Crude oil to chemicals - an
emerging challenge for the chemical industry
The crude oil refining industry has
traditionally focussed on meeting the energy needs of economies through the
supply of fuels – liquid or gaseous – for transportation, power generation or
consumption in homes. In the first category are petrol, diesel, ATF, fuel oil
etc., and in the last kerosene and LPG. Only a small fraction of the crude oil
processed now serves as feedstock for chemical production, primarily going to
naphtha crackers and aromatics extraction units to produce olefins and
aromatics respectively, to be used as feedstock for several chemicals and polymers
(plastics, synthetic rubbers and textiles).
This emphasis on fuels is now changing, both
in India and abroad, and this trend has to do with fundamental changes taking
place in energy markets, in general, and transportation fuels, in particular.
In addition, growths in chemical markets are expected to outpace that in
energy, offering significant investment opportunities in the latter. In
response, new refinery configurations are emerging, including the direct
conversion of crude oil to chemicals (COTC), with wide-ranging impacts on the
chemical industry.
Slowing demand growth for automotive fuels
The first dynamic is the on-going
transformation in the automotive industry. Electric vehicles (EVs) in different
avatars such as hybrids and all-electric are now a reality in some countries,
albeit not in large numbers. There is some disagreement over the pace at which
EVs will scale up to become mainstream, with sceptics believing the lack of
battery charging infrastructure will be a bottleneck to quick adoption. Battery
costs have already fallen significantly in recent years, thanks to steady
innovation, but there is more to come, both in improving the amount of energy
batteries can hold and hence driving range, and how fast it can be delivered to
give the needed acceleration. Several chemical companies are active in these
efforts, usually in partnerships, and see EVs as a sustainable transportation
option for the future. Several countries – India included – have announced
plans to electrify their automotive fleet, but as of now China is most ahead in
terms of number of cars on the road. There are some issues related to the
availability of some precious metals such as cobalt, lithium etc. that go into
making batteries, and fears that scale-up could lead to shortages.
When (not if) they come, EVs will eat into
the market for automotive fuels, though it is premature to gauge their impact
and when it will pinch refiners.
Biofuels – small dent in nearer term
Biofuels could also make a dent in markets
for automotive fuels – gasoline (petrol), in particular. In India, the US,
Brazil, China and several other countries, there are plans to incorporate up to
20% of bio-ethanol (now mainly produced from sugarcane or corn) in gasoline
sold at retail pumps. India’s national blending levels are now 3-4%, but there
is a stated policy to take it to 20% within a decade or so. The merits of the
exercise – be it environmental, social or economic – varies from country to
country – and, at times, is questionable, but that has not deterred governments
from using biofuels as an option in a broad energy self-sufficiency strategy.
Incorporation of biodiesel into
petroleum-derived diesel is more complicated and likely to be limited. The use
of edible oils & fats for making biodiesel raises uncomfortable issues, and
in any case, biodiesel is not much of an option for India, which is starved of
both vegetable oils and crude oil. There has been some excitement here recently
stemming from a single flight of a plane fuelled by bio-ATF, made by hydrotreating
jatropha oil, but scaling this up to make a dent in markets for ATF is a long
journey that few countries have had any success in.
In summary, biofuels could have a small
impact on markets for transportation fuels, but this could be sooner than from
EVs.
Brisk chemical demand
On the demand side, energy markets are
expected to see modest growth of the order of 2-3% on a global basis, driven
largely by emerging markets wherein growth rates could be twice as high.
Markets for chemicals – admittedly an order of magnitude smaller – are likely
to see global demand growth of 5-6%, with emerging markets again posting nearly
double of that. Just as importantly, chemicals represent a business area that
is less volatile in terms of pricing, and usually free from government
interference. Petrochemicals are a significant value-add to petroleum fractions
and thus a logical forward diversification strategy for oil refiners – more so
in a world where there are strict quality specifications on the fuels produced.
Refinery-petrochemical integration is widely
practiced today for several operational reasons: savings in utilities &
energy bills; valorisation of low value refinery streams; and tight hydrogen
integration – to name a few. Several national oil companies (NOCs) and
international oil companies (IOCs) have taken this logical step. In India, for
instance, nearly every refiner is eyeing investments in petrochemicals, either
by going the whole hog and setting up a naphtha cracker and a downstream
derivatives complex, or in a more focussed foray by investing in advanced
processing units, such as fluidised catalytic crackers, to produce propylene
(along with small quantities of other olefins). While the latter approach most
likely will not lead to olefin availability at a scale needed to support
polyolefin plants (unless the refinery is mammoth like the Reliance refinery at
Jamnagar or the one planned for Ratnagiri), it can support plants for several
propylene-derived chemicals such as phenol & acetone, acrylic acid &
acrylate esters, oxo-alcohols, propylene oxide & glycol etc. This is the
approach BPCL, for instance, has taken at its Kochi refinery.
COTC: taking integration to the next step
The idea of integration is now being taken
forward to a whole new dimension with what are being called as crude
oil-to-chemicals (COTC) approaches. While tightly integrated
refinery-petrochemical units have 15-20% conversion of crude to chemicals, the
COTC units are aiming to transform 40-60%, by using advances in catalytic technologies
and innovative refinery configurations.
The idea was pioneered at the ExxonMobil
refinery in Singapore, which processes light crude oil, but is now being taken
to a whole new level at three Chinese sites and one in Brunei (also with
Chinese investments) where aromatic crude is being directly converted to
produce para-xylene (PX) – a key raw material for polyesters –
along with significant quantities of benzene. With the conversion to aromatics
expected to be 40-45%, these plants are expected to quickly close the
demand-supply gap in China for PX, and so eliminate export opportunities for
producers from several countries that counted on China as a permanent large
sink for their output.
In Saudi Arabia, the oil giant Saudi Aramco
and the petrochemical flagship, Sabic, are planning on a COTC project, in a bid
to diversify the kingdom’s industrial base and reduce reliance on crude oil
exports. The complex planned is expected to process 400,000-bpd (barrels per
day) of Arabian Light crude oil, to produce 9-mtpa each of chemicals and fuels.
EPCs, process licensors and technology developers like CB&I, Axens,
UOP/Honeywell, etc. are also pursuing technology programmes in these direct
conversion routes.
Challenges to chemical producers
For chemical producers the entry of large
NOCs/IOCs into the chemicals business will bring many challenges. Since
refinery capacity is approximately 10 times higher than current world-scale
petrochemical plants, COTC in effect raises petrochemical production to an
unprecedented refinery scale. For example, the global demand for ethylene and
propylene are about 160-mt and 111-mt, respectively, and at 4% annual growth,
the required global annual capacity additions would be 6.4-mtpa and 4.4-mtpa of
ethylene and propylene, respectively. These volumes could nearly be supplied
from two large-scale 200,000-bpd COTC complexes, instead of four conventional
state-of-the-art naphtha-cracking light olefins plants.
Importantly, refiners have traditionally been
used to running businesses on low returns compared to the chemical industry,
and their muscling into chemicals markets could change the competitive
landscape very significantly. Watch this space!
- Ravi Raghavan
Chemical Weekly Issue date:
11th September 2018
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