AIChE Southwest Process Tech Conference: analytical insight into “Future of Petrochemicals”
By- Sumedha Sharma, Technical Editor, Hydrocarbon Processing
The 12th AIChE Southwest Process Technology Conference was kicked off on the morning of October 1, 2020 with an introductory address and program overview by Conference Chair, Ian Glasgow, IAG. The two-day virtual event is co-chaired by Alan Rossiter, University of Houston and supported by Program Chair, Virginia Sommer, Fluor.
Ian introduced Scott Nyquist, Director Emeritus, McKinsey and Company, and Autumn Hong, McKinsey Energy Insights Petrochemicals Leader, the speakers for the opening keynote address on “The Future of Petrochemicals – COVID-10: Impact on the Petrochemical industry.”
The keynote was set in motion with a humbling acceptance of COVID -19 being a major ‘humanitarian challenge’ disrupting the world in entirety and with an aim to provide steps to protect both the people and businesses. The speakers asserted that McKinsey has been striving to develop strategies to ensure safeguarding lives as well as saving the economy - “timeboxing the virus and the economic shock”.
Scott presented a 3 by 3 matrix of scenarios to analyze the economic impact of COVID, public health, response, and economic policies and narrow down on the future of petrochemical industry. Industry executive response has been not very optimistic about a V-shaped recovery for the economy since the early stages of the pandemic and does not seem to improve as tenacity of the virus is more evident. The analytical scenarios for virus containment as well as recurrence show significant stagger in recovery, slow growth, and overall negative world GDP in the short term.
The recovery trajectory is also seen to vary by industry. Recovery for petrochemical industry is impacted by end sector demand, favored by low oil price and overcapacity, but less dependent on supply disruption. The disruptions caused by COVID are expected to loosely affect the varying rates of acceleration in regionalization, and circular economy while rapid transition is evident in energy transition, digitalization and changing industry work culture and modalities. Each of these events present changing demand profiles for petrochemical industry – for example, energy transition to electric vehicles fuels demand for polyolefins while accelerated regionalization away from China could ‘impact 40% of global petrochemical trade flows.’ COVID induced emphasis on regionalization can thus disrupt petrochemical supply chains and impact overall cost equations.
Speaker Autumn Hong illustrated that the demand for polyolefins was largely differentiated based on end use segments. Her data predicts a 10-16 quarter recovery trajectory for commodity goods, construction, and electronics for both slow (virus recurrence) and fast (virus contained) growth scenarios. Textile and automobile sector show significantly slower growth. The resulting demand for C4 and aromatics is therefore more heavily impacted that that of ethylene and propylene.
On the supply side – refinery-based feedstock prices are expected to decrease but existing price setting mechanisms and known linkages are expected to remain the same. The petrochemical value pool has been declining due to slow demand growth and overcapacity. The current oil crisis and COVID have contributed significantly to a further decline. The decrease in oil price may also play a role in eliminating regional advantages and impact profit margins thus flattening the global cost curve for petrochemicals.
Scott reiterated the imperativeness for curating business decisions carefully to protect the health and humane aspect of business while planning for economic recovery. The speakers concluded their presentation with a strong message to the industry to take on the unprecedented with a three-pronged approach –
Weather the storm – prioritize employee health and ensure business continuity through 2020
Plan ahead – determine the operational and business decisions for coming 6-18 months
Shape the next normal – adapt the business though reinventing themselves, digitalization, mergers & acquisitions and more.