Opinion

What’s behind the BP and INEOS petrochemical deal?

The US$5 billion deal bucks the integration trend

By Hugh Hartzog, Research Analyst and Joyce Grigorey, Principal Analyst

While most of the oil majors and NOCs are focusing on strengthening their petrochemical integration, BP has announced that it’s divesting its standalone petrochemical assets to INEOS in a deal worth US$5 billion. What’s driving BP – and what’s in it for INEOS?

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Why does this deal stand out?

It bucks a trend for integration as a growth strategy. As the energy transition shifts the drivers of oil demand towards petrochemicals, many oil producers and refiners are shifting their attention towards chemicals as a key target area for the future.

Dedicated crude-oil-to-chemicals (COTC) technologies are being developed and many traditional refineries are exploring ways to maximise production of chemical feedstocks. This trend is likely to lead to national and international oil companies steadily increasing their stake in the petrochemical market.

What’s driving BP to divest petrochemical assets?

For one thing, it will boost the balance sheet. In June 2020, BP announced it was cutting 14% of its global workforce, writing off US$17.5 billion on asset values and trimming capital expenditure by 25%. The company needed to raise cash urgently and aimed to do this by divesting its position in its chemical businesses. This deal helps to achieve its target of selling US$15 billion worth of assets by 2021, a year earlier than planned.

At the same time, it allows the company to focus on its long-term strategic goal – energy transition. In February, BP set its ambition to become a “net zero company” by 2050. Luke Parker, Wood Mackenzie’s Vice President of Corporate Analysis, commented that this move “will see BP’s business completely transformed over the coming decades: renewables and carbon abatement will get very big, legacy oil and gas will eventually get smaller.”

This isn’t the first time BP divested assets to INEOS – in 2005 it sold Innovene for US$9 billion. BP held onto its paraxylene/PTA and acetyls assets when they were making strong profits. But now these businesses are struggling with overcapacity and the company has opted to forego the capital investments needed to keep pace in these highly competitive commodity markets.

Aside from the remaining deeply-integrated Gelsenkirchen and Mulheim sites, BP has now exited the chemicals business.

What is in it for INEOS?

For INEOS, the deal includes a number of co-located assets and represents a good overall portfolio fit with very limited overlap.

Undoubtably, INEOS is relying upon capturing significant operational synergies as it integrates the two businesses. The company already has an existing ethylene oxide/ethylene glycol business, but the purchase of BP’s 15 chemical assets enhances its integration into the polyester value chain.

Furthermore, INEOS may see strong growth potential in the plastics circularity movement – the acquisition of BP’s recycling business, Infinia, gains the company instant access to this space. BP’s recycling technology, which reconverts plastic polyethylene terephthalate (PET) waste back into virgin-quality feedstocks, is included in the sale.

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