BLOG: Petrochemicals after the Supercycle: Revised scenarios

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

The slide in today’s post is an updated version of the slide I first published late last year. Note that there is a new scenario added to the original two, A Bi-polar World.

I could be wrong, of course. I might have given the wrong weightings to each of the scenarios, or more simply have chosen the wrong scenarios entirely. But today’s events point to very different outcomes than we saw during the 1992-2021 Petrochemicals Supercycle.

Supermajors – 25% probability
A small number of oil-and-gas-to-petrochemicals players dominate the business as they have increasingly turned oil and natural-gas liquids into petrochemicals at competitive costs. This is in response to the decline in crude-oil demand into transportation fuels because of the electrification of vehicles.

Non-integrated petrochemical producers in Europe, South Korea, Singapore, Taiwan and Southeast Asia consolidate. Large swathes of capacity closes-down in these countries and regions to balance markets.

A Bi-Polar World – 50% probability
The split between China and the US, and possibly the EU as well, widens.

The rest of the developed world, including major petrochemical players in countries such as South Korea, Singapore and Japan, will need to decide where they stand: With the US and its partners or with China and its partners. They are at risk of losing access to the China market.

Petrochemicals trade is largely confined to between China and its partners and between the US and its partners.

No one scenario will be completely right. We could end up at any of many points between each of these three extreme outcomes.

This is the case with Supermajors and A Bi-polar World. It could be that the closer relationship between Saudi Arabia and China allows Saudi Arabia to supply more of China’s petrochemicals deficits, allowing the Kingdom to perhaps realise some of its crude-oil-to-chemicals ambitions.

A De-globalised World – 25% probability
Markets are in general much more regional. Instead of just a bi-polar world, we end up with beggar-thy-neighbour trade barriers similar in scale to the ones which led to the Great Depression.

Petrochemical companies become much more “local for local”. Governments put up barriers to protect jobs and to ensure refineries don’t shut down along with uncompetitive petrochemical plants, thereby by protecting local supplies of transportation fuels.

While extreme outcomes help push people out their comfort zones, supporting local petrochemical companies might instead fit at some mid-way point between all the scenarios.

And “local for local” shouldn’t be viewed as automatically a bad thing. One can argue that because of today’s highly uncertain geopolitical world, local supplies of at least some petrochemicals are essential.

Calling all senior management teams out there: You need to prepare your teams for the world after the Petrochemicals Supercycle.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.