Big Oil puts faith in petro­chem­i­cals to fuel growth

The Daily Telegraph - Business - - Business - By Jil­lian Am­brose

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

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