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Global and Regional Petrochemicals: Latest Trends and Prospects

A special interview with Aman Amanpour, Independent Petrochemicals & Energy Consultant / Former President of Shell Chemicals Middle East.

Aman Amanpour

In its fifth year, Euro Petroleum Consultants’ Masterclass & Strategic Management in Petrochemicals has been recognised as a must-attend course for all levels of petrochemicals personnel and is highly recommended by past attendees from leading companies such as Borouge, Duqm Refinery & Petrochemical Industries, Emirates National Oil Company (ENOC), Petro Rabigh, SABIC, Sadara Chemical Company, Sahara Petrochemicals Company, Saudi Chevron Phillips Co. (S-CHEM), Saudi International Petrochemical Co (SIPCHEM) and more.

Following EPC’s re-launch of this three-day masterclass, taking place from 18th to 20th November in Dubai, we have conducted a special interview with the trainer, Mr Aman Amanpour.

EPC asked Aman for his insights on the global petrochemicals industry:

What changes do you see at the highest level setting new scenes for investment in the petrochemicals business? The changes we observe in the last couple of years are in a plethora of geopolitical, policy areas and factors impacting the global and regional macro-economies and hence the dynamics of various industries including petrochemicals. New power plays (e.g. USA vs. Eurasia), Trumpism and related phenomena elsewhere: nationalism, protectionism, trade war, de-globalisation are among these changed factors. Also in play are parameters such as heightened climate challenge, aging population, changing hydrocarbons dynamics (supply / demand, price and fate), alternative resources and technologies, e-mobility and circular economy to name some key ones.

Which new responses do you see to those changes? Responses are taking shape accordingly for a new equilibrium in world politics and economy, as well as in various industrial sectors. In our industry we observe change of strategy by governments, investors, companies, operators, customers and other stakeholders. Legislative and executive orders, shareholders’ actions, new project strategies, deeper restructurings and M&A, disruptive technologies and asset configurations, digitisation, changed consumers’ behaviors and demands - all are transforming the petrochemicals sector.

Do you expect any shift in the gravity centers and among major players – now and going forward? A clear shift has been happening Eastwards. China goes beyond mere self-sufficiency and by creating the OBOR/BRI, it will have a pronounced impact on chemicals investment and trade. US shale-based projects are at competitive risk due to president Trump’s declared trade war. The industry there (ACC) is deeply concerned and issues frequent warnings and pleas. Asian (e.g. Chinese, Indonesian and Malaysian) and Middle Eastern (e.g. Aramco, SABIC, ADNOC) players are –individually and by joining hands- buying companies, creating mega integrated assets with new technologies and configurations. The Western established players go through ever larger and more complex M&As (e.g. DowDupont).

How different are the new investments from the conventional ones? Let us take investment in production of olefins as key building blocks in the value chain. Since 2010 the C(M)TO(P) have evolved in China as a credible route besides thermal cracking – and growing. Same could be said for PDH in all key regions. And recently some routes such as oxidative conversion of methane (OCM) are on the verge of commercialisation. Recent novelty, however, are some game-changing integrative approaches such as crude-oil-to-chemicals (COTC) –so far in project stages in China and KSA. This is targeting at maximizing the oil-to-chemicals conversion rates compared to conventional refinery-petrochemicals integration. The current global average is about 8–10% conversion to chemicals per barrel of oil. For a very well-integrated complex such as Petro Rabigh or Sadara in Saudi Arabia, each complex can achieve 17–20% conversion to chemicals. All announced COTC projects produce at least 40% of chemicals per barrel of oil which could go as high as 80% for more complex and optimized schemes —a quantum leap from a state-of-the-art integrated complex. Besides, more and more conventional refinery-petrochemicals projects, in mega scales and with multiple partners, are planned, especially in Asia and Middle East such as projects in China, India, Indonesia, Malaysia, KSA, UAE, Oman, between state-owned Asian and Middle Eastern partners.

How will the oil / gas prices and supply-demand be impacted and in turn impact petrochemicals? As ever, no one can predict or even credibly forecast the prices. Consensus is though that before middle of this century the demand for fossil energies for fuel purposes will plateau and then decline. This, plus the steady growth of petrochemicals demand at or above the global GDP growth, is making petrochemicals an even more prominent outlet for oil and gas, from currently less than 15% to around 20-25% of oil demand by 2050.

