November 2021
Crude oil has been used to produce transportation fuel for many decades. However, market factors may now make it necessary for organisations to consider oil-to-chemical complexes to maintain a competitive edge in today’s global market.

Over the next decade, crude oil may be the next big thing in petrochemicals. This will mark a change from the 2010s, when billions of dollars flowed into the US to build crackers and downstream petrochemical plants to process low-cost ethane from shale gas into ethylene and its derivatives.

Today, the market is a more significant driver of demand than is cheap raw material supply. By 2030, demand for gasoline and other fuels will be on the decline. The petrochemical sector, by contrast, still has room to grow. Oil companies and engineering firms have noticed this. They are installing new equipment and even designing new processes to take advantage of the trend.

Global Growth

Gasoline, diesel, and jet fuel are the primary products that come from crude oil. However, the global market for these products is currently exhibiting flat to slow annual growth of around 0.7% to 0.9%. This is due in part to the impact of traditional fuel replacement, including the market penetration of methanol, ethanol and liquified natural gas (LNG), as well as slow but steadily increasing electrification of the transportation fleet and mandated improvements in global fuel efficiency standards. In comparison, the global petrochemical market is growing at nearly 4% per year. There are a multitude of reasons for this, including worldwide population growth, increasing income and wealth, and ageing populations in developed areas of the world.

Petrochemical Consumption

Many items found in our daily lives, from food packaging to clothes to cars, contain petrochemical products. The consumption of these products is most prevalent in North America and Western Europe, where the per capita consumption of petrochemicals is highest.

As the large population centres of our planet, especially China and India, grow, and their citizens begin to enter a more middle-class, consumption-based lifestyle via an increase in disposable income, these countries will generally begin to consume more petrochemical-based products. The demand in these areas will increase substantially, dwarfing the consumption currently seen in North America and Western Europe. Today, the demand for petrochemicals in less-industrialised areas of the world is exploding, doubling every 12-15 years.

Meanwhile, demand in the parts of the world with the highest consumption of petrochemicals per capita is still strong and growing, albeit for slightly different reasons. In the US, for example, the population is beginning to age; the median age in the US increased from 30 years in 2000 to 38 years in 2018, according to census data. As more of the population enters a retirement lifestyle, a country’s consumption of transportation fuels generally decreases, but its consumption of petrochemicals generally increases. This is due to an accumulation of wealth throughout people’s working lives, resulting in a highly consumer-driven retirement.

Making the Petrochemical Transition

In Yanbu, a massive industrial town on Saudi Arabia’s Red Sea coast, two state-owned firms, the oil company Saudi Aramco and the petrochemical maker Sabic, are planning a new complex that could prove to be a bellwether for the next decade in petrochemicals. By 2025, the partners expect to have built a facility that will produce 9Mt of petrochemicals directly from 400kbpd of Arabian light crude oil.  Whereas most refineries convert just 5–20% of incoming oil into petrochemicals, some 45% of the Yanbu facility’s output will be chemicals, including olefins, aromatics, glycols, and polymers. The partners are not alone in diverting their refinery product slates away from gasoline, diesel, and other fuels and towards petrochemicals. To mitigate their reliance on oil export revenues and diversify their product portfolios, nearly all nations in the Middle East have announced capital investments in new downstream processing capacity, especially in the production of petrochemicals.

ExxonMobil has practiced direct crude cracking technology in its facility in Singapore since 2014, and it may build another such unit in China. Several facilities under construction in China will transform 40% of their oil into p-xylene and other petrochemicals. Aramco itself is considering another chemical-laden refining project in India. Today, any time a new refinery or any significant refinery upgrade is considered, a major goal is petrochemical production. New-build refineries are integrating petrochemical production at a scale that has not been seen in the past.

A prominent example of this trend is Zhejiang Petrochemical, which is building a crude-to-chemicals complex in two phases in China’s Zhejiang Province. The scale of the project is staggering. The company is building two refineries, each capable of processing 400kbpd of crude oil. Overall, nearly 50% of the output, some 20Mt, will be petrochemical, twice as much as that of the complex planned for Yanbu in Saudi Arabia. China’s Belt Road Initiative calls for the massive development of domestic petrochemical production capacity to mitigate the country’s reliance on imports.

US Producer Cost Advantage

From a US perspective, the impact of shale gas on ethylene production is important to note. The US Gulf Coast has recently added, and is currently adding, significant ethylene capacity due to the abundance of low-cost feedstock. Most of the new petrochemical capacity produced on the US Gulf Coast will be exported to demand centres in Asia, especially primary ethylene-based commodity chemicals. US petrochemical producers have a significant feedstock and production cost advantage when it comes to ethylene. However, new oil-to-chemicals complexes will generally also produce significant amounts of ethylene, increasing the risk of overbuilding of ethylene production.

Oil-to-Chemicals Process

The oil and gas market continues to be incredibly competitive. This is because almost all finished products are fungible, and there is very little difference in end product or quality. These products are also easily transportable across the globe. This means that organisations that exhibit competitive advantages in certain geographical sectors can take advantage of growth in other regions. For these reasons, organisations must continue to consider new production or complexes, and to approach them from a financially focused standpoint. Most of the new grassroots oil-to-chemicals complexes are expected to be built in parts of the world where crude oil is bountiful and close to the regions experiencing the highest demand growth. These areas include the Middle East and Asia, including Southeast Asia, and the US. These three regions are investing heavily in boosting their petrochemical processing capacity to satisfy demand.

The petrochemical market is set to grow quickly while the crude oil market exhibits stagnant to slow growth. Some organisations must become vertically integrated to shift production from crude oil to chemicals to maintain a competitive edge and find a market for their crude oil production. New complexes are still being built, and this will continue to impact the global market. Today, there are a surprising number of publicly-announced complexes. These projects are continuing to be developed all over the world. Despite the initial cost of a new complex, organisations are building them to take advantage of the changing global market.