The Zacks Analyst Blog Highlights:Dow Chemical, Exxon Mobil, Chevron, Phillips
66 and Goldman Sachs Group
CHICAGO, Jan. 21, 2013
CHICAGO, Jan. 21, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include The Dow Chemical Company
(NYSE:DOW), Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation
(NYSE:CVX), Phillips 66 (NYSE:PSX) and Goldman Sachs Group Inc. (NYSE:GS).
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Here are highlights from Friday's Analyst Blog:
Shale Fueling Chemicals Boom
A resurgence in the chemicals industry is in progress, primarily driven by
unprecedented growth in U.S. oil and gas production. The discovery of abundant
reserves of natural gas trapped within shale rock and new and economical
methods of extraction are the primary factors driving such production growth.
New methods of extraction such as horizontal drilling and hydraulic fracturing
have provided access to shale reserves which were earlier inaccessible. They
have also lowered associated costs, in turn pushing down prices of many key
inputs for petrochemical production and ethane in particular. Ethane is used
to produce ethylene, the starting point in the production of plastics like
As a result, petrochemical majors like The Dow Chemical Company (NYSE:DOW),
Exxon Mobil Corporation (NYSE:XOM) and CPChem – a joint venture of Chevron
Corporation (NYSE:CVX) and Phillips 66 (NYSE:PSX) – are helping the U.S.
chemicals sector grow by setting up facilities to produce ethylene from
ethane. Yet, only about three years ago the chemicals industry was projected
to decline over the long term.
The likes of Dow Chemical were earlier considering investing in the Middle
East and going into production of specialized products. However, the shale
powered resurgence has changed the situation quite radically. According to the
chief economist of the American Chemistry Council (ACC), the U.S. is now the
ideal location for chemical manufacturers.
Goldman Sachs Group Inc. (NYSE:GS) believes that shale gas investments and
production are being driven by the high prices of crude oil worldwide. This
has led to the higher investment in the U.S. oil and gas industry. In 2011,
exploration and production expenditure amounted to $138 billion in the U.S.
compared to $35 billion in China, $10 billion in Russia and $5 billion in
Saudi Arabia. Goldman Sachs' global head of commodity research believes that a
tax regime which is favorable has also led to an increase in investments.
The rise in crude prices has subsequently led to an increase in the cost of
naptha, which is produced from oil. Naptha accounts for around half of the
world's ethylene production and now costs around $100 a barrel, increasing
marginally over last year. On the other hand, the price of ethane has declined
from 80 cents from over a year ago to below 23 cents. This is a consequence of
the additions to natural gas capacity over the period.
It is of course generally being accepted that the price of ethane will
increase over time. The chief executive of Dow Chemical, Andrew Liveris
believes prices will stabilize on the higher side of thirty cents. But
investment research group Alembic believes that even if ethane costs between
40-50 cents per gallon, the cost of production of ethylene will be between
$400-500 a ton in the U.S. compared to $1,200 a ton in Europe. This has led to
companies like Bayer setting up ethane manufacturing facilities in the U.S.
Not just the chemicals sector, the rise in shale gas production has led to
positive effects for the entire economy. Prices of electricity have fallen and
energy independence has increased. Former U.S. secretaries of energy Bill
Richardson and Spencer Abraham believe the U.S. could even emerge as a net
exporter of liquefied natural gas by 2016. The U.S. Department of Energy
thinks LNG exports could in turn spark off $47 billion in new economic
activity for the U.S. by 2020.
Additionally, the use of gas in place of coal to generate power has led to
carbon emissions in the U.S. falling to levels last witnessed in 1992 in the
first quarter of 2012. Clearly, the shale gas revolution is here to stay.
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