America's Leg Up on Petrochemicals || Peter Zeihan

Everybody, Peter Zayn here coming to you from Walla, Walla, Washington.

Today we're talking about the Iran War and the impact that it's having on petrochemicals.

The way most of the world decides to make petrochemicals is they start with crude oil

and they refine it in an intermediate product called naptha.

And that naptha, then it goes on and is processed into tens of thousands of things

that we all use every day.

That's not how it operates in the United States.

In the United States, because of the shell revolution,

we have basically a bottomless supply of natural gas.

Based on whose math you're using, roughly one third of the natural gas that is produced

in the United States, is produced as a waste product or at least as an associated production

of oil, which means that in the United States, natural gas is significantly cheaper compared

to the cost of oil.

So in the rest of the world, pre-war, the ratio between oil and natural gas on a clork

point of view was about five to one and the United States, it's closer to two to one.

So we use natural gas to produce products that everyone else would use naptha for.

Well, what has happened two things.

Number one, all that natural gas means that the United States can produce most petrochemicals

at a significant cost advantage versus everyone else.

Second, with the Iran war going on now, there's a global shortage of oil to the tune about

10 to 12 million barrels a day.

So everyone else's hardware is designed to turn oil into naptha into petrochemical products.

But all of a sudden, the price of oil and the availability of oil means that basically

everyone in the East Asian rim, and very soon everyone in Europe, simply can't access

the product they need at all, and they don't have access to enough natural gas in the first

place to switch over.

And even if they did, they'd have to change their hardware to be able to do it.

So the United States is becoming, from an economic point of view, the only real functional

large-scale supplier of the butadiene and methanol groups, which is where we already

had a huge advantage, and that's things like a particle board and silicones and octane

for gasoline and nitrogen fertilizers and mellamine plastics, a lot of things like that.

Whereas everybody else is now discovering that they don't have the price structure that's

necessary to maintain competitive production of really any of this.

Third problem, because the United States is able to have an advantage now in all of

the product sets, we're seeing a significant shift in production quantities as well as

qualities.

So let me show you this chart here.

If you start at the bottom left, that gray bars, oil, you turn into naptha, which goes

on to make all the product.

If you go to the right side at the bottom, you start with natural gas, you crack it to

get ethylene, and then you turn that into products.

But this whole set can be made with natural gas, and so the United States has not just

a price advantage now, but just a huge advantage in the quantity, the type of products that

can be made in mass.

You play this forward for six months, two years, which is easily going to happen because

of the Iran War, and we're looking at a shattering of the petrochemical supply chains

on a global basis outside of North America, and that's going to have massive impacts

downstream on pretty much every industrial sector.