BAKU, Azerbaijan, Dec.18
By Leman Zeynalova – Trend:
The global petrochemical industry is set to enter a period of overcapacity, relative to base level demand growth expectations, Patrick Kirby, Principal Analyst - EMEARC (Europe, Middle East, Africa, Russia and Caspian) Olefins at Wood Mackenzie research and consulting company said, Trend reports.
This will send operating rates for many base chemicals into a downturn, Kirby believes.
“This has its roots in the previous investment cycle, five to seven years ago. A period of generally rising operating rates and profitability led to top-of-cycle industry conditions. Today, the picture looks different. Ethylene, for example, is heading out of a 2017/2018 peak and we expect the downturn to persist until the middle of the next decade,” said the analyst.
Kirby said petrochemicals has always been a cyclical industry.
“Participants are well accustomed to a certain amount of boom and bust. While the outlook in 2019 has been relatively upbeat there have been challenges to contend with. On the one hand, petrochemicals remains an integral driver of future oil demand through the energy transition, with the fastest-growing share of the oil barrel. Many companies in the energy value chain have looked to increase their exposure as a result.”
On the other, the war on plastic put parts of the industry in the headlines for all the wrong reasons, while more headwinds threatened its stability, he noted.
The analyst pointed out that crude oil prices remained within a fairly tight band of $60-70 per barrel in 2019. “Corresponding global supply-demand balances and prices for petrochemical feedstock were significantly influenced by upstream supply growth in the US and refinery operations, reflecting an increasingly interconnected global energy value chain. And competition between feedstocks grew considerably. For example, the US steam cracking asset base has seen LPG compete with ethane into domestic production facilities. In Europe and Asia, LPG competed with naphtha in regional ethylene plants.”
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