PTQ Q1 2023 Issue

Closing the sustainability cycle

Role of plastics recycling technologies in the future of the downstream industry

Marcio Wagner da Silva Petrobras

A ccording to recent forecasts, the expanding pet- rochemical market will be responsible for a major portion of crude oil consumption, surpassing transportation fuels, compelling refiners to pursue closer integration with petrochemical assets through the maximi- sation of petrochemical intermediates using refinery assets. Integration with petrochemicals serves as a strategy to ensure better refining margins and higher value addition from crude oil. Figure 1 presents an overview of the grow- ing petrochemical market trend to 2040. Some markets are already in a gasoline surplus. In this case, directing naphtha to petrochemicals against gasoline can be an attractive way to ensure refinery competitiveness. The naphtha to petrochemicals alternative could soon be a trend for refiners competing in markets with a gaso - line surplus. According to data from Wood Mackenzie Company (2021), highly integrated refiners can add from US$0.68 to US$2.02/bbl. According to Wood Mackenzie, the Asian market presents the major concentration of inte - grated refining plants. Gasoline demand will be sustained in developing economies, as shown in Figure 2 . Closely related to the previous discussion, a recently published article 3 classifies the competitive markets in the downstream industry. The authors define the conventional market as a red ocean, where players tend to compete in the existing market, focusing on ‘defeating competitors’ through the exploration of existing demand, leading to low differentiation and low profitability. The blue ocean is characterised by the look for space in non-explored (or few explored markets), creating and devel - oping new demand and reaching differentiation. This model

can be applied (with some specificities once in a commodity market) to the downstream industry, considering traditional transportation fuels refineries and the petrochemical sector. The transportation fuels market can be imagined as the red ocean, where margins tend to be low and under high competition between players with low differentiation capacity. On the other side, the petrochemicals sector can be visualised as the blue ocean, where few players can meet the market in competitive conditions, higher refining margins, and significant differentiation in relation to refin - ers dedicated to the transportation fuels market. Figure 3 presents the basic concept of the blue ocean strategy com - pared to the traditional red ocean, where the players fight for market share with low margins. In comparing the differences, market forecasts indicate that refiners able to maximise petrochemicals against transportation fuels can achieve the highlighted economic performance in the short term. In this sense, crude oil-to- chemicals technologies can offer an even greater competi- tive advantage to refiners with capital investment capacity. It can be difficult to understand the term ‘differentiation’ in the downstream industry as this is a market that deals with commodities. However, differentiation in this instance is related to the capacity to reach more added value to the pro - cessed crude oil. As previously presented, this translates to the capacity to maximise petrochemical yields, creating dif - ferentiation between integrated and non-integrated players. Maximising added value to the processed crude The focus of the closer integration between refining and petrochemical industries is to promote and seize the

2015

2020

2025

2030

2035

2040

Light vehicles*

Heavy-duty vehicles

Aviation

Shipping

Petrochemical feedstock

RCA**

Industry & power generation

Others

* Includes two-wheelers ** Residential, commercial and agriculture *** Included non-energy use (other than petrochemical feedstock) and refinery fuel, etc

Figure 1 Growing trend in demand for petrochemical intermediates (courtesy of Wood Mackenzie, 2020)

PTQ Q1 2023