Chemicals often used to be viewed as the poor relation in integrated oil majors, so much so that many – such as BP – sold off the majority of their chemicals businesses in recent years.
How times have changed: chemicals are now seen as a major driver of demand growth for use of crude oil, especially in mature regions where demand for transportation fuels is forecast to decline. OPEC’s latest long-term forecast – published in October – predicts a steep fall in the use of transport fuels in OECD countries. It also forecasts flattening growth in demand for crude oil from 1.3m bbl/day 2016-2020 down to just 0.3m bbl/day from 2035-2040.
OPEC concedes that oil will face stiff competition from other energy sources, as well as slowing GDP growth, a shift to service-oriented economies, legislation and technological improvements. The rise of super-efficient internal combustion engines and electric vehicles will dent demand.
The cartel has cut its forecast for diesel/gasoil demand growth compared to last year. The diesel emissions scandal has had a real impact on consumer and legislative attitudes to the fuel. More knowledge about the harmful effect on human health of emission particulates has raised the hackles of lawmakers and the public when making purchase decisions.
Globally from 2016-2040, oil use for road transportation is still the biggest driver of growth (5.9m bbl/day), followed by petrochemicals (3.9m bbl/day). But faster than expected adoption of electric vehicles could pull the two figures closer together.
In mature regions, oil companies will suffer a steep 30% decline in demand for road transport fuels. Here, refiners may look to chemicals based in naphtha as a growth driver, though local demand may not be too strong thanks to low GDP growth.
OPEC forecasts naphtha to be the fastest-growing light product driven mainly by the need for petrochemicals in China and other parts of Asia. Demand for ethane will also increase strongly over the period.
Oil companies have picked up these trends and are now investing heavily in chemicals as they search for growth. Most of the big majors are significantly invested in US ethane-driven expansions as well as projects in the Middle East and China.
Shell is a good example: in the last few days it moved ahead into construction phase for its Pennsylvania petrochemicals project in the US. It is also heavily invested in China through the joint venture with China National Offshore Oil Corporation (CNOOC). It is still investing in its Europe chemicals operations, bringing a new aromatics onstream at Pernis in the Netherlands last year. At an October 2017 Shell investor presentation, chemicals was identified as a growth priority, leaving marketing and refining/trading as cash engines.
The Middle East has been on a drive to diversify away from reliance on oil revenues for years and is already reaping the rewards. The Sadara joint venture between Saudi Aramco and Dow Chemical has come onstream and is now shipping a wide variety of products globally. It also sold its first batches of polymeric methylene-4,4’-diphenyl diisocyanate (PMDI) to the domestic market in November (see page 15).
The 3m tonne/year, $20bn Sadara project is the first naphtha-based installation in the Gulf Cooperation Council (GCC) region and gives Saudi Arabia its first ever production of a range of intermediates including isocyanates.
The future is bright for chemicals, according to OPEC. Global demand for oil used for petrochemicals is forecast to rise by 31% or 3.9m bbl/day from 2016-2040. Excluding methanol, chemical production currently stands at 434m tonnes/year, rising to 515m tonnes by 2022.
Most of the additional capacity will be located in China (23m tonnes), the Middle East (18m tonnes) and North America (14m tonnes). Ethylene will form the largest part of this, representing over 50% (42m tonnes) whilst propylene will add 20m tonnes.