With energy transition shifting from fossil fuels to renewables, electric energy, solar and wind, etc. refinery outputs
are being impacted. As electric mobility gains momentum, the need for fossil fuel-based transportation fuels like
petrol, diesel, aviation fuels etc, which constitute 70 percent of refinery product slate, will reduce significantly. This
will drive direct conversion of crude to petrochemicals. Additionally, even otherwise, driven by increase in downstream conversion of petrochemicals in and use industries, petrochemical demand in India is slated to increase.
All these augurs well for the future of petrochemicals in India.
Introduction
The global petrochemical industry has quite evidently been
strained over the course of 2020 and 2021 due to reasons such as unexpected
disruptions in the global supply chain and decreased demand due to the
pandemic, creating turmoil within the energy markets. Many end industries have
been hit quite hard, for instance, the automotive industry, contributing to the
overall decline in petrochemical demand.
The price of crude oil dropped drastically at the beginning
of the pandemic, which had a new impact on the chemical market. The usual
feedstock cost advantage (cheap shale gas ethane) for the US and the Middle
East has disappeared. As a result, Asian and European manufacturers had an
advantage because cheap naphtha from the crude was available. Players in the United
States and the Middle East experienced margin pressure as a result of having to
compete with cheap chemicals on the international market. This situation serves
as a constant reminder for other regions that they must contend with low-cost
chemicals originating from the US and the Middle East on the market.
Middle East producers will have recovered from this pressure
in 2021 with the easing of COVID restrictions, supply chain constraints, and a
return to normalcy in demand markets. The US has generally been in deficit
throughout the year due to the severe snowstorm and hurricane Ida, which
particularly hit the Gulf coast, which is home to the majority of the nation’s
petrochemical manufacturing.
Hopes for Indian Petrochemicals
India currently consumes about 5 million barrels of oil per
day, growing at a rate of 3% annually compared to the world average of just 1%.
The global unpredictability, the low cost of crude oil, and the Indian
government’s impartial geopolitical stance have all combined to positively
impact the Indian petroleum industry. In the near future, it is anticipated
that the Indian petrochemical industry will experience encouraging growth.
The expansion of the petrochemical industry as a whole
appears more promising in India than it does globally at the moment because of
India’s anticipated faster GDP growth rate compared to its peers. The World
Bank recently revised its forecast for India’s GDP to grow at a rate of 6.9%,
rather than the global average of 3.2%. With its strong domestic demand,
India’s petrochemicals market is poised to thrive despite global challenges.
Since India’s per capita petrochemical consumption is
currently lower than that of developed countries, there is room for demand to
grow more quickly. The sheer size of the Indian population, combined with
rising per capita spending, is expected to have a significant impact on the
Indian petrochemical market.
Impact of Energy Transition
According to the Conference Board in New York, global GDP
growth will be 2.2% in 2023, down from 3.2% in 2022, and regardless of the
downturn, they expect it to pick up pace in 2024 and be more evenly distributed
across regions. Despite all the turbulence and unpredictability in the energy
market brought on by the outside environment, it is predicted that by 2050, the
world’s demand for petrochemicals will have doubled. New capacity addition
projects are also in the works to meet the rising demand. Almost 400
petrochemical projects, ranging in size from large to small, are currently
under construction, with Asia Pacific leading the way, followed by the US and
the Middle East. The majority of these projects, particularly those in Asia,
involve integrating petrochemical capabilities into already-running refineries.
Therefore, we observe refiners preparing to enter the expanding petrochemicals
sector.
Even in the domestic market, there have been a number of
project announcements relating to ways to increase the output of
crude-to-chemicals. For instance, BPCL announced plans to build two new
refinery-integrated petrochemical projects: a 1.2 MMTPA ethylene cracker unit
at Bina Refinery and a 400,000 TPA PP unit at Kochi Refinery, Gautam Adani’s $4
billion investment to build a new petrochemical complex. There are a number of
ongoing projects for the production of both the raw materials and the finished
goods for the polyester textile industry, including IOCL’s PX/PTA project,
Paradip, scheduled for completion in 2024, and the announced 1 MMTPA Polyester
Production Project, scheduled for completion in 2026. 11,800.
With the obvious
shift in the energy transition, the industry can still see an increase in the
demand for gasoline/diesel through 2035, and then we can expect to see a
decline. Additionally, there would be a 2X increase in the number of running vehicles
globally from 900 million in 2022 to 1,800 million in 2035. The petrochemical
output, on the other hand, would be 1.5X. Prices will change significantly
depending on whether a chemical is made domestically in India.
Petrochemical
prices are typically supply-controlled rather than demand-controlled in today’s
globalized economy. The decrease in prices of most petrochemicals is greatly
unusual in India and throughout the world, especially with the change in the
energy transition and the decreasing cost of EVs.
Transition of Indian
Petrochemical Industry
The energy transition is driving the integration of
refineries into chemicals. The change is being driven by the transportation
industry, which is the main consumer of crude oil. There is a huge shift taking
place towards electric mobility, driven by advances in battery technologies.
Therefore, the demand for transportation fuels is going to decrease
progressively, which will drive more of oil and gas conversion into petrochemicals.
The driving forces behind the shift are advancing consumer awareness, changing
government regulations, lesser mileage costs.
The two wheelers that use more
than 65% of the fuel in India are leading the way in this trend. More than 0.6
million two-wheeler electric vehicles were sold in 2022, a staggering increase
of ~290% over 2021 and a penetration rate of more than 5% in the two-wheeler
automotive market. Sales of four-wheelerEVS have grown by 170% year over year,
topping 40,000 units annually, and are projected to reach 1 million by 2030.
