Published April 2015
In the petrochemical industry, the organic chemicals with the largest production volume are methanol, ethylene, propylene, butadiene, benzene, toluene, and xylenes. Ethylene, propylene, and butadiene, along with butylenes, are collectively called olefins, which belong to a class of unsaturated aliphatic hydrocarbons having the general formula CnH2n. Olefins contain one or more double bonds, which make them chemically reactive.
Benzene, toluene, and xylenes, commonly referred to as aromatics, are unsaturated cyclic hydrocarbons containing one or more rings. Olefins, aromatics, and methanol are precursors to a variety of chemical products and are generally referred to as primary petrochemicals. Given the number of organic chemicals and the variety and multitude of ways by which they are converted to consumer and industrial products, this report limits discussion to these seven chemicals, their feedstock sources, and their end uses.
The regional focus of this report is the United States, Western Europe, and Japan, as well as three of the fastest-growing markets—China, Latin America, and the Middle East. Some discussion of demand for the seven petrochemicals is included, but is intended only to provide some perspective on the size and general characteristics of the markets.
The petrochemical industry continues to be impacted by the globalization and integration of the world economy. Several factors influencing world petrochemicals are the following:
There are overlaps among these trends and the impact varies by petrochemical product, country/region, and magnitude. Detailed discussions of individual primary petrochemical feedstock, intermediates, derivatives, and end-use market segments are available in other CEH reports. The various CEH reports on each petrochemical provide in-depth coverage and a definitive source of market information for these chemicals.
- Product Integration—Most major petrochemical companies are integrated (forward to downstream derivatives and/or backward to raw materials) to improve margins and to secure raw material source. This has resulted in a number of petrochemical companies either divesting nonintegrated plants, forming a partnership with another company to improve operating efficiency (including sales, marketing, and distribution), or ceasing operations.
- Economies of Scale—World-scale petrochemical plants built during the past several years are substantially larger than those built over two decades ago. As a result, smaller, older, and less efficient units are being shut down, expanded, or, in some cases, retrofitted to produce different chemical products.
- Price of Crude Oil—Crude oil price had been on the rise since 2004 and traded for nearly $139 per barrel at its peak in mid-2008. However by midyear 2014, prices began to slowly collapse from over $105 per barrel to below $50 per barrel by January 2015, as oil production in non-OPEC countries (especially the United States) rose and global demand slowed. Markets are impacted significantly during sharp price fluctuations, creating a cloud of uncertainty in upstream and downstream investments.
- Environment—Increasing concerns over fossil fuel supply and consumption, with respect to their impact on health and the environment, have led to the passage of legislation globally that will affect chemical and energy production and processing for the foreseeable future.
- Technology—Manufacturing processes introduced in recent years have resulted in raw material replacement, shifts in the ratio of coproduct(s) produced, and cost. This has led to a supply/demand imbalance, particularly for smaller downstream petrochemical derivatives. In addition, growing environmental concerns and higher crude oil prices have expedited the development and commercialization of renewably derived chemical products and technologies, previously considered economically impractical.
- Shale Gas Development—Among the various technological advances, the combination of vertical hydraulic fracturing ("fracking") and horizontal drilling in multistage hydraulic fracturing resulted in a considerable rise in natural gas production in the United States. This new potential has caused many countries to reexamine their natural gas reserves and pursue development of their own gas plays.
- Regional Production—Prior to 1980, the United States, Western Europe, and Japan accounted for 80% of primary petrochemical production in the world. In 2014, their share had declined to 32%, as a result of development in emerging markets abroad, especially in the BRIC countries (Brazil, Russia, India, and China).
- Political Uncertainties—Situations in virtually all parts of the world—the Middle East, Africa, Eastern Europe, and South America—have growing global implications for the supply/demand for petrochemicals and raw materials.
- Economic Growth and Demand—Overall expansion of the population and an increase in individual purchasing power have resulted in an increase in demand for finished goods and greater consumption of energy in China, India, and Latin America.
- Balance with Energy Demand—As both energy and chemical markets "compete" for hydrocarbon molecule demand, fluctuations in energy demand can conversely affect petrochemical market volatility. Lower crude oil prices and lower energy consumption will lead to higher petrochemical demand and vice versa.