Preparing the Strategic Planning of Downstream Players for the New Scenario of Downstream Market – Petrochemicals as Main Driver of Crude oil Demand

Introduction and Context

In 1979 Michel Porter wrote the revolutionary article in Harvard Business Review “How Competitive Forces Shapes Strategy”, where introduced the concept of the five competitive forces. Through an analysis of these forces in a determined business the players can analyses their competitive positioning while is possible to define some strategies to achieve better competitive positioning.

According to the Michel Porter article, there are five competitive forces that define the competitive positioning of a player in a determined market:

·?????? The supplier power – How is the bargain power of the supplier in relation to the consumers?

·?????? The costumer power – How is the flexibility and alternatives of the costumer in relation of your services and products?

·?????? Substitute products and services – There are substitute products or services capable to easily substitute the products/services current offered?

·?????? The threat of new entrants – How difficult is for a new entrant to join in the market?

·?????? Rivalry between the existing players - How aggressively the players are competing in the market?

Figure 1 presents the relation of the five competitive forces for a determined market.

Figure 1 – The Five Competitive Forces (PORTER, M., 1979)

According to the positioning of a player in relation of each one of the competitive forces, the players can define their strategies to improve the competitive positioning reinforcing the point considered the weakness.

The current scenario present great challenges to the crude oil refining industry, prices volatility of raw material, pressure from society to reduce environmental impacts and refining margins increasingly lower. The drastic reduction of sulfur content in the final product, lead refiners to look for alternatives to reduce the sulfur content in the intermediate streams, in this business environment it’s possible to imagine how the Porter’s competitive forces to the downstream industry.

The Porter’s Competitive Forces in the Downstream Industry

??????????? Considering the shown in Figure 1, it’s possible to analyze the five competitive forces listed by Michael Porter to the downstream industry.

·?????? Bargain power of Suppliers – The main supplier of the downstream industry is the crude oil producers, normally the refiners have low bargain power because the crude oil price is defined by a several factors, but refiners relying on flexible refining hardware can face advantages once are capable to processing heavier and discounted crudes that present lower costs. In other words, adequate bottom barrel conversion capacity can offer a significant competitive advantage to the refiners, over the years some companies have developed integrated operations to minimize the exposition of the variation of crude oil prices. Regarding the other suppliers, normally the refiners are considered great costumers and these suppliers tends to present low bargain power, in normal conditions, they do not represent a great threat, in this case, the most integrated players can get competitive advantage. The operational efficiency is another fundamental characteristic, refiners capable to reduce the operating costs can acquire more resilience face to the variations of crude oil prices, the operating costs reduction is especially related with energy efficiency of the refining hardware, once more than 60 % of the operating costs are related to energy consumption;

·?????? Bargain power of buyers – The costumers have low bargain power in the downstream industry once is still difficult to found energy sources in quantity and quality capable to substitute the crude oil derivatives, of course, in markets with high quantity of players, the competitiveness can offer alternatives to the costumers, but it’s difficult to achieve great gap of prices in a commodity market. Despite this, the public opinion over the downstream industry is increasingly important and have potential to change the energy market, an example is the growing trend of energy transition efforts demanded by the society, requiring a transition to low carbon energy sources;

·?????? Threat of new entrants – Due to the high capital requirements, it’s hard to face the new entrant threat in the downstream industry, but this threat can always be considered mainly due to government interventions and the attractiveness of the local markets;

·?????? Rivalry among existing competitors – This is a great concern in the downstream industry, the great number of players and the standardization of the products create great pressure over the refining margins, to overcome this the refiners have look for improve their operational efficiency, but it’s normally quickly followed by the other players, reducing the profitability in the market.

·?????? Threat of substitute products and services – Nowadays, this is the great threat to the players of the downstream industry.? The reduction of the consumer market, in the last years became common, news about countries that intend to reduce or ban the production of vehicles powered by fossil fuels in the middle term, mainly in the European market. Despite the recent forecasts, the transportation fuels demand is still the main revenues driver to the downstream industry, as presented in Figure 2, based on data from International Energy Agency (IEA).

