Chemical Week • November 4/11 • In the pipeline: Middle East doubles down on petchems

Energy producers in the Middle East are betting big on the anticipated role of petrochemicals as the main driver and likely savior of global oil demand growth in the next decade and beyond.

The Gulf Cooperation Council’s (GCC) leading fossil fuel producers, with Saudi Aramco and Abu Dhabi National Oil Co. (Adnoc) in the vanguard, are making multibillion-dollar investments to establish a rolling pipeline of petrochemical-based projects and joint ventures at home and overseas.

These projects and ventures are planned to provide a home in the coming decades for hundreds of millions of barrels of crude oil and rising volumes of natural gas and natural gas liquids, which are set to be increasingly displaced from more traditional markets such as transportation fuels and power generation as the global drive to decarbonize gains momentum.

The continued expansion into petrochemicals is seen as a strategically sound, commercially driven way for traditional energy producers to chart a course and future-proof their businesses against the anticipated drop in demand for crude oil in its more traditional sectors.

However, the pace of the energy transition — while ultimately expected to reduce the long-term demand for and production of oil and gas — remains subject to much debate, especially while global oil demand continues to rise.

From the perspective of the Middle East’s largest crude oil and gas producers, the use of the word “transition” itself is open to debate.

“Oil demand is at an all-time high. Gas demand has also grown by almost 70% since 2000,” said Amin Nasser, CEO of state-owned Aramco. “Rather than energy transition, we are really talking about energy addition,” he said in a presentation at Singapore International Energy Week in October, reported Platts, a division of S&P Global Commodity Insights. Global oil demand may experience a long plateau, but it is unlikely to witness an abrupt fall, he said. “Most analysts agree” that crude demand will still be hovering above 100 million b/d by 2050, Nasser said.

Large volumes of oil will still be consumed in mature economies such as the EU, the US and Japan despite demand growth tailing off, and the Global South is likely to see “significant growth in oil demand for a long time, as national economies grow and living standards rise, just as developed countries enjoyed for decades,” he said.

According to Nasser, there is a sizable gap between energy-transition prediction and reality. “Transition progress is far slower, far less equitable and far more complicated than many expected. The current transition plan continues to ignore this reality, which is why it has failed to deliver in core areas,” he said. Energy has not been affordable, and energy transition progress has been way off track, he added.

Aramco will continue to focus on expanding its crude oil, natural gas and petrochemicals activities, balancing this with reducing the company’s emissions in line with Saudi Arabia’s 2050 net-zero emissions goal, Nasser said Oct. 29 at another event. “We are for the transition, but we are making sure we’re growing oil, gas and petrochemical activities,” he said at the Future Investment Initiative held in Riyadh.

A directive earlier this year from the Saudi government for Aramco to maintain its maximum sustainable oil capacity at 12.3 million b/d “provides increased flexibility as well as an opportunity to focus on increasing gas production and growing our liquids-to-chemicals business,” Nasser said.

Backing for this strategic approach comes from the highest level. Saudi Arabia is “committed” to maintaining its crude production capacity, the country’s energy minister Prince Abdulaziz bin Salman said at the same event on Oct. 29. The country will look to “monetize every molecule” of its energy resources from hydrogen to natural gas well into the future, he said.

Aramco is “investing a lot in China and a lot everywhere else on planet Earth to continue to monetize our hydrocarbons,” Salman said.

In September, Aramco announced it had advanced agreements with two of China’s largest petrochemicals firms. The company signed a development framework agreement with Rongsheng Petrochemical Co. on a possible joint development project to expand Aramco’s SASREF refinery at Jubail, Saudi Arabia, it said. The companies had initially announced plans in April to form a joint venture for the refinery and to make potential petrochemical investments in China and Saudi Arabia.

Rongsheng itself may acquire a 50% stake in SASREF and expand a liquids-to-chemicals project planned there, and Aramco may acquire a 50% stake in Rongsheng’s affiliate, Ningbo Zhongjin Petrochemical Co., it said. In July 2023, Aramco bought a 10% interest in Rongsheng for $3.5 billion.

Aramco also signed a strategic cooperation agreement with Hengli Group Co., advancing talks related to the possible acquisition of a 10% stake in Hengli Petrochemical. Hengli operates a 400,000 b/d refinery and petchems complex at Dalian, Liaoning province, China, and several plants and production facilities in Jiangsu and Guangdong provinces. It is the world’s biggest producer of purified terephthalic acid, according to Commodity Insights data.

