A Piece of Petrochemical Pie: How Refiners Can Capitalise on the Petrochemical Industry
Written by Sarah Casey, Project Director, World Refining Association
Published on 6th April 2020
Do you fancy a piece of Petrochemical Pie? As the demand for refined products is falling and demand for petrochemical products is increasing, it is vital that refiners consider petrochemical integration, which offers increased flexibility and a competitive edge. Learn more below about the benefits, considerations and recent projects, and, how the double whammy of the oil price crash and the COVID-19 pandemic is affecting the petrochemical market.
Demand for refined products is falling and peak oil demand is being predicted, by most oil companies, to be between the late 2020s and the 2040s. The IEA however suggest that the peak will not be before 2040 due, largely in part, to the rising demand for petrochemicals.
Today, higher efficiency internal combustion engines, increasing hybridisation and the rise of e-mobility are eroding transport fuel demand, leaving refiners to seek ways to transform naphtha and diesel into more valuable products. Conversely, demand for petrochemicals continues to rise, with global demand for petrochemical feedstock accounting for 12 million bpd (circa 12%) of total demand for oil in 2017 and forecast to grow to almost 18 million bpd in 2050. Resultantly, an increasing number of refiners are looking to the petrochemical market as a vital aspect of their future strategy.
The future profit for refiners will depend largely on their capacity to produce petrochemicals and so they must now begin to focus on routing more streams from fuel products to petrochemical products, in order to maximize margins. As part of their survival strategy, it is vital that European refiners begin, and continue to, prioritise flexibility and petrochemical integration.
Petrochemicals grow more than any other oil demand driver
The Market and Covid-19 & Oil Price Crash
Before we delve into what the petrochemical path offers for refiners, the current context must be addressed. The petrochemical market is being hit with a double whammy; the oil price crash and the COVID-19 pandemic. Since the COVID-19 situation is developing so rapidly, we cannot yet assess the true impact on the market and the far reaching consequences on long term petrochemical demand. The crude price drop is the more immediate issue for the petrochemical market and the impact of this will be felt much sooner, with naphtha being the principle feedstock in Europe and Asia. Certainly the oil price crash has placed a deeper uncertainty on the outlook of the market.
In China, the extended Chinese new year holiday and restricted movement continues to affect the chemicals value chain, from demand to workforce, to shipping and operating capabilities/rates. Consultancy Wood Mackenzie has drawn a comparison with the SARS outbreak in 2003 and its effect on the Asian chemical market. The consultancy expects that Coronavirus will have a larger impact given the lower growth levels in China’s economy compared to 2003.
From a more global perspective, petrochemical prices have been tumbling throughout March. Following the crude oil price crash, prices of all the derivatives, olefins, aromatics, have been falling. Whilst there has been a major effort to maintain supply chains to enable chemical producers to operate, shipping has been a challenge and so has the supply of feedstock to keep crackers and reformers running. This has already played out in the US where in early March, some refineries reported that they will not be restarting their fluid catalytic cracking (FCC) units (which produce gasoline and propylene) until at least April.
The demand side also poses major challenges as countries worldwide are imposing strict measures on the movement of people, affecting consumer demand and the transport fuel market, with the Financial Times reporting on 24th March that estimates now suggest global consumption could drop by 25% in the coming months. Whilst the majority of petrochemical products are also seeing this downward trend, some chemical companies are seeing a massive spike in demand, especially those which produce chemicals for hygiene use. Additionally, the current situation has presented an opportunity for companies who have not necessarily produced these chemicals in the past but have the capability to, including BASF, Orlen, Shell and Irving Oil.
EIA revises global liquid fuels demand growth down because of the coronavirus
The Petrochemical Path – What benefits does it offer?
The IEA have suggested that ‘for integrated refiners, the petrochemical path can offer higher margins than fuels’ and the growth in demand for petrochemical products is set to account for over a third of the growth in oil demand to 2030. Petrochemical integration, integrating sites and creating plastics, will, and should, be part of refiners’ long term strategy and taking steps toward the petrochemical path now will secure them a competitive edge in future markets.
The petrochemical path still offers many benefits for refiners, chiefly higher operating margins. Depressed products from one can be used as valuable feedstock for the other, for example refinery gases and LPG can be used as feedstock to petrochemicals and conversely, petrochemical C4’s, py-gas/py-oil, hydrogen can be used as feedstock for refining. For refiners, integration with petrochemical production can be through feedstock provision in terms of propane, butane, or naphtha feedstocks, or through increased production of propylene and aromatics.
