Crude oil-to-chemicals (COTC) continues to be a powerful industry driver and a strong trend of high interest to all integrated refineries and chemicals producers in Asia/Pacific, China, the Middle East, and Eastern Europe. This is reinforced by many factors, most notably the forecasts which predict a slowing of transportation fuels growth approaching 2040 (with hybrids and electric vehicles), while growth in chemicals is expected to increase as populations and middle-class wealth continue to rise, leading to increasing demand for packaging, consumer goods, and automobiles.
More than 12 corporations have committed over $315 billion to date to reconfigure their assets to produce more petrochemicals than transportation fuels, as revamps as well as building new grassroots refineries during the next 5-6 years? Based on announcements to date, we anticipate in the next five years that another $300+ billion, or more, will be announced as refiners and chemical companies all reassess their positions, knowing that the longer-term outlook for transportation fuels from crude oil is expected to plateau and then decline. All players are taking this trend seriously and therefore you should also.
Under the conventional industry structure, a refinery provides naphtha to a petrochemical plant for its steam cracking operation to produce chemicals. The current global average is about 8–10% conversion to chemicals per barrel of oil. For a very well-integrated complex such as Petro Rabigh or Sadara in Saudi Arabia, each complex can achieve 17–20% conversion to chemicals. All announced COTC projects produce at least 40% of chemicals per barrel of oil—a quantum leap from a state-of-the-art integrated complex.
- Competitive Factors in the New Market
Having advantaged feedstock has been the most important competitive factor in the past one to two decades, but in the new era feedstock alone won’t be enough to compete. COTC redefines a global scale at the refinery level. The sheer scale will be an additional competitive factor, and COTC producers will realize an advantage over current “world-scale” petrochemical producers.
Due to high investment costs, capital efficiency will also become a critical competitive factor. Hengli and Aramco/SABIC both start from 20 million tons of crude oil, a similar scale; however, the announced investment cost is $11.6 billion for Hengli versus $20 billion for the Aramco/SABIC joint venture. Due to the large number of chemicals produced, having accessible markets will become a major consideration. In these aspects, COTCs in Saudi Arabia will benefit from advantaged feedstock in terms of price and choices of crude including using condensates, while China seems to have the advantages of better capital efficiency and access to growing domestic markets.
Two other major trends that will help define the new era are big oils pushing deeper into chemicals by investing in large, state-of-art, well-integrated refinery-petrochemical complexes and the proliferation of ethane as feedstock outside of North America and the Middle East.
Aramco is not only investing in COTC projects; it also recently announced a joint venture with a consortium of three Indian oil companies. The goal: building a giant refinery-petrochemical complex to process 60 million tons of crude oils, which will produce 9 million tons of chemicals per year. The announced investment is $46 billion. Aramco is not alone in this push. Abu Dhabi National Oil Company(ADNOC) just announced plans to invest $45 billion to build a major complex in Abu Dhabi, hoping to become a leading petrochemical player.
COTCs are live now in China and will soon be followed by facilities in Saudi Arabia. Due to the huge scale and volume of chemicals, each COTC can produce, COTC ushers in a new era characterized by unprecedented production scale and a few dominant players. The impacts of this change are imminent and will be profound, including a major shift in the landscape of global competition.
An Article by – Ankur