The outlook for motor fuels is having a strong, increasing influence on petrochemicals capacity investments and promises to rattle the chemical industry status quo.

Any company involved in steam cracking and businesses immediately downstream needs to develop scenarios and strategies taking into account the new reality. The investment intentions announced in recent weeks and months by Saudi Aramco and its partners, exemplify that reality.

The world’s big refiners look at tomorrow’s world and see stagnant and probably regionally declining motor fuels demand. Historically, refineries were built, with a few exceptions, to provide motor fuels, that is, gasoline and diesel. Considering the expected future of the internal combustion engine and the shift towards dual fuel and electric vehicles, the ways in which refineries are configured and run will have to change. Motor fuels demand is expected to remain strong in emerging economies but growth in the OECD nations could be flat to declining out to 2040 according to the US Energy Information Administration (EIA).

Most demand growth for oil will continue to come from the road transportation sector, but bodies like OPEC project significant growth from aviation and petrochemicals. Currently, refineries supply liquid feedstock – and sometimes gaseous feed – for the steam cracker, after which petrochemical production begins in earnest. They are also important sources of propylene, C4s and aromatics.

The shift in motor fuels demand means that the world’s big refiners are looking at their business differently, eyeing possibly above-GDP petrochemicals growth, replacing that lack of demand from the auto industry. The petrochemical business becomes, as a result, not just a (recently) profitable adjunct to the main thrust of what they do but the generator of product streams that command a great deal more attention.

This is not just a question of financial reporting lines. Over the past few years, the world’s major oil companies have tended to report chemicals as part of a Downstream or Refining segment. It has become increasingly difficult to separate petrochemicals performance from refining and retail. It is more a question of where investment dollars go, in terms of physical assets, and in terms of research. Refineries will, in the future, be run to produce more petrochemical feedstocks and more petrochemicals. Look at the Aramco/SABIC proposed oil to chemicals project, which is expected to be located in either Yanbu or Jubail in Saudi Arabia.

From what we know, a 400,000 bbl/day crude distillation and vacuum unit would supply a hydrotreater, a vacuum gas oil hydrocracker and a residual fluid cracking unit to produce petrochemical feedstocks and final products and about 200,000 bbl/day of diesel for domestic use. The complex will include a mixed-feed steam cracker, polyethylene, polypropylene, butadiene and aromatics units. It may well utilise Aramco’s oil to chemicals technology although it does not seem as though it is necessarily being configured to do so.

The agreement signed in April between Saudi Aramco and France’s Total looks at using liquids and off-gases from the pair’s SATORP refinery in Jubail to feed another big petrochemicals project. The refinery sits next to the Aramco/Dow joint venture Sadara petrochemical complex.

The same week Saudi Aramco and a consortium of three Indian oil companies signed a memorandum of understanding (MoU) to jointly develop and build a massive integrated refinery with a big focus on petrochemicals in the west coast of India.

The project at Ratnagiri in the state of Maharashtra is estimated to cost around $44bn, Saudi Aramco said in a statement. Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) have incorporated a joint venture firm called Ratnagiri Refinery & Petrochemicals Limited (RRPCL) for the project.

The proposed refinery will be capable of processing 1.2m bbl/day of crude oil and provide feedstock for the integrated petrochemical complex, which will have about 18m tonnes/year in capacity.

The overall configuration of the project is being finalised by the parties following completion of a pre-feasibility study for the refinery, Saudi Aramco said.

MORE OIL FOR CHEMICALS

An increasing proportion of the oil barrel will be used for petrochemicals – and plastics – manufacture. The problem for the oil refiner is that, currently, the proportion is low, but it is likely to take over as the main source of growth post 2030.

Given that scenario, think about the pressure on the oil companies to make more, higher growth products, profitably. Think about the liquid feedstock streams – naphtha and liquefied petroleum gases (LPG) – that will be produced and needed for petrochemicals.

Also think about the heavy products from the refinery, including even, perhaps, petroleum coke, that could be used to produce petrochemicals – in this instance, methanol. And think of the way regulations (including those for maritime and other fuels) will affect feedstock availability for chemicals. None of this, of course, takes into account the possible limits to growth for plastics and petrochemicals from the circular economy and from increasing environmental awareness.

The big oil companies – and others – will continue to process gases, including natural gas liquids (NGLs) and liquids, including naphtha and LPGs. So one fascinating dynamic will be between shale-based NGLs and liquids cracking. Much more money will flow into liquid petrochemicals feedstocks, particularly as big new refineries and petrochemical plants are built in Asia and other parts of the world where there is little wet gas.

Naphtha will lengthen, possibly helping to save what may be stranded petrochemical assets in Europe should old refineries close.Importantly, the influence of the non-integrated petrochemical producers is likely to diminish, with those companies facing a significant competitive disadvantage. Chemical companies will continue to push further downstream or into specialised niches. The world of petrochemicals will be dominated by big oil.