Big Oil Bets Big on Plastics Despite Current Challenges

2024-11-26

As the global energy landscape evolves, major oil companies are doubling down on petrochemicals, viewing the sector as a long-term hedge against waning demand for fossil fuels. Despite a challenging downturn for the plastics and petrochemical industries, driven by sluggish consumer demand and oversupply, investments continue to flow into this critical segment.

Petrochemicals Amidst Global Transition

The International Energy Agency (IEA) reports that 90% of China’s increased oil demand from 2021 to 2024 stems from chemical feedstocks like LPG, ethane, and naphtha. Notably, China has rapidly expanded its capacity for ethylene and propylene, now surpassing the combined capacities of Europe, Japan, and South Korea. This surge reflects a broader trend: petrochemicals underpin critical aspects of modern life, from packaging to automotive materials, and even the green energy transition.

Strategic Investments in Petrochemicals

Despite the current bust cycle, with companies like Covestro experiencing significant revenue declines, oil majors are pursuing long-term opportunities in petrochemicals:

ExxonMobil is building a petrochemical complex in southern China’s Guangdong province to produce performance polymers for industries like packaging and automotive.
Saudi Aramco has invested in China's Rongsheng Petrochemical and initiated projects such as the $7 billion petrochemical factory by its subsidiary, S-Oil, in South Korea.
ADNOC continues its acquisition spree, targeting chemical powerhouses like Germany's Covestro and Austria's OMV.

The Role of Plastics in the Green Transition

Ironically, petrochemicals are pivotal for sustainability. Electric vehicles (EVs) rely heavily on lightweight materials like thermoplastics and PET （Polyethylene Terephthalate）resins, enabling improved energy efficiency. Experts estimate three-quarters of emissions-reduction technologies require oil-derived chemicals.

China's Petrochemical Boom

China has emerged as a global leader in petrochemical manufacturing, fueled by private refiners like Hengli Petrochemical and Rongsheng Petrochemical, which specialize in chemicals over traditional fuels. Between 2018 and 2023, China’s synthetic fiber output surged by 21 million metric tons—enough to produce 100 billion T-shirts annually. This capacity expansion, combined with U.S. shale oil exports, has created a "symbiotic" trade relationship between the two nations.

The Road Ahead

While the petrochemical sector faces near-term challenges, its long-term significance remains undeniable. Through strategic investments and innovations in high-performance polymers and sustainable materials, industry leaders are positioning themselves for a future where petrochemicals support both economic growth and the green transition. Plastics, often criticized for their environmental impact, are proving essential to technologies like EVs, highlighting their potential role in a sustainable, innovation-driven future.

Reference

1. The Guardian（20 Nov 2024)| Why Trump's 'drill, baby, drill' pledge may not actually lower US gas prices

2. OILPRICE (Nov 25, 2024) | Big Oil Still Betting On Plastics Despite Sector Going Bust

3. IEA Reports| The Future of Petrochemicals