Oil firms bet on petrochemicals as appetite for crude wanes

While the appetite for oil investment is waning largely due to concerns about climate change, oil companies are pouring money into new billion-dollar refineries across the world, betting on petrochemicals.

Saudi Aramco plans to build a $10 billion refining and petrochemical complex in China over the next three years. Months later, it reached an agreement on a similar deal in a different Chinese province last December.

The two deals would see Aramco supplying the two Chinese companies with a combined 690,000 barrels a day of crude oil, making the country a major refining hub.

Refining and petrochemical investments have been a priority for Aramco as it seeks to secure long-term demand for its main product and expand local refining capacity.

Its aggressive expansion plans reach Korea, as it has contracted Korean engineering and construction firm Hyundai E&C to build a mega petrochemical project in South Korea at a cost of $7 billion. The project will convert crude oil into 3.2 million metric tons of petrochemical feedstock per year.

“It also represents a major milestone in our ongoing downstream expansion strategy in China and the wider region, which is an increasingly significant driver of global petrochemical demand,” said Aramco’s head of downstream, Mohammed Al Qahtani.

Another oil company, Indian Oil Corp., has granted initial approval for establishing a $7.4 billion petrochemical complex in the country.

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The complex will include a world-scale cracker and downstream units for polymers such as PP, HDPE, LLDPE and PVC, as well as chemicals like phenol and isopropanol. Output from the complex is expected to provide feedstock and vitalize growth in key downstream industries that include plastics, pharmaceuticals, agrochemicals, personal care, and paints.

Oil majors such as Shell, ExxonMobil, and others have been investing billions of dollars in petrochemical refining plants across the United States and Asia to get a foothold in the market.

The emerging trend indicates that oil companies are seeing opportunities in petrochemicals with the growth of electric vehicles, activism for climate change, and the government’s policies to quicken the pace of energy transition.

Plastic packaging for food and other commercial products can be made from a range of petrochemical products, including polyethylene and polystyrene.

Globally, more than half of ammonia is converted to urea, which is then mainly used as a fertiliser to increase crop yields and boost food production.

Synthetic rubber is a major component of tires for cars, trucks, and bicycles and is mainly derived from the petrochemical butadiene.

Also, many of the laundry detergents and items of clothing in our washing machines are derived from petrochemicals, such as surfactants and polyester fibre, says the International Energy Association (IEA).

The IEA notes that petrochemical feedstock accounts for over 12 percent of global oil demand, but that “share is expected to increase driven by increasing demand for plastics, fertilisers and other products,” it said in a report.

“Petrochemicals are one of the key blind spots in the global energy debate, especially given the influence they will exert on future energy trends,” said Fatih Birol, executive director at IEA.

The IEA has projected that petrochemicals will account for more than a third in oil demand growth by 2030, rising to 50 percent of demand by 2050 as transport electrifies.

If the expected global transport electrification does not take place on the expected scale, however, this higher demand for petrochemicals will simply be added to total oil demand, including for transport fuels.

In an evolving world, Nigeria is playing catch-up as it battles challenges including oil theft, insecurity, and poor government policies.

“The federal government must have the political will and determination to tackle the menace,” said Adedeji Ashiru, CEO of Contec Global Energy Limited, if the country is to matter as a major oil producer.

Nigeria has bought a 20 percent stake in the Dangote refinery and petrochemical plant but will require more investments to compete in the emerging world.