World petrochemical companies must prepare for an increasingly challenging and uncertain future.
FREMONT, CA: Petroleum companies must prepare for an increasingly challenging and uncertain period to capture the new round of value-creating opportunities ahead. It is vital for companies to reduce costs and increase efficiency while investing in next-generation technologies and digital solutions to help them remain competitive in an increasingly complex and unpredictable market.
They must also pay attention to the sustainability of their operations and ensure that they are taking steps to reduce their environmental impact.
Sourcing of gas-linked chemicals: There were significant shutdowns worldwide, as well as a decrease in the production of gas-linked chemicals, such as ammonia and methanol, due to the reduction in gas supply. There was a 35 percent reduction in operating rates of ammonia in 2022 compared with 2020. There was a 20 percent reduction in methanol operation rates. Additionally, the availability of gas-linked chemicals was adversely affected by reduced Russian exports, especially ammonia and urea, used as fertilizers.
Commercial-scale developments: The polyolefin industry is increasing its investment in feedstock recycling through pyrolysis. Additionally, the first announcements in advanced recycling on a global scale were centered around the recycling of polyethylene terephthalate (PET) monomers, as well as the growing interest in recycling PET fiber (monomer).
Collaboration: Waste haulers, recyclers, and petrochemical producers are forming new mechanical and advanced recycling partnerships. Collaboration along the value chain can also help to expand the available feedstock, particularly for hard-to-recycle plastics like films.
Managing high cost and volatility: A difficult macroeconomic environment and extended geopolitical uncertainties will require chemical players to tighten investment discipline and consider important measures to improve resilience in 2023. Chemical companies need to learn from the measures top players took to respond to global economic events, which included streamlining their product portfolios, expanding into high-margin or growth products (specialty), and rationalizing capacities for underperforming assets. It is also possible to tap into emerging markets, such as India and Indonesia, for demand. Over the past few years, it has been proven that export-driven growth requires more than advantaged feedstock; it also requires ensuring supply chain reliability and sourcing resilience. An effective way to increase economic growth is to export goods from emerging markets, but access to inexpensive raw materials is needed. In addition to ensuring a reliable supply chain and secure material sourcing, companies must ensure a secure supply chain.
Decarbonization and circularity: The industry has made consistent and measured progress in sustainability commitments and actions over the past two years. There is a wide range of sustainable solutions on the market, including circularity, carbon capture, bio-based chemicals, and renewable energy. Each has different levels of technological maturity, availability of resources, capital intensity, supply chain demands, and environmental impacts. It will therefore be imperative for players to develop a portfolio of selective solutions that are aligned with a long-term sustainable path and fit the business footprint best. This means that players should evaluate various solutions and determine which are most likely feasible and successful over the long term. In addition, they should determine which solutions have the least negative impact on the environment and are the most cost-effective.
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Mergers and acquisitions opportunities: With recent declines in petrochemical margins, there may be opportunities for acquisitions. Digitalization and operational excellence, along with good execution, can help drive synergies. Additionally, long-term strategic rationales, value creation options, and resilience for combined organizations can come from end-market and supply chain overlap and economies of scale. Companies struggling due to declining margins will likely accept lower prices to secure a deal, making them prime targets for acquisitions. Furthermore, mergers and acquisitions allow the combining of resources like technology and personnel, which can contribute to further cost savings and create long-term value by creating a larger and more efficient organization.
