Why the Future of oil is in Chemicals, not Fuels?
Monday, 25 February, 2019
In brief: Saudi Arabia reaffirmed its interest in the Chinese market with a deal to build a $10 billion refining and petrochemicals complex as it vies for crude-oil customers with fellow OPEC members and Russia.
In recent weeks, Saudi Arabia reaffirmed its interest in the Chinese market with a deal to build a $10 billion refining and petrochemicals complex as it vies for crude-oil customers with fellow OPEC members and Russia.
Saudi Arabian Oil Co agreed to set up a joint venture with two Chinese companies to develop the facility in Liaoning province, according to a statement Friday. Saudi Arabia is investing in energy assets across Asia, the world’s biggest oil-consuming region, as it battles for market share.
The kingdom will supply as much as 70 percent of the crude needed by the new complex, which will include a 300,000-barrel-a-day refinery, an ethylene cracker and a paraxylene unit, the statement shows. The deal, signed while Crown Prince Mohammed bin Salman is in Beijing, follows recent Saudi pledges to fund projects in India and Pakistan, as well as agreements to invest in South Korea’s Hyundai Oilbank Co. and a petrochemical complex in Malaysia.
Saudi Arabia’s interest in India is part of its strategy to increase its share in Asia’s crude oil market and invest more in refining and petrochemicals to reduce its economy’s dependence on crude oil sales. In line with this strategy, Aramco, which aspired for a market valuation of $2 trillion when it was contemplating an IPO, has invested billions of dollars in refining and petrochemicals projects in South Korea, a major energy consumer.
It has also invested $7 billion in a joint venture with Malaysia’s Petronas for a refinery that will buy at least half of its crude oil requirement from Saudi Arabia. Analysts said Aramco has similar plans for India, one of the world’s top energy consumers.
The slew of Asian partnerships formed by state-run Aramco comes as Saudi Arabia plays catch-up with Russia, which has topped the kingdom in oil sales to China in the past couple of years.
Saudi Aramco, the world’s most profitable company, is in talks with Indian refining giant Reliance Industries and other companies for investing in refineries and petrochemical projects in the country.
Why the future of oil is in chemicals, not fuels?
With gasoline consumption expected to wane, crude-to-chemicals complexes could dominate the petrochemical industry by the 2020s.
In Yanbu, a massive industrial town on Saudi Arabia’s Red Sea coast, two Saudi state-owned firms—the oil company Saudi Aramco and the petrochemical maker Sabic—are planning a new complex that could prove to be a bellwether for the next decade in petrochemicals.
By 2025, the partners expect to have a facility that will make petrochemicals—9 million metric tons (t) of them—directly from 400,000 barrels (bbl) per day of Arabian light crude oil. Whereas most refineries convert just 5–20% of incoming oil into petrochemicals, some 45% of the output of the Yanbu facility will be chemicals, including olefins, aromatics, glycols, and polymers.
The partners are hardly alone in diverting their refinery product slates away from gasoline, diesel, and other fuels and toward petrochemicals. ExxonMobil has practiced direct crude cracking technology in Singapore since 2014 and may build another such unit in China. Several facilities under construction in China will transform 40% of their oil into p-xylene and other petrochemicals. Aramco itself is considering another chemical-laden refining project in India.
Over the next decade, oil may be the next big thing in petrochemicals. This is a change from the 2010s, when billions of dollars flowed into the US to build crackers and downstream petrochemical plants to process low-cost ethane from shale gas into ethylene and its derivatives.
According to BP’s 2018 Energy Outlook, the share of the average oil barrel dedicated to transportation fuel will peak at 58% in 2025 and begin to decline. Oil consumed by industry, buildings, and power will also slump. Chemicals, however, will continue to grow, from 16% of oil demand in 2020 to 20% by 2040.
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