As I mentioned in a previous blog, these are times of uncertainty and so much has happened in the last two weeks.
- Pandemic has peaked in some places while others are still experiencing an increase.
- Economic activity is slowly opening-up in some areas while others will still stay with essential services activity to minimize the spread
- Slowdown of overall economic activity continues impacting individuals, businesses, states and countries. Unemployment levels in the US have reached a point not seen in recent times.
- On April 20, crude oil (WTI) futures contracts for May dived below zero-dollar for the first time in history and at one point in the day it was as low as -40$/barrel, a drop of $58 within a single day. WTI disconnected its relationship with product prices and other benchmarks (like Brent). This was the result of contract expiry approaching with no ability to either hold positions or to take physical delivery. Crude oil prices are in the $20/barrel range now and are an indication of the depth of demand destruction even with announced production cuts by OPEC+.
- Road to recovery remains uncertain and there appears to be a consensus among pundits and economists that it will take much longer than the earlier hope for a quick recovery.
- With unprecedented reduction in activity due to lock-downs, this is the first-time people observed the impact of these activities on the environment (particularly in large urban centers) and nature. This is likely to have a significant impact on the younger population about the influence they may exert on the businesses and policy makers in the future. This will likely put more pressure on hydrocarbon fuels and therefore on refineries.
- There is a silver lining for the petrochemical industry as the larger population and policy makers recognize the contributions this industry makes towards health, hygiene, safety and quality of life. This provides an opening and opportunity for the petrochemical industry to build on the good-will and keep focusing on circularity and sustainability.
- Lowest cost of production in combination with high reliability
- Sustaining operation with minimum staff at the plant site
- Relying on automation, digital and smart technologies. Safety, security and reliability will play an important role.
- Remote monitoring, diagnostics, inspection etc.
- Smaller, inefficient and less sophisticated assets will be under pressure to shutdown
- Adapting processes and technologies for maintenance and construction to minimize site staffing for safe and efficient execution
- Low crude oil prices result in competitive cost of production for liquid feed crackers in Asia and Europe as compared to ethane crackers in North America and Middle East (see Figure 1 below)
- Post pandemic demand growth will be driven by Asia (including China) and other emerging economies
- Experience gap will likely increase due to voluntary retirements and layoffs as a result of the cost reduction effort
- Strategic focus and leadership style will evolve to cater to the new normal
How well we prepare for and adapt to the new normal will determine the success. Please feel free to send me a message if you would like to discuss or brainstorm ideas and share your thoughts.
Figure 1: Cost of Production for Different Feedstock (Refer to previous blog – Sep 30, 2018)