PTQ Q3 2023 Issue

Vol 28 No 4 Q3 (Jul, Aug, Sep) 2023 ptq PETROLEUM TECHNOLOGY QUARTERLY

Robust prospects in fuels and petrochemicals

O pportunities for higher margins in refinery and petrochemical markets seem to indicate that a compound annual growth rate (CAGR) exceeding 4-5% at the time of writing could prevail in the near term. But what about the long term? The Indian Ministry of Petroleum and Natural Gas (MoP&G) recently projected that India’s primary energy demand is expected to grow at a CAGR of 4.2% to 2040. In parallel, the MoP&G reported that Indian refining capacity has increased from 62 million tons since the late 1990s to 240 million tons. Downstream industry fundamentals and higher margin opportunities in the fuels market are better than expected in some regions. Joe Gorder, CEO of Valero, a US-based independent refiner, recently said it expects refining fundamentals to stay supported by several factors, including a continued increase in product demand. To capture higher margins associated with the tight supply of light product inven- tories, some facilities are delaying scheduled maintenance to continue operating at near maximum capacity. Many refineries are operating at 93+%, but not as high as the 102+% operating rates reported at some facilities in 2022. Some fuel products increasing in demand are diesel and aviation fuel, including sustainable aviation fuels (SAF). The global aviation fuel market is projected to grow from $351.85 billion in 2022 to $654.79 billion by 2029, at a CAGR of 9.3% in the forecast period 2022-2029. Boeing announced it would double its SAF procurement for the year, buying 5.6 million gallons of the fuel from producer Neste. However, Boeing’s CEO David Calhoun recently warned that SAF would “never achieve the price of conventional jet fuel,” downplaying hopes for the technology in the sector. The worldwide maritime industry is also expanding in tonnage. For example, China’s National Shipbuilding Industry Association reported that China’s total ship- building output in the period between January and April amounted to 12.8 million deadweight tonnage (DWT), up 9.3% year-over-year, increasing demand for low- sulphur marine diesel and LNG-powered ships (to a lesser extent). Even as the fuels market continues to deliver value, long-term expectations are for nearly flat fuels margins. Some regions are finding it more lucrative to switch to naphtha-based feedstock production for the petrochemicals market (such as ethyl- ene and propylene). While 2022 may have seen the highest profits in the fossil fuel industry’s history, IEA’s Chief Economist Tim Gould emphasised that the industry has focused more on returning capital to shareholders than investing in long-term expansion-related Capex. Higher Capex is needed for chemical co-processing of biomass-based feedstocks through upgraded refinery assets, along with petro - chemical value chain expansion (olefins, polymers). For example, innovation in high- performance polymers presents new opportunities for the global plastic industry. In Europe, EU regulatory rulings on the use of recycled content in plastics packag- ing will help drive the market. Its uptake avoids greenhouse gas emitting incinera- tion of plastic marine and land debris. Converting waste plastics to circular plastics seems a win-win proposition considering the current demand for polymers like poly- propylene. However, wide-scale commercialisation still needs to happen. A study from Smithers tracks how future growth at a CAGR of 5.5% will drive the polymer market from a value of $19.2 billion to $25.2 billion in 2024. Global PE capacity will reach 146.5 million mt/y by year-end, largely on additions in China and the US, according to S&P Global’s Petrochemical Analytics. Further to the study’s projections, global PE capacity is expected to grow another 7.7% to nearly 157.9 million mt/yr by 2024. Barring the potential for any unforeseen global crisis, the downstream value chain remains robust.

Editor Rene Gonzalez editor@petroleumtechnology.com tel: +1 713 449 5817 Managing Editor Rachel Storry rachel.storry@emap.com Editorial Assistant Lisa Harrison lisa.harrison@emap.com Graphics Peter Harper US Operations Mark Peters mark.peters@emap.com tel: +1 832 656 5341 Business Development Director Paul Mason sales@petroleumtechnology.com tel: +44 7841 699431 Managing Director Richard Watts richard.watts@emap.com Circulation Fran Havard circulation@petroleumtechnology. com

EMAP, 10th Floor, Southern House, Wellesley Grove, Croydon CR0 1XG tel +44 208 253 8695

PTQ (Petroleum Technology Quarterly) (ISSN No: 1632-363X, USPS No: 014-781) is published quarterly plus annual Catalysis edition by EMAP and is distributed in the US by SP/Asendia, 17B South Middlesex Avenue, Monroe NJ 08831. Periodicals postage paid at New Brunswick, NJ. Postmaster: send address changes to PTQ (Petroleum Technology Quarterly), 17B South Middlesex Avenue, Monroe NJ 08831. Back numbers available from the Publisherat $30 per copy inc postage.

Rene Gonzalez

PTQ Q3 2023