Plastic industry in focus as it faces backlash that threatens chemical makers
IHS Markit held its 34th Annual World Petrochemical Conference on 19-22 March 2019 in San Antonio, Texas, USA. The chemical industry is heading for a slowdown as society turns against disposable plastics and the rise of recycling weakens demand, IHS Markit predicted at the Conference. After climbing to multi-year highs, chemical earnings will drop this year and won't recover until 2023 as environmental issues add to the drag from a downturn in the global economy, according to the global research firm.
Speaking in one of the sessions in the conference Jim Fitterling, chief executive officer of Dow Inc. and chief operating officer at DowDuPont, said that “Plastic waste I believe is going to be the sustainability issue of our time. It represents not only the biggest risk to our industry, but also one of the biggest opportunities.”
“Modern society is what it is today because of the miracle of plastics, we cannot forget that, but we also cannot forget or ignore that plastic waste is a global crisis that needs our attention,” he further said. The chemical industry is best positioned to combat plastic waste by developing new products and innovative ways to recycle, Fitterling said. Product bans are “a slippery slope” that do more harm than good, because plastics bring environmental benefits such as making vehicles lighter and keeping foods fresh longer, he said.
“If we can do chemical recycling back to feedstocks and back to plastics versus the alternatives — another oil and gas well — that opens up a whole range of impacts on climate possibilities that people haven't thought about,” Fitterling said.
The issue of plastic waste took center stage at IHS World Petrochemical Markit's conference as executives of companies that produce the chemicals that go into plastics called on their industry to innovate and develop new technologies to promote recycling and curb pollution.
Although the topic of plastic waste has already been on the minds of the petrochemical industry, this is the first time the issue dominated the panels and speeches at the annual conference, which draws thousands of petrochemical professionals every year.
The European Union is leading a global movement to phase out single-use plastics and bolster recycling as society responds to an ocean pollution crisis that threatens the industry's “license to operate,” Victor Bell, president of Environmental Packaging International, said in a presentation. At worst, the backlash against plastic could potentially cut the growth in demand for new resin by half, although it probably won't be that severe because of limits in recycling capacity, according to IHS. Shaped by photographs of garbage-strewn beaches and reports of a vast Pacific garbage patch, public attitudes toward plastics are increasingly skeptical, and it will take more than education to reverse the trend, says Bob Patel, CEO of LyondellBasell.
Speaking at Conference, he warned that the problem of plastics waste is growing, and that it will require innovative solutions developed cooperatively across the value chain.
“Typically, as an industry we would say let's do more to explain why plastics are so good for society,” Patel told attendees. “But I think the time has now come to address the issue head on, rather than to be advocates for why plastics are great, because the perception is moving very, very rapidly.”
To illustrate, Patel noted that the number of Google searches for “marine litter” has increased by 204% since 2013, while the number of searches for “plastics pollution” has increased by 608%. He also cited recent polls finding that 86% of US and UK citizens are concerned about plastics waste in marine environments, and worse, 53% of US citizens and 68% of UK citizens believe it is necessary to eliminate the use of plastics in modern life.
