Diversifying the downstream value chain
The deterioration of the economic environment in 2023 could affect demand for most chemical products amid high feedstock and energy costs. Moreover, increased supply due to capacity additions in Asia will put more pressure on chemical margins globally. According to some analysts, olefins, aromatics, and polymers could face serious margins pressure.
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Nevertheless, the global petrochemicals market is expected to expand at a compound annual growth rate (CAGR) of 6.2% to 2030. Beyond 2023, long-term petrochemicals demand in developing countries could be driven by an increase in demand for automotive, pharmaceuticals, and plastics. Worldwide, regulations to improve fuel efficiency by decreasing vehicle weight are driving plastic consumption as a substitute for aluminium and steel.
In addition to the olefins market, beginning with ethylene, other important petrochemical/gas value chains such as methanol from syngas, to feed the production of foams, adhesives, solvents, etc., could register high single-digit CAGRs (e.g., CH3OH: CAGR > 7%). However, production processes used for the most important basic chemicals such as methanol are responsible for around 70% of GHG emissions in the chemical industry.
Upgrading refinery and petrochemical operations with the lowest CO2 footprint will continue differentiating the most competitive operators. Fortunately, industrial policies including the ‘Inflation Reduction Act (IRA)’ and the ‘45 Q’ (tax credit) program could accelerate development of novel processes that embrace zero GHGs. The Bipartisan Infrastructure Law (BIL) enacted November 2021 by the U.S. Congress, and the previously mentioned IRA facilitates access to an estimated $580 billion in funding and credits to support development and deployment of carbon dioxide removal.
Regardless, other competitive organizations are already well on their way to towards capturing polluting emissions at their industrial sources. The Abu Dhabi National Oil Company (ADNOC), the state-owned oil company of the United Arab Emirates, has allocated $15 billion for landmark decarbonisation projects by 2030. The projects, in close cooperation with technology suppliers, include carbon capture, electrification, new CO2 absorption technology and enhanced investments in hydrogen and renewables.
Technology suppliers, with full cognizance of BIL/IRA incentives are taking the lead in helping their clients develop the most efficient route towards near-zero emissions. This involves modification of existing process configurations to mitigate CAPEX. For example, BASF’s process for generating syngas by partial oxidation of natural gas significantly reduces concerns about CO2 emissions. The subsequent process steps — methanol synthesis and distillation — can be carried out nearly unchanged.
We would be remiss without mentioning that other well-funded and well-intended efforts towards zero emissions processes don’t meet up to expectations. For example, the well-publicized Red Rock Biofuels refinery in the U.S. state of Oregon is facing closure after $350 million in public money was spent for the technology required to utilize forest residue feedstock for producing over 400 thousand barrels per year of sustainable aviation fuel (SAF). Whether failure to complete the project was due to technical challenges or lack of rail or pipeline assets to access SAF users on the U.S. West Coast, liquid fuels from woody biomass is still one of the top candidates for oil equivalents and a growing source of renewable energy.
While the refining and petrochemical industry is making transformational investments in sustainable processes, we cannot overlook high levels of fossil fuel focused investment in several major regions. S&P Global Commodity insights forecasts refined products to generally remain at high levels in 2023, with diesel cracks in 2023 likely to stay much stronger than historical averages.
Global crude distillation unit (CDU) capacity is projected to grow 17.5% over the next four years to over 121 million bpd. Some regions like Kuwait plan to spend $44 billion on oil projects to 2025, which seems to indicate that not only is the industry expected to diversify it product portfolio by co-processing renewables such as 2nd generation biofuels and waste plastic-derived pyrolysis oils, we will also see higher volumes of traditional refinery production.
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