Figure 2 – Forecast for Petrochemical Feedstock/Transportation Fuels Demand for Next Years (IEA, 2023)

??????????? According to Figure 2, the transportation fuels demand represents close to five times the demand by petrochemicals as well as a focus on transportation fuels of the current refining hardware. Despite these data, is observed a strong trend of reduction in transportation fuels demand followed by a growing market of petrochemicals. Still according to IEA data, presented in Figure 3, is expected a relevant growth in the petrochemicals participation in the global oil demand.

Figure 3 – Change in the Profile of Global Crude Oil Demand (IEA, 2023)

??????????? The improvement in fuel efficiency, growing market of electric vehicles tends to decline the participation of transportation fuels in the global crude oil demand. Figure 4 present the growth of electric vehicles in the last years in the global market.

Figure 4 – Growth of the Electric Vehicles Fleet over the Years (Global EVs Outlook 2023, IEA)

Further the electrification of the automobiles, new technologies like additive manufacturing (3D printing) has the potential to produce great impact to the transportation demands, leading to even more impact over the transportation fuels demand the growing trend of vehicles sharing services like Uber has great potential to destroy demand in the downstream industry. Another threat is the growing participation of renewable raw material in the crude oil refineries, in a response of the society requirement to energy transition efforts. In the last months some important players have announced the conversion of some crude oil refineries into renewable processing plants while other players and technology developers announce the production of diesel and jet fuel applying co-processing of crude oil and renewable raw material like HVGO in some refineries around the world.

Another deep change in the downstream sector that reinforces the necessity of a high conversion refining hardware is the IMO 2020. Restrictive regulations like IMO 2020 raised, even more, the pressure over refiners with low bottom barrel conversion capacity once requires higher capacity to add value to residual streams, especially related to sulfur content that was reduced from 3,5 % (in mass) to 0,5 %. Refiners with easy access to low sulfur crude oils present relative competitive advantage in this scenario, these players can rely on relatively low cost residue upgrading technologies to produce the new marine fuel oil (Bunker) as carbon rejection technologies (Solvent Deasphalting, Delayed Coking, etc.), but they are the minority in the market. The most part of the players need to look for sources of low sulfur crudes, which present higher cost putting under pressure his refining margins or look for deep bottom barrel conversion technologies to ensure more value addition to processed crude oils and avoid to loss competitiveness in the downstream market. For these refiners, deepest residue upgrading like hydrocracking technologies can offer great operational flexibility, despite the high capital spending. In this scenario, with necessity to higher value addition to bottom barrel stream and growing market of petrochemicals, refiners with adequate bottom barrel conversion capacity can achieve great competitive advantage in the downstream industry.

Based on description above it’s possible to apply the article published by W. Chan Kim and Renée Mauborge called “Blue Ocean Strategy” in Harvard Business Review, to classify the competitive markets in the downstream industry. In this article the authors define the conventional market as a red ocean where the players tend to compete in the existing market focusing on defeat competitors through the exploration of existing demand, leading to low differentiation and low profitability. The blue ocean is characterized by look for space in non-explored (or few explored markets), creating and developing new demands and reaching differentiation, this model can be applied (with some specificities once is a commodity market) to the downstream industry, considering the traditional transportation fuels refineries and the petrochemical sector.

??????????? Due his characteristics, the transportation fuels market can be imagined like the red ocean, where the margins tend to be low and under high competition between the players with low differentiation capacity. On the other side the petrochemicals sector can be faced like the blue ocean where few players are able to meet the market in competitive conditions, higher refining margins, and significant differentiation in relation to refiners dedicated to transportation fuels market. Figure 5 present the basic concept of blue ocean strategy in comparison with the traditional red ocean where the players fight to market share with low margins.

Figure 5 – Differences between Blue and Red Ocean Strategies (KIM & MAUBORGNE, 2004)

??????????? As presented above, the market forecasts indicates that the refiners able to maximize petrochemicals against transportation fuels can achieve highlighted economic performance in short term, in this sense, the crude oil to chemicals technologies can offer even more competitive advantage to the refiners with capacity of capital investment.