“Make no mistake, this is a very relevant and prevalent topic,” Patel said. “Our children are being taught in schools that plastics are bad. If we don't do something about this waste issue, then perhaps those teachers are right—but we will do something.” LyondellBasell has, for example, partnered with the Karlsruhe Institute of Technology in Germany to develop a chemical recycling process to transform plastic waste into feedstock. The company has also partnered with SUEZ to start a recycling company in the Netherlands, Quality Circular Polymers. “My point is that we're going to have to move on multiple fronts,” said Patel. “It's not just about mechanical recycling or just about physical recycling. We're going to have to do several different things in parallel.” Executives from LyondellBasell, Dow Chemical, Clariant Corp. and others touted a new industry wide effort launched earlier this year called the Alliance to End Plastic Waste. The nonprofit has about 35 members, but Fitterling said he could see expanding to 300 members. The Alliance has committed more than $1 billion over the next five years toward attacking plastic pollution from a variety of angles — from waste cleanup to investing in technological advances in recycling. Some environmentalists have criticized the Alliance as an ad-hoc measure that won't address the root of plastic waste. But Bob Patel defended the Alliance's multipronged approach, one that involves chemical companies as well as companies that use plastics to make consumer goods, such as Procter & Gamble. He encouraged the industry to continue to take a pragmatic approach to problem. “I think for us as chemical companies, we can't immediately get into the mode of defending our turf. If certain single-use applications should no longer be in plastics, then let it be what it is,” Patel said. “We have to keep the bigger picture in mind and not worry about individual applications that may be 1 or 2 percent of the entire market. I think a healthy dose of pragmatism and thinking about the big picture will be very important for us.” Leaders also called on companies to start investing more in technologies around chemical recycling, which is different than traditional mechanical recycling that grinds down plastic bottles into materials for reuse. Chemical recycling involves processes to turn previously unrecyclable plastics into feedstocks and fuels to be used again in the production of clothes, bottles and everyday products. On the supply side, New plants, primarily in China, will oversupply chemical markets and depress margins, said Dave Witte, IHS senior vice president. Earnings are likely to plateau at a level below last year's, he said. Industry demand growth will slow to about 4 percent a year, from 4.4 percent, partly because recycled plastics are replacing virgin resins. “Polyethylene, used in shopping sacks and packaging, faces a global oversupply in the near term, while an oversupply of ethylene, a precursor to polyethylene, will come early next decade, Witte said. U.S. plastics makers also will face pressure from natural gas liquids such as ethane, a key raw material, he said. The outlook is relatively better for polypropylene, used in bottle caps and carpets.
Variable outlook in emerging markets
The rise in global uncertainty is being keenly felt in emerging markets, according to an executive panel discussion at the t World Petrochemical Conference. Economic growth is decelerating in China, although the government is enacting stimulus measures to maintain current growth levels. Latin America is facing both economic and political challenges, and a supply/demand imbalance could emerge in India. The threat of trade war between the United States and China hangs over it all. In terms of raw GDP growth, China and India—especially the latter—are expected to see solid figures. According to IHS Markit, GDP growth is expected to total 6.3% and 6.0% in China for 2019 and 2020, respectively. In India, GDP growth is forecast to be 7.1% and 7.0%, respectively. This is despite a manufacturing recession in China, as IHS Markit's purchasing managers' index (PMI) for mainland China has slipped below 50 for the first time since 2016. Emerging markets overall will continue to grow, but at slower rates. Average GDP growth in emerging markets totaled 4.8% in 2018, and is expected to decline to 4.6% this year, according to IHS Markit. Growth in Brazil and Russia is expected to remain below 2%, although growth in Brazil is expected to pick up after an exceptionally weak period.
China still key
China remains a critical market, and a critical source of growth, for chemical manufacturers. The country is expected to see ethylene demand exceed 5 million metric tons by 2020, up from about 3.5 million metric tons in 2015, according to Bi Chen, executive v.p. with China National Offshore Oil Corporation (CNOOC; Beijing). Chinese demand can “help sustain the upcycle” in petrochemicals, Chen says. Yet, the industry in China is changing. “There is a structural imbalance in supply and demand of China's petrochemical products,” Chen says. “Overcapacity of general products and insufficient capacity of general products exist at the same time.” For many products, China produces 10% or less of domestic demand, with particularly large gaps in downstream polyolefins and engineering plastics. China's government has urged a public strategy to correct these imbalances, aiming to push the country's chemical industry downstream into intermediates and specialties. Given China's reliance on petrochemical imports, the trade war with the United States is a threat. The United States is a major exporter of most petrochemical products, and China is among the largest importers, Chen notes. “China and the US have a clear division of labor and rely heavily on each other [in chemicals production],” he says. “They are complementary…cooperation means more than competition.”