The proposed transaction aligns with Aramco’s strategy to expand its downstream presence in key high-value markets, advance its liquids-to-chemicals program and secure long-term crude oil supply agreements and placements.

Aramco also remains in talks over the possible acquisition of 10% stakes in Chinese refining and petchem companies Shandong Yulong and Shenghong Petrochemical Co., which operate integrated refining complexes processing a combined 720,000 b/d of oil for the production of petchems and derivatives.

“We are investing big time. China has big ambitions [to grow] in the liquids-to-chemicals market,” Nasser said at Singapore International Energy Week. “Mainly because of the transition and the need for electric vehicles and solar, they need a lot of carbon fiber. They are building a lot of highly complex integrated refineries, with 60%-70% of liquid-to-chemical conversion facilities, which is the highest level of complexity in the world. And we are investing in some of these refineries.”

Illustrating its petchems drive, Aramco said in a quarterly results presentation earlier this year that it had almost tripled its overall equity chemicals production during a four-year period, from 21.7 million metric tons per year (MMt/y) in 2019 to 59.6 MMt/y in 2023. It also raised its global traded volumes of liquid chemical products from 2.2 MMt/y in 2019 to 4.7 MMt/y in 2023, it said.

Aramco was among the largest olefin producers in the world in 2023, with a production capacity for 18.28 MMt/y of olefins on a shareholding basis and a base aromatics capacity of 2.39 MMt/y, according to Commodity Insights.

Aramco also recently confirmed it had achieved about 45% of its 2030 liquids-to-chemicals throughput target of 4 million b/d.

Meanwhile, Adnoc has a similar view of converting its massive hydrocarbon reserves into long-term returns, with the company well underway with a program to expand its crude oil production capacity to 5 million b/d by 2027, a deadline moved forward from 2030.

The firm’s stated current production capacity is already 4.85 million b/d, but it plans to hike this further to take advantage of Abu Dhabi’s estimated 220 billion barrels of unconventional oil and 460 Tcf of unconventional gas in place.

Adnoc is investing heavily in developing these assets and their end markets, while simultaneously implementing a bold strategy to diversify, decarbonize and hit the United Arab Emirates’ own 2050 net-zero emissions goal. The strategy includes the company’s stated ambition to become a top-tier chemicals player.

Adnoc’s chemicals expansion is spearheaded by its agreement, announced in early October, to acquire Covestro AG for a total of €14.7 billion including debt. Buying Covestro, which operates 48 production sites worldwide, will see Adnoc add products to its expanding downstream value chain, including isocyanates, polyurethanes, polycarbonate (PC) and polyols, as part of the company’s drive to diversify away from its traditional reliance on crude oil and natural gas operations and toward the decarbonization of its portfolio.

Covestro, which produces polymers and chemicals mainly for the automotive, construction and engineering sectors, is the world’s largest producer of bisphenol A and PC, with its other main products being polyurethane intermediates such as methylene di-para-phenylene isocyanate, toluene diisocyanate and polyether polyols, as well as aromatics.

The partnership between the two companies is “a natural fit” and aligns with Adnoc’s vision to become “a top-five global chemicals company,” said Ahmed al-Jaber, CEO of Adnoc and the UAE’s energy minister, when the acquisition was announced. The deal reinforces Adnoc’s commitment to diversifying its portfolio and will “position us to meet the growing global demand for energy and chemical products, while accelerating the transition to a circular economy,” he said.

Later the same month, Adnoc announced that it had completed a $3.6 billion deal with OCI Global to become the majority shareholder in fertilizer producer Fertiglobe PLC. The Fertiglobe deal represented another significant milestone in Adnoc’s chemicals growth strategy and the expansion of its low-carbon fuels business, as well as supporting its drive to be a top-five chemicals company.

Fertiglobe will become Adnoc’s platform for growth in fertilizers and low-carbon ammonia. Adnoc sees low-carbon ammonia as a key energy-transition fuel, it said.

Adnoc, meanwhile, remains in talks with OMV AG over a potential merger of their petchem JVs Borealis AG and Borouge PLC.

The increased focus on petchems by energy producers in the GCC countries, namely Saudi Arabia, the UAE, Oman, Qatar, Kuwait and Bahrain, is driven by industry forecasts that the sector will be the main driver of global oil demand growth beyond 2030.

