Oil demand for petchems to rocket, polymers to suffer overcapacity short-term - IEA

Source: ICIS News

2017/11/15

LONDON (ICIS)--The petrochemical world to come in the next two decades will continue to be dependent on crude oil, with consumption projected to rise by 40% to 16m bbl/day in 2040, while global overcapacities in polymers are to haunt the industry in the short term, according to the petrochemical analyst at the International Energy Agency (IEA).

IEA analyst Tae-Yoon Kim added that Asia’s hunger for commodities as the region continues its relentless urbanisation process would only be able to digest the new capacities coming onstream in the US and the Middle East in the medium terms, as around 13m tonnes/year of polymers are expected to come online only from the US Gulf Coast up to 2025.

The IEA analyst added that industrial sectors, including petrochemicals, should embrace carbon capture and storage (CCS) technologies in order to lower their carbon dioxide (CO2) emissions as there are limited alternatives for deep emissions reductions. 

“In the New Policies Scenario [IEA’s main projection to 2040], global demand for ethylene, propylene and aromatics grows by 60% between today and 2040, and total oil demand for the petrochemical sector rises from 11m bbl/d today to 16m bbl/d in 2040,” said Kim, pictured right.

“This is the largest increase in any segment of oil demand. In the carbon-constrained world of the Sustainable Development Scenario [IEA’s low-carbon scenario], this is the only sector exhibiting positive growth. The share of petrochemicals in global oil demand increases from 12% today to around 16% in 2040 in the New Policies Scenario, and 20% in the Sustainable Development Scenario.”

The growth in petrochemicals demand will mostly come from developing Asia, a region where plastics consumption is set to increase by more than three quarters up to 2040, with China and India the main protagonists.

While plastics consumption per person in China currently stands lower than in Europe, the situation will soon change and in the longer term Chinese per-capita plastics consumption will reach “much higher levels” than in Europe as the country gradually shifts towards a consumer-driven economy.

However, Asia will not be able to absorb in the short term all the upcoming capacities for polymers coming on stream. Apart from numerous global chemical majors having set up plants in the US Gulf Coast on the back of cheap raw materials coming from the shale gas boom, other producers in the Middle East are also stepping up their capacities.

Among others, the joint venture between Austria’s Borealis (40%) and UAE’s ADNOC (60%) Borouge, which announced in July it aims to more than double the complex’s capacity from 4.5m tonnes/year to 10m tonnes/year by 2025. US DowDuPoint is also advancing on its large-scale joint venture Sadara complex in Saudi Arabia with the national energy major Saudi Aramco.

Naturally, companies involved trust they will be able to allocate the material produced, and look at Asia, but the IEA has a different opinion, at least for the short term.

“There are some 13m tonnes/year of new petrochemical capacity planned in the US, many of which will come on stream by the end of this decade. In the short-term, this new capacity being built is likely to outpace demand growth, which could lower utilisation rates of the new facilities until the end of this decade,” said Kim.

“There are also some pressures in the supply chain for export in the Gulf Coast… [However] Together with a cost advantage over crackers elsewhere and also potentially higher oil prices, the situation [for US producers] will improve and they will start sending more products to Latin America and Europe, and also to Asia.”

The IEA has always been an advocate for CCS technologies in order to reduce CO2 emissions in industry. By capturing the CO2 and storing it underground, proponents of the technology see it as a way forward to reduce emissions in the areas where fuel-switching to renewables or adopting alternative feedstocks is challenging. 

Sceptics, however, point to the technology’s high costs of deployments, which is putting off corporates. CCS will not pick up without policy makers’ support, said Kim.

“CCS remains the sleeping giant that needs to be awakened to meet the targets outlined in the 2015 Paris Agreement [to stop global warming]. Why is it sleeping? I think the deployment of CCS has not taken off on the back of various factors, like high capital costs and technological complexity, and finding storage sites or utilising the captured carbon also remains a big challenge,” said Kim.

Public support has so far been missing. For example, the amount of public funding spent on large-scale CCS projects between 2007 and 2014 stood just at $3bn globally, according to Kim.

“[That amount is] a tiny fraction of the $140bn spent [globally] on subsidies for renewables and $260bn on fossil fuel subsidies in 2016 alone… But the most important factor is lack of consensus on the role of CCS in fighting climate change. Some people think CCS is just a technology to support coal, and others think it is not cost efficient,” the analyst added.

“But CCS plays an important role in reducing emissions in many climate scenarios, not just in power generation but also in industry. Given limited alternatives to deep emissions reduction, a renewed policy push for investment in CCS is crucial, especially in energy-intensive industries such as petrochemicals.”

Interview article by Jonathan Lopez

Pictured above: Shell's petrochemical complex in the US Gulf Coast
Source: Shell