Petrochemicals are substances or chemicals derived from petroleum and natural gas, used for different chemical purposes. These chemicals can also be derived from renewable energy sources like sugarcane, corn, and other types of biomasses.
The production of petrochemicals depends on processing the chemicals at different phases, which include products like propylene, benzene, ethylene, and monomers for synthetic rubbers and carbon. First, they undergo second-level processing, generally derived from crude oil.
Therefore, crude oil is one of the essential production components after a multi-refinery process. The other by-products of this multi-step refining process include fuel oil, kerosene, paraffin wax, diesel, gasoline, gas, and liquefied petroleum.
Since these chemicals are based on non-renewable rouses of energy, they can be depleted in the upcoming years, leaving no resources for future generations.
Petrochemicals in the automobile industry
With the increased electrification of vehicles in recent years, the demand for petrochemicals in cars will be reduced significantly. Therefore, the government, in recent times, is taking necessary steps to enhance the production of vehicles that increase fuel efficiency by reducing the secretion of carbon monoxide in the atmosphere.
The government of Saudi is taking the necessary steps to decrease its dependency on crude oil by pushing for a more significant presence in the downstream industries. The IMO (International Maritime Organization) has also produced a derivate for bunker fuel with reduced sulfur content.
This means marine vehicles will run on alternative fuels with less sulfur content. As a result of this initiative, diesel prices have increased and caused a decrease in gasoline prices. It has also triggered the cascading effect of petrochemical supply in the market.
Production of C4 chemicals and aromatics
The demand for synthetic chemicals like propylene and ethylene has increased significantly over the last ten years, and many oil and gas players have tried to keep up with this mark. However, this increase in demand has hit an overall impact on the global production of petrochemicals. To keep up with this growing speed, the governments of various countries have shifted to introducing volatility in chemical prices.
They have also taken necessary measures to switch to lighter chemical stocks, drastically impacting the production of many aromatics like benzene, butadiene, paraxylene, and other C4 chemicals.
- The upcoming recession years and the alternative switch to organic production might decrease the demand for petrochemicals, thus lowering the need for petrochemicals and leaving a surplus of many base chemicals.
- As many companies are grappling to maintain capital allocations and maintain margin costs, the construction of new petrochemical costs might get delayed, and some under construction may even get scrapped.
- As crude oil prices are predicted to remain low in the future petrochemicals, the margin gap between the productions of base chemicals might be significantly affected.