While China shifts downstream and considers challenges in trade policy, India looks set to become a bigger growth engine. The country will be the world's most populous by 2025, says Ajit Kumar, chief general manager/petrochemicals marketing with Indian Oil Corporation (Mumbai). This plus rising living standards means big increases in petrochemicals consumption. By 2040, Indian petrochemicals consumption is expected to total 104 million metric tons, compared with 26 million metric tons today, according to Kumar. About 60 million metric tons of that will need to be imported, he adds. India's growth is driven by demographics, including population growth and the rising middle glass, Kumar says. “Trade issues and the manufacturing recession are not impacting the Indian economy.”
Industry's small steps toward sustainability as a business strategy
Sustainability as part of a company's business strategy is a highly complex issue, but the chemical industry is beginning to take tangible early steps toward eventual implementation of a circular economy. A panel discussion at the World Petrochemical Conference highlighted several initiatives that illustrated how the industry is responding to the heightened global awareness of the issue of plastic waste.
The industry's various initiatives came none too soon, says Tim Stedman, senior vice president/business president at Trinseo. “This one got away from us big time. We are playing catch-up as an industry, not only in terms of technology but also in the way of communicating and how to address this issue. Because it came at us in a way that I don't think we were ready for,” he says. Stedman continues: “On the positive side, this industry is incredibly creative and has immense capability to solve problems. The reality is that all these announcements by various brand owners and governments are being made, but they don't know how to solve them. It's very complicated.” He adds that a golden opportunity remains to catch up and “actually demonstrate the real value the industry brings and that our products can bring.” One such example is the chemical recycling of polystyrene back to styrene, a value chain that Trinseo is predominantly in. He shared with the audience news that Trinseo's joint venture (JV) Americas Styrenics has closed the loop with its partner Agilyx and taken its first commercial truckload of styrene monomer from recycled polystyrene to route back through its styrene unit in Louisiana to produce food-grade polystyrene. “It's small-scale today, a first step that's proof of concept, but it's commercial quantities that are going through. This is really exciting, to say that as an industry and as companies we are taking steps and moving in the right direction.” Agilyx and AmSty signed a letter of intent to form a JV in November last year and agreed an offtake deal to process recycled styrene monomer produced at Agilyx's Tigard, Oregon, facility in Americas Styrenics' St. James, Louisiana, styrene plant. Another panelist, Edison Terra, executive vice president/polyolefins South America/Europe and renewables at Braskem, highlighted his company's approach. “Our vision of sustainability for plastics is circularity. The circular economy is not about tying different linear chains together, it's really about redesigning the whole chain to make it circular, and with the aim of doing that collectively.” There are some initiatives that companies can do by themselves, he adds, giving as an example a project by Braskem to produce recycled resin “that preserves the mechanical properties as if it was a virgin product. This is a very disruptive initiative that we are developing and partnering with a few customers that we have.” The company's Wecycle platform has delivered promising results to create a recycled resin with higher quality and a high percentage of recycled materials derived from household post-consumer thermoformed packaging made from polyethylene. Its main characteristics include resistance to stress cracking like that of virgin resins and tensile stress mechanical properties that are 70% higher than recycled resins currently being used in the market. Terra adds: “What we try to use as a strategy is that every time we tackle one specific solution, we try to make it in a way that we can scale it very rapidly and replicate it in other places. We are taking care of the liabilities that we have today but at the same time we work to not generate new situations. Every time we are developing a new product or application, we must figure out and think about the whole life cycle of that product, and how we are going to introduce it to the economy after the life cycle is over.” Nina Butler, CEO of MORE Recycling, points out that plastics collection in many parts of the world is in decline because of the poor economics. “In the US we may have roughly a billion pounds of stranded material that was collected that doesn't have the demand pull-through, or the capacity to process it domestically that we had in previous years because we were able to send that material offshore.” Despite this, she says she “believes fundamentally that the petrochemical industry can unlock this plastic paradox, this challenge of plastic waste versus greenhouse gas emissions.” Dewey Johnson, vice president/base chemicals and plastics at IHS Markit, highlighted the improving speed in terms of the length of time it can take to bring new technology “from the bench to the market.” Energy renewables are a good example, he says. “Only two or three years ago renewables were on the edge of the conversation. This year renewables are a very significant part of the energy portfolio as the energy industry looks at decarbonization of its portfolio. It's a great example of how, when you have focus and investment, things happen very quickly,” says Johnson.
