BARCELONA (ICIS)--The pandemic has boosted numbers of refinery-linked renewables projects whilst causing delays and cancellations to traditional petrochemicals projects, according to an ICIS analyst.
With lockdowns causing a rapid collapse in demand for transport fuels, oil refiners are now questioning the need for investments in mega petrochemical projects as recycling and the sustainability agenda have continued to accelerate during the pandemic.
Michael Connolly, senior consultant with the ICIS global refining team said: “Decisions have been fast-tracked by the pandemic. Where people previously were unsure about these transitions, the pandemic has shown how quickly demand can be reduced. This has been a catalyst for people to make these decisions.”
He pointed out that there have been several cancellations and delays to petrochemical projects this year.
“Pressure on virgin petrochemicals from recycling and the circular economy has created concerns about some of these mega investments. This is hindering some refiners from making that final decision to transition from traditional oil products to petrochemicals,” he said.
Many oil refiners had been refocusing on petrochemicals as a source of future growth as they forecast declining demand for transport fuels. Now, refiners have been spurred on to the transition to renewables by the pandemic.
Since the pandemic there has been a spate of announcements by refiners for projects linked to renewables. These are often linked to the closure of traditional refineries.
Source: ICIS Supply & Demand Database
According to Connolly: “The scale of some of these projects is impressive, with some such as Marathon and Phillips in the US reaching around 50,000 bbl/day from 10-15,000 bbl/day/year previously.
NOT REACHED ‘PEAK OIL’
According to ICIS forecasts the world has not yet reached ‘Peak Oil‘ because the huge amount of demand growth expected in Asia will outweigh the impact of changes in the energy mix led by environmental concerns.
However, since the pandemic hit, oil refiners around the world have suffered a collapse in demand for transport fuels.
ICIS estimates demand destruction averaged around 13m bbl/day from January to the end of June.
“There has been recovery since then but we expect to see continuing challenges for refiners,” said Connolly.
The loss of personal mobility in domestic and international travel has cut just under 3m bbl/day of global jet fuel consumption from a 7-7.5m bbl/day market. Gasoline consumption fell by just over 3.3m bbl/day and diesel by 2.5m bbl/day but from a much bigger market, so representing a smaller magnitude of change.
“There have been changes to working habits such as home working plus stimulus packages focussed on things like electric vehicles and the hydrogen economy. We now forecast a faster transition away from oil than we did pre-pandemic,” said Connolly.
Throughout the crisis naphtha demand has stayed within historic averages, according to ICIS analysis. It is still below previous forecasts for 2020 but nowhere near the shock collapse seen in gasoline, jet fuel and diesel markets.
REFINERIES RECONFIGURED TO MAXIMISE
During the pandemic there have been cuts to refinery runs to control inventories of transport fuels. But reduced naphtha production was partially offset by refineries adjusting to increase the proportion of naphtha whilst decreasing jet and other fuels.
Refiners view petrochemicals with increasing importance with 50% of petrochemical projects now linked to refineries.
“This is a big shift from previous numbers of standalone plants which now only make up 30% of new projects. We see 20% of plants directly linked to natural gas liquid (NGL) feedstocks such as ethane crackers, said Connolly.
“The scale of growth in petrochemicals in Asia is amazing, driven especially by China and this reflects where the demand growth will be,” he added.