Growth and Impact of the Petrochemical Industry

Vinodhini Harish

27 Mar 2024


The world is filled with the products of the Petrochemical industry, the cars we drive, the electronic goods that have become inseparable, the packaging we need and every place we blink we are surrounded by petrochemical products. With the growing economy which will become $5 trillion by 2025, the share of the petrochemical sector is expected to become more prominent. In this article we have covered the trends, and reasons that are facilitating the growth of the petrochemical sector in India. However, we have also covered insights on the rising demand for specific products that are contributing to the growth of the industry. If you are closely following the developments and trends of the Petrochemical industry, you will love reading this article. Let’s begin.

Accomplishments in the Petrochemical industry:

The accomplishments in the past decade in the Petrochemical industry have aided the growth of the petrochemical market. The Annual ethylene production reached USD 125.02 billion in 2022 and due to the carcinogenic nature of ethylene, the companies have started focusing on the bio-based green polyethylene compounds which are easy to produce, consume minimal energy for production and offer similar versatility as chemically synthesized ones.
  • “‘I'm greenT polyethylene plastic’ made of sugarcane”

    Braskem, a Brazilian company partnered with LEGO group and produced ‘Im greenT polyethylene plastic’ that is made of sugarcane and 100% recyclable.

Challenges Involved in the Petrochemical Industry:

The petrochemical sector in India is facing oversupply challenges due to present conditions. The global economy has not recovered as expected thus the global demand for petrochemical products has softened, which has coupled with an oversupply situation. This condition has exerted pressure on the margins and profitability of the market players.

Limitation in conventional feedstocks is expected shortly, which is because the investments for these feedstocks made by North America, and the Middle East have significantly reduced since the demand for ethane has increased substantially. Since the majority of conventional feedstocks are constrained, the factor presents itself as a significant challenge for the growth of petrochemical industries.

Changing macroeconomic trends in China such as lower expenditure for infrastructure, and increased purchases of consumer goods like cars, vehicles etc that has driven the economy through various services and other purchases. Thus, economic growth has slowed down in some emerging economies. This has impacted the growth of the Petrochemical industry.

Companies like Gandhar oil refineries have adopted strong financial management practices and efficient operations to come up with diversified portfolios to mitigate the impact of external shocks. In their Annual reports, they have talked about their series of products despite the effect of turbulence in the global economy and the crude oil crisis.

Gandhar Oil company has performed exceedingly well financially, generating the highest ever revenue of about INR3500 crore in FY2022. They have adopted some of the best technological advancements such as Jet mixing, Fast-unload to reduce process time.

Growth opportunities:

The Department of Chemicals and Petrochemicals Industry of India has implemented several initiatives that have improved the industry’s competitiveness, quality, and output. For instance, some of India’s initiatives such as Make in India, Aatmanirbhar Bharat Abhiyan, and Production-Linked Incentive(PLI) schemes have encouraged domestic manufacturing and facilitated the momentum of exporting goods.

Some notable measures such as mandatory standards set by the Bureau of Indian Standards (BIS), public procurement policies for chemicals and petrochemicals, and schemes facilitating the setting up of plastic parks and facilities to support research and innovation have stimulated the growth of petrochemical industries.

What to expect in the Petrochemical industry?

Although the demand for the products of the Petrochemical industry will not go down, only less growth is expected, and consumer spending is expected to slow down. