Opinion

Why refinery-petrochemical integration is the downstream trend to watch

A tumultuous year has highlighted some key truths for the downstream sector – and new performance benchmarks are being set

2020 was a very difficult year for the world’s refineries, as the global pandemic reduced refinery utilisation while OPEC+ supply restraint narrowed crude price differentials. This dual crisis highlighted some key truths that now signal the direction of travel for downstream assets as the energy transition progresses.

First, petrochemical demand growth is more robust than transport fuels. Second, the commercial viability of many downstream assets is demonstrably threatened in a market downturn. And third, integrated refinery-petrochemical sites can outperform their fuels-only peers.

We explored the shift away from fuels to petrochemicals and the new benchmarks of success in Petrochemical integration defines long term downstream winners and losers. The report draws on insight from our new REM-Chemicals asset benchmarking service to answer questions including:

  • Where are the integrated sites, and how different are they to fuels refineries?
  • How much does petrochemicals contribute to overall site value?
  • What is their competitive position as standalone refiner and as an integrated site?
  • What are the key regional trends?
  • What are the emerging trends for new integrated sites?

To read the report in full, fill in the form for a complimentary copy. Or read on for the top three things you need to know about refinery-chemicals integration in 2021.

1. More than 30% of today’s refineries are integrated with petrochemicals

The energy transition and electrification of transport will slow the pace of global gasoline demand growth and ultimately drive it into reverse. Meanwhile, the versatility and durability of petrochemicals ensures sustained demand growth, particularly in the developing economies of Asia. (Somewhat tempered by the increase in recycling driven by the global war on plastic waste.)

This overarching mega-trend promotes the adoption of refinery-petrochemical integration, particularly for new facilities. Already, more than 30% of the world’s refineries are now integrated with commodity petrochemicals. These sites benefit from both a diversified product slate, and the potential to unlock greater value through economies of scale and operational cost synergies.

To find out more about the economics of integrated sites, fill in the form to read this insight in full.

Click on the interactive map to explore the refinery-only/integrated refinery capacity landscape. 

2. China leads the way on refinery-chemicals integration

As the interactive map above shows, the highest concentration of integrated refinery-chemicals sites is in Asia, with China dominant. Europe is next in line, with advantaged gas-based petrochemical feedstock in Middle East and US Gulf Coast limiting the number of integrated sites.

Integration is not only more prevalent in Asia, the sites are typically larger with a greater degree of integration than in other regions. We can see this clearly in the emergence of second-generation sites in China – mega-complexes such as Hengli that achieve a chemical yield of over 40wt%, compared to the 15-20% chemicals production of the first generation.

What could the third generation yield? Fill in the form to find out more.

3. China’s performance benchmark will have global consequences

The new facilities in China reported outstanding financial results for 2020. Hengli generated a net income of more than US$1.4 billion during Q1 to Q3 2020, at a time when most of the refining industry was incurring significant losses.

China is showing there is a path to follow to achieve earnings comparable with even the top-performing sites in North America. Especially when we consider that these second generation sites only achieved full operations last year. Had they been fully operational in 2019, they would have been amongst the world’s top performing sites for 2020 when measured in earnings per barrel of crude processed.

The development of these highly competitive sites – and those of ‘fast followers’ – will have global consequences. They could accelerate the rationalisation of Atlantic Basin refining capacity, for example, which would find it increasingly difficult to export its surplus gasoline.

How will refinery-petrochemical integration trends play out in regional markets? Fill in the form to read this insight in full.

So, is refinery-chemicals integration the real downstream differentiator?

How do we assess the value that petrochemicals integration adds? Each integrated site is unique, but we can clearly see how the trend is developing in the European industry in the chart below – a higher yield of petrochemicals is adding value to fuels refining.

However, it is important to understand the role of different petrochemicals within overall site economics, as contributions will vary in line with commodity cycles. The scale and complexity of individual sites, and regional market dynamics are also a factor.

What is clear is that in a period of global capacity surplus in both refining and petrochemicals, competitive position is crucial to site profitability and sustainability. Investment in integration could prove to be a key differentiator.

Getting a clearer picture of refinery-chemicals integration

REM-Chemicals, a new service from Wood Mackenzie, makes it possible to benchmark sites and get a clear picture of value drivers. Read the full insight to find out more, including:

  • The impact of refinery-chemicals integration on site economics
  • Regional perspectives: North and Latin America, Former Soviet Union, Middle East and Asia
  • Emerging trends for new sites
  • How REM-Chemicals can help to identify winning sites and their attributes.

Fill in the form at the top of the page for your complimentary copy.