High gas prices could spur U.S asset sales

By David Brinkerhoff

FRANKFURT (Reuters) - High natural gas prices could prompt European chemical companies to start selling off their U.S. facilities within five years if the pricey fuel makes it too costly to make commodity chemicals there, analysts said.

Two years of robust demand have allowed chemical companies to raise prices to offset the surging costs of natural gas, the prime ingredient in U.S.-made chemicals.

But analysts say a downturn in demand -- a possibility in the next year or two -- could make those costs difficult to absorb and force European-based firms to close some operations in the region before the demand bottoms out.

"I see them taking the first opportunity to get out of their positions in the U.S.," said HSBC analyst Hassan Ahmed.

Ahmed does not envisage large disposals but rather a series of piecemeal sales as the chemical market slows, energy costs rise, and stock valuations begin to fall. "Within two to three years we will see a peak," in asset sales, he said.

U.S. natural gas prices are forecast to average between $7 and $8 per million British thermal units (mmBtu) in 2006, down slightly from last year thanks to a mild winter, but more than four times the $2 average seen throughout the 1990s.

And longer-term natural gas trends look grim, with North American production in decline, hurting an industry built on the assumption that natgas would cost $2 to $4 per million mmBtu.

NO MORE LOW PRICES  Continued...