What are the major new challenges and opportunities for the producers and consumers of chemicals? From breath-taking competitive scene and the strive for profit and shareholder value in all of its facets to technological advances, to digitisation, from enabling role of chemicals value chain for development of various industries, including traditional and hi-tech manufacturing and services, from contributing to prosperity of people in emerging and developed economies and lifting their health, longevity, well being and living standards. From contributions to greenhouse gas reductions via light-weighting and insulation to invention and creation of novel products and processes to mitigate environmental risks, the list of vital examples of chemicals industry is long.

If I would be pressed though to mention just one aspect and expand a little on it which entails both challenges and opportunities for chemicals, that is: environmental realities and the emergence of “circular economy” (CE)! The Ellen MacArthur Foundation in a 2015 study wrote: “A staggering 32% of plastic packaging escapes collection systems, generating significant economic costs by reducing the productivity of vital natural systems such as the ocean and clogging urban infrastructure. The cost of such after-use externalities for plastic packaging, plus the cost associated with greenhouse gas emissions from its production, is conservatively estimated at USD 40 billion annually.” Or in the words of James Quincey, CEO of Coca-Cola: ““If left unchecked, plastic waste will slowly choke our oceans and waterways. We are using up our earth as if there is another one on the shelf just waiting to be opened. Companies have to do their part by making sure their packaging is actually recyclable.

Circular Economy is much more than waste management. Several implemented product and/or application solutions by key Chemicals players already address the CE model. They bring opportunities for new business models, new solutions and, consequently, new customers. A pre-condition is a deep understanding of the value chain and customers’ needs. CE supports value generation of high performance products. However, holistic evaluation of the sustainability of each CE business model is necessary.

How long will the current prosperous chemicals business continue? To start with: the reminder that the business of chemistry is and will remain cyclical. The degree of cyclicality decreases as we move along the value chain from base chemicals to intermediates to performance products to specialties, fabricated/formulated packages and then consumer goods. One factor, besides the macro-economic cycles, which drives petrochemicals cycle is the fact that the demand growth is linear (e.g. as a function of GDP growth rate) but the supply comes in step-wise capacity additions which become ever larger as the technology and economics both enable and require larger scales. In other words, new large investments addressing the previous tightness need to be absorbed over some years, before which the prices, operating rates and hence margins decline before they start to rise in a new cycle. Currently and as mentioned earlier, we observe massive capacity additions in base chemicals, polyolefins and some intermediates in US, Asia, Middle East and even (upcoming) Russia/CIS which could lead to overcapacities in the coming 3-5 years, eroding margins and profitabilities before those volumes could be absorbed by demand growth. The looming trade war and protectionism, reduced demand in the developed world due demographic challenge and possible slow-down in the emerging economies could add to the burden. Some less competitive projects may be canceled or delayed which would mitigate the down-cycle. However, and as experience shows, pride and personal (career) stakes after having spent much time and money to develop a mega project, as well as an unjustified hope that “this time is different” and losing sight by new executives of the “cycle determinism” may lead to less cancellations or delays than required to maintain a mitigated cycle.

What will Middle Eastern petrochemicals producers’ new strategies be and how will this affect their global standing? As already mentioned, GCC producers are leaving the home ground, continuing with ‘shopping’ assets abroad and entering into mega-projects in and outside of their countries with integrated asset configurations, based on liquid feedstock and new partnerships. Drivers are: lack of ample and low cost gaseous (ethane) feed, going down the value chain for industrialisation and job creation and reducing the economic dependencies on crude oil export. By doing so, their rank among global players have been increasing. SABIC is currently among the top 5 of chemical companies and Aramco is catching up fast with mega projects and inorganic (incl. plans to buy shares in SABIC). Also UAE’s ADNOC, Kuwait’s PIC Qatar’s QP and Oman’s ORPIC have grand plans and ambitions. Some large projects are reviving and taking shape in Egypt and Algeria as well. Iran though tells us a different story: they have had big ambitions to complete huge number of projects and add new ones, have achieved some in the last few years, but are stalled again due to US exit from JCPOA (nuclear deal) and reinstatement of their sanctions, as well as serious domestic challenges, policy issues and inefficiencies. They may though be able to proceed, if capable of mastering the domestic issues and albeit with slower speed, with completing some projects, taking the petrochemicals capacities from now 65mtpa (second in the region to KSA with currently 90mtpa) to 100mtpa by middle or late of next decade.

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