Why the future of oil is in chemicals, not fuels

In Yanbu, a massive industrial town on Saudi Arabia’s Red Sea coast, two Saudi state-owned firms—the oil company Saudi Aramco and the petrochemical maker Sabic—are planning a new complex that could prove to be a bellwether for the next decade in petrochemicals.

By 2025, the partners expect to have a facility that will make petrochemicals—9 million metric tons (t) of them—directly from 400,000 barrels (bbl) per day of Arabian light crude oil. Whereas most refineries convert just 5–20% of incoming oil into petrochemicals, some 45% of the output of the Yanbu facility will be chemicals, including olefins, aromatics, glycols, and polymers.

The partners are hardly alone in diverting their refinery product slates away from gasoline, diesel, and other fuels and toward petrochemicals. ExxonMobil has practiced direct crude cracking technology in Singapore since 2014 and may build another such unit in China. Several facilities under construction in China will transform 40% of their oil into p-xylene and other petrochemicals. Aramco itself is considering another chemical-laden refining project in India.

Over the next decade, oil may be the next big thing in petrochemicals. This is a change from the 2010s, when billions of dollars flowed into the US to build crackers and downstream petrochemical plants to process low-cost ethane from shale gas into ethylene and its derivatives.

The driver this time is the market more than it is cheap raw material supply. By 2030, demand for gasoline and other fuels will be on the decline. The petrochemical sector, in contrast, still has room to grow. Oil companies and engineering firms have noticed. They are installing new equipment and even designing new processes to seize on the trend.

The trend is so strong, says Bryan Glover, general manager of Honeywell UOP’s process technology and equipment business, that internally, UOP uses the term “refinery of the future” to refer to flexible technologies that enable refining complexes to make a wide variety chemicals. “The best outcomes result when you can match the molecules to the best market opportunities,” he says.

But the shift will have consequences. The larger scale of a refinery compared with a chemical plant means existing petrochemical markets could be swamped with outsize amounts of product.

Oil companies seem willing to take that risk. They are looking into their crystal balls and seeing a future in which the world’s appetite for fossil fuels isn’t insatiable. Auto sales will taper off in the developing world. Cars everywhere are becoming more fuel efficient. And increasingly popular electric vehicles consume no gasoline or diesel at all. The US Energy Information Administration predicts that US fuel consumption for light-duty vehicles will decline by 1% annually through 2050.

According to BP’s 2018 Energy Outlook, the share of the average oil barrel dedicated to transportation fuel will peak at 58% in 2025 and begin to decline. Oil consumed by industry, buildings, and power will also slump. Chemicals, however, will continue to grow, from 16% of oil demand in 2020 to 20% by 2040.

The Yanbu project is significant because it’s an acknowledgment by Saudi Aramco, the world’s largest oil producer, that the future of oil is chemicals. In a recent speech to the Gulf Petrochemicals and Chemicals Association, Aramco CEO Amin H. Nasser pledged $100 billion in petrochemical investment over the next decade.

“The tremendous growth in chemicals demand provides us with a fantastic window of opportunity—but such windows by their very nature offer maximum benefit only to those who act quickly,” Nasser said.

The relationship between refining and petrochemicals was once largely an arm’s-length one. Refineries focused on fuels, and those that made the refining cut called naphtha would sell it to operators of ethylene steam crackers. These plants crack naphtha at high temperatures into ethylene, propylene, and other basic chemical building blocks.

With the new focus on chemicals, refineries are being reconfigured. The typical refinery begins with fractional distillation, which breaks crude oil into its constituent parts. These products range from light, short-carbon-chain molecules—such as gasoline, naphtha, and propane—to heavy diesel and vacuum gas oil. Refiners further process vacuum gas oil in either a hydrocracker or a fluid catalytic cracker (FCC), both of which break long molecules into shorter ones.

According to Avelino Corma, a professor at the Universitat Politècnica de València-Consejo Superior de Investigaciones Científicas, hydrocracking excels at making diesel. The process produces no olefins because all double bonds are quickly hydrogenated. The naphtha from the hydrocracker is sent either to an ethylene steam cracker to produce olefins or to a reformer to be refashioned into aromatics. To up chemical output, more and more hydrocrackers are targeting naphtha rather than diesel production.

Alternatively, FCC units break down vacuum gas oil into gasoline. The process also cranks out olefins, namely, propylene, which is 5–20% of the output of most such units. Because of the strong incentives to make chemicals, refiners are running their FCCs at high severity—at high temperatures and long residence times—to increase propylene yield to well above 20%.

The linkage between oil refining and petrochemicals is as old as these industries themselves. And certainly, examples abound of companies—such as ExxonMobil, Reliance Industries, and Sinopec—with a reputation for integration between refining and petrochemicals.

“Historically, there have been players that integrated refineries with petrochemicals, not mainly to target maximum chemicals production but more to reap the synergies between the refinery and the petrochemical site,” says Leon de Bruyn, managing director at Chevron Lummus Global (CLG), a technology joint venture between McDermott and Chevron. These synergies include shared utilities and the ability to feed naphtha directly into an adjacent steam cracker.

The evolution of refiners into on-purpose chemical makers has occurred in small increments. “In the past, the basic configuration would not have produced chemicals. It would have produced gasoline, diesel, jet fuel, and some heavy oil for maritime fuel,” UOP’s Glover says.

