Windfall oil profits – Now is the time for petrochemicals to lead in the energy transition

Will back integrated petrochemical companies take the lead in GHG and waste reduction in chemicals??The foundations are there.

Just over the past year, in what I call the extended hydrocarbons chain (1), investment (2) has been soaring by 47% (3) through first quarter of 2022 versus a year ago in North America. ?

More interestingly, the share going to conventional capacity, like traditional polymer and refining processes has dropped in favor of “the new” – energy transition assets, including those in the circular economy.??In 2021 Q1, the share of conventional to energy transition related capital investment (4) was 77% and 23%, respectively. By 2022 Q1 the shares flipped to 39% conventional and 61% energy transition.

This makes sense with the pressure on companies to improve their ESG profile and as plastics waste recycling takes off.

High energy prices, which began to rise around May 2020 and continued to do so as of this writing, represent a significant opportunity for back integrated petrochemicals companies to seize the lead in GHG and waste solutions.

Energy companies are looking to petrochemicals as one of their fastest growth markets while at the same time experiencing windfall profits.?This gives these players an opportunity to invest capital where it counts to take advantage of ESG opportunities, like Scale Circular Integration (5) using advanced recycling, carbon capture and storage, blue hydrogen production and many other decarbonization/waste reduction solutions.

Another factor at play here is that energy companies are particularly adept at large scale capital projects; their managements are accustomed to scale projects more than most other industries.?The capital intensity of energy is higher than for petrochemicals or waste processing, making them ideally suited to put scale assets in place to change the rules of the game.

This recent phenomenon also raises some other questions as well:

• Is there a risk of undersupply with the focus on ESG investment?
• Will this inhibit new product/process innovation, as R&D is likely focusing the same way?
• Will non-back integrated petrochemical players have a disadvantage, as oil companies increasingly focus on petrochemicals?

Back integrated petrochemicals and plastics companies will need to carefully plan how to use newfound capital to build robust, competitive assets in the new Energy Transition world.

Looking forward to your discussing your thoughts on this topic!

Note: The thoughts represented here are my own and may not necessarily represent the view of Accenture.

(1) Energy to fuels and recycling (energy industry, petrochemicals/polymers, waste processing)

(2) Announced and in-process based on GlobalData Construction database; cancellations may still occur

(3) Capital investment number are represented on a rolling four quarter average

(4) Ibid

(5) See related blog: https://www.accenture.com/us-en/blogs/accenture-research/how-could-your-old-t-shirt-save-the-energy-industry