Petrochemical Industry

The petrochemical industry is a complex industry that affects all spheres of life. Most items used in everyday life such as plastic products and soaps owe their existence to petrochemicals. The petrochemical industry connects downstream sectors such as pharmaceuticals with the upstream oil and gas industry. As an important part of the chemical industry, however, the petrochemical industry has been blamed for polluting the environment. In addition, the industry goes through a peak-and-trough cycle that tests the mettle of even the best petrochemical companies.

Processes in the petrochemical industry

The job of the petrochemical industry begins where the petroleum industry ends. The petrochemical industry converts feed stocks such as naphtha and natural gas components such as butane, ethane and propane through steam cracking or catalytic cracking into petrochemical building blocks such as olefins and aromatics. While olefins include ethylene, propylene, methanol and C4 stream such as butadiene, aromatics include benzene, toluene and xylenes. The petrochemicals of commercial importance in the petrochemical industry include ethylene, propylene, benzene and xylene.

These petrochemical building blocks are further processed to yield final products such as paints, polyester and plastics. Take ethylene for instance. It is processed into ethylbenzene, ethylene oxide, ethylene dichloride, ethyl alcohol, acetaldehyde and polyethylene. These undergo further transformation to yield a wide range of products such as tyres, detergents, agrochemicals and plastic products.

Now the petrochemical industry is concentrated in:

• North America,
• Western Europe
• Asia.

In the coming years, the Middle East is likely to emerge as a significant source of petrochemicals owing to abundant natural gas reserves. The major companies in the petrochemical industry include:

• BASF,
• Dow Chemical,
• Shell Chemicals,
• Sumitomo Chemical,
• ExxonMobil Chemical,
• Chevron Phillips Chemical and
• Saudi Basic Industries Corporation

Like other commodities, the petrochemical industry also passes through a peak and trough cycle. Generally, the petrochemical cycle is influenced by economic and geopolitical factors. The petrochemical industry boomed during the period, 1990-97, but went through a lean patch in the subsequent years (1998-2003). The period, 2001-2003, was particularly hard on the petrochemical industry due to rising costs, sluggish demand and underutilised capacities. The petrochemical industry bounced back during 2004 and hopes to consolidate its recovery in 2005. Higher price realizations and better volumes have helped the petrochemical industry offset a rise in oil and gas prices.

Future in the petrochemical industry

A recent study indicates that the world petrochemicals demand will grow at an annual rate of 2.5 per cent till 2020. The demand for ethylene is expected to improve from 100 million tonnes in 2004 to 177 million tonnes in 2020. The demand for propylene is expected to outpace that of ethylene to touch 116 million tonnes in 2020.

Indeed the dilemma facing most petrochemical producers in the petrochemical industry is whether to locate new capacities in the Middle East, close to feedstock supplies or China which has emerged as a significant consumer of petrochemicals. Easy availability of gas has indeed made the Middle East an attractive destination for petrochemical projects in the past few years. By all accounts, the nature of products should determine the location. Due to problems in transportation, petrochemical industry sources believe that projects focusing on ethylene oxide derivatives are better off in China while projects focusing on commodities such as polyethylene should be located close to feedstock sources such as Saudi Arabia, Kuwait, Iran and Qatar. In the near-term, global petrochemical producers particularly US ethylene producers are focusing on capitalising on robust petrochemical prices.