The gateway chemical was typically propylene from the FCC unit. “That would be a first step if someone was interested in a petrochemicals play,” he says. After that, refineries either sold naphtha on the merchant market or constructed their own naphtha-based ethylene crackers or aromatics-extraction units.

Now, Glover says, chemicals aren’t an afterthought. “Anytime we look at new refineries today or any significant refinery upgrades, we almost always find that a major goal is petrochemical production,” he says. “New-build refineries are integrating petrochemical production at a scale that we really haven’t seen before.”

A prominent example of this trend is Zhejiang Petrochemical, which is building a crude-to-chemicals complex in two phases in China’s Zhejiang Province. The scale of the project is staggering. The company is building two refineries, each capable of processing 400,000 bbl of oil per day. Overall, nearly 50% of the output—some 20 million t—will be petrochemical, twice as much as the complex planned for Yanbu, Saudi Arabia.

UOP is providing a host of technologies for both phases of the Chinese complex, including hydrocracking to break down vacuum gas oil into naphtha and reforming and extraction to make aromatics from the naphtha. All told, the complex will produce 8.8 million t of p-xylene, the main precursor for polyester fiber and polyethylene terephthalate, a polymer commonly used in bottles. Propane dehydrogenation units licensed from UOP will produce more than 500,000 t of propylene.

The massive Zhejiang Petrochemical project is not the only one in China. According to the consulting firm IHS Markit, Hengli Petrochemical is building a 400,000 bbl per day refinery that will yield 40% chemicals, largely p-xylene. Another project with a hefty output of p-xylene is Shenghong Petrochemical, which will process 300,000 bbl per day.

In China, Glover says, such privately owned refineries are driven by incentives beyond the attractive growth outlook for petrochemicals. Taxes on chemicals are lower than on fuels. Large, state-owned firms are hard to compete with in the domestic fuel market, yet Chinese refiners are prohibited from exporting fuels.

Refinery scale brought to bear on petrochemical production could forever change petrochemical markets, cautions R. J. Chang, vice president of the Process Economics Program at IHS Markit. Refineries, he points out, are a lot bigger than chemical plants. A 400,000 bbl per day refinery cranking out 50% chemicals will make about 10 million t of chemicals per year. The largest naphtha-based ethylene crackers make only 2 million t of products per year, he says.

“When these companies start to reconfigure the whole refinery with the target of producing chemicals, that effectively elevates the petrochemical production to a refinery scale, which could easily mean 5–10 times higher,” Chang says.

The scale is already proving to be large compared with the markets themselves. For example, Chang says the Chinese p-xylene projects will put out a combined 11.8 million t annually. China imports 11 million t of p-xylene per year, meaning today’s South Korean, Taiwanese, and Japanese suppliers will need to find new markets.

Aramco’s Yanbu project will make about 3.0 million t of ethylene per year, Chang estimates. That alone is a quarter of the 12 million t of capacity that chemical companies have been building on the US Gulf Coast. “It will only take a few of these projects to significantly affect global supply and demand,” he says.

However, as the crude-to-chemicals trend continues, refineries might shrink in size. Because the profits for fuels are slim, refineries have to be big to justify the expense, explains John Murphy, president of the chemical process consulting firm the Catalyst Group Resources. A crude-to-chemicals facility can be smaller in scale. “That’s among the numerous benefits,” he says.

Many of the plants under construction today are using off-the-shelf refining and petrochemical processes to make chemicals. Increasingly, engineering and chemical firms are tailoring processes for turning crude into chemicals.

“There is now a pipeline of technologies with different catalysts or variations of existing processes that can improve this conversion of oil to chemicals,” says Clyde Payn, CEO of the Catalyst Group. Examples include petrochemical FCC units and slurry hydrocracking.

At its Singapore complex, ExxonMobil developed a system to process crude oil, rather than naphtha, directly in a steam cracker. “The main challenge if you want to do the steam cracking of crude oil is the heavy part of the crude,” Universitat Politècnica de València’s Corma says. Heavy crude can coke the cracker, leading to expensive maintenance downtime.

ExxonMobil patents describe a system for evaporating crude in a “flash pot.” The setup, which it likely uses in Singapore and might use in China, feeds the vapors into the steam cracker, leaving behind the fouling residues.

At CLG, R&D is focused on turning refinery equipment into chemical manufacturing machinery. “There is a lot of research that we put into understanding which molecules are beneficial to produce—and maximize the production of those molecules—and which molecules we try to avoid,” CLG’s de Bruyn says.

Last year, Saudi Aramco signed a joint development agreement with McDermott and CLG to further develop a thermal crude-to-chemicals process. McDermott is lending its expertise in steam cracking and other technologies, and CLG, its hydrocracking and heavy oil conversion know-how. The Saudi firm also signed an agreement last month with Axens and TechnipFMC to work on a high-severity FCC process for chemicals.

De Bruyn says his firm’s Saudi Aramco partnership has been making progress. “All three companies have significant intellectual property contributions, and all three work together to develop a scheme to capture all contributions in an integrated way,” he says.

To de Bruyn, the future will largely be about tearing down the old walls between refining and chemicals. “We are going into the next wave of more intimately integrated sites,” he says, “where there is not necessarily a clear demarcation of what is the refinery and what is the petrochemical site.”