Petrochemical demand for oil set to hold through to 2021 – IEA

LONDON (ICIS)–Global oil demand for petrochemicals is expected to remain robust through to 2021, the International Energy Agency (IEA) said on Monday.

In the 2016 edition of its Medium-Term Oil Market Report, the organisation said oil demand for petrochemicals is expected to increase by roughly 2m bbl/day from 2015 to 2021, an annual growth rate of almost 3%.

However, the IEA said this growth would be “neither equally shared among the different oil products nor the world’s regions”.

“LPG [liquefied petroleum gas] (including ethane) and methanol (driven by developments in China) will gain in importance over the next six years, whereas the share of naphtha will drop,” the IEA said.

“Growth will be led by the United States, the Middle East and China; with Europe and OECD [Organisation for Economic Co-operation and Development] Asia experiencing slight declines,” it added.

A total of 11.5m bbl/day of oil, or 13% of total demand, is used in the production of petrochemicals, of which almost 90% is used as a feedstock and the rest for thermal energy, the IEA said.

It added the main feedstocks of the petrochemical industry are naphtha (50%), LPG (propane, butane and ethane) (40%), recently methanol (mainly in China) and to a small extent diesel (gasoil).

About 70% of oil is used in dedicated steam crackers – which converts oil products into a range of petrochemicals, notably ethylene. The remainder is mainly used in oil refining, where aromatics are produced from catalytic reforming of naphtha and propylene, the IEA said.

Traditionally, the US has been the largest petrochemical producer, accounting for a fifth of total petrochemical sector oil consumption, with the Middle East being the second most important producer (representing 15% of global oil consumption for petrochemicals).

The EU accounts for 14% of petrochemical oil consumption, China (13%), Korea (8%) and Japan (6%), where petrochemicals are largely produced from naphtha, the IEA added.

The report said with seven world-scale steam crackers under construction on the US Gulf Coast, together with mature projects and de-bottlenecking, ethylene capacity is projected to increase by almost 40% in the US from 2015 to 2021, increasing the demand for ethane by around 500,000 bbl/day.

In the Middle East meanwhile, the IEA has also projected that as petrochemical production expands faster than ethane supply, there will be a gradual shift towards heavier feedstocks, with the first naphtha cracker in Saudi-Arabia, operated by Dow Chemical and Saudi Aramco, expected to be in full production by the end of 2016.

In China, higher petrochemicals output is expected to be driven by rapidly increasing demand for products and the desire to reduce imports. The IEA said although China plans to add several naphtha-based steam crackers, oil demand growth will be dampened by the “use of coal as a comparatively cheap feedstock in coal-to-olefins and methanol-to-olefins plants”.

“Olefin production capacity from methanol-based projects is currently somewhere around 10 Mt [million tonnes] and is anticipated to more than double by 2021,” it added.

In the EU, Japan and Korea, oil demand from the petrochemicals industry is expected to be essentially unchanged “as those regions experience weak domestic demand and relatively high feedstock prices” in the way of costlier naphtha.

“The fall in oil prices since 2014 has provided European and Asian crackers with some relief as variable cash costs fell significantly bringing ethylene cash costs to a similar level across regions. However, the current low crude oil prices are merely delaying capacity closures in Europe and the Far East,” the IEA said.