Crude-to-chemicals integrated complexes in the spotlight
The emergence of world-scale crude-oil-to-chemicals (COTC) and integrated refinery and petrochemical complexes will have a profoundly disruptive impact upon the chemicals market, which will only be able to deal with a handful of these projects. “We believe that the market can only absorb some of these projects, so it will have to think about how many of these complexes it can bear, and it may end up overbuilding capacity,” says Sanjay Sharma, Vice President/Middle East and India for Chemical Consulting at IHS Markit. Speaking in the Feedstocks & Refining Integration track of the Conference, Sharma adds country strategies are also driving some of these investments. “There is a risk in that. They may end up accepting a lower return on their capital because that is driven by their national strategy. For them, what is important is placing crude, it's not about maximizing their returns from chemical investments. They may end up accepting burning their capital on the chemical business because for them it's the placement of crude that's more important. That's their national strategy and that's the concern for the chemical industry.” Sharma went on to outline how chemical companies that have access to the required technologies and markets “are in a strong position in this moment because oil companies and refiners will need those companies to take their products to the market and have access to their technology. We feel that, for the chemical players with strong technology and access to the market, this is an opportunity for them to align with those refiners and oil companies.” Some of the largest integrated COTC complexes are aiming for yields of anywhere between 40-80% of chemicals, he says, while their deep integration will also give them flexibility and product diversification advantages. “For refiners, the ability to switch between products is critical as demand for transportation fuel decreases going forward. Flexibility is key,” he says. Locations such as India, China and SE Asia are natural preferred destinations for these type of complexes, he adds, as large multinational companies and national oil companies look to operate in growing markets with low capital costs. He highlighted several examples of the current crop of mega-facilities being built, including the Hengli refinery and para-xylene complex, which is aiming to convert more than 40% of its 400,000 b/d crude throughput into chemicals. It is due to start operations this year. “It's a very high level of integration, even at 40%, you're talking about 8 million tons/year of product coming out of one project, which is going to have its impact upon the market,” says Sharma. Another is the Saudi Aramco/SABIC joint venture, planning a 400,000 b/d COTC complex, which Sharma says aims to convert 40-50% of its throughput into chemicals. It is planned to start operations in Yanbu, Saudi Arabia by 2025, producing up to 9 million metric tons/year of chemicals and base oils. “The previous project, Hengli, is focused more on aromatics. We think this project, because of the location of this project, will be more focused on olefins.” The next level of integration, says Sharma, is represented by the recent agreement between Aramco, Chevron Lummus Global and CB&I which is targeting a project with a 70-80% conversion rate to chemicals. “If they are successful, it will definitely disrupt the market,” he says. Some of the refineries of the future will have zero fuels production, according to another speaker, Honeywell UOP's Keith Couch, senior director/sales support and integrated product solutions. “Petrochemicals integration was a dream long ago. It's becoming the standard upon which all integrated industrial mega-complexes are being built. We do see a future where some refineries produce only petrochemicals. The opportunity to do so has been determined by fundamental economics,” he says. He adds that he doesn't see a fundamentally balanced future in terms of olefins and aromatics. “We didn't see a balanced past, and I think the past is going to be the same as the future. About 75% of chemicals is olefins-driven, and 25% is aromatics-driven, that's been the same for about the past 15-20 years. Fundamental economics will continue to show that same ratio to be true.”
