Olefins Industry - Navigating Uncertain Times: Take 2

I hope that everyone is staying healthy and safe!
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 to impact 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 an unprecedented reduction in activity due to lockdowns, 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 businesses and policymakers 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 policymakers 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 goodwill and keep focusing on circularity and sustainability.

When will things go back to normal? I am sure that this question must have crossed your mind. I believe in human ingenuity and adaptability, the disruption caused by this pandemic has exposed some of the fallacies and at the same time forced us to think differently. I will try to limit my observations to the impacts on our industry and to the new normal. Some of the elements of the new normal include:

• 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 a competitive cost of production for liquid feed crackers in Asia and Europe as compared to ethane crackers in North America and the 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 our 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)