New concerns join old ones at petrochemical event

After a 2-year hiatus because of the COVID-19 pandemic, the IHS Markit World Petrochemical Conference came back in person in Houston late last month.

Just as in meetings before the pandemic, sustainability was high on the agenda. The heads of several of the world’s largest chemical companies outlined their plans to reduce greenhouse gas emissions. But Russia’s invasion of Ukraine made the conference largely about a new crisis, one that is roiling vital oil and gas markets.

Despite strict vaccine and COVID-19 testing requirements, more than 1,450 delegates made the trip to Houston, comparable to the 1,500 who attended when the event was held in 2019.

The war in Ukraine loomed large over the proceedings. Russia, a major exporter of oil and natural gas, is the subject of possibly the toughest economic sanctions against a country in history. “This is a global commodity shock, the likes we haven’t seen since the 1970s. That’s going to have a negative impact on the global economy,” Jim Burkhard, head of research for oil markets, energy, and mobility at S&P Global, told the audience.

The war has the potential to disrupt the 7.5 million barrels per day of crude and refined products that Russia exports, Burkhard explained. This would exceed, the 1973 oil embargo, which affected 3.9 million barrels, and Iraq’s invasion of Kuwait, which disrupted 5.3 million barrels.

World oil markets are unlikely to lose all that supply. After being discounted by $30 per barrel, Russian oil is finding new buyers in markets such as India. However, even the disappearance of 5 million barrels would be a “massive loss,” Burkhard said, and could cause world prices to nearly double to $200 per barrel. A 3-million-barrel loss would be more manageable. The US and other countries could pick up the slack and rein in prices.

Paul Gruenwald, chief economist at S&P Global, said economies in the US, Europe, and China started out the year strongly, but he cautioned that it is “early days” and that the Ukraine war is making predictions difficult. “This is the second time in 2 years economists don’t have the tool kit to deal with the problem,” he said. “We weren’t ready for the global pandemic, and we’re not ready for a land war.”

Remarking on the difficulty of making predictions about the war in Ukraine, S&P Global vice chairman vice chairman Daniel Yergin said the goal of Western countries “is to completely disconnect Russia from the global economy, to unplug it. It turns out there are a lot more cords than people knew or focused on.” For instance, he said, 30% of global wheat exports come from Ukraine and Russia.

While they confront the uncertainty of war, industry executives are also dealing with the slower-burning crisis of climate change. Executives from large chemical companies laid out the progress they are making in greening their operations and also discussed some of the hurdles they have yet to overcome.

Dow CEO Jim Fitterling detailed his company’s goal to achieve carbon neutrality by 2050. The company has already unveiled major emission-saving projects. For example, it plans to build an ethylene steam cracker in Alberta fueled by so-called blue hydrogen, which is produced by reforming hydrocarbons and storing the by-product carbon dioxide underground. Dow is also one of the world’s largest consumers of renewable power and has been exploring ideas such as heating its crackers with electricity instead of natural gas.

Fitterling cautioned the audience that fossil fuels will be a necessity. Green hydrogen—made via alternative-energy-powered electrolysis—can’t achieve the same scale that blue hydrogen can. “If our whole chemical industry in the United States wanted to move to green hydrogen, and you wanted to do it on the basis of wind and solar power, you would take five states in the United States and they would be nothing but wind and solar farms,” he said. “That’s just our industry. Not going to happen.”

Fitterling said Dow is considering using nuclear power to create the emissions-free hydrogen it needs. “We are in the process right now of looking at two sites in the United States to be an offtaker for a small-scale, modular reactor,” he disclosed in his talk.

Nuclear energy is an attractive fit for a chemical plant because it yields both electricity and steam. But Fitterling acknowledged the challenges of building a nuclear power plant within a chemical complex. “Of course, we’ve got to look at what the costs are to do that and the regulatory environment to do that,” he said.

Fitterling’s proposal generated a lot of buzz at the event. Martin Brudermüller, chairman of the German chemical company BASF, was asked whether he would consider the idea. “At least in Central Europe and Germany you are far away from considering nuclear,” he said. Germany has been systematically shutting down nuclear power plants since the 2011 Fukushima nuclear disaster in Japan.

In his own remarks, Brudermüller said the Ukrainian crisis will only accelerate Europe’s transition to renewable energy. “Russian gas was actually a basis for the competitiveness in Europe,” he said. “If we have now to move to LNG [liquefied natural gas], the basis price for Europe for energy will be much higher. European industry really has to rethink.”

Karen McKee, head of ExxonMobil’s product solutions business, which includes refining and chemicals, stressed sequestration as a solution to the CO₂ emissions problem. ExxonMobil, she pointed out, captures more CO₂—about 9 million metric tons (t) per year, used mostly for enhanced oil recovery—than any other company in the world. And the firm is building a blue hydrogen plant in Baytown, Texas, that will reduce emissions from olefins production there by 30%.

ExxonMobil is also spearheading an ambitious project to gather CO₂ from industrial facilities in the Houston area and inject it under the Gulf of Mexico. Some 14 firms, including Dow, have signed onto the proposal, which aims to sequester 50 million t of CO₂ per year by 2030. “The scale that is required really means that we need a lot of collaboration across industries,” McKee said.

Change is in store for the World Petrochemical Conference. The organizer, IHS Markit, merged with another business information provider, S&P Global, in February in a multi-billion-dollar deal. As part of that merger, the conference is now under the S&P umbrella. S&P is also taking over IHS Markit’s specialty chemical reports and Chemical Week magazine.

However, because UK antitrust authorities objected to combining IHS Markit’s base chemical information service with S&P Global’s Platts arm, the IHS unit is being sold to News Corp’s Dow Jones division, and it will be known as Chemical Market Analytics.

Mark Eramo, an IHS senior vice president who is staying with S&P, was upbeat about the petrochemical industry in his remarks. It has been adding production capacity at record rates, 30 million t per year, from 2020 to 2022,, primarily in China. But despite that brisk pace, Eramo said, a burst of demand as the pandemic wanes is keeping chemical-company earnings strong.

And Eramo sees a construction slowdown ahead. Environmental concerns will restrain projects in China. And US and European firms will emphasize emissions reduction initiatives, which will take up, by his estimate, 25–30% of future capital spending.

Dewey Johnson, who will head the base chemical unit moving to Dow Jones, laid out his forecast for the major products ethylene, propylene, chlorine, benzene, and p-xylene. “2021 was an excellent year for the industry,” Johnson said. “We previously expected ‘21 to be a difficult year. 2022 is turning out to be a very good year as well.”

Johnson predicted that the industry will head toward a “muted and shallow” period of lower profitability in 2023. But the Ukrainian conflict looms over that prediction, he noted. Escalating prices could dampen demand for petrochemicals and create a deeper-than-expected trough.