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Effects of the shale boom on ethylene and propylene prices

ABSTRACT This study analyzed the effect of the shale boom on the olefin industries. We investigated the paths by which US natural gas prices are transferred to ethylene and propylene prices and identified the price determinants based on the supply and demand conditions of each commodity’s market. By comparing with the Japanese markets, the understanding of the supply structure of the ethylene and propylene industries is broadened. A path analysis framework was constructed to reflect the supply chains and applied to 2009–2018 data. Results showed that the downward trend in ethane prices provoked by the US shale boom reduced ethylene prices and raised propylene prices. Propane still serves as a determinant of the latter, while naphtha has lost predictive power for both. The comparative data confirmed that the US produces most of its petrochemicals from natural gas and gas-based feedstocks, while Japan relies on crude oil and refined naphtha.