M. W. Da Silva, Petrobras, São José dos Campos, Brazil
Among the challenges in the global crude oil refining
industry are the price volatility of raw materials and the pressure from
society to reduce environmental impacts, as well as reduced margins. The latest
threat is the forecasted reduction in consumer demand for transportation fuels
(e.g., gasoline, diesel). This predicament is compounded by several
countries—primarily in Europe—announcing the banning of internal combustion
recent forecasts, the demand for transportation fuels is still the primary
revenue driver for the downstream industry (FIG. 1), based on data from
FIG. 1 shows that feedstock for petrochemicals (e.g., naphtha, ethane) is expected
to increase through the forecast period, while transportation fuel demand is
forecast to level off or decline. Additionally, as illustrated in FIG. 2, integrated
refiners tend to achieve higher refining margins than conventional refiners that
keep their operations focused on only transportation fuels.
in fuel efficiency and the growing market for electric vehicles are two reasons
for the decline in transportation fuels market share in the global crude oil
demand mix. New technologies, like additive manufacturing (3D printing), have
the potential to greatly impact transportation fuel demand, as well. Furthermore,
the higher availability of lighter crude oils favors the oversupply of lighter
derivatives that facilitate the production of petrochemicals against
transportation fuels, as well as the higher added value of petrochemicals in
comparison with fuels.
challenges, the search for alternatives that will ensure the survival and
sustainability of the refining industry has become a constant challenge for
refiners and technology developers. Due to the similarities of infrastructure, a
better integration between refining and petrochemical production processes
appears to be an attractive alternative. Despite the advantages, it is
important to consider that the integration between refining and petrochemical
assets increases the facility’s complexity, requires more capital spending and
affects the interdependency of refineries and petrochemical plants. These factors
must be deeply studied and analyzed on a case-by-case basis.
Based on the
description above, it is possible to apply approaches detailed in the article,
“Blue ocean strategy” to classify the competitive markets in the hydrocarbon
processing industry (HPI).1 In this article, the author defines the
conventional market as a “red ocean” where the players tend to compete in the
existing market by focusing on defeating competitors through the exploration of
existing demand, leading to low differentiation and low profitability. The “blue
ocean” is characterized by a non-explored (or little explored) space, creating and
developing new demand and reaching differentiation. This model can be applied
(with some specificities once in a commodity market) to the HPI, considering
the traditional transportation fuel refineries and the petrochemicals sector.
characteristics, the transportation fuels market can be imagined like the red
ocean, where margins tend to be low and under high competition between the
players with low differentiation capacity. Conversely, the petrochemicals
sector can be viewed as the blue ocean where few players are able to satisfy market
demand in competitive conditions, higher refining margins and significant
differentiations in relation to refiners dedicated to the transportation fuels
market. FIG. 3 presents the basic concept of the “blue ocean” strategy vs.
the traditional “red ocean” strategy where the players fight to win market
share with low margins.
explained, market forecasts indicate that refiners that can maximize
petrochemicals production vs. transportation fuels can achieve increased
economic performance in the short term. In this sense, oil-to-chemicals
technologies can offer even more competitive advantages to refiners with the
ability to make the necessary capital investments to install additional
processing units at their facilities.
For some, the
term “differentiation” in the HPI can be confusing. Differentiation is related
to the capacity to reach more added value to the oil processed at plants. In
this article’s context, differentiation relates to maximizing petrochemicals
yield, creating differentiation between integrated and non-integrated players.
In other words, it is possible to adapt the strategy to ensure more added value
to the processed crude leaving the “red ocean” of transportation fuels and
reaping the benefits of the growing petrochemicals market.
fundamental petrochemical intermediate. Propylene is
one of the most important petrochemical intermediates—it is the second largest
consumed petrochemical behind ethylene. Propylene is used as an intermediate in
the production of several fundamental products:
responsible for a major portion of propylene demand, followed by acrylonitrile
normally produced in three commercial grades:
sources of propylene are the steam cracking processes, fluid catalytic cracking
units (FCCUs) in refineries, olefins metathesis, propane dehydrogenation (PDH) and
According to industry
forecasts, the petrochemical market is expected to grow over the next several
years and be a major driver of increased oil demand globally (FIG. 4).
This is the primary reason refiners are investigating—and investing in—integrating
petrochemical processing capacities into their existing facilities. This will
enable refiners to maximize their margins.
petrochemical demand increases over the next 20 yr, the production of petrochemical
intermediates has become the focus of many refiners and process technology
licensors. One such needed intermediate is propylene. Based on data from Honeywell
UOP, there is a growing propylene production gap (FIG. 5).
Due to the
high added value of propylene, it is anticipated that refiners capable of
maximizing propylene production can enjoy a significant competitive advantage
in the market. As shown in FIG. 6, the global propylene market is
forecast to surpass $150 B by 2033. The largest market for propylene will be
the Asia-Pacific region.
One area of
interest is PDH technologies, and the increase in licensed units. For example,
the Turkish company SASA Polyester has announced plans to install a 1-MMtpy PDH
unit—the world’s largest—at its facility in Yumurtalık, Turkey. According to Market Research Co.,
the PDH-to-propylene market will increase from $10.3 B in 2022 to nearly $23 B
in 2031, a compound annual growth rate (CAGR) of more than 9%.
A key issue: Competitiveness
in the global propylene market. Despite the advantages,
the competitiveness of the global propylene market is strongly dependent on operating
costs. The primary factor in producing propylene is the cost of raw material;
however, another fundamental factor is the processing technology applied in propylene
production. FIG. 7 shows the propylene cost curve by production
Of note is the competitive advantage of producing
propylene through refinery purification, involving propylene separation from fluid
catalytic cracking (FCC) liquefied petroleum gas (LPG) and olefins recovery
from offgas. This data reinforces the advantage integrated refiners
have in maximizing propylene in their refining assets. Propylene production via
steam cracking or PDH is cost competitive but is subject to the cost of
In the short term,
there is a potential competitive imbalance in the HPI due to the growing demand
for petrochemicals and the regions that have more integrated assets. Total
capital investments in crude-to-chemicals complexes were approximately $300 B
in 2019, with 64% of spending being made by producers in Asia. FIG. 8 provides
a comparison between the relation of crude oil distillation capacity and the integrated
refinery capacity for each region. As shown, Asian players have a larger
integration capacity vs. other regions. This provides integrated Asian producers
a significant competitive advantage.
Takeaway. Maximizing propylene
production can offer attractive opportunities to refiners, especially those in
markets that are dominated by transportation fuels such as gasoline and diesel.
Forecasts show a significant demand increase for petrochemicals globally, which
is the driving force for refiners to integrate petrochemical processing units
into their existing refining assets.
between refining and petrochemical processes enables integrated complexes to
share materials and infrastructure, which creates additional value and increases
processing margins. The development of crude-to-chemicals technologies
reinforces the necessity of closer integration of refining and petrochemical
assets, especially with the demand for petrochemicals and transportation fuels
moving in opposite directions in the long term.
Part 2. Part 2 will be
featured in the December issue. HP
MARCIO WAGNER DA SILVA is a Process Engineer and Stockpiling Manager at Petrobras. He has extensive experience in research, design and construction in the oil and gas industry, including developing and coordinating projects for operational improvements and debottlenecking bottom-barrel units. Dr. Silva earned a Bch degree in chemical engineering from the University of Maringa, Brazil, and a PhD in chemical engineering from the University of Campinas (UNICAMP), Brazil. In addition, he earned an MBA degree in project management from the Federal University of Rio de Janeiro, and in digital transformation at PUC/RS, and is certified in business from the Getúlio Vargas Foundation.