Oil & Energy
Will Petrochemicals Continue To Drive Oil Demand?
Petrochemicals have been driving oil demand in recent years, but that could all change if new restrictions come into place to curb the production of plastics and other products.
The global demand for petrochemicals has been gradually rising over the last two decades, as an increasing number of consumers spend on petrochemical-derived products.
There are fears that the industry could continue to drive demand, keeping the world reliant on fossil fuels, long after we shift away from oil and gas for our energy needs unless policy change happens now.
For several years, leading energy organisations have been saying that petrochemicals will likely lead oil demand for decades to come due to the huge global reliance on products that come from these chemicals.
While countries worldwide are moving away from fossil fuels when it comes to fulfilling their energy needs, as many governments accelerate the rollout of renewable energy projects, something that’s proving harder to get away from is plastics and other petrochemical products.
Petrochemicals go into the making of countless everyday items such as clothing, tyres, digital devices, packaging, fertilisers and detergents. By 2018, petrochemicals accounted for 12 percent of the global oil demand.
Petrochemicals are viewed by the International Energy Agency (IEA) as an energy demand blind spot, often overlooked by policymakers. The IEA has long been concerned that the massive demand for petrochemicals seen in the Global North will be replicated in developing countries worldwide as they undergo industrialisation.
The global demand for plastics is being driven by growing populations and increasing GDP and wealth, meaning more disposable income for consumer goods.
By 2025, plastic production is expected to rise above 600 million metric tonnes a year, which will increase to around double this figure by 2050. Over half of all the plastics produced worldwide so far were manufactured from the year 2000 onwards, contributing significantly to rising oil demand.
It is becoming apparent that the ongoing growth of the petrochemical industry could hinder the green transition if policies are not put in place to curb production.
The Beyond Petrochemicals campaign was established in September 2022 with an $85 million investment from Bloomberg Philanthropies, aimed at blocking the expansion of over 120 proposed petrochemical projects in three principal regions – Louisiana, Texas, and the Ohio River Valley.
The group has succeeded in halting the development of the Mountaineer NGL Storage facility in Monroe County, Ohio. The storage was set to hold ethane, butane, and propane derived from fracked gas. It also worked to stop the Appalachian Storage Hub in West Virginia, the PTT Global Chemical ethylene cracker plant in Ohio, and the Formosa Sunshine Plant in and proposed the South Louisiana Methanol complex in Louisiana from becoming a reality.
This grassroots action is slowly making policymakers more aware of the growth of the petrochemical industry and its potential challenge to decarbonisation.
In recent years, governments worldwide have also brought in bans on single-use plastics to prevent these products from ending up in landfills. By 2019, over 100 countries had banned or partially banned single-use plastics.
Countries around the globe are encouraging plastics producers to make products that can be recycled and consumers to recycle their plastics. Yet, an estimated 85 percent of plastic packaging worldwide ends up in landfills, with the U.S. recycling just 5 percent of its 50 million tons of plastic waste in 2021.
Further, recycling practices have also come under scrutiny in recent years due to their high energy use.
There is still little action at the state or regional level to curb the production of petrochemicals. The Ellen MacArthur Foundation is calling for a UN treaty on plastics to legally bind member states to norms on plastics production.
But this has not gained much traction. Further, much of the emphasis is on plastics, while petrochemicals go into a wide range of other widely used products.
In many countries, the petrochemical sector falls into the “hard to decarbonise” industry category. Producers are being pushed and incentivised to clean up operations, but little is being done to restrict production.
For example, many chemical industry strategies to address environmental concerns rely on feedstock substitution and improved recycling but do not aim to change the production model or chemical products created by the industry.
In the U.S. and elsewhere, it is necessary to develop a roadmap to guide the industry into a future where it reduces reliance on fossil fuels and supports international climate aims, as has been seen in other areas of the energy sector.
Petrochemicals continue to drive the global demand for oil, a trend that is not likely to change anytime soon due to the ongoing consumer reliance on many fossil fuel-derived products.
Countries and regional organisations must develop a clear strategy to shift reliance away from petrochemicals and curb production if they hope to meet their climate goals.
In addition, developing nations must be supported in manufacturing alternative products to prevent a growing dependency on plastics and other petrochemical products.
By: Felicity Bradstock
Bradstock writes for Oilprice.com.
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.