Top of the agenda at the World Petrochemical Conference were energy abatement and plastics circularity

Top of the agenda at the World Petrochemical Conference were energy abatement and plastics circularity
At the World Petrochemical Conference 2023, held in Houston last month, Larry Tan, a consultant with S&P Global Commodity Insights, delivered a presentation about the propylene market. Producers are building too much capacity, Tan said—some 11 propane dehydrogenation projects were opening in a single year—and profitability would be meager in 2023.

But prospects should start turning around in 2024, Tan predicted. “All this is conditioned on there being no black swan event,” he said, using the term for an unexpected scenario that upends expectations. “We have seen over the past couple of years—let’s call it what it is: we have been under attack by a squadron of swans.” Tan’s talk, in a session toward the end of the conference, wasn’t meant to be a keynote address, but it did nail down one of the event’s main themes: the chemical industry, like the broader economy, has been beleaguered by obstacles and setbacks. Another theme was the industry’s aim to turn one of those obstacles, the public’s demand for better environmental performance, into a robust business.

Among recent obstacles and setbacks, the COVID-19 pandemic locked down the globe in 2020. A rebound in 2021 precipitated a shipping crisis that clogged the flow of goods. Countries posted their highest inflation rates in decades.

Then, just over a year ago, Russia’s invasion of Ukraine drove up oil and gas prices, shutting down about a quarter of Europe’s chemical capacity. And in recent weeks, the US government had to head off a financial meltdown by bailing out Silicon Valley Bank and other shaky financial institutions.

Coming out of this difficult period, the chemical industry is planning for the long term. Executives from some regions, notably Europe and Japan, fretted about competitiveness. But the biggest theme was sustainability. Reducing carbon dioxide emissions and plastic waste was the subject of most of the talks from consultants and company executives.

BASF, the world’s largest chemical maker, was hit directly by the run-up in gas prices. Its flagship site in Ludwigshafen, Germany, uses as much natural gas as all of Switzerland. At the conference, the firm’s chairman, Martin Brudermüller, said economic recovery as the pandemic eased helped set financial records for the company in the first half of 2022, while the subsequent energy price spike and demand slowdown made the fourth quarter its worst quarter since 2008. BASF managed to reduce its gas consumption by 30%—largely by idling plants.

Brudermüller is concerned about Europe’s future in chemicals. Even though natural gas prices have retreated from the peaks seen last year, they are still six times as high as they are in the US. This makes it impossible for European firms to compete in gas-guzzling sectors like ammonia.

“It will have structural effects. Some energy-intensive production, not only in the chemical industry but other industries, will go down in Europe and will not be replaced,” Brudermüller said. “So Europe has to think about what are the future industries and what we put our bets on in terms of building new industries.”

Jean-Marc Gilson, CEO of Mitsubishi Chemical Group, shared similar concerns about Japan. He said his company’s specialty chemical units, which sell into markets like food and electronics, have struggled recently but will “bounce back.” The same can’t be said for the firm’s petrochemical business. “Energy prices combined with the weaker yen is really hammering the industry,” Gilson said.

In 2021, Mitsubishi announced that it was exiting petrochemicals. The US and Middle East, with their petroleum wealth, will increasingly have an advantage. But Gilson said that the situation will get “tougher and tougher” for petrochemical makers in Japan—a nation that, like Europe, has limited access to hydrocarbons. “It’s forcing consolidation in Japan because four or five players can’t survive there,” he added.

Carbon emission considerations are indeed adding cost and complexity to chemical projects, said Mark Eramo, senior vice president for fuels, chemicals, and resource solutions at S&P Global Commodity Insights. When planning new projects, chemical companies have always had to consider variables such as access to energy and feedstocks, proximity to markets, and production technology. Executives must now consider “the carbon management strategies that need to be put in place,” Eramo said.

The industry is starting to come to terms with the price of carbon management. Eramo presented a case study of an integrated refinery and petrochemical complex that S&P modeled in the Middle East. A 16% increase in capital expenditures would be needed to achieve a 34% decrease in carbon emissions. The additional costs would reduce pretax profits from the complex by 39%. To offset this decline, the developer would require tax incentives or a “low-carbon” premium of about 9% on products made at the complex.

Dow CEO Jim Fitterling profiled a couple of his favored methods for reducing CO2 emissions. One is carbon capture and storage (CCS). In Alberta, Dow is building the world’s first ethylene cracker to employ CCS to reach net-zero emissions. The recently passed Inflation Reduction Act and its incentives for CCS will create a wave of similar projects in the US, Fitterling predicted.

“The progress that we’ll make in the next decade, 2 decades, on hydrogen and carbon capture will be enormous in reducing CO2 emissions,” he said.
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