YPF sees Argentina petrochemical production hub within next decade
Argentina has the potential to create a petrochemical cluster within the next decade, says Federico Veller, chemicals executive manager at YPF (Buenos Aires), Argentina's state-owned energy company. YPF hopes to develop the Vaca Muerta formation shale gas and natural gas liquids (NGLs) potential into significant petrochemical investment to serve South American markets. Veller told attendees at the Latin American Petrochemical Summit part of WPC that YPF was studying world-scale investment in ethylene, propane dehydrogenation (PDH), methanol and derivatives, including polyethylene (PE) and polypropylene (PP). The company is also evaluating expansion of urea. “We strongly believe that in the timeframe of the next five to ten years that a petrochemical cluster could be developed in Argentina,” Veller says. Partners are being sought, he says. “The opportunities are so big that it would be impossible to be developed by only one player,” Veller says. “We need the effort of several companies.” YPF hopes to help “catalyze this investment,” he adds. South America today has a significant petrochemical supply deficit. In 2018, the region imported 7 million metric tons/year (MMt/y) of urea, 1.1 MMt/y of PE, 800,000 metric tons/year of methanol, and 300,000 metric tons/year of PP, Veller says. New petrochemical production would largely serve regional demand needs although there is potential for global exports of methanol, he adds. YPF is evaluating Argentina's first large-scale liquified natural gas (LNG) export facility to capitalize on the expected surge in shale gas production from Vaca Muerta. That investment is needed to support the upstream, midstream and infrastructure development needed to ensure petrochemical feedstock supply.
WPC Study finds PDH/PP advantaged in shale crescent
The feedstock and delivery advantages available to petrochemical projects in the shale crescent region of Ohio, West Virginia, and Pennsylvania extend beyond the ethylene chain, according to “Estimated Logistics Benefits of the Shale Crescent USA Region Versus the US Gulf Coast for Natural Gas and LPG,” a new study released at the Conference. Commissioned by Shale Crescent USA and conducted by IHS Markit, the study evaluates chemical industry development opportunities in the region based on the predicted volume and cost of natural gas (methane) and liquefied petroleum gas (LPG; propane and normal-butane) production in the Marcellus and Utica shale plays; the logistics-related cost advantage of feedstock supply; and the cost to distribute the chemical products to regional customers. The Gulf Coast has long been the hub of US petrochemical production, but the shale crescent region—with its abundant natural gas and natural gas liquids (NGL) supply, access to water for transportation and processing, and proximity to the vast majority of North America's thermoplastics consumers—can make a strong case for becoming a second hub. A related study last year found that the shale crescent offered compelling advantages over the US Gulf Coast for a world-scale, ethane-based ethylene and polyethylene plant. The new study finds that the advantages associated with natural gas and LPG are not as great, but they are significant, including feedstock costs 15% lower in the case of methane, 6% lower in the case of propane, and 13% lower in the case of butane; and delivery costs lower by 26% for methanol, 12% for integrated ammonia/urea, and 11% for integrated propane dehydrogenation/polypropylene (PDH/PP). “While both methanol and ammonia/urea production from natural gas are economically advantaged in the region due to the low feedstock costs, the most advantaged LPG derivative is an integrated propylene [via propane dehydrogenation] to polypropylene project in the shale crescent region,” says Anthony Palmer, vice president, chemical consulting at IHS Markit. “Access to ample supplies of locally produced propane leads to a competitive manufacturing cost for propylene, and subsequently polypropylene, which is augmented by the region's close proximity to over three-quarters of the US polypropylene end-use market.” IHS Markit forecasts that the shale crescent region will supply 45% of US natural gas production by 2040, up from 29% in 2018, and 19% of US NGL production in 2040, up from 14% in 2018.
Peak refined fuels demand drives increased refinery integration
Spurred by trends in mobility and process technology, oil refiners are considering whether to shift their growth investment into the petrochemical sector, but rapid changes in public attitudes toward the sustainability of plastics complicate assessments of market risk, says Mark Eramo, vice president/global business development, energy and chemicals at IHS Markit. Eramo, speaking at the Conference.
Refiners have historically regarded energy as their primary business, and petrochemical production as a secondary and even minor activity. However, demand for petroleum products is slowing toward a plateau mainly because of increased fuel efficiency, while demand for petrochemicals is forecast to continue growing at rates above GDP, says Eramo.
Refiners' options for deepening their participation in petrochemicals range from increased feedstock supply to direct investment in production, or integration. The integration of petrochemical and refining has evolved over the decades, notes Eramo, with petrochemical production accounting for a greater and greater share of the crude oil converted at the facility. Before the 1990s, he says, integration amounted to the simple recovery of aromatics and FCC olefins, products that accounted for less than 15% of the oil converted. During the 1990s and 2000s, refiners forward integrated, incorporating steam crackers and commodity derivative units that consumed 15–25% of each oil barrel.
