How will crude oil–to–chemicals reshape the global petrochemical industry

By R.J. Chang, Vice President, IHS Markit, Process Economics Program

Several crude oil–to–chemical (COTC) projects being constructed or planned in Saudi Arabia and Asia have the potential to reshape the global petrochemical industry in years to come. COTC configures a refinery to produce maximum chemicals instead of traditional transportation fuels. Because refinery processing capacity is about ten times higher than the current world-scale petrochemical plants, COTC in effect raises petrochemical production to an unprecedented refinery scale.

COTC also produces at least twice the amount of chemicals per barrel of oil compared to a state-of-the-art, well-integrated refinery-petrochemical complex. Under the conventional industry structure, a refinery provides naphtha to a petrochemical plant for its steam cracking operation to produce chemicals. The current global average is about 8–10% conversion to chemicals per barrel of oil. For a very well-integrated complex such as Petro Rabigh or Sadara in Saudi Arabia, each complex can achieve 17–20% conversion to chemicals. All announced COTC projects produce at least 40% of chemicals per barrel of oil—a quantum leap from a state-of-the-art integrated complex.

In Saudi Arabia, Aramco and SABIC have formed a joint venture to develop a high chemical conversion complex in Yanbu, Saudi Arabia, to be completed by 2025. The complex plans to convert 400,000 barrels per day (or twenty million tons per year) of a light crude to produce nine million tons of petrochemicals—a 45% conversion to chemicals per barrel of oil. Aramco/SABIC has awarded FEED (front-end engineering and design) and technology selection contracts.

Furthermore, Aramco has signed a joint technology development agreement with Chevron Lummus Global (CLG) and CB&I (now McDermott) to integrate CB&I’s ethylene cracker technology, CLG’s hydroprocessing technologies, and Saudi Aramco’s Thermal Crude to Chemicals (TC2C™) technologies with a target of converting 70–80% per barrel of oil to chemicals. If a COTC complex is built based on this future technology starting from 20 million tons of crude oil, it would produce 14–16 million tons of chemicals per year, taking a large share of the annual growth in chemical demand.

“All announced COTC projects produce at least 40% of chemicals per barrel of oil—a quantum leap from a state-of-the-art integrated complex.”

To put it in another perspective, a COTC project based on Aramco’s optimized technology would produce more chemicals than all eight first-wave ethane-based steam crackers in the United States, which have a combined production capacity of 11 million tons of ethylene per year.

Aramco has also signed an agreement with Siluria to utilize the latter’s methane oxidative coupling technologies to further enhance its COTC production of light olefins.  When these projects come on stream, depending on the final configuration of these Aramco projects, they will dramatically increase the capacity of light olefins, aromatics, or most likely both.  The impact to each chemical value chain needs to be evaluated when the final configurations are known.

Aramco’s COTC projects are driven by the company’s goal to better monetize its oil assets. In the next 10–20 years, global demand for chemicals, driven by population growth, is projected to grow more than 4%, higher than the global GDP growth rate of about 3% per year. Demand growth for transportation fuels, on the other hand, is expected to grow only slightly higher than 1% per year during the same period, to be held down by better fuel efficiency and substitution by non-fossil fuel vehicles. While the oil price is at relatively low levels, Aramco has strong incentive to start COTC projects to push deeper into chemicals that provide higher value and higher demand growth than transportation fuels.

In Asia, COTC projects are driven by the major PET (polyethylene terephthalate)/PTA (purified terephthalic acid) producers in China (Hengli, Rongsheng, Ranken, Jinhua, and Henig) to back-integrate to PX (paraxylene) for their captive use. Hengli Petrochemical is constructing a refinery-PX complex that starts from 20 million tons per year of mixed crudes to produce 4.3 million tons of PX plus benzene and other chemicals. The conversion is estimated at 42% of all chemicals per barrel of oil. Zhejiang Petroleum and Chemical (a joint venture among Rongsheng, Tongkun, and Juhua) has planned to convert 40 million tons of crude to about 8 million tons of PX per year in two phases. Each phase has about the same capacity. The first phase will produce 4 million tons of PX plus other chemicals. The conversion is estimated at 40% of all chemicals per barrel of oil. Hengli and the first phase of the Zhejiang project are planned for starting trial runs by end of 2018.

In Brunei, Chinese company Hengyi Group is constructing a smaller refinery-PX plant that will convert 8 million tons of crude oil and condensates to produce 2.8 million tons of PX and other products per year. The project is planned to start operation in 2019, and the produced PX is expected to export back to China. Another project by Shenghong in China plans to build a refinery-PX complex starting with 16 million tons of crude oil to product 2.8 million tons of PX and other chemicals per year. That project is still in the planning stage.

In 2017, China has a PX demand of 23 million tons, but its capacity is only at 12 million tons. The 11-million ton per year supply gap is filled by imports, mainly from Korea, Japan, and Taiwan. When the first wave of these PX-focused COTCs start operation in China, they will add 11.8 million tons of new PX capacity, which will largely close China’s supply gap by 2020 and limit the market access for the current exporters, which will be driven to find other markets. Thus, the impact will not be limited to China, but will ripple through the global PX market.

The COTCs in Saudi Arabia and Asia differ significantly from ExxonMobil’s crude-to-chemical approach in Singapore. ExxonMobil preheats a light crude in the convection section of a steam cracker and then flashes off the light fractions in an external pot. The light fractions—about 76% of the crude according to IHS Markit estimates—are then fed back to the radiant section of the steam cracker to produce chemicals. Since the process is implemented in a steam cracker, although it produces significantly more chemicals per barrel of oil, the scale and impact of each project is much more limited compared with COTCs in Saudi Arabia and China, which involve with configuring the whole refinery to produce maximum chemicals. One advantage of ExxonMobil’s approach is that the capital investment per project is lower.

How well the market can absorb COTCs depends on the relative rate of demand growth vs. speed of COTC addition. It is estimated that the global chemical demand will require six current world scale olefin units and two aromatics units per year. Since each COTC can replace several conventional world scale plants, each COTC addition may result in a substantial stepwise supply. The exact impact of the supply and demand balance will depend on how these facilities are added relative to demand growth.

COTC may also change the dynamics of global competition. Having advantaged feedstock is always an important competitive factor for petrochemical producers. For ethylene production, based on the IHS Markit crude to ethane spread, ethane is expected to offer Middle East and North America significant cost advantage in ethylene production in decades to come.  However, in the new era of COTC, other competitive factors become crucial, as shown in the following figure.

COTC redefines the global scale at refinery level. The sheer scale will be an additional competitive factor, and COTC producers will have an advantage over current world-scale petrochemical producers. Because of high investment costs, capital efficiency will be critical in determining profitability and those companies and countries with significant construction efficiencies will be prime candidates for COTC. But since a large amount of chemicals is produced for each project, having accessible markets will become a major consideration.

Technology is yet another competitive factor. COTCs are more complex to operate, so choosing the best process configuration and technologies will ensure operability and productivity. This will favor the technology licensors who can provide the best-integrated technologies to convert heavier crude assays to produce maximum chemicals with the least utilities and hydrogen consumption.

COTCs are happening now in China, soon to be followed in Saudi Arabia. Because of the huge scale and amount of chemicals each COTC can produce, COTC presages a new era characterized by an unprecedented scale and a few dominant players. The impacts will be imminent and profound. The landscape of global competition may see a major shift to a new set of competitive factors.

“How well the market can absorb COTCs depends on the relative rate of demand growth vs. speed of COTC addition.”