Petrochemicals
to account for increasing share of global oil consumption
Petrochemicals as the name suggests are chemicals derived from
fractions of crude oil or natural gas. The modern petrochemical industry is
fairly recent and its origins can be traced to about the end of the Second
World War. Since then the industry has grown tremendously in size and in the
range of products made, and is intimately tied to modern living, as we know it.
For all its importance, petrochemicals currently account for
approximately 14% of oil demand and 8% of gas. Much of oil & gas now goes
to meet energy needs – in power plants, to make automotive fuels (gasoline
and diesel), aviation fuel, or meet domestic cooking needs (LPG and kerosene),
for examples. But, as a new report from the International Energy Agency (IEA),
a think tank, points out, that is set to change. As growth in energy demand
slows in almost all major economies, as renewable energy makes a much bigger
impact, and biofuels contribute their mite, the importance of petroleum to
energy markets will diminish. At the same time, demand for petrochemicals,
including much-maligned plastics, is set to continue growing.
Beyond plastics
While plastics are the largest component of the petrochemicals
industry there is more to the latter. Chemical fertilisers like urea, for
instance, are almost exclusively made from petroleum raw materials (discounting
a small share from coal, mainly in China). Their relevance cannot be
overstressed, especially for a country like India that is both agrarian and
poor. Ammonia – the key raw material for making urea – is most efficiently
made from natural gas, though there is some capacity using liquid hydrocarbons
like naphtha and fuel oil.
Similarly, synthetic fibres – polyester, nylon or acrylic –
are all products of the modern petrochemical industry. So are synthetic rubbers
and detergents. Fine and speciality chemicals too are extensions of long value
chains that start from a few building blocks and can also be traced back to
petroleum.
Growing demand
Demand for plastics – the most familiar petrochemical – has
outpaced all other bulk materials (such as steel, aluminium or cement), nearly
doubling since the start of the millennium. Consumption levels are still
skewed, depending on the stage of economic development of nations. Per capita
consumption of plastics in India and Indonesia, for instance, are one-twentieth
of that in the US, Europe and other advanced economies, while that of
fertilisers is one-tenth. This underlines the tremendous headspace for growth
in both these sectors – driven by, but not restricted to, developing
economies.
The IEA study sees global demand for plastics rising despite
substantial increases in recycling and curbs on single-use plastics in
countries of Europe, Japan and Korea. These efforts will be far outweighed by
growing consumption in developing economies, including India.
Current feedstock options
About 90% of all chemicals are now produced from oil and gas
(their fractions, to be precise). The balance 10% comes from coal (mainly in
China) and biomass. This can be attributed to several reasons. For one, modern
petrochemical plants are extremely efficient and have seen steady technical
advances over several decades, including in the use of high performance
catalysts (for precise conversions), improvements in engineering design,
materials of construction, etc. In contrast, the bio-based industry, which
grabs a lot of headlines, is just a few decades old, and is still to scale-up
to levels needed for competitiveness. The coal-based industry, though much
older, had gone out of favour till recently. Though it is making a comeback of
sorts, mainly in China, there is a cloud over it in terms of its large carbon
footprint and ecological impacts. In a world where carbon is taxed, coal-based
chemical production could see a setback.
Growing share of oil
The IEA study estimates that petrochemicals will account for
more than a third of the increase in oil demand to 2030 and nearly half to 2050
– ahead of trucks, aviation and shipping. Petrochemicals are expected to
consume an additional 56-bcm (billion cubic metres) of natural gas by 2030 –
equivalent to about half of Canada’s total gas consumption today.
Oil demand for passenger vehicles is set to diminish in
importance due several factors – better fuel economy forced by government
mandates; the growing use of alternative fuels such as bio-ethanol and
bio-diesel as blends into gasoline and diesel respectively; the rapid increase
in electric vehicles, as battery technologies improve and charging
infrastructure is more widely available; and the rise of the sharing-economy
that could even lead to a decline in personal ownership of vehicles in the
long-term.
Build-up of petrochemical capacity
Much of the build-up in petrochemical capacity in the near term
will take place in China and the US. China is where much of the incremental
demand will be, even under a more sedate pace now considered the new normal.
After nearly two decades of stagnation, the US has emerged as a prominent
centre for petrochemical production and is today home to 40% of the global
capacity for ethane-based petrochemicals. With several more ethane crackers now
under construction or in the planning stages, the share of US global ethylene
production is expected to rise to 22% in 2025, from about 20% in 2017.
The IEA analysis also sees China’s methanol-to-olefins
capacity doubling between 2017 and 2025, to provide a feedstock base for
ethylene derivatives. While some of this capacity could be integrated to coal,
coastal plants located at a distance from coalmines, may opt to import methanol
(produced elsewhere from natural gas).
India, several countries in South East Asia and the Middle East
will also raise ammonia production (for making urea). India’s planners view
the fertiliser as key to food security and will rightly seek to enhance
domestic manufacturing capacity and reduce dependence on imports. In the Middle
East, the key driver will be access to cheap energy and hydrocarbon feedstock
and much of the capacity created will eye export markets.
Tighter integration
In response to the slowing of energy demand for oil and the
increase for petrochemicals, more and more refiners are going downstream. This
is evident even in India, where nearly every refiner with scale is now eyeing
value-addition to petrochemicals, both as a profitable exercise in itself and
as a means to mitigate some of the risks from government meddling in prices of
fuel streams.
While current integration schemes valorise about 20% of the
crude oil processed for petrochemicals, direct crude oil-to-chemicals (COTC)
schemes are now being proposed that more than double the share of
petrochemicals. While ExxonMobil currently operates the world’s only COTC facility
in Singapore, more are in the planning stage. Saudi Aramco and SABIC, for one,
have announced plans for one in Saudi Arabia that will be five times as large,
and a couple of projects in China are believed to be in the drawing boards for
producing the aromatics needed to support a sizeable and growing polyester
industry.
Sustainable growth
The manufacture of petrochemicals and their derivatives will
absorb an increasing proportion of the world’s oil and gas. But because much
of this energy enters the petrochemicals sector as feedstock and does not
undergo combustion, the sector achieves the seemingly contradictory feat of
being both the largest industrial energy consumer and yet only the
third-largest industrial carbon dioxide emitter.
Even so, with the market for petrochemical products set to
expand further as the global economy develops, the future of the petrochemicals
industry is of major significance for both global energy security and the
environment. To combat this, plastics and fertiliser production, in particular,
needs to be more sustainable – an effort that will require active engagement
of all stakeholders, including industry, policy makers, scientists,
technologists and consumers.
Author: Ravi Raghavan
Chemical
Weekly Issue date: 16th October 2018
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