Faced with sooner than anticipated peak demand from transportation, industry, buildings and the power sector, BP Plc, Total SA and Exxon Mobil, amongst others, are investing in factories and refineries that convert fossil fuels into plastics and chemical feedstocks–a sector that is, according to the BP Energy Outlook 2019 “the single-largest projected source of oil demand growth in the next twenty years.”
Indeed, the EIA expects U.S. demand for feedstock to increase from 40 million metric tons a year today to 60 million by 2040.
Royal Dutch Shell PLC is thought to have invested at least $6 billion in a chemical processing plant to produce ethane and polyethylene feedstocks in Western Pennsylvania. Similarly, Exxon Mobil plans to spend $20 billion over the next decade on a series of petrochemical complexes and refineries on the Gulf Coast.
Likewise, traditional crude oil producers and refiners see a bright future in chemicals and plastics.
For example, Saudi Aramco, is planning to invest some $100 billion over a decade, aiming to convert about 2-3 million barrels of crude oil per day directly into petrochemical products. Indeed, Saudi Aramco recently forked over $70 billion to acquire Sabic, a Saudi petrochemical giant, to help it become “the leader in energy and chemicals” according to Amin Nasser, Aramco CEO.
It is not just oil companies that see a future in chemicals. Oil refineries are being built to focus on chemical products rather than fuel. For example, China’s Hengli Petrochemical Co. and Rongsheng Petrochemical Co. will devote as much as half of their capacity to chemicals, mostly paraxylene, a material that China imports to make polyester and plastic bottles. That’s a sharp increase from the 10 percent chemical production at a typical refinery and as much as 20 percent at modern refineries integrated with chemical plants.
Black Swan Event?
Quite unexpectedly, the oil industry’s recent investments into increasing plastic and chemical feedstock capacity is not looking as bright, as this strategy is threatened by the worldwide consumer response to plastic polluting oceans and clogging rivers as highlighted by government discussions in Europe, India, China and some U.S. states to ban single-use plastics.
According to Paul Bjacek, a principal director at consulting firm Accenture Plc, increasing implementation of plastics recycling and plastic bans could cut petrochemical demand growth to one-third of its historical pace – to about 1.5 percent a year.
In addition, demand for fossil fuels from the chemicals industry is likely to fall as an increasing number of sustainable bio-fuels, bio-lubricants, bio-chemicals and bioplastics come on the market.
Taking advantage of the trend towards sustainability, the Italian oil company Eni SPA has invested heavily in a bio-petrochemical plant at its refinery in Porto Marghera near Venice, using vegetable oil and biomass.
As for the future
Meeting the challenge of more energy with fewer emissions has encouraged oil companies to invest in renewable energy.
The increasing focus of oil company’s refineries on the production of chemicals instead of fuel, is a direct response to the anticipated decline in demand as governments around the world mandate an end to production of new combustion engine vehicles, perhaps as soon as 2030.
In parallel, heightened public concern over pollution from plastics is encouraging the chemical industry to invest in production of bio-technologies and recyclable products and manufacturers and retailers are responding with plans to reduce plastic packaging.
If current trends continue Christof Ruehl, the former head of research for the Abu Dhabi Investment Authority, foresees a 20 percent cut in oil demand and should a “war on plastics” really take off; in the process, the oil majors could be badly stung.
This article was published on rigzone.com