The 2010s have been a period of "chemical emphasis," with refiners increasing the scale of integration, the complexity of derivatives production, and the share of oil converted to 25–40%. The next step in the evolution of refinery integration will be crude oil–to–chemicals (COTC). "This is a new technology being developed, that says you can go as deep into the barrel as 80%—which completely turns the equation around from the 1980s and 90s," says Eramo. "Now you are building for chemicals, not fuels." COTC is essentially petrochemical production at the scale of oil refining, with capacities three to four times greater than today's largest plants, requiring significantly higher capital investment. "To me, the most important message here is, if this does happen, and we do see these assets being built, chemical producers will have to adjust the build cycle to the new supply increments," says Eramo. However, the economic case for a COTC facility could change if the demand outlook is affected by the rising outcry over plastics waste. Eramo points to several media events over the past year that seem to have contributed to the negative turn in public opinion, including the BBC's Blue Planet II documentary, which drew attention to the problem of marine plastics waste, and a statement by the Royal Statistical Society that 90.5% of all plastics waste produced has never been recycled. In November, The Collins Dictionary highlighted the issue by naming "single-use" its word of the year, noting that its use had quadrupled since 2013. "The good news is, governments, associations, companies, and people at the grassroots level are responding. They want to help, to get engaged," says Eramo. "Now let's get more tactical and look at products and applications. What is the potential for post-consumer recycled content in that application, or the potential for deselection or displacement?" To answer these questions, IHS Markit has conducted end-use application analysis quantifying the potential impact on the polyethylene (PE), polypropylene (PP), polyvinyl chloride (PVC), polystyrene (PS), and polyethylene terephthalate (PET) resin markets. Among the findings are that PE and PP hold 90% of the related volume risk. "The plastics waste issue threatens petrochemical demand growth compared to historical trendline assumptions," says Eramo. However, there is both an upside and a downside, he notes. The downside risk is that large amounts of prime resin demand is lost to displacement and increased recycle content in existing applications. The upside risk is new applications and markets for post-consumer recycled plastic and increased penetration into new markets and application for prime resins. It is important to distinguish between "signposts" like the plastics waste issue and transient events when forecasting, says Eramo. "Listen and watch for signposts, [which show] the potential for a fundamental shift in demand growth."
ExxonMobil outlines Guangdong petrochemical complex derivative plans
ExxonMobil's proposed complex in Guangdong Province, China, based on a 1.2-million metric tons/year (MMt/y) ethylene flexible feed steam cracker, will include more than 2 million metric tons of polyolefins, according to company officials.
The complex would produce 1.2 MMt/y of polyethylene (PE) and 860,000 metric tons/year of polypropylene (PP), Jennifer Chan, vice president/major growth ventures at ExxonMobil Chemical Company, told attendees at the China Forum on the final day of the Conference. The plant will use ExxonMobil's direct crude steam cracking technology and generate around $4.4 billion in sales annually, according to the company. The project will generate annual earnings of $700 million/year based on 2017 feedstock and margin economics, according to a recent investor presentation. “The facility would support China's national petrochemical development priorities and closely aligns with the development plans from the Guangdong area,” Chan says. ExxonMobil wants to build the world-scale petrochemical complex in the Huizhou Dayawan Petrochemical Industrial Park at Huizhou in Guangdong Province. Start-up is currently planned for 2023, subject to approvals. Fernando Vallina, Chairman, ExxonMobil China Investment Company, said in a video played during Chan's presentation: “This plant is going to be focused on Chinese consumption, a plant in China for Chinese consumers.” He added that ExxonMobil's direct crude steam cracking technology would “provide cost advantages over naphtha feedstock, the industry standard in Asia.” China imported 2 million metric tons (MMt) of ethylene and 13 MMt of PE in 2017, according to IHS Markit data. It is scheduled to add 13-14 MMt/y of ethylene capacity between 2018-21.