Big Oil puts faith in petrochemicals to fuel growth
On the east bank of the Mississippi River, around 20 miles downstream from Baton Rouge, sprawls an 800-acre industrial mega-complex. Since the mid-Sixties this Louisiana chemical plant has quietly produced millions of tons of the chemical compounds that make up modern life – but that few outside the industry have even heard of.
This is where Royal Dutch Shell completed its largest ever investment in the
US chemicals industry last week. A $700m
(£550m) project to expand the Geismar petrochemical site fired up for the first time – the largest of its type in the world and one of many in the shale-fuelled race to corner the booming industry for petrochemicals. Shell has earmarked the growing market as one of its major growth priorities as it reshapes its business. The petrochemicals business lacks the drama of major offshore oil projects and the charisma of the US shale boom. But as the world turns towards cleaner transport, oil majors are tapping into the growing appetite for consumer goods – all of which are made from the chemical compounds derived from fossil fuels.
Petrochemicals are used to make plastic packaging that contains most of our food, drink and cosmetics. They make polyester clothing and the detergents used to clean them. They even make the harder plastics and rubber that help bring electric cables into our homes to charge laptops, phones and tablets, which are built with petrochemical building blocks too. In short, “Big Oil” is betting on the rise of “big stuff ”.
“Our economies are heavily dependent on petrochemicals, but the sector receives far less attention than it deserves,” said Dr Fatih Birol, the International Energy Agency’s executive director. “Our analysis shows they will have a greater influence on the future of oil demand than cars, trucks and aviation.”
An IEA report finds that petrochemicals are set to account for more than a third of the growth in oil demand between now and 2030, and nearly half by 2050. Petrochemicals are also poised to consume an additional 56bn cubic metres of natural gas by 2030, or around half of the UK’s total gas consumption today.
Simply put, the giant chemical plants that dot the Mississippi in its final stretch before it reaches the oil-rich US Gulf Coast take the dense fossil fuel hydrocarbons provided by the oil and gas industry, such as ethane, and “crack” the compounds into smaller chemical parts including olefins and aromatics. These, in turn, can be broken down further to create myriad other compounds, before being rebuilt as plastics, solvents and adhesives.
After decades of decline, the US has re-emerged as a low-cost location for chemicals production thanks to the shale-gas revolution. It is now home to around 40pc of global ethane-based petrochemical production capacity.
In less than a decade, more than 300 chemical industry projects, worth a total of over $200bn, have been set in motion in the US alone, according to the American Chemistry Council. Meanwhile, the Middle East remains the most affordable region in which to produce petrochemicals and is preparing to use its dominance in the market to lay claim to emerging demand in Asia.
Saudi Aramco, the world’s largest oil company, is preparing to issue $10bn in bonds to help fund the purchase of Saudi petrochemicals firm Sabic, while it invests in major chemicals refineries in China. The chief driver is the world’s growing appetite for plastics, which has nearly doubled since the turn of the century. This easily outpaces all other so-called “bulk materials” such as steel, aluminium or cement.
In advanced economies plastic is used up to 20 times more than in the developing world on a per capita basis, but there is profit to made in closing this gap. The substantial increases in recycling and political will to curb single-use plastics is far outweighed by sharply increasing plastic consumption in emerging economies.
China is set to keep pace alongside the US in the near-term boom in petrochemical manufacturing. The combination of a growing global economy, rising population and technological development will translate into an increasing demand for petrochemical products.
The multibillion-dollar investments flowing into China’s petrochemicals industry will still not be enough to meet the needs of its export market and domestic appetite for consumer goods.
China’s plastics binge will send ripples through global petrochemicals markets as countries race to provide the People’s Republic with the building blocks it needs. New chemical plants are due to spring up in South Korea, Indonesia and Malaysia, as we well the Middle East, Russia and North America.
Stephen Zinger, a chemicals specialist at Wood Mackenzie, says the rise of petrochemicals has caught the imagination in part because it offers a defence against the move away from petrol, diesel and shipping fuels.
“As a result, many oil companies are emphasising chemicals as a key target area for future growth.”
Petrochemicals are used to make many of the gadgets we rely on in modern life, such as phones and tablets, as well as the packaging they arrive in