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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Big Oil To Bet On Petrochemicals As Demand Peak Looms

Refinery

Remember that “This Ain’t Your Daddy’s Oil” commercial that blew up on Twitter at this year’s Super Bowl? It was about crude oil being used for things other than fuels—useful, sometimes indispensable things. Like it or not, this is what the future holds for the industry, according to a new report from Wood Mackenzie.

The energy consultancy expects that petrochemicals will turn into the top driver for demand growth in crude oil in the long run as fuels lose their top spot. It’s actually demand for petrochemicals that will keep global oil demand growing until about 2035, Wood Mac says, adding that this growth, however, will slow to a crawl by that year.

In places like Europe, Japan, the United States, and even China, crude oil consumption will plateau by 2035, while in India, some other Asian states, Africa, Latin America, and the Middle East, it will continue to grow.

Gasoline consumption will start declining in the middle of the next century, according to the consultancy as quoted by Bloomberg’s Javier Blas, with electric cars slowly taking over. Meanwhile, naphtha demand will skyrocket – the derivative is used as feedstock in petrochemicals production. Distillates demand will also continue to grow – they are used to fuel maritime vessels and heavy freight vehicles.

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According to another energy consultancy, there is one more factor that will hurt gasoline demand even more than EV adoption: fuel efficiency. FGE recently forecast that gains from fuel economy will wipe out 11.3 million bpd from global gasoline consumption between 2016 and 2040. This compares with 5.3 million bpd in gasoline becoming redundant thanks to the increasing sales of hybrids and full-electric cars.

Natural gas will continue to gain prominence, Wood Mac’s analysts also said in their report, and demand will continue to grow. Natural gas, too, is used for petrochemicals, as well as for fuel. In this department, the consultancy noted Shell’s takeover of BG Group, the biggest acquisition in the oil sector in recent history, which established the Anglo-Dutch titan as a leader in LNG production and trade.

Yet Shell is also diversifying into renewables and electric vehicles. The company’s chief executive Ben van Beurden said earlier this year Shell will pledge up to US$1 billion annually by 2020 to renewable energy initiatives aimed at supporting the global drive to tackle climate change targets set out in the Paris Agreement. This month, the company entered the EV market with the takeover of NewMotion, the largest EV charging network owner in Europe.

The Anglo-Dutch giant is not alone in its renewables push. French Total and Norway’s Statoil have an extensive renewables agenda, too. BP is also moving into that direction, as well as betting bigger on natural gas. Exxon and Chevron, Blas notes, meanwhile continue to focus on their traditional business. These Big Oil players seem to be confident that demand for crude will continue to grow in the decades to come despite changing consumption trends.

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In the U.S., they may well have a point. Energy industry expert Robert Rapier wrote in a recent article for Forbes how despite the rising sales of EVs, gasoline demand in the country has this year hit a record. This includes California, Rapier noted, the biggest U.S. market for EVs. The reason, according to him, is that the population is growing and the majority is opting for ICE cars rather than their costlier EV alternatives.

Perhaps the only fact that cannot be ignored or argued is the adoption of EV-supporting regulations. This year we’ve seen a lot of news in this department, some of it notably coming from China and India. If two of the world’s top three oil consumers indeed make a successful switch to electric cars within our lifetimes, then there can hardly be a bright future for gasoline.

Oil producers that currently make a hefty portion of their profits from fuel sales may want to pay closer attention to petrochemical developments in view of their long-term sustainability.

By Irina Slav for Oilprice.com

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