Can be difficult to some people to understand the term “differentiation” in the downstream industry once this is a market that deal with commodities, but the differentiation here is related to the capacity to reach more added value to the processed crude oil and as presented above, nowadays this is translated in the capacity to maximize the petrochemicals yield, creating differentiation between integrated and non-integrated players.

Changing the Focus – More Petrochemicals and less Fuels

In this business environment it’s possible to adapt the Anssoff Matrix to considering the contraction profile of transportation fuels market to analyze the available alternatives to the downstream players, the Anssof Matrix is presented in Figure 6.

Figure 6 – Adapted Ansoff Matrix to an in Contraction Market (Based on ROGERS, 2016)

In Figure 6 the current position of downstream players is focused on transportation fuels demand that present a contraction profile as aforementioned. In this scenario there are three alternatives to the players:

1 – Look for new clients – This alternative seems attractive in a first look, but the stricter regulations and trend of reduction in the consumption create great pressure over the consumption of fossil fuels. The major consumers of transportation fuels is still the in development economies like Brazil, Mexico, and India but the most efficient engines and substitute technologies like hybrid and electric vehicles tends to reduce the market growth even in these countries;

2 – Offer a new Value Addition – Face the reduction in transportation fuels, an attractive strategy to the downstream sector is to offer a new proposed value to the market through higher value addition to the processed crude oils as well as needed materials to the society with lower environmental footprint than fossil fuels. The petrochemical intermediates have higher added value to refiners and growing demand as aforementioned data, the substitution of steel is some engineering materials is an interesting way to ensure market to petrochemicals in short term, in this sense, the refiners can change the production focus from transportation fuels to petrochemicals, especially in markets like Asia and Europe where the falling in transportation fuels demand is most significant. Beyond the petrochemicals, the capacity to add value to bottom barrels streams appears like a competitive advantage.

3 – New Clients and New Value Addition – Strategically, this alternative seems the right way to follow, mainly to refiners with most complex refining hardware. Through the promotion of closer integration with petrochemical sector, the refiners not only offer a higher proposed value to the clients and society but can reach a new range of costumers capable to ensure higher added value to the processed crude oils and lower operational costs through available synergies between refining and petrochemical assets.

Another strategic planning model which can be applied to the current scenario of the downstream industry is the PESTEL model. This theory applies six fundamental factors which influence the strategy of any business, these factors are:

·?????? Political – The growing pressure to minimize the environmental footprint of the energetic matrix is leading the governments raise the pressure over the downstream players to reduce their carbon intensity, this is translated into an increasingly hostile scenario to the fossil fuels;

·?????? Economic – The higher added value of the petrochemicals in comparison with transportation fuels as well as their higher potential of circularity are important drivers to consider in the strategic planning of the downstream players. The question here is the capital intensity required to make the change of a refining asset from transportation fuels to petrochemicals;

·?????? Social – The impact of the energy industry in the communities is high, considering the higher circularity of the petrochemicals against the fuels and the higher economic returns it’s possible to imagine a better social benefits for the society considering the change of the production focus in the downstream sector from fuels to petrochemicals or non-energetic derivatives like lubricants depending on the local policies of the consumer market;

·?????? Technological – The refining and petrochemical industries are well technologically developed, and the commercial technologies are totally able to allow closer integration between refining and petrochemical assets. The challenge here is related to the production of green hydrogen in large scale to minimize the carbon intensity of the downstream sector;

·?????? Environmental – Again, the environmental factor favors the petrochemical sector due the higher potential of circularity than the transportation fuels;

·?????? Legal – We are seeing a growing pressure over the downstream players to reduce the carbon intensity of their operations which is translated to stricter regulations, this factor overlaps with the political factor which favors the adoption of petrochemicals against fuels as production focus.

A simplified analysis based on the PESTEL model can indicate the favorability of change the production focus from fossil fuels to petrochemicals, this is summarized in Figure 7.

Figure 7 – PESTEL analysis for the Change in the Production Focus of the Downstream Players

??????????? At this point it’s important to explain that the energy transition is an incremental and not disruptive process. The change in the production focus from fuels to petrochemicals is not a easy task and the capital requirement is a barrier among the downstream players, our point of view is that the players with capital power and inserted in more economic developed markets will change quickly from fuels to petrochemicals while the players with less access to capital and based in in developing economies will keep their focus in transportation fuels.

