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In our last post, we asked our Principal Consultant, Paul Minton, what he had learnt from the first day of the Reuters Seminar – “The future of Petrochemicals, Chemicals, LNG and Refining”. Today, we ask him about the second day, which focussed on the opportunities for investment. These are his thoughts:
“Downstream has long been boom or bust, with opportunity to profit in boom. These are cyclical industries, in the past overbuild and overshoot was predictable, but this cycle is unknown and open ended, so will refining survive to recover? There is a profit opportunity for those who get through and are as efficient as possible. Rationalisation over-shoots too.
Nicholas Thevenet, Arab Petroleum Investments Corp: said that the appetite for projects is strong. MENA 2024 (5 year outlook) spending increases by $4 billion over last year’s plan. This is underwritten by Middle East/North Africa (MENA) competitive advantage, including taking a different, long term view on returns.
We need to consider that finance is not just western style banking based on margins, it is also heavily MENA government driven with different time frames and strategies. Not all markets run on marginal economics. MENA governments and National Oil Companies take the short term hit for the long term. Economies of scale and the long term are South East Asia characteristics too.
To stay the distance, downstream needs to cut cost, including embracing digital. Raised efficiencies, regional scale and hub markets will matter, but trade is global. Changes to market demand show two underlying trends, polyethylene for packaging, and polypropylene for PPE are up, as are Ethanol and polyethylene terephthalate (PET) for sanitisers, but these might be shorter term Covid effects. Transport fuels, and chemicals such as ethyl benzene, styrene, EVC, Propylene oxide, all parts of car manufacture are down.
This is a mobility transition, Covid has thrown it into sharper focus.
Winners need strategies to gain share and come through, and understand all the markets, including the global market for finance. The west is not insulted from other ways of doing business, but it competes for the same finance.”
Strategic Growth Services' supply chain services focus on the energy transition, that transition is largely driven by carbon reduction, but there is a geographic transition too as the industry rationalises and the clash of investment cultures move projects eastward.
To understand how, as a supplier, you can adapt to these transitions, please feel free to email us at moreinfo@stratgrowthservices.com