This transition isdriving Indian refiners to integrate refineries with
downstream petrochemicals in order to diversify their portfolio into
petrochemicals.
Additionally, India currently consumes nearly 15 kg of polymers
per person, which is less than half of the global average of 31 kg. As consumer
awareness and disposable income increase, it is anticipated that the packaging
market will grow favorably as consumers can now afford a wider variety of FMCG
products, one of the segment’s largest applications. Similar to how rising
affordability will fuel demand for petrochemicals, rising affordability will
fuel demand for a variety of downstream industries, such as paints and
coatings, cosmetics, and building and construction. There have been domestic
investment announcements totaling ~$25 billion USD for various petrochemical
projects that are currently underway or in the pipeline, providing evidence of
the growth that has been predicted.
Refiners and domestic petrochemical
companies have a history of diversifying into downstream chemicals. However,
non-integrated players have recently increased their presence in the
petrochemical derivative. It is anticipated that more non-integrated players
will enter the petrochemical space, particularly for the low scale volume
molecules.
Presently, India is a net importer of many petrochemical products.
Domestic producers are anticipated to make significant investments in
petrochemical complexes in order to decrease their reliance on imports and
conserve forex reserves. Domestic manufacturers are still having difficulty
with the manufacturing and development of engineering plastics. Moving forward,
it is anticipated that the manufacturer may diversify their portfolio by
including low end engineering plastics (PA, PC, etc.) to their offering as
India becomes a hub for manufacturing.
Emerging Refinery Technologies Shifting
Towards Petrochemicals Manufacturing
Refineries are actively working to reduce
their emissions and expand their use of low-carbon solutions. The use of green
hydrogen and carbon capture, utilization, and storage (CCUS) are the best
examples of sustainable solutions. Companies are attempting to increase the
petrochemical output of refineries in the case of COTC (Crude Oil to
Chemicals). It can be done by implementing new process technology and
constructing more straightforward crude to chemical units.
A few key emerging
technologies are listed below:
1. New technology in FCC Cracking Unit: FCC
(Fluid catalytic cracker) is designed to convert vacuum gas oil to gasoline.
FCC gasoline contains naphtha and other aromatic materials which can be
separated as petroleum building blocks; however, the yield is ~10-15%. Thus,
companies are developing new technology to maximize their yields. For instance,
HS-FCC (High Severity Fluid Catalytic Cracking) technology is used to maximize
propylene yields by optimizing catalyst load and other operating parameters.
2.
Direct crude to chemicals conversion Technology: Aramco and SABIC have
partnered for the development of crude-to-chemical technology, targeting
~70-80% of crude oil converted to chemicals. It is difficult to estimate
performance and economics because technology is still in the R&D stage.
However, if the company can successfully scale it at a commercial level, then
it will be the biggest breakthrough for the petrochemical industry.
Global
players are working to create a sustainable solution for the new generation of
crackers, which includes the use of selective catalysts and the development of
electric steam crackers.
1. Electric Steam Cracker: When compared to current
technologies, the cracker has the potential to reduce CO2 by 90% while using
electricity generated from renewable sources. SABIC, BASF, and Linde have
started the construction of a large-scale electrically heated steam cracker
furnace and the reactor is expected to start up by 2023.
2. High-selectivity
catalysts: Petrochemical companies are constantly working to create
highly-selective catalysts that can lower operating temperatures while also resulting
in higher yields. A commercial-scale catalyst with high selectivity and an
operating temperature of less than 400 deg C will be developed in 2021 by
Clariant and Linde. This catalyst will enable lower CO2 emissions than
conventional crackers, which operate at 900 deg C.
The switch from fossil to
bio-based raw materials
As a replacement for fossil-based materials, the
petrochemical industry is actively investigating and funding the development of
bio-based raw materials. This includes using biomass, such as plant matter, as
a source of feedstock for the creation of chemicals and fuels. Biotechnology
and chemical processing are two of many other methods being used to transform
biomass into useful products. As a source of bio-based raw materials, businesses
in the sector are also investigating ways to use waste products, like
agricultural waste.
DuPont produces a range of bio-based plastics and solvents
to achieve its overall sustainability goals. DSM adopts a similar strategy by
creating bio-based plastics, fibers, and chemicals to uphold its commitment to
its overall sustainability initiatives. In its 2021 raw material analysis
report, BASF also noted that more than 700 of its products are currently being
engineered with the aid of bio-based materials. The major players are working
with suppliers who are interested in and knowledgeable about bio-based raw
materials, adding a new pillar to the current value chain, which has been
primarily dependent on fossil fuel-based raw materials.
Companies have been able
to reduce their overall greenhouse gas emissions as a result of this shift and
focus their efforts on achieving their overall sustainability goals.
Conclusion
Due to access to relatively less expensive oil and proximity
to the consumer, at least temporarily, Indian petrochemical industry is
anticipated to have a more promising future. In addition, the government is
encouraging local petrochemical production to reduce the outflow of forex
reserves. Furthermore, based on the crude deal between Russia and India, the
longterm prospects are still uncertain. Globally, the outlook is favorable for
the US and Asia, while Europe may have seen a decline in petrochemical output
as a result of restrictions and rising feedstock prices. As a result, Europe
will experience a higher level of bio penetration than the US and Asia. As new
industries like solar and electric vehicles emerge, the upstream products
(petrol, diesel, kerosene, etc.) that will be diverted to the crude to chemical
businesses will undoubtedly decline. Another sign of the trends is the global
integration of refineries and petrochemical complexes.
