​This question is on the minds of crude oil suppliers and refiners for developing a sustainable business strategy. Many consulting and forecasting pundits believe that crude oil demand will peak sometime between 2030 to 2040. This challenge is different than the crude supply constraints that the world was expected to run out of crude oil/hydrocarbons and was on everyone’s mind in previous decades. The concern now is that with abundant crude resources and declining demand can threaten the industry’s future. Businesses hope and expect that demand of hydrocarbons for petrochemicals will grow at higher pace (in-line with GDP growth) and can be an answer to the business sustenance. “Are Petrochemicals the answer to Crude Oil Demand?” is a key question that most of the companies in oil and gas businesses are trying to fully understand. We think that the petrochemicals are going to be a part of the answer in short to mid-term and that there is a greater uncertainty about longer term future. Multiple trends are at play and more are expected to evolve, that will influence the future.
Yes, Petrochemicals are part of the answer – Business Case
​Figure 1 highlights some of the current industry trends that are shaping the future. Fuel demand, particularly in transportation sector, is facing environmental pressure due to climate change (including greenhouse gas emissions) and air quality in large urban centers. Electrification of vehicles, sharing platforms (like Uber etc.) and disruptive technologies/models for supply chains including commercial transportation (mainly trucks and freight carriers) will impact fuel demand significantly in coming years. Regulatory environment is evolving quickly to limit emission levels related to sulfur and other components as well as requiring electrification of transportation systems and higher contribution of renewable/alternate energy sources. These forces will result in slowdown in fuel demand in coming years.
Energy market has always been very dynamic over last 50 years driven mostly by geopolitics along with demand growth in developing economies. Last decade has seen disruptive technologies, particularly shale, playing a much larger role in shaping the energy market. These resulted in higher market volatility. Geopolitics have been further complicated by sanctions regime and threats of trade barriers/tariffs. Countries around the world are rethinking their energy security and options to lower current threats and risks.
Hydrocarbon demand for petrochemical industry is expected to grow at much higher levels as compared to energy demand. Petrochemicals demand is closely tied to growth of GDP and population growth. It’s driven primarily by growing middle class in emerging economies and a larger shift of population to urban centers. Petrochemicals growth will see some negative impact due to change in regulatory environment (e.g. ban on single use plastics) and a greater emphasis as well as environmental pressure for increased plastic recovery and recycling. Overall the petrochemical products contribute tremendously in improving quality of life and as the larger percentage of population in developing economies move into middle class, we will see continued growth in demand.
It’s no surprise that refineries are now looking at higher levels of petrochemical integration as a prudent diversification strategy for future sustainable growth. This is evident from some of the complexes that are currently in engineering and construction or in early stages of development. Some of the recent announcements include:

• Saudi Aramco and SABIC JV for Crude Oil to Chemicals (COTC)
• Ratnagiri integrated Refinery and Petrochemical Complex (likely JV of 3 Indian Oil Companies, Saudi Aramco and ADNOC)
• DUQM Refinery and Petrochemical Integrated Project
• ADNOC Mixed Feed Cracker integrated with Refinery
• TOTAL, Saudi Aramco JV SATORP Mixed Feed Cracker integrated with refinery
• 5 (or more) major Refinery-Petrochemicals integrated projects in China announced in last 2 years
• Petronas and Saudi Aramco JV Refinery and Petrochemical integrated development (RAPID project)

 
I will touch some more on refinery-petrochemical integration in future. Please feel free to contact me at sanjeev@apexpetroconsultants.com

Steam cracker based petrochemical investments are capital intensive and on average take five to eight years from feasibility stage to start-up. The changing energy dynamics and evolving market conditions always challenge the chemical companies to build and operate these facilities in a competitive and cyclic business environment. The product demand side is closely tied into GDP growth and maturity of the local economy. Demand in mature economies relate closely to GDP while emerging and growing economies see much higher demand of petrochemical products as the middle class grows.
The success of chemical businesses depends on:
1.      Access to (competitive) feedstock, market, and resources
2.      World scale, integrated, efficient and reliable
3.      Global footprint
4.      Product range coverage and access to differentiated technologies
The regions such as North America will see petrochemical capacity built up due to feedstock and cheap energy advantage. This growth will be driven by export to growing regions of the world. Cheaper ethane in US only will not meet the demand growth in rest of the world. Therefore, emerging economies will invest in petrochemical facilities based on market access among other drivers. Most of these investments will depend on feedstock derived from crude oil or condensates sources. Smart integration, flexibility and lower capital costs will drive the competitiveness of these facilities. Countries like Saudi Arabia will look for optimizing the full hydrocarbon value chain to stay competitive and contribute to social and economic growth locally. Recent push by SABIC and Aramco to develop “Oil to Chemicals” is an example of this approach.
All these approaches can be successfully managed provided chemical companies plan for energy and market dynamics with deep understanding of technology and technology options that drive the competitiveness and are optimum for local conditions. Strategic thinking, industry insights and experience based knowledge is a must for managing the technical complexity and risk profile in a competitive and cyclical business environment. A holistic approach that takes into account business drivers, market dynamics, technology/engineering options and local conditions leads to a robust solution. Access to this knowledge and resources can help petrochemical businesses to develop, build and operate best-in-class facilities.