Petrochemical and Refining Integration as Differentiation Strategy

The focus of the closer integration between refining and petrochemical industries is to promote and seize the synergies existing opportunities between both downstream sectors to generate value to the whole crude oil production chain. Table 1 presents the main characteristics of the refining and petrochemical industry and the synergies potential.

As aforementioned, the petrochemical industry has been growing at considerably higher rates when compared with the transportation fuels market in the last years, additionally, represent a noblest destiny and less environmental aggressive to crude oil derivatives. The technological bases of the refining and petrochemical industries are similar which lead to possibilities of synergies capable to reduce operational costs and add value to derivatives produced in the refineries. ?

Figure 8 presents a block diagram that shows some integration possibilities between refining processes and the petrochemical industry.

Figure 8 – Synergies between Refining and Petrochemical Processes

??????????? Process streams considered with low added value to refiners like fuel gas (C2) are attractive raw materials to the petrochemical industry, as well as streams considered residual to petrochemical industries (butanes, pyrolysis gasoline, and heavy aromatics) can be applied to refiners to produce high quality transportation fuels, this can help the refining industry meet the environmental and quality regulations to derivatives.

??????????? The integration potential and the synergy among the processes rely on the refining scheme adopted by the refinery and the consumer market, process units as Fluid Catalytic Cracking (FCC) and Catalytic Reforming can be optimized to produce petrochemical intermediates to the detriment of streams that will be incorporated to fuels pool. In the case of FCC, installation of units dedicated to produce petrochemical intermediates, called petrochemical FCC, aims to reduce to the minimum the generation of streams to produce transportation fuels, however, the capital investment is high once the severity of the process requires the use of material with noblest metallurgical characteristics. ?

The IHS Markit Company proposed a classification of the petrochemical integration grades, as presented in Figure 9.

Figure 9 – Petrochemical Integration Levels (IHS Markit, 2018)

??????????? According to the classification proposed, the crude to chemicals refineries is considered the maximum level of petrochemical integration, where the processed crude oil is totally converted into petrochemical intermediates like ethylene, propylene, and BTX.

Crude Oil to Chemicals Strategy

??????????? Due to the increasing market and higher added value as well as the trend of reduction in transportation fuels demand, some refiners and technology developers has dedicated his efforts to develop crude to chemicals refining assets. One of the big players that have been invested in this alternative is the Saudi Aramco Company, the concept is based on the direct conversion of crude oil to petrochemical intermediates as presented in Figure 10.

Figure 10 – Saudi Aramco Crude Oil to Chemicals Concept (IHS Markit, 2017)

The process presented in Figure 10 is based on the quality of the crude oil and deep conversion technologies like High Severity or petrochemical FCC units and deep hydrocracking technologies. The processed crude oil is light with low residual carbon that is a common characteristic in the Middle East crude oils, the processing scheme involves deep catalytic conversion process aiming to reach maximum conversion to light olefins. In this refining configuration, the petrochemical FCC units have a key role to ensure high added value to the processed crude oil. An example of FCC technology developed to maximize the production of petrochemical intermediates is the PetroFCC? process by UOP Company, this process combines a petrochemical FCC and separation processes optimized to produce raw materials to the petrochemical process plants, as presented in Figure 11. Other available technologies are the HS-FCC? process commercialized by Axens Company, and INDMAX? process licensed by Lummus Company. The basic process flow diagram for HS-FCC? technology is presented in Figure 12.

Figure 11 – PetroFCC? Process Technology by UOP Company.

??????????? It’s important to considering that both technologies presented in Figures 11 and 12 are based on Petrochemical FCC units that presents especial design due to the most severe operating conditions.

Figure 12 – HS-FCC? Process Technology by Axens Company.

To petrochemical FCC units, the reaction temperature reaches 600 oC and higher catalyst circulation rate raises the gases production, which requires a scaling up of gas separation section. ?The higher thermal demand makes advantageous operates the catalyst regenerator in total combustion mode leading to the necessity of installation a catalyst cooler system.

