Forces Shaping the Olefins Future

​In this blog, I would like to highlight the bigger picture aspects that will shape the future of our industry. A deeper understanding will enable us to make strategic choices that not only ensure business growth but also contribute significantly in meeting the future challenges.
Positive long-term outlook for petrochemicals
The demand is closely related to GDP and population growth

• World population is increasing rapidly, growing by another billion people by 2030 from the current base of about 7.6 billion. By 2050, the overall population is expected to reach close to 10 billion.[1] Asia and Africa will be contributing a large portion of that growth.
• Long-term GDP growth is expected to be in the range between 3 to 4% average annual rate.[2]
• Urbanization in Asia and Africa will continue, therefore contributing to the demand growth

Demand for engineered plastics and specialty materials is bound to increase as world will need higher efficiencies to meet sustainable growth. Based on these factors, expected annual average growth rate for petrochemicals will be in 4 to 4.5% range.
Energy Dynamics
Energy dynamics have always impacted the competitiveness of the petrochemicals industry as feedstock plays a major role in cost of production.

• Long-term oil projection scenarios project a wide range from 65 million barrels per day to as much as 120 million barrels per day. [3] 2019 crude oil demand was nearly 100 million barrels per day.
• Emerging and developing economies are projected add more than 8,000 TWh of renewable power generation by 2040.[4] Solar PV is likely to be the largest share of this growth followed by hydro and wind.
• Conventional fossil fuel transportation demand is flattening and demand for electric vehicles expected to contribute towards most of the growth projections
• Natural gas demand is expected to increase significantly by 2040. Emerging and developing economies will likely add more than 900 bcm to the demand. [5]

As a result of this, many companies are now investing in integrated complexes where 40% or more of the crude oil intake is converted to chemicals. [6] These complexes produce a large volume of chemicals from a single facility as compared to annual demand growth, changing the competitive landscape. High volatility in crude prices and likely to settle at lower levels in near term (and potentially in long term based on most of the projection scenarios), making liquid feed cracking more competitive.
Sustainability, circularity, and environment

• Greater push from consumers and bulk end users for plastic recycling. Plastic recycling is expected to double by 2040 from current levels – including chemical, mechanical and bio recycling depending on the type of plastic waste/collection logistics.
• Regulations related to single use plastics, greenhouse gas emissions, etc.
• Net zero approaches inline with Paris Agreement (IPCC scenarios) – using multiple technologies and approaches to achieve across the board emission cuts

Recycling and circularity will lead to impact on fresh feed demand and potentially some impact on investments in the longer term. The technologies for recycling are still evolving. Logistics of recycling, technologies, and economic drivers in combination with regulations will dictate the future outcomes. Current projections indicate that the overall demand growth will require significant investment in base chemicals during the forecast period.
Geopolitics
It is one of the more complex areas to predict with far-reaching impact on the economies, trade, supply-chains, investments etc.

• Energy dynamics in recent times put a sharp focus on approach to energy security of nations
• Growing nationalism and protectionism is resulting in a shift away from international cooperation and economic globalization that contributed to human health, wealth and quality of life over last 40 years (more so since World War II).[7]
• Cyber-security, information and data security in weakening global security structures[8]

Global businesses, like petrochemicals, are more exposed to geopolitical conflicts[9]. It will be harder to reach agreements on common global standards and protocols on sustainability, data, security etc. Managing these risks will pose a significant challenge for the petrochemical businesses.
Global Disruptions
There are risks and opportunities that are posing challenges requiring more international cooperation.

• Pandemics – like COVID-19, resulting in significant slowdown in economic activity globally and supply chain disruptions.
• As the world population grows, essential resources like water and food can become scarce (in combination with impact of climate related events)
• Extreme climatic events that can have far-reaching and significant impact

 
At Apex PetroConsultants, we look forward to a healthy dialogue for helping our industry to make positive contributions and grow.


[1] UN DESA forecast

[2] IMF, World Bank and other industry publications

[3] IEA scenarios

[4] Id.

[5] IEA outlook

[6] Blogs and publications by the author, multiple industry news and publications

[7] WEF, IMF, CEFIC and other industry sources and publications

[8] Id.

[9] Id.