Commentary: oil majors push chemicals

Ahead we can look forward to a world where petrochemicals could be the fastest-growing driver of demand growth for crude oil, making the industry more prominent amongst integrated oil and chemical producers.

According to the International Energy Agency’s latest forecast, released on 16 November, use of oil for petrochemicals will rocket from 10.7m bbl/day in 2015 to 15.7m bbl/day by 2040, a 47% increase. By contrast use for passenger vehicles will go up just 3% whilst demand for buildings and power generation will decline.

There are also assumptions that “peak oil” demand will occur over the next few decades as governments, consumers and companies push for low carbon technologies amid sustained slower global GDP growth. Petrochemical products are proving much harder to substitute than fuels used in areas such as transport and power generation. They are also seen by many as a provider of solution to global challenges rather than being part of the problem.

Integrated oil and chemical companies are taking note of this as they plan long-term growth strategies. Many are now diversifying away from refining for fuels and seeking to grow in petrochemicals, an area which was, until recently, seen as just the “tail” on the mighty dog of oil exploration, production and refining. Indeed many companies have, over the years, disposed of most of their chemicals operations which were seen as non-core.

Look at BP, for example, which is left as a major player only in acetic acid and a few other commodities, with most of its former assets now owned by INEOS amongst others.

Companies are adapting to this changing world. At the Gulf Petrochemicals and Chemicals Association (GPCA) Forum in Dubai in November Saudi Aramco and Abu Dhabi’s national oil player, Abu Dhabi National Company (ADNOC), made announcements committing to a tripling of petrochemicals production.

Saudi Aramco will grow petrochemicals much faster than its oil refining segment. It forecasts an almost tripling of petrochemicals capacity from 12m tonnes/year in 2015 to reach 34m tonnes/year by 2030 (see pages 10, 12) amidst a doubling in refining capacity over the same period.

The company’s downstream business head, Abdulaziz M Al-Judaimi, said the expansions call for both horizontal and vertical integration across the company’s value chain including more efficient steam transfer and use of capital.

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Al-Judaimi (left) and Al Jaber unveil petchem plans

Saudi Arabian companies have an eye on regional employment and, said Al-Judaimi, this downstream diversification could lead to the creation of manufacturing and conversion parks that are connected to its plants.

Also at GPCA, ADNOC CEO Ahmed Al Jaber, revealed plans to triple petrochemical capacity to 11.4m tonnes/year by 2025. He said global demand for petrochemicals is set to double by 2030 from current levels. This would be driven by a shift in economic growth from West to East with Asia at the forefront, particularly India where two thirds of the population are under 35 years of age.

MOL PUSHES PETCHEMS

At the beginning of November Hungary’s mid-sized oil, gas and petrochemical major MOL, unveiled plans which are quite explicitly aimed at cutting dependence on transport fuels. Out of a total strategic budget of $2bn for 2017-21, $1.9bn will be spent on petrochemical expansion.

Zsolt Hernádi, Chairman-CEO, of the MOL Group said: “We will invest substantial funds into strategic investments to further diversify our business and increase our exposure in areas that are not dependent on the demand for motor-fuels.”

The company plans to increase of the share of non-motor fuel products to above 50% by 2030 from below 30% currently. It will increase feedstocks for petrochemicals, whilst also steering its product slate towards jet fuel, lubricants and base oils.

These plans include investment in crackers and growth in propylene derivatives such as propylene oxide-based polyols, making it the sole fully integrated supplier in central and eastern Europe, it claims.

The chemical industry, then, can look forward to significant capacity growth from the integrated oil and chemical sector. The challenge will be creating demand from an innovative portfolio of products, services and solutions.