??????????? The installation of petrochemical catalytic cracking units requires a deep economic study taking into account the high capital investment and higher operational costs, however, some forecasts indicate growth of 4,0 % per year to the market of petrochemical intermediates until 2025. In this scenario can be attractive the capital investment aiming to raise the market share in the petrochemical sector, allowing then a favorable competitive positioning to the refiner, through the maximization of petrochemical intermediates. Figure 13 presents a block diagram showing a case study demonstrating how the petrochemical FCC unit, in this case the INDMAX? technology by Lummus Company, can maximize the yield of petrochemicals in the refining hardware.

Figure 13 – Olefins Maximization in the Refining Hardware with INDMAX? FCC Technology by Chevron Lummus Global Company (SANIN, A.K., 2017)

In refining hardware with conventional FCC units, further than the higher temperature and catalyst circulation rates, it’s possible to apply the addition of catalysts additives like the zeolitic material ZSM-5 that can raise the olefins yield close to 9,0% in some cases when compared with the original catalyst. This alternative raises the operational costs, however, as aforementioned can be economically attractive considering the petrochemical market forecasts. ?

Installation of catalyst cooler system raises the process unit profitability through the total conversion enhancement and selectivity to noblest products as propylene and naphtha against gases and coke production. The catalyst cooler necessary when the unit is designed to operate under total combustion mode due to the higher heat release rate as presented below. ?

????????????? C + ? O2 → CO (Partial Combustion) ΔH = - 27 kcal/mol

????????????? C + O2 → CO2 (Total Combustion)?????? ΔH = - 94 kcal/mol

In this case, the temperature of the regeneration vessel can reach values close to 760 oC, leading to higher risks of catalyst damage which is minimized through catalyst cooler installation. The option by the total combustion mode needs to consider the refinery thermal balance, once, in this case, will not the possibility to produce steam in the CO boiler, furthermore, the higher temperature in the regenerator requires materials with noblest metallurgy, this significantly raises the installation costs of these units which can be prohibitive to some refiners with restricted capital access.

Another key refining technology to crude oil to chemicals refineries is the hydrocraking units. Despite the high performance, the fixed bed hydrocracking technologies can be not economically effective to treat crude oils directly cue to the possibility of short operating lifecycle. Technologies that use ebullated bed reactors and continuum catalyst replacement allow higher campaign period and higher conversion rates, among these technologies the most known are the H-Oil and Hyvahl? technologies developed by Axens Company, the LC-Fining Process by Chevron-Lummus, and the Hycon? process by Shell Global Solutions. These reactors operate at temperatures above of 450 oC and pressures until 250 bar. Figure 14 presents a typical process flow diagram for a LC-Fining? process unit, developed by Chevron Lummus Company while the H-Oil? process by Axens Company is presented in Figure 15.

Figure 14 – Process Flow Diagram for LC-Fining? Technology by CLG Company (MUKHERJEE & GILLIS, 2018)

Catalysts applied in hydrocracking processes can be amorphous (alumina and silica-alumina) and crystalline (zeolites) and have bifunctional characteristics, once the cracking reactions (in the acid sites) and hydrogenation (in the metals sites) occurs simultaneously.

Figure 15 – Process Flow Diagram for H-Oil? Process by Axens Company (FRECON et. al, 2019)

An improvement in relation of ebullated bed technologies is the slurry phase reactors, which can achieve conversions higher than 95 %. In this case, the main available technologies are the HDH? process (Hydrocracking-Distillation-Hydrotreatment), developed by PDVSA-Intevep, VEBA-Combicracking Process (VCC)? commercialized by KBR Company, the EST? process (Eni Slurry Technology) developed by Italian state oil company ENI, and the Uniflex? technology developed by UOP Company. Figure 16 presents a basic process flow diagram for the VCC? technology by KBR Company.

Figure 16 – Basic Process Arrangement for VCC? Slurry Hydrocracking by KBR Company (KBR Company, 2019)

??????????? In the slurry phase hydrocracking units, the catalysts in injected with the feedstock and activated in situ while the reactions are carried out in slurry phase reactors, minimizing the reactivation issue, and ensuring higher conversions and operating lifecycle. Figure 17 presents a basic process flow diagram for the Uniflex? slurry hydrocracking technology by UOP Company.

