A Closer Look at the Petrochemical Sector
If specialized, downstream investments are Singapore’s preferred growth trajectory, the petrochemical sector remains the bedrock of the industry and provides the material conditions for the specialty segment to develop. As Wim Roels, the CEO of Borouge, stated: “We still need ethylene, propylene, and other base materials to produce advanced chemicals.”
The ubiquity of plastics used in construction, healthcare, or packaging support demand for the petrochemical industry. Globally, the industry is expected to grow at a CAGR of 5%, to a projected value of US$651.1 billion by 2027, based on data from Grand View Research. Half of the petrochemical market by volume is found in APAC, China, India and Japan leading basic polymer demand. According to McKinsey, China has contributed to about half of the growth in the chemical sector in the past two decades. China also accounts for over 40% of chemical output, based on the same source. South China Morning Post reported in 2020 that China is building at least four mega refineries with a crude-processing capacity of 1.4 million bpd – equivalent to Singapore’s total capacity today. In India, the expansion of Reliance petrochemical refinery has almost halved India’s need for imported glycols, and more production facilities are in the pipeline to increase the country’s self-sufficiency.
“While new plants and petrochemical facilities are being built around the world, this can also be seen as a positive development as it reflects an overall growing demand for petrochemical products. At ExxonMobil, we take a long-term view of supply-demand fundamentals and factor in the highs and lows of the business cycle in our investment considerations.”
Geraldine Chin, Chairman and Managing Director, ExxonMobil Asia Pacific
Sudheer Vijapurapu, managing director at New Asia Shipbrokers (NAS) is worried about these developments: “There will be fundamental shifts as the world’s largest consumers, like China and India, are becoming increasingly self-sufficient, focusing on backward integration of their plants, building grassroots refineries, and importing the cheapest oil rather than relying on imports of processed chemicals.”
However, while China may eventually balance supply and demand domestically, India is far from achieving parity. Also, Southeast Asia’s 655 million people are a significant market that Singapore is well-positioned to serve. In the heart of APAC, Singapore’s high standards of governance, world-class infrastructure, favorable business climate, and great connectivity with the rest of the region differentiate the country from its Asian competitors. As long as Singapore continues to assert itself along these strengths, the country’s petrochemicals sector sees steady fundamentals.
“Methanol has become the world’s most important base petrochemical. It has taken a great journey of both greater scale and wider application beyond its traditional uses, including blending into gasoline, converted to dimethyl ethers which are then blended into LPG, as a feedstock to make ethylene and propylene, and as an alternative fuel to produce biodiesel.”
Mark Berggren, CEO, Methanol Market Services Asia (MMSA)
As one of the most important intermediate petrochemical products, methanol had a good 2020, even though higher supply has reduced the price of the product, hampering revenues. The methanol market is projected to grow at a CAGR of 5.5% between 2020 and 2025
Mark Berggren, CEO of Methanol Market Services Asia (MMSA), an independent consultant founded in 2004 in Singapore, shared with GBR that the production of olefins (like ethylene, propylene, and butadiene) from methanol has been a strong growth pillar for the methanol markets, especially coming from China. MTO (methanol-to-olefins) is the third-largest and fastest-growing derivative segment in the market.
Moving down to acetic acids, a derivative of methanol, the negative impact of 2020 on the price is likely to linger through the first half of 2021, said Harvey Zhao, senior commercial director, Acetyl Chain Asia, at Celanese. Zhao told GBR that “tiger” growth seen especially in some Southeast Asian countries has helped the market overcome oversupply: “The acetyls value chain, from acetic acids to VAMs, emulsions and the powders business, is undergoing a process of restructuring. About seven or eight years ago, the market was characterized by capacity build-up, especially driven by China, which resulted in low profitability for a couple of years. However, the industry grew out of that saturation.”
Polymers: PE, PP, PC
For ethylene, the feedstock for the synthesis of derivatives like polyethylene (PE), ethylene oxides, or styrene, supply has been mounting, coming especially from Middle Eastern producers who benefit from crude oil and gas abundance. However, the oversupplied PE market is gaining momentum thanks to plastics demand in packaging and healthcare. Similarly, another basic polymer, polypropylene (PP), is expected to grow at CAGR 4% between 2020 and 2027.
Geraldine Chin, the chairman and managing director of ExxonMobil Asia Pacific, told GBR that demand for surgical gowns, masks, and the use of non-woven PP grew significantly during COVID-19, driving demand for PP: “At its peak, our team in Singapore reconfigured our production capabilities to be able to manufacture enough polypropylene non-wovens to support the production of an additional 300 million masks a month.”
SABIC similarly noticed higher demand not just for PP products used in making disposable gowns, masks, shields, coveralls, or intensive care equipment, but also for polycarbonate (PC), with application in Covid-19 test kits.
By the end of 2021, Borouge, the integrated polyolefin company with both PP and PE solutions, will be inaugurating a new PP plant to bring its total output to 5 million mt/y. The company invests in innovation as much as it does in capacity infrastructure: “In 2020, we launched a new LLDPE (linear low-density polyethylene) solution called Anbiq™ for flexible packaging and we also launched a new pre-compounded PE100 grade developed for drinking water pipes in China,” said Wim Roels, CEO at Borouge.
Roels expects growth in the infrastructure sector, as plastic-based water and gas pressure pipes are replacing the typical zinc and copper ones. In the agriculture sector, more sustainable solutions, such as irrigation pipes that afford greater water efficiencies in rice paddy fields, are also in demand. Borouge’s “differentiated products at scale” stratagem captures well the need for the plastics industry to tailor to specific trends, while also allowing for economies of scale
Image courtesy of Lanxess