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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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The Next Pillar Of Oil Demand Growth

The debate about peak oil demand always tends to focus on how quickly electric vehicles will replace the internal-combustion engine, especially as EV sales are accelerating. However, the petrochemical sector will be much more difficult to dislodge, and with alternatives far behind, petrochemicals will account for an increasing share of crude oil demand growth in the years ahead.

Petrochemicals don’t receive much attention in the media, but its fingerprints are everywhere. They are used in plastics, fertilizers, packaging, clothing, dyes, cleaning products, cosmetics, medicines, tires – a seemingly limitless number of end-uses. They are so ingrained and embedded into modern life that they are almost unnoticeable.

Producing the zillions of consumer and industrial products coming from petrochemicals requires huge volumes of feedstocks. Needless to say, as the name suggests, the feedstocks are derived from petroleum – oil and gas. Moreover, demand for petrochemicals is soaring, as hundreds of millions of people in emerging markets move into the middle class.

A new report from the International Energy Agency positions the petrochemical industry as one of the driving forces behind oil demand growth for the next few decades. “The growing role of petrochemicals is one of the key ‘blind spots’ in the global energy debate,” the IEA wrote. “The diversity and complexity of this sector means that petrochemicals receive less attention than other sectors, despite their rising importance.”

The IEA says that the petrochemical sector could account for more than a third of oil demand growth to 2030, and nearly half to 2050, “ahead of trucks, aviation and shipping.” Passenger vehicles are currently a major source of oil demand, but they will “diminish in importance thanks to a combination of better fuel economy, rising public transit, alternative fuels, and electrification.”

But petrochemicals are much more interwoven into modern life, and the alternatives are far less developed.

The rising demand for petrochemicals has meant that the integrated oil majors and national oil companies have poured billions of dollars into new production facilities. Related: A New Era Of LNG Megaprojects

In just one example of the shift underway, ExxonMobil has made a series of moves that highlight just how important Big Oil is becoming Big Chemical. In July, Exxon announced the completion of its Baytown petrochemical expansion in Texas. That comes on the heels of two new plastics facilities nearby at its Mont Belvieu facility. Meanwhile, Exxon is in the midst of a massive expansion of its Beaumont refinery complex, which will add 650,000 metric tons per year of polyethylene production, a the most common plastic. That will be completed next year. All told, Exxon is building a plastic and chemical empire on the Texas coast, taking advantage of cheap and abundant crude oil and natural gas.

A month ago, Exxon announced a plan to spend billions of dollars on a petrochemical complex in China. In July, BASF announced a $10 billion spending plan on petrochemicals in China as well.

According to a report from GlobalData, China and the U.S. will dominate investment over the next decade, each expected to see $52 billion in investment in new petrochemical facilities between 2017 and 2026. Related: Permian Producers Have A Power Problem

All of this new investment will propel crude oil demand upwards, even as consumption in transportation plateaus. In 2017, petrochemical demand accounted for 12 million barrels of oil demand per day. That will grow by 50 percent to 18 mb/d by 2050.

That growth occurs even as consumption in transportation is set to decline. As of 2017, petrochemicals accounted for 12 percent of global oil demand, while passenger vehicles accounted for 27 percent. However, the two sectors will converge over time, with petrochemicals accounted for 16 percent in 2050 and passenger vehicles accounting for 22 percent. “Against a backdrop of slower gasoline demand growth, robust growth prospects for chemical products, and attractive margins, oil companies are further strengthening their links with petrochemical markets,” the IEA wrote. Oil companies are beginning to look at direct crude-oil-to-chemicals facilities.

These gargantuan petrochemicals facilities exact a steep environmental and public health cost. However, the alternatives to plastics are still immature and expensive. Recycling will also only have a minor impact on demand, the IEA argues. “Although substantial increases in recycling and efforts to curb single-use plastics take place, especially led by Europe, Japan and Korea, these efforts will be far outweighed by the sharp increase in developing economies of plastic consumption,” the IEA said.

By Nick Cunningham of Oilprice.com

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  • Mamdouh G Salameh on October 08 2018 said:
    There could never be a post-oil era throughout the 21st century and far beyond because it is very doubtful that an alternative as versatile and practicable as oil, particularly in transport, could totally replace oil in the next 100 years and beyond. What will change is some aspects of the multi-uses of oil in transport, electricity generation and water desalination which will eventually be mostly powered by solar energy. However, oil will continue to be used extensively in the global petrochemical industry and other industries and outlets from pharmaceuticals to plastics, aviation and computers to agriculture which is feeding some 7.5 billion people and also in transport in most of the developing countries. Oil will continue to reign supreme throughout the 21st century and far beyond.

    Even with a deeper penetration of the global transport system by electric vehicles (EVs), there can never be a peak in oil demand, only a deceleration of the growth rate of demand. This is so because of rising world gross GDP which is projected to double in the next 15 years from $76 trillion in 2015 to almost $150 trillion, accelerating demand for energy and also growing demand for transport. According to ExxonMobil’s 2017 “Outlook for Energy: A View to 2040”, oil is projected to account for 33% of the global primary energy consumption in 2040 as it did in 2016 despite growing demand and production.

    The International Energy Agency (IEA) is wrong to project that the petrochemical industry will overtake oil demand for transport accounting for a third of oil demand in 2030 and nearly half of the demand by 2050. In 2017 oil for transport accounted for 73% of oil demand. Even with a deceleration of oil demand in transport as a result of EVs, oil in transport will still account for 70% of total oil demand even by 2050 with petrochemicals accounting for some 20%-22% by then with the balance of 8%-10% being used for water desalination, electricity generation and a multitudes of other uses.

    And while petrochemicals will be a big pillar of oil demand growth, oil for transport will continue to be the bigger pillar well through the 21st century and the early part of the into the 22nd century.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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