.
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Whereas everybody else is now discovering that they don't have the price structure that's
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necessary to maintain competitive production of really any of this.
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Third problem, because the United States is able to have an advantage now in all of
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the product sets, we're seeing a significant shift in production quantities as well as
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So let me show you this chart here.
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If you start at the bottom left, that gray bars, oil, you turn into naptha, which goes
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on to make all the product.
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If you go to the right side at the bottom, you start with natural gas, you crack it to
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get ethylene, and then you turn that into products.
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But this whole set can be made with natural gas, and so the United States has not just
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a price advantage now, but just a huge advantage in the quantity, the type of products that
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can be made in mass.
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You play this forward for six months, two years, which is easily going to happen because
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of the Iran War, and we're looking at a shattering of the petrochemical supply chains
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on a global basis outside of North America, and that's going to have massive impacts
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downstream on pretty much every industrial sector.