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Report: Lagging Oil Prices Could Hurt Chemical Industry In Coming Years

A continued glut of oil could keep crude prices below their trend levels for more than 10 years.

Persistent low oil prices could lead to dramatic changes in future spending by chemical manufacturers, according to a newly released report.

Economists from Colorado-based research firm IHS expect moderate economic growth and slower demand for oil to continue over the next several years, while technological advancements reduce the cost of oil production and increase its supply.

A continued glut of oil could keep crude prices below their trend levels for more than 10 years, the report said.

Under that scenario, IHS analysts anticipate that low oil prices would slow production of natural gas, which generates ethane -- the primary building-block chemical for plastics and synthetic fibers in the North American market.

Read more: Lowering cost and gaining efficiency in chemical manufacturing.

Lower ethane capacity could raise prices and make naphtha, the top chemical feedstock in Europe and Asia, more cost-competitive, which would hurt U.S. chemical exports and trigger additional industry expansion abroad.

The availability of cheap natural gas in the U.S. due to fracking helped lead a renaissance in the nation's chemical industry in recent years. Reports show that chemical companies aiming to take advantage of those prices planned more than $100 billion in capital projects between 2010 and 2023.

The IHS report, however, said that chemical producers could be forced to adjust future investment plans due to changing feedstock markets.

“Oil price volatility is creating a nightmare for companies planning investments,” said report author Don Bari.

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