Over the coming decade, demand for oil from the transportation sector – which accounts for about 50 per cent of total oil consumption – is set to reduce as a result of electric vehicles, biofuels, strict emission regulations and higher fuel efficiencies.
Crude demand will be driven by the chemical sector instead, at a rate of 4 per cent per annum – equivalent to more than half of total oil demand growth – through to 2035.
The drivers behind petrochemicals demand, which is expected to more than double over the next 20 years, include population increase, improving living standards and demographic changes, particularly in developing economies in Africa and Asia.
Against this backdrop, refining crude oil at $65 a barrel will create value of about $15 a barrel. Integrating the refinery with petrochemical assets will maximise the margin and add another $30 a barrel.
While designing the refinery to only produce fuel will lead to the sale of a barrel at $80, which translates into an internal rate of return (IRR) of less than 10 per cent, maximising chemical production through refinery integration will therefore bring the barrel value to $110, which translates into an IRR of 28 per cent.
Integration can offer numerous benefits. As energy operations in the GCC are subject to high utility prices, refining and petrochemical integration offer the opportunity to minimise energy costs, for example creating opportunities to synergise power, steam, process water and hydrogen transfers.
By using existing infrastructure better, operators can mitigate the effects of price volatility as depressed products from one chain can become valuable feedstock for another.
According to a 2017 Gulf Petrochemicals & Chemicals Association (GPCA) report, an integrated complex has higher overall revenue than a standalone refinery due to the net increase in petrochemical volume from the integrated complex.
It also found that integration can achieve higher margins, most of which arise from the processing of alternative feedstocks and use of byproduct streams produced in the petrochemical plant at the refinery’s reforming plant.
Integration allows for significant petrochemical contribution to the refinery yield and can improve the overall process economics for both the refinery and the petrochemical facility. Both facilities can maximise profitability and operational benefits by establishing byproduct streams in both directions.
Integrating a mixed-feed ethylene plant with a refinery can lead to a range of new building blocks for petrochemicals, which increases the potential for diversified industries.
In the GCC, this forms a crucial part of long-term national visions, as the development of home-grown industries will bring much-needed skilled jobs to the region and generate more revenue from exports through the manufacture of higher-value finished and semi-finished products.
Globally, 80 per cent of oil refineries built since the 1980s were integrated with petrochemical facilities. In the Gulf, integration is limited, but having realised gains can be made, producers are moving in the same direction.
Orpic’s Liwa Plastics project in Oman is one example of an integrated refinery/polyolefins complex that promises to create significant in-country value. Another is the Al-Zour integrated complex, under construction in Kuwait.
Announced last year, the $45bn expansion of Abu Dhabi National Oil Company’s (Adnoc) Ruwais complex, with a capacity of 1.5 million barrels a day (b/d), is another example of the industry’s move towards integration.
The recent joint investment of Saudi Aramco and Adnoc in the $44bn Ratnagiri complex is a result of both companies’ expansion strategies into strategic markets abroad. With three crackers, the complex will have a capacity of about 18 million tonnes a year, making it one of the largest integrated refining and petrochemical complexes in the world.
Other integrated Saudi Aramco projects include the $7bn Jizan refinery, capable of processing 400,000 b/d and integrated with a petrochemical complex primarily geared towards aromatics production.
In April, Saudi Aramco also signed a deal with Total to develop a $9bn petrochemical project that will be integrated with the Saudi Aramco Total Refining & Petrochemical Company refinery in Jubail.
Crude oil to chemicals
Beyond integration, the next wave of game-changing production is being shaped by crude-oil-to-chemicals technology. This will merge the refinery and petrochemical plant into one, going well beyond the state-of-the-art refinery petrochemical integration with the implementation of new or reconfigured unit operations into a refinery.
The technology will significantly increase the value of crude oil reserves by shifting the product slate derived from a barrel of oil to a range of 40-80 per cent chemical feedstocks and non-fuel products, up from the traditional range of 15-25 per cent – offering significant competitive advantage compared to traditional petrochemical producers.
These new integrated projects are set to transform regional chemical production and improve the industry’s global competitiveness. But integration alone will not succeed in realising the true potential of this industry and meeting the growing challenges of the future.
Integration would instead need to be combined with efforts to increase overall business integration, upgrade existing production facilities and deploy more energy- efficient technologies to lower variable cost.
Petrochemical companies would also need to develop their local capabilities, streamline their operations and optimise their value chains. Operational excellence will be key as it can lead to significant improvements in energy efficiency, higher plant availability and better feedstock conversion rates.
Consolidation will continue to be an important driver and enable value-based transformation. At a time of growing structural shifts in global energy markets, China’s rise to self-sufficiency and the shale-enabled petrochemical expansion in the US, the GCC industry must pursue strategic transformation that will enhance its global competitiveness and safeguard its access to key markets.
About the author
Abdulwahab al-Sadoun is the secretary-general of the Gulf Petrochemicals & Chemicals Association
MORE FROM THIS MONTH’S PETROCHEMICALS REPORT