Recent years have begun to see a shift in what is considered a petrochemical hub, away from operations and production sites, towards feedstock advantage and logistics provision. With its advantaged feedstocks and access to growth markets, the Middle East will become the petrochemical sector’s core. But there are also opportunities for success elsewhere, as the dynamic on what is and is not an economically viable feedstock changes.
Within Europe feedstock advantages are limited when compared to regions such as the Middle East, Russia or Canada. Therefore, modern petrochemical hubs possess a variety of features, including trade route access, terminal facilities and storage facilities that make them cost-effective places to invest into petrochemical production. However, recent considerations of the nature of a petrochemical hub in Europe reveal a fundamental issue – the regional competitiveness of Europe versus other regions and the polarization of international trade post-recession.
Twenty years ago, the price-setting mechanisms for globally traded bulk petrochemicals and polymers would be found in the economies of the US Gulf coast marginal exporter, trading with East Asia. Today, this has changed; the trade in chemicals and the global commodity pricing mechanisms are polarized along an axis between the Middle East and East Asia (particularly China). The ultimate hub is, therefore, where the favorable combination of cheapest feedstock, reliable logistics and access to markets resides.
The circumstance that could change the current set-up is the decreasing size of current oil reserves. With dwindling reserves and continued demand, extraction of oil will move to alternative sources which were previously deemed too expensive. As demand looks set to remain above 100m bbls/day (oil equivalent), we are reaching the point, where oil sands and oil shales are looking to become economically viable as a source of transport fuels and petrochemical feedstock. Russia has major reserves, but even within its own territory the access to markets can be challenging due to the distance between the fields of the East and the demand in the West regions of its territory.
Canada is among the countries that could see new oil retrieval efforts. If, out of Kline’s economic scenario options, the ‘innovation mode’ becomes dominant, we can expect these and other alternatives to give the potential for new regional hubs. However, if the ‘environmental’ mode holds sway, there may be problems associated with local opposition to the extension of these deposits into a fully grown petrochemical hub.
You can read the full article at ICIS here.