In the western world, the petrochemicals industry enjoyed almost uninterrupted growth from the end of World War II until the early 1970s. Although closely allied to the oil industry – many petrochemical plants share facilities with oil refineries – in the past almost all chemical companies wanted at least some petrochemical products in their portfolio, leading to a proliferation of relatively small, ultimately uneconomical, plants.
Since the 1970s, the chemical industry, and petrochemicals in particular, has been a cyclical one, much more influenced by external factors. And the end of the 1970s have seen three industry peaks (in the late 80s, and mid-90s and 00s) and three troughs, occurring in the early years of each decade (Figure 1). Interestingly, the extremes of the cycle have been moderating over time; the peaks and troughs are levelling off, and in the future, returns of those companies that survive should average around 10%.
While a lot of money was made at the peaks, and a lot was lost in the troughs, successful companies will be those that perform well during the middle parts of the cycle, and never fall below zero in the troughs. Most companies that have failed had poorer than average performance through the mid-cycle, and were then unable to avoid very bad losses in the recessions, often due to the small, uneconomical plants they operated.
The effect of all this was to weed out the less successful players, either through takeovers or by firms going out of business. All companies continually try to reduce costs, and good operators can become better, but poor operators rarely become good ones. Thus, the number of major players in petrochemicals is much reduced from the peak in the 1960s and 1970s in the developed world, while new companies are now regularly appearing in the developing regions.
We can confidently predict that the mistakes made in the western world will be repeated in Asia. This is happening already: in China there is currently a huge proliferation of polypropylene plants, many of them with a capacity of under 100 kt/yr, which will not be competitive with the much larger plants being constructed in the developed world and the Middle East.
Today, it is estimated that 99% of chemicals depend on oil and gas for their primary feedstocks, so the chemical industry is, and will remain, dependent on the petroleum industry to a much greater extent than will energy and fuels in the future. The oil companies already dominate petrochemicals production, and will increasingly do so. Of the majors, only BP has recently elected to exit the ethylene chain (Figure 2).
Increasing environmental awareness, coupled with rising costs and decreasing availability of raw materials, such as minerals and metals (C&I 2008, 21, 16), means that the future for plastics in particular should be rosy. Even with all their wide-ranging uses, plastics account for less than 5% of the annual consumption of oil and gas. Nothing can replace them when it comes to preserving our natural resources, and there is huge potential for further replacement of traditional materials by plastics, not least in the automobile industry.
And what of the companies that increasingly dominate the world of petrochemicals? ExxonMobil is the leading global petrochemicals player, if all petrochemicals including aromatics are taken into account. It has good financial performance and backing, global scale which will continue to increase, and a successful and consistent strategy. Dow, although increasing the performance end of its business with takeovers such as the recent Rohm and Haas deal, is still such a huge player in petrochemicals and polymers that it will continue to dominate for many years, although in the longer term it may begin to diminish as bulk businesses are sold or joint ventured. Shell, whose petrochemical business lost its way in the late 1980s, has found the right mix again, with its emphasis on the cracker and first derivatives, and its size, reputation, technology mix and financial strength will see it continuing as a major force in petrochemicals.
BASF is committed to its ‘verbund’ integration strategy, which involves producing petrochemicals feedstocks and derivatives alongside speciality and performance chemicals. It has global ambitions in petrochemicals and is expanding rapidly east and west outside its European base, from China and Malaysia to the US. Total has decided upon a strategy of focusing preferentially on petrochemicals, and made a sizeable Asian acquisition to aid its entry to that region. ChevronPhillips, while still relatively small and USoriented, has entered the Middle East with both a cracker complex (Qatar) and aromatics (Saudi) and may be expected to grow further with time. The new combination of Access/LyondellBasell is another formidable player, while the ambitions of Ineos seem to be limitless.
Six newer players – Reliance Industries of India, NPC Iran, Formosa Plastics, Sinopec, Sasol and of course Sabic – have all been showing major growth, good financial performance and global ambitions. Formosa has already entered the US market in a big way with a major petrochemicals complex in Texas, and more expansion is planned. Sasol is looking to team up with companies with a good feedstock position, such as those in the Middle East, and then expand into India and Asia. Reliance Industries has shown phenomenal growth, but has maintained excellent financial returns. It is still problematical whether Sinopec will try to move outside China for many years, but its activities inside that country could dwarf anything seen before. Sabic is really in a class of its own: its feedstock advantage, financial strength, joint ventures with technological leaders, sustained and structured growth, and responsible and disciplined management mean that its financial performance will be tough to match.
Is it likely that all the current petrochemical players will continue in the business? As mentioned before, it seems likely that the major oils will increasingly dominate the petrochemicals landscape. It is also almost certain that we will see more consolidation in the industry. It is a general rule that bigger – in volume terms – is better in petrochemicals. Figure 3 gives a rough measure of this, showing average performance over 10 years against size as measured by ethylene capacity.
Thus, petrochemicals growth is certain and spectacular in the Middle East and Asia, but there remains plenty of scope for existing producers in the west to grow as well, and research new environmentally friendly uses for their products by replacing scarce minerals and metals.