Future of Petrochemicals

[Sibi Thirunavukkarasu S + 1]

As the world is gradually reducing its reliance on oil and gas for transportation and energy, how will this affect petrochemical industry growth and our reliance on petrochemical products (plastics).

I am keen to start a meaningful discussion. All comments welcome. 

[Tom Kirkman + 8,860]

The demand for oil & gas isn't going away any time soon.  I just had a conversation anout this topic with one of our interns this morning.

The concept of "peak oil" has been repeatedly shown to be (so far) not true.

While renewable energy is here to stay, so far, renewables are nowhere near ready to take the place of oil & gas for the world's energy needs.

It may shift your thinking a bit if you understand that I tend to view natural gas as a renewable resource, although I view oil as a fairly finite resource.  Methane (natural gas) is constantly being formed naturally.  In the USA, the U.S. livestock industry produces more Methane (i.e. cow farts and burbs) than the U.S. oil and gas industry wastes - via flaring and gas leakages, for example.

The gung ho oil bulls who are insanely hoping for $300 oil will only hasten along the transition from oil energy to the expensive renewable energy.  So far, solar power and wind power energies are only commercially viable with the assistance of government subsidies.

If oil goes to triple digit prices, then the artificial government subsidies for renewables won't be needed so long as oil prices stay high.

In my view, the transition away from oil and toward renewable energy (which should include natural gas) will be gradual, incremental, and the speed will prinarily depend on oil prices.  High oil prices will spur investment in renewables. Moderate oil prices - say $60 to $70 oil - should keep the world economy and world energy prices on a more even keel.

Also, bear in mind, much of the world's electricity is generated by burning hydrocarbons - coal, oil, natural gas (including LNG).

[Marina Schwarz + 1,576]

If we are to trust Big Oil, which we should do guardedly, petrochemicals are the long-term future of oil. Yes, we can all start driving EVs some day and get all our juice from solar, wind, and tidal installations but the amount and variety of things made from oil and gas derivatives is staggering. It would be very, very difficult to replace every single one of them with biodegradable alternatives.

[Sibi Thirunavukkarasu S + 1]

Thank you Tom and Medina for your contributions. 

[Tom Kirkman + 8,860]

You're welcome, Sibi. 

[JHM + 30]

Let's imagine a world in which crude is $60/b, natural gas is $4/mmBtu and advanced batteries are under $100/kWh. At this price, EVs both for private passengers and heavy duty commercial use are at sticker price parity with fossil-powered vehicles. Thus, the retail price of gasoline and diesel are at parity with EVs below $1/gal. So the oil industry can market gasoline and diesel above parity price, but it drives off demand as quickly as people can replace their vehicles. The other option is to make less than $1/gal on motor fuels and try to make money on what it left of the barrel. So let's follow that line of thought.

So about 32 gallons of a 42 gallon barrel of crude sell for $1/g as gasoline and diesel. That covers $30 of the $60 cost of barrel of crude. The other $30 plus cost of refining and profit must, therefore come from 10 gallon of gases competing with natural gas and tar still need for roads! So imagine trying to get $3/gal for PGLs where there is an abundance of natural gas. For example, propane form crude would need to fetch more than $33/mmBtu while natural gas is a mere $4/mmBtu.

The point here is that oil at $60/b is way too expensive compared to natural gas to derive its profitability form petrochemicals which are mostly using PGLs as feedstock. This is the essential folly of BP and others claiming that demand growth in petrochem and other non-motor fuel products will somehow carry oil demand growth out past 2040. When gasoline and diesel are no longer profitable, crude will not command a high enough price to sustain the continual expansion of supply.

So maybe some price of crude under $30/b would allow gasoline and diesel to still be profitable at $1/gal. Then the critical question becomes, how much crude production can be sustained at $30/b or less? Or maybe the price of natural gas goes over $10/mmBtu. This just prices natural gas out of competition with renewables, but still does not support $60/b in competition for petrochem feedstock. Or maybe EV batteries never get down to $100/kWh, but that assumption is simply to deny the potential of batteries to disrupt hydrocarbon markets.