Figure 17 – Process Flow Diagram for Uniflex? Slurry Phase Hydrocracking Technology by UOP Company (UOP Company, 2019).

??????????? Other commercial technologies to slurry hydrocracking process are the LC-Slurry? technology developed by Chevron Lummus Company and the Microcat-RC? process by Exxon Mobil Company.

For this side, the Steam cracking process has a fundamental role in the petrochemical industry, nowadays the most part of light olefins light ethylene and propylene is produced through steam cracking route. The steam cracking consists of a thermal cracking process that can use gas or naphtha to produce olefins.

??????????? The naphtha to steam cracking is composed basically of straight run naphtha from crude oil distillation units, normally to meet the requirements as petrochemical naphtha the stream needs to present high paraffin content (higher than 66 %).

??????????? Due to his relevance, great technology developers have dedicated his efforts to improve the steam cracking technologies over the years, especially related to the steam cracking furnaces. Companies like Stone & Webster, Lummus, KBR, Linde, and Technip develop technologies to steam cracking process. One of the most known steam cracking technologies is the SRT? process (Short Residence Time), developed by Lummus Company, that applies a reduce residence time to minimize the coking process and ensure higher operational lifecycle. Another commercial technology dedicated to optimizing the yield of ethylene is the SCORE? technology developed by KBR and ExxonMobil Companies which combines a selective steam cracking furnace with high performance olefins recovery section.

??????????? ?The cracking reactions occurs in the furnace tubes, the main concern and limitation to operating lifecycle of steam cracking units is the coke formation in the furnace tubes. The reactions carry out under high temperatures, between 500 oC to 700 oC according to the characteristics of the feed. For heavier feeds like gas oil, is applied lower temperature aiming to minimize the coke formation, the combination of high temperatures and low residence time are the main characteristic of the steam cracking process. Despite be possible to operate with naphtha, nowadays the steam cracking operators have chosen to operate with ethane or LPG against naphtha due to the competitive prices related to the new sources of NGL (Natural Gas Liquid), despite this trend over the last years, in markets where is observed a gasoline surplus, naphtha can still an attractive alternative as feedstock to steam crackers.

??????????? According to some forecasts, the demand by propylene will raise from 130 million metric tons in 2020 to around to 190 million metric tons in 2030. Facing the increasingly light feed to refineries and steam cracking units which tends to favor the ethylene production in detriment of propylene, the propylene demand tends to be supplied by on-purpose propylene production routes like propane dehydrogenation, methanol to olefins (MTO), and olefins metathesis.?

??????????? As quoted above, some technology developers are dedicating his efforts to develop commercial crude to chemicals refineries. Figure 18 presents the concept of crude to chemicals refining scheme by Chevron Lummus Company.

Figure 18 – Crude to Chemicals Concept by Chevron Lummus Company (Chevron Lummus Global Company, 2019)

??????????? Another crude to chemicals refining arrangements is proposed by Chevon Lummus Company, applying the synergy of residue upgrading strategies to maximize the petrochemical intermediates production, Figure 19 presents a crude to chemicals arrangement relying on delayed coking unit.

Figure 19 – Crude to Chemicals Concept by Chevron Lummus Company (Nexant Company, 2018)

??????????? Another great refining technology developers like UOP, Shell Global Solutions, ExxonMobil, Axens, and others are developing crude to chemicals technologies, reinforcing that this is a trend in the downstream market. Figure 20 presents a highly integrated refining configuration capable to convert crude oil to petrochemicals developed by UOP Company.

Figure 20 – Integrated Refining Configuration Based in Crude to Chemicals Concept by UOP Company.

