Challenges Involved In Petrochemical Industry

Petrochemicals are hydrocarbons that are derived later from crude oil and natural gas. The downstream process entails the refinement of crude oil as well as the processing and purification of natural gas. In order to produce the key petrochemical feedstocks like petroleum gases, naphtha, kerosene, and gas oil, the refining process necessitates fractional distillation, which fragments crude oil into its component parts.

?The other essential feedstocks used in the petrochemicals sector include natural gas liquids such as ethane, propane, and natural gas. Daily activities involve the usage of petrochemicals, which have been crucial to the growth and efficient operation of several industries as well as human life. Due to the fact that they are made from petroleum, their prices typically follow that trend.

There are many major challenges involved in the petrochemical industry. Notably, the sector keeps innovating through cutting-edge technology and the capacity to process a variety of raw materials, producing profits. Despite the gains that have been reported over the last ten years, the petrochemicals business is undergoing a significant transformation as several of the driving forces behind the upward swing is either fading or changing. Here is a glimpse into those changes and challenges that would help you optimize your options if you are in this industry.

?Segments Of The Petrochemical Industry

The major petrochemicals market in India can be roughly broken down into three segments: basic major petrochemicals, which is the second-biggest category, intermediaries, which is the largest segment, and other petrol-based chemicals (the smallest segment). Additionally, olefins and aromatics are separated into two subgroups based on their composition as building blocks for petrochemicals. Petrochemical products are a crucial component of daily life and are found in a wide range of goods, including plastics, fertiliser, digital devices, apparel, tyres, etc.

?What Does The Current Global Trends Say?

Petrochemical demand has consistently increased and has outpaced crude oil demand on a global scale. Petrochemicals are expected to contribute for more than one-third of the growth in oil consumption through 2030 and nearly half through 2050, ahead of trucks, aviation, and shipping, according to the IEA. Plastics, one of the most widely used petrochemical products, have seen an increase in demand that has surpassed that of other bulk materials like cement, steel, and aluminium.

?Trends In India

The Chemicals and Petrochemicals sector in India was expected to have a market value of about US $165 billion in 2019–20, according to the Ministry of Chemicals and Fertilizers. By 2025, the size could increase to $300 billion USD. India would require five crackers by 2025 and an additional fourteen by 2040 to accommodate the rising demand.

?Major chemical and petrochemical output in 2018–19 totalled 37,518 thousand MT, with capacity utilisation hovering around 90%. When compared to the other two industrial segments during the past five years, the basic major petrochemicals segment has expanded at the quickest rate (4.9 percent CAGR).

?India has been a net importer of all three major petrochemical segments in terms of foreign commerce, with the exception of the intermediates segment during FY18, when exports outweighed imports by 0.7 million tonnes.

?Three Prime Challenges Involved

1)Limited Advantaged Feedstock

The petrochemical industry has relied on traditional feedstocks for the manufacturing of petrochemicals and their derivatives. North America and the Middle East (ME) have historically been the industry's primary sources of these feedstocks; however, within the next five years, the potential for investments based on these traditional feedstocks will be constrained. For instance, it is predicted that traditional feedstock will fall in North America over the next ten years as ethane demand rises due to export potential, among other things.

?Significantly, there may be new worldwide sources of advantageous gas supply in addition to the potential for the start of shale gas production in nations like Argentina. However, the number of opportunities and their introduction into markets could be somewhat limited.

?2) Slow Economic Growth in Emerging Economies

?A large portion of the gross domestic product comes from the Chinese market (GDP). However, the GDP of the Chinese market has recently slowed and is anticipated to do so more. At the same time, China's chemical consumption appears to be at a point where the growth of the economy is expected to lag.

?The change is related to macroeconomic trends in China, which are moving away from infrastructure spending as well as extensive purchases of consumer goods like cars and other vehicles to an economy that is mostly driven by services and other purchases.

?3) Volatile Crude Oil Prices

?Since 2005, the price of crude oil, which is refined to make benzene, ethylene, propylene, and other compounds, has increased. In 2008, it peaked at almost USD 140 per barrel. However, as oil output in non-OPEC nations (notably the US) increased and the pace of global demand slowed by 2014, prices progressively dropped from close to USD 108 per barrel to roughly USD 34 per barrel by January 2015.

?In addition, the US Energy Information Administration (EIA) reports that as of January 2021, the price per barrel of US crude oil was $36.86, down from $62.64 in August 2018 and $55.65 in November 2018. This shows how the Petrochemical markets are impacted by the sharp price changes, creating uncertainty.

?The cheap gas feedstock windfalls and demand explosion in emerging markets that characterised the global petrochemical industry's initial stages of expansion are beginning to fade. Global petrochemical businesses must prepare for a more difficult playing ground. A fresh emphasis on operations excellence, this time strengthened by digital and advanced analytics, will be a key component of success. But to seize the new wave of value-creating opportunities that are emerging, future competitors will also need to make big strategic decisions to support that.