MOSCOW (MRC) -- The global transition toward a lower-carbon future is rapidly changing the energy and feedstocks landscape for chemical and energy companies as they head into 2021. The pandemic caused worldwide crude oil demand to slump 10% in 2020, dramatically accelerating preparations by the refining sector to shift away from fuels toward a petrochemicals-centric future, reported Chemweek.
The world will still consume large amounts of oil for decades, but COVID-19 “reset world oil demand at a lower level,” says Jim Burkhard, vice president/crude oil markets at IHS Markit. Forecast global crude oil demand is now 3.5-4.0 million b/d less in the late 2020s compared with the pre-COVID outlook. “In our base case, world oil demand reaches a plateau in the mid-2030s. However, we do not rule out the possibility that 2019 was the peak in world oil demand, particularly if COVID-19 is not contained,” Burkhard said, speaking at the World Methanol Conference, held recently by IHS Markit in a virtual format. Last year may be remembered “as a pivot point when the energy transition moves from decades of slow motion to a faster pace of change,” he said.
The ongoing shift toward increased demand for oil as a petchems feedstock is forecast to gain momentum in 2021 on the back of recent capacity additions in China and the US, according to the latest oil market report by The Organization of the Petroleum Exporting Countries (OPEC; Vienna, Austria). Petchems feedstock and industrial fuels will gather pace as economic activity recovers, with “all products estimated to grow year on year following the steep impairment in 2020,” it says. Global oil demand will reach a projected 95.89 million b/d in 2021, it adds. OPEC projects that global oil demand declined by 9.77 million b/d in 2020 to 89.99 million b/d.
Total oil demand in China grew for five consecutive months to above 13 million b/d in October 2020, with “a strong performance in petrochemical feedstocks, with both liquefied petroleum gas (LPG) and naphtha outperforming other products,” it says. Naphtha demand in China grew by 290,000 b/d year-on-year (YOY) in October and LPG demand is also on a rising trend, growing by 600,000 b/d YOY, it says. Increased runs in propane dehydrogenation (PDH) plants due to steady demand for plastics supported LPG consumption. “Petrochemical feedstock, especially LPG, is expected to perform better than other fuels and will be a key driver for China’s oil demand growth in 2021,” it adds.
Oil demand growth in the Americas is projected to be well supported in 2021, led by “a healthy petrochemicals sector, with ethane-cracking capacity in the US estimated to provide solid support for demand growth,” OPEC says.
Worldwide base chemicals production is forecast to grow by 4.2% in 2021 after a decrease of 1.2% in 2020, according to ACC. Bulk petrochemicals and organics output, meanwhile, will rise an estimated 4.0% worldwide this year, following a decline of 2.4% last year, it says.
Total worldwide base chemicals demand is currently about 650 million metric tons/year (MMt/y), according to Dewey Johnson, global vice president/chemicals at IHS Markit. Demand plunged about 10 MMt in 2020 for the six major value chains of ethylene, propylene, methanol, chlorine, benzene, and para-xylene (p-xylene), which together represent about 80% of the total, but is expected to “recover significantly” starting in 2021, he says. Ethylene demand is expected to return to its pre-COVID growth of about 6 MMt/y in 2022.
The typical capacity-induced downcycle that the sector was already experiencing was exacerbated by the recession in 2020, Johnson said at IHS Markit’s recent Global Chlor-Alkali & Vinyls online event. Additional capacity will continue to enter the industry, and global chemical earnings by value chain are facing “a sharp decline in profitability for 2–3 years, with recovery by 2023–24,” he said. Chemicals demand growth will continue to be at GDP rate or above, however. “There will be a strong chemical upcycle expected in 2025–26,” Johnson said.
An acceleration in refinery rationalization has been seen around the world as a result of COVID-19 and this could impact feedstocks, says Duncan Clark, vice president/aromatics and fibers at IHS Markit. More than 3.0 million b/d of refining capacity is earmarked for closure in Asia, Europe, and North America, with more expected, he said at IHS Markit’s base chemicals forum in December.
“This should be of concern to aromatics producers, who potentially may face some shortages or the closure of their refinery and consequently a lack of feedstock, even from a virtual refinery linkage. Integrated refineries, aromatics, and petchem complexes have tended to perform better than the standalone refineries, but clearly this is going to be a risk going forwards,” Clark said.
As MRC informed earlier, Russia's output of chemical products rose in November 2020 by 9.5% year on year. At the same time, production of basic chemicals increased in the first eleven months of 2020 by 6.6% year on year, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-November 2020 output. November production of polymers in primary form in Russia rose to 896,000 tonnes from 852,000 tonnes in October. Overall output of polymers in primary form totalled 9,240,000 tonnes over the stated period, up by 17.1% year on year.
According to MRC's ScanPlast report, Russia's estimated polyethylene (PE) consumption totalled 1,990,280 tonnes in the first eleven months of 2020, up by 1% year on year. Only high density polyethylene (HDPE) shipments increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 090,900 tonnes in the first eleven months of 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.