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Top 5 Challenges Petrochemical Industry Will Face in 2021

Top 5 Challenges Petrochemical Industry

Chemicals | Jun, 2021

The petrochemicals industry is both focused and competitive, with substantial technological developments, capex costs and operations worldwide. The products manufactured in the petrochemical industry are used in numerous applications, including packaging, household goods, medical equipment, textiles, paints and construction material, among others. Notably, the industry continues to innovate through novel technology and the ability to process various raw materials, thereby reporting profits. However, despite these profits reported over the past decade, the petrochemicals industry is witnessing substantial transition, with some of the factors that pushed the upward swing, either blurring or changing course. Markedly, the industry is poised to witness few major challenges which are anticipated to coerce the industry to change how they work in 2021.

•             Limited Advantaged Feedstock

The production of petrochemicals and the derivatives has been based on conventional feedstocks in the petrochemical industry. So far, both North America and Middle East (ME) have been the main sources of these feedstocks in the industry, however, the potential for investments based on these conventional feedstocks will be limited within the next five years. For instance, the conventional feedstock in North America is anticipated to decline in the next 10 years as the export prospects increase the demand for ethane, among others. Markedly, there are possible novel sources of advantage gas supply globally as well as the possibility of initiation of shale-gas production in countries such as Argentina. Though, the number of opportunities as well as their entry to markets may be significantly modest as compared to what has been delivered by both ME and North America in the recent past.

•             Sluggish Growth in Maturing Economies

The Chinese market contributes a significant share to the gross domestic product (GDP). However, of late, the GDP of the Chinese market has decelerated and is expected to slow down further. Simultaneously, consumption of chemicals in China seems to be at a stage where it is anticipated to move slower than the country’s total GDP. Markedly, the development relates to the macroeconomic trends within China, which are shifting from expenditure on infrastructure, along with extended procurement of consumer durables, automobiles, etc. to an economy which is mainly focused on services and other acquisitions.

•             Constant Margin Erosion in Certain Petrochemical Chains

Significant margin erosion has been observed in few chains of the petrochemical products. Markedly, the maximum erosion has been observed in the chains which are based on aromatic compounds such as para-xylene, phenol, polyamide, among others. Despite the rise in demand and better investment decisions among manufacturers/producers which could ameliorate the situation, the original trend is not anticipated to reverse. For instance, in the past five years, globally, the petrochemical companies have been demonstrating floating margins, since the significant demand growth, specially from the Asian region, has led to huge operating rates, particularly in the ethylene and other derivative chains. This in turn has allowed the companies to retain the elevated margins arising from lower oil prices, rather than the industry’s more conventional practice of passing reductions in prices of feedstock to the consumers.

•             Volatility in Crude Oil Prices

The prices of crude oil, which is refined to produce benzene, ethylene, propylene and other compounds had been ascending since 2005 and traded for approximately USD 140 per barrel at the topmost in 2008. Though, by 2014, the prices gradually fell from nearly USD 108 per barrel to about USD 34 per barrel by January 2015, as the oil production in non-OPEC countries (particularly the US) grew and the global demand decelerated. Furthermore, according to the U.S. Energy Information Administration (EIA), as of January 2021, the US Crude Oil First Purchase Price was $36.86 per barrel, compared to $ 62.64 in August 2018 and $55.65 in November 2018. This reflects that the Petrochemical markets are affected during the steep fluctuations in prices, leading to uncertainty in both the upstream and downstream investments.

According to TechSci Research report, “United States Well Intervention Services Market By Intervention Type (Light, Medium and Heavy), By Service (Logging & Bottom Hole Survey, Tubing & Packer Failure & Repair, Stimulation, Remedial Cementing, Zonal Isolation, Sand Control and Artificial Lift), By Application (Onshore and Offshore), Competition, Forecast & Opportunities, 2026” United States has experienced an upsurge in the oil & gas production and is anticipated to experience the similar growth in the forecast period too. The market growth can be owed to rising energy demand and reactivating oilfields after they get mature. Governmental investments in the projects along with the private funding would aid to the growth of the future market in the next five years. The offshore application of the well intervention services is expected to boom due to availability of many subsea wells and easy mobility on offshore rigs. Offshore drilling is done under the ocean and includes pre-salt and deep-water drilling. Drilling operations are expected to increase in the upcoming years on account of new oilfield discoveries in deep water and ultra-deep water offshore locations. Moreover, rising deep water drilling and production activities in the United States, supported by government policies are anticipated to positively influence the growth of this segment over the coming years.


•             US China Trade War

The series of economic counterstrike actions which is now known as the trade war between the US and China has mainly originated with US measures to which China has replied in kind. Notably, the US imposed three rounds of tariffs on Chinese products, totaling around USD 250 billion worth of goods in the year 2018 that has considerable increased since then. The first two rounds positioned 25% tariffs on USD 50 billion worth of imports from China which responded in kind. The trade war between the two countries has a direct impact on the price of several petrochemicals and feedstocks in China, however, also has an indirect impact on the price of completed goods produced by China to the rest of the world. The increased tariffs imposed on the US imports into China will affect the Chinese market and increase the prices of goods in the global market. For instance, the increased Chinese propane tariffs are anticipated to make the imported the US feedstock propane uncompetitive as well as create a scarcity of propylene to produce acrylics, polypropylene and other derivatives. Additionally, even if the products come from elsewhere, the price is anticipated to rise substantially.

          Notably, the petrochemical industry is observing a period of transition worldwide, wherein the it is essential for the global companies to be ready for an upcoming demanding environment. Therefore, in order to survive in the coming years, the petrochemical manufacturers will have to move past the conventional feedstock, emerging markets, while simultaneously focusing on a larger set of strategic priorities. Markedly, renewed focus on operations excellence, which is enhanced by the use of digital analytics is a significant factor for success of the petrochemical companies. Furthermore, numerous petrochemical producers are disengaging refining and petrochemicals, as they prefer gas feedstock over the conventional feedstock. However, a slump in opportunities for the companies to utilize gas as a feedstock is anticipated to force them to return to petroleum-based feedstocks. Lastly, despite having access to superior quality feedstock, the industry requires skilled labor to ensure the manufacturing of quality end-products.

•             COVID-19 Impact on the Petrochemical Industry

With the sudden outburst of the pandemic in the month of December 2020, the petrochemical industry suffered dangerously. The travel and mobility of the population halted and the use of automobile and automotive halted altogether. Although, after a year United States has resumed its life back but to consider the life back on track will be a huge leap. The prices of the crude oil, and other petrochemical products has risen multiple folds. The worldwide effect of the pandemic has raised bars of the pricing multiple folds and thereby a steep growth in the market can be expected.

Another report from TechSci Research, “Global Process Oil Market By Type (Naphthenic, Paraffinic, Aromatic, Non-Carcinogenic and Bio-Based Process Oil), By Function (Extender Oil, Plasticizer, Solvents, Deformers, Others), By Application (Tire & Rubber, Polymer, Personal Care, Textile, Paints & Coatings, Pharmaceuticals & Others), By Production Technology (Convention Route and Gas to Liquid), By Company, By Region, Forecast & Opportunities, 2026” mentions that process oil market will experience an esteemed growth in the upcoming forecast years until 2026. The market growth is predicted on the grounds of its extended applications. Tire and rubber industry is booming due to technological advances and thus the surge in the demand of the process oil is expected in the upcoming years. Moreover, factors like research and development of nature based products and the growing personal care industry will support the anticipated growth of the market in the next five years. 

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