Vitally, petrochemical integration increases flexibility for refiners. They have a wider choice of feed streams for the petrochemical section, which can be altered in response to demand, a back-up hydrogen supply to the refinery and an opportunity to mix crudes to meet requirements of both refinery and petrochemical needs. In addition to the shared use of hydrocarbons, energy savings can be made and waste minimised through power, steam, process water and cost savings can be made through the sharing of other resources including staff, transportation and, generally, increased size means increased efficiency.
Who already has a Piece of the Pie?
Saudi Aramco and ADNOC are partnering with a group Indian oil companies including Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum on a US$ 44 billion refinery and petrochemicals complex in India which is expected to be completed in 2024 and produce 18 million tonnes/year of petrochemicals.
Total invested more than €1 billion into its Antwerp integrated refining & petrochemicals platform, the project began in 2013 and was completed by 2017. The Antwerp Refinery is now able to convert more heavy fuel oil into low-sulphur light products. A steam cracker was also added, of which flexibility has been increased to maximize the processing of low cost advantaged feedstock.
The Nigerian government are currently rolling out multiple integration projects. This is as part of the government’s plan to modernise and expand capacities of refineries operated by the Nigerian National Petroleum Corporation in a bid to reduce reliance on foreign imports and meet domestic demand. One such project is at the Dangote complex in the Lekki Free Zone. Dangote is in the midst of building a 650,000 bpd integrated refinery and petrochemical complex. Once completed, the project is expected to be the Africa’s biggest oil refinery and the world’s biggest single-train facility. It is also worth noting that the refinery complex will include sulphur recovery and hydrogen generation facilities and a polypropylene unit. With the inclusion of two steam methane reformers, the facility will have the ability to generate 200,000Nm³/h of hydrogen and steam to produce sulphur-free fuels.
PrefChem is a joint venture refinery and petrochemical plant between PETRONAS and Saudi Aramco. In summer 2019 it was announced that work would begin on this project which will produce 7.7 million tonnes of petrochemicals annually.
Chevron Lummus Global LLC entered a technology Joint Development Agreement with Saudi Aramco that includes CB&I, for the development, commercialization and marketing of innovative crude-to-chemical technologies. As part of the agreement, the companies are planning a refinery with a target of converting 70–80% per barrel of oil to chemicals.
Considerations to be made by refiners before venturing into the petrochemicals market
Investments into petrochemicals come with a responsibility for refiners to take action around the environmental impact of their operations. One solution to this is through chemical recycling of plastic waste. Chemical recycling technologies enable refiners to convert waste plastics into valuable chemicals by liquefying the plastic in a thermochemical liquefaction process. Refiners are left with a material similar to crude oil which they can reuse, as part of a circular process, improving resource-efficiency and helping them develop more sustainable operations. Oil majors including Saudi Aramco, Shell and Total have already begun to recycle plastics back into oil, limiting their dependency on crude oil to produce new plastics and providing themselves with sustainable feedstock.
As part of their integration drive, Saudi Aramco have invested largely into Crude to Chemical Technologies (COTC), which IHS Markit have suggested have the potential to more than double the profitability derived from a single barrel of crude oil. The adoption of COTC technologies is a potential route that refiners can take when embarking upon petrochemical integration and Saudi Aramco are an example of this. The oil and gas giant is currently working on a joint venture project with Sabic in Yanbu, which involves reconfiguring the existing refinery to produce maximum volumes of chemicals. Similar petrochemical integration projects using COTC are happening in the Far East, for example Zhejiang Petroleum and Chemical’s COTC refinery–p-xylene project in Zhejiang Province, China and Brunei Hengyi Industries’ PMB project in Brunei. COTC technologies are lauded by some as a true game changer and there are an increasing number of COTC projects being developed however, others are sceptical about the potential of the technology and the huge investment needed.
Other considerations for refiners who are taking steps towards petrochemical integration include identifying where increased flexibility and efficiency will deliver maximum value. Integration requires retrofitting of current assets and refiners need to determine whether an existing asset has the scale or critical mass required to make the integration possible.
Despite the fact that refining and petrochemicals have been demarcated as separate industries in the past, there are undeniably great synergies between the two. Whilst the market is quite volatile now, given the current climate with Covid-19 and the oil price crash, the petrochemical industry offers refiners a long term and sustainable way to maintain a competitive edge and through integration, refiners can prepare for the future and secure their place in it.
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