??????? As presented in Figure 20, the production focus change to the maximum adding value to the crude oil through the production of high added value petrochemical intermediates or chemicals to general purpose leading to a minimum production of fuels. As aforementioned, big players as Saudi Aramco Company have been made great investments in COC technologies aiming to achieve even more integrated refineries and petrochemical plants, raising considerably his competitiveness in the downstream market. The major technology licensors as Axens, UOP, Lummus, Shell, ExxonMobil, etc. has been applied resources to develop technologies capable to allow a closer integration in the downstream sector aiming to allow refiners extract the maximum added value from the processed crude oil, an increasing necessity in a scenario where the refining margins are under pressure. Based on data from The Catalyst Group Company (TCGR) in 2019 there were some capital investments in crude to chemicals projects as presented in Table 2.

Table 2 – Crude Oil to Chemicals Investments (The Catalyst Group, 2019)

? Is expected that some of these capital investments was postponed due to the economic crisis provoked by the COVID-19 pandemic, but these data reinforce the trend in the market, it’s interesting to quote that close to 64 % of the global crude to chemicals investments are made by Asian players which can lead a competitive imbalance in the global petrochemical market.

??????????? It’s important to consider that the cost composition evolves several factors, and this scenario can be different according to the local business environment. Figure 22 present a comparison between the petrochemicals yields of traditional refineries, a benchmark integrated refinery and Hengli crude to chemicals complex, according to data from IHS markit.

Figure 21 – Petrochemicals Yield Comparison (IHS Markit, 2018)

Analyzing Figure 21 it’s possible to note the higher added value reached in crude to chemicals refineries when compared even with highly integrated refineries. Based on data from 2019 the total capital investments in crude to chemicals refineries is 300 billion US dollars and 64 % of this investment was made by Asian players, to reinforce this trend Figure 22 present a comparison between the relation of crude oil distillation capacity and the integrated refinery capacity for each continent.

Figure 22 – Crude Oil Distillation Capacity and Integrated Refinery Capacity for Each Continent (Wood Mackenzie, 2023)

Figure 22 shows that the Asian players have a superior integration capacity of their refining assets in comparison with another continents, as mentioned above, this can be translated in a significant competitive advantage to the Asian players and a great potential o competitive imbalance of the downstream market considering the recent forecasts which indicates growing demand for petrochemicals. Furthermore, it’s possible to see the power of the China in the Asian and global downstream market. Another interesting point of the Figure 22 is the positioning of the Middle East market which present great potential of competitiveness of the petrochemical integration due to the high capital availability and access to light and high added crude oil. Recently, the SATORP Company (A Joint Venture between Saudi Aramco and Total Energies Companies), announces an investment of USD 11 billion in the Amiral crude to chemicals complex in Saudi Arabia.

Considering exclusively the propylene market, the forecasts are even more encouraging for investments in on purpose propylene production routes. Figure 22 presents the projection to propylene market size for the next years.

Figure 23 – Evolution of Propylene Market Size for the next years (Precedence Research, 2022)

??????????? According to Figure 23, the propylene market can reach values higher than 150 billion USA dollars in 2032 with an annual rate of 3,76 % with Asia being the bigger market as expected.

As aforementioned, face the current trend of reduction in transportation fuels demand at the global level, the capacity of maximum adding value to crude oil can be a competitive differential to refiners. Due to the high capital investment needed for the implementation that allows the conventional refinery to achieve the maximization of chemicals, capital efficiency becomes also an extremely important factor in the current competitive scenario as well as the operational flexibility related to the processed crude oil slate. ?

Integrated Refining Hardware – Synergy of Petrochemicals Maximization and Residue Upgrading

??????????? As aforementioned the residue upgrading units are capable to improve the quality of bottom barrel streams, the main advantage of the integration between residue upgrading and petrochemical units like steam cracking is the higher availability of feeds with better crackability characteristics.

??????????? Bottom barrel streams tend to concentrate aromatics and polyaromatics compounds that present uneconomically performance in steam cracking units due the high yield of fuel oil that presents low added value, furthermore, the aromatics tends to suffer condensation reaction in the steam cracking furnaces, leading to high rates of coke deposition that reduces the operation lifecycle and raises the operating costs. In this case deep conversion units like hydrocracking can offer higher operational flexibility.

Once cracking potential is better to paraffinic molecules, and the hydrocracking technologies can improve the H/C in the molecules converting low added value bottom streams like vacuum gasoil to high quality naphtha, kerosene, and diesel the synergy between hydrocracking and steam cracking units, for example, can improve the yield of petrochemical intermediates in the refining hardware, an example of highly integrated refining configuration relying on hydrocracking is presented in Figure 24.

Figure 24 – Integrated Refining Scheme Relying on Residue Upgrading and Petrochemical Maximization Technologies (UOP, 2019)

??????????? Considering the recent trend of reduction in transportation fuels demand followed by the growth of petrochemicals market makes the presence of hydrocracking units in the refining hardware raise the availability of high quality intermediate streams capable to be converted into petrochemicals, an attractive way to maximize the value addition to processed crude oil in the refining hardware. As presented in Figure 24, the synergy between carbon rejection and hydrogen addition technologies like FCC and hydrocracking units can offer an attractive alternative, sometimes the hydrocracking and FCC technologies are faced by competitors technologies in the refining hardware due to the similarities of feed streams that are processed in these units. In some refining schemes, the mild hydrocracking units can be applied as pretreatment step to FCC units, especially to bottom barrel streams with high metals content that are severe poison to FCC catalysts, furthermore the mild hydrocracking process can reduce the residual carbon to FCC feed, raising the performance of FCC unit and improving the yield of light products like naphtha, LPG, and olefins.

Considering the great flexibility of deep hydrocracking technologies that are capable to convert feed stream varying from gas oils to residue, an attractive alternative to improve the bottom barrel conversion capacity is to process in the hydrocracking units the uncracked residue in FCC unit aiming to improve the yield of high added value derivatives in the refining hardware, mainly middle distillates like diesel and kerosene.

Conclusion

Nowadays, is still difficult to imagine the global energetic matrix free of fossil transportation fuels, especially for in developing economies. Despite this fact, recent forecasts, growing demand by petrochemicals, and the pressure to minimize the environmental impact produced by fossil fuels creates a positive scenario and acts as main driving force to closer integration between refining and petrochemical assets, in the extreme scenario the zero fuels refineries tend to grow in the middle term, especially in developed economies.

The synergy between refining and petrochemical processes raises the availability of raw material to petrochemical plants and makes the supply of energy to these processes more reliable at the same time ensures better refining margin to refiners due to the high added value of petrochemical intermediates when compared with transportation fuels. The development of crude to chemicals technologies reinforces the necessity of closer integration of refining and petrochemical assets by the brownfield refineries aiming to face the new market that tends to be focused on petrochemicals against transportation fuels, it’s important to note the competitive advantage of the refiners from Middle East that have easy access to light crude oils which can be easily applied in crude to chemicals refineries. As presented above, crude oil to chemicals refineries is based on deep conversion processes that requires high capital spending, this fact can put under pressure the refiners with restrict access of capital, again reinforcing the necessity to look for close integration with petrochemical sector aiming to achieve competitiveness.

In the extreme side of the petrochemical integration trend, there are the zero fuels refineries, as quoted above, it’s still difficult to imagine the downstream market without transportation fuels, but it seems a serious trend and the players of the downstream sector need to consider the focus change in his strategic plans like opportunity and threat.

Despite the benefits of petrochemical integration, it’s fundamental taking in mind the necessity to reach a circular economy in the downstream industry, to achieve this goal, the chemical recycling of plastics is essential. As presented above, there are promising technologies which can ensure the closing of the sustainability cycle of the petrochemical industry.

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Dr. Marcio Wagner da Silva is Process Engineer and Stockpiling Manager at Crude Oil Refining Industry based in S?o José dos Campos, Brazil. Bachelor’s in chemical engineering from University of Maringa (UEM), Brazil and PhD. in Chemical Engineering from University of Campinas (UNICAMP), Brazil. Has extensive experience in research, design and construction to oil and gas industry including developing and coordinating projects to operational improvements and debottlenecking to bottom barrel units, moreover Dr. Marcio Wagner have MBA in Project Management from Federal University of Rio de Janeiro (UFRJ), in Digital Transformation at PUC/RS, and is certified in Business from Getulio Vargas Foundation (FGV).