The U.S. petrochemicals industry is experiencing an investment renaissance, said Wood Mackenzie Chemicals Senior Vice President Steve Zinger at the AFPM 2019 International Petrochemical Conference held recently in San Antonio.
"Since 2010, we have seen over 300 planned chemical projects linked to shale gas, which some argue will generate almost 500,000 temporary and permanent jobs," Zinger said. "In capital expenditure terms, this equates to over $200 billion, signaling a huge increase in optimism within the industry. Most of these chemical investments have utilized gas-based chemistries and feedstocks, such as methane, ethane, propane and butane."
According to Wood Mackenzie Chemicals, most of these U.S. investments are expected to export to other countries. "Initially, most of the U.S. volumes were planned to end up in China, as the country accounts for higher than 30-percent consumption of global polyethylene. However, due to the tariffs put in place during 2018 ⦠U.S. producers are expediting their search for higher netbacks and increasingly moving the new resin supply into domestic markets, Europe, Latin America and Africa."
Why are refineries moving into petrochemicals?
Refineries moving into the petrochemicals space was an important theme during AFPM's 2019 International Petrochemical Conference. Recent research from Wood Mackenzie Chemicals highlights this trend.
According to Wood Mackenzie Chemicals, petrochemical feedstocks made up 13 percent of oil demand in 2018, with this figure expected to rise to almost 20 percent by 2035. "With the likely longer-term trend of declining oil demand into the all-important transportation sector, energy companies have reevaluated their chemicals strategies," Zinger said. "Companies like Shell, Total and BP had previously divested many of their speciality downstream chemical assets in order to focus more on their energy business and just a few core chemicals. Now, we're seeing these and other significant oil players aggressively expand their current chemicals portfolio, form alliances with chemical companies or step into the chemicals space for the first time."
Recycling, sustainability key issues for industry
Zinger highlighted there are a growing number of initiatives around plastics recycling and plastic bans. "These could reduce or cause peak petrochemical demand growth in the future, especially considering a significant amount of aromatics and olefins are used within the plastics industry, e.g., paraxylene for PET (polyethylene terephthalate) bottles and ethylene for polyethylene trash bags," he said. "These are the items that are targeted for increased levels of recycling and even, in some cases, replacement with non plastics.
"Plastics producers will ultimately need to make their products more recyclable, support waste collection improvements ⦠and look for ways to become part of, or inject, recycling into their business or production processes."
One interesting development within the plastics sphere, as highlighted by Wood Mackenzie Chemicals' recent "Q1 2019 Flexible Packaging Global Market Overview," is Amazon's decision to move to lightweight flexible plastic mailers over its traditional cardboard boxes. As the market leader in the U.S. e-commerce sector, Amazon is in a particularly powerful position to shape decisions on packaging preferences. Should other companies within the industry follow suit, this would signal a departure from a traditionally conservative packaging industry in North America.
"Despite these recycling initiatives and bans, the demand outlook for olefins is very robust," concluded Zinger. "In fact, ethylene and propylene have been consistently growing at or above global GDP growth rates. As such, we expect long-term demand growth for olefins to continue to be strong for the foreseeable future."