Petchem feedstocks are projected to be the primary sectoral source of crude demand growth in the next decade and beyond, according to recent separate reports by the International Energy Agency (IEA) and Commodity Insights.

Despite an assumption that growth in oil consumption for chemical feedstock will start lagging global economic growth by about 2030 as the sector’s oil intensity begins to fall — after consistently rising in recent decades — the overall trend remains the same. “Even if the feedstock sector’s oil intensity peaks, a peak in absolute demand for feedstocks is nowhere in sight,” Commodity Insights said in its latest strategic report “Oil outlier: The future of petrochemical feedstock demand.”

Petchems are forecast to overtake road transport as the main contributor to oil demand growth, with the shifts largely reflecting higher electric vehicle sales and improved fuel efficiency, the IEA said in its recently released World Energy Outlook 2024. Demand for oil as a petchems feedstock increased by 500,000 b/d in 2023, almost double its average annual growth over the previous five years, it said.

Although the transportation sector accounts for an estimated 58% of world oil demand in 2024, Commodity Insights said feedstocks is currently the second-largest sector, accounting for 15% of demand. Between 2000 and 2024, petchem feedstocks accounted for the second-largest portion of oil demand growth — 9 million b/d — and was second only to transportation’s growth of 21 million b/d over the same period.

However, in Commodity Insights’ base case outlook, the tables are expected to turn. “Feedstocks will be the only sectoral source of world oil demand growth to 2035 and beyond [.…] An upshot is that feedstocks will be an increasingly important component of world oil demand as feedstocks grow from less than 15% of global demand in 2024 to nearly 20% by 2035,” it said.

Demand for oil as chemicals feedstock is currently about 20 million b/d, a figure that is forecast to rise to about 25 million b/d by 2050, according to the IEA’s base case scenario, which is essentially the energy sector’s current trajectory. In the scenario, a decline in oil demand mainly for transportation use between 2023 and 2035 will be offset by a 6.2 million b/d increase in the use of oil for petchems production and aviation.

Regional petchem growth is visible in the 19 MMt/y of polyolefins capacity that is forecast to come online in the Middle East by 2034, according to data from Commodity Insights. The region’s total capacity for polyethylene (PE) is expected to rise to 38 MMt/y and capacity for polypropylene (PP) to 17 MMt/y. Approximately 5 million metric tons of the forecast capacity is under construction, it said.

Projects in this latest construction wave include Advanced Petrochemical’s 800,000 metric tons per year propane dehydrogenation (PDH) and PP project at Jubail; a 1 MMt/y PE project within the $11 billion Amiral petchems complex in Jubail being developed by the Satorp JV of Aramco and TotalEnergies and due onstream in 2027; the 1.5 MMt/y Borouge 4 PE project at Ruwais, Abu Dhabi, that is now 80% built and scheduled for completion in late 2025; and a 1.7 MMt/y PE plant at Ras Laffan, Qatar, that forms part of a $6 billion petchems JV between QatarEnergy Ltd. and Chevron Phillips Chemical Co., which broke ground in February this year with completion scheduled for the end of 2026.

Illustrating the scale of some of these mega projects, the Ras Laffan development alone will raise Qatar’s overall petchem production capacity to 14 MMt/y by the end of 2026, according to the QatarEnergy/CPChem JV. The JV’s ethane cracker will have an ethylene capacity of 2.1 MMt/y, making it the largest in the region and will immediately hike Qatar’s total ethylene capacity by more than 40% when it is online, it said.

In terms of regional feedstock supply for olefins production over the same period, Commodity Insights estimates that 53% of new ethylene capacity installed in the Middle East will be at ethane crackers, 21% will be mixed-feed crackers, 12% will be naphtha crackers and 14% will be crude oil-to-chemicals units.

For the GCC’s petchem industry, the path forward demands balancing sustainability initiatives with the reality of ongoing demand for its products, according to a recent thought-leadership paper by the Gulf Petrochemicals and Chemicals Association (GPCA). Most GCC industry leaders are committed to investing in transition-oriented growth businesses while maintaining their core operations, GPCA said.

“The GCC’s energy transition is not about abandoning its hydrocarbon heritage, but rather about strategically diversifying its energy portfolio,” it said.