Feedback on the future of Petrochemicals, Chemicals, LNG and Refining.
Updated: Dec 2, 2020
Our Strategy & Growth Consultant, Paul Minton, enjoyed the Reuters Seminar – “The future of Petrochemicals, Chemicals, LNG and Refining”. We asked him what he had learnt from the first day, these are his thoughts:
“First: a thank you to Reuters for this excellent event, and to all the speakers for their time, insights and challenging observations.
The reduction in demand due to Covid-19 will bring forward the issue of reduced fuel demand resultant from the energy transition. It is analogous to what happened post Global Financial Crisis, where reduced demand brought forward the predicted stress due to increasing mandated vehicle efficiency and biofuel content.
It seems evident that oil price is being set by marginal product demand, not production capacity. The product market, not OPEC, is in control. There is probably no floor, or limit to volatility. The consumer decides that.
Market shocks create hysteresis and markets do not go back to previous normals. Permanent shifts and new habits arise. Work from home and flexible working remain as long-term depressants to transport fuel consumption.
Refining is “back to the 80s” due to overcapacity. Rationalisation and supply side response puts refining at risk. There may be 20 refineries at risk. Transition will result in a bubble of stranded assets. This is a systemic change, not a cycle.
Europe, Asia and the US are different. Asia has highly integrated refining and pet-chems, Europe has to a degree, but the US has not integrated, due to the shale gas ethane and NGL supply boom that led to significant steam cracker expansion in the US, a marked difference to Europe. This seems to be leading to a cultural difference in evaluating integration as a matter of survival for European refining.
Bio-refinery conversions are potentially viable, but having the structure, people and know how available serves no purpose without a market and customer base. Feed oils will be limited, and that will probably move any margins from refiner to supplier.
Markets are changing, and how those markets are serviced are changing. Survivors will embrace that. Understanding these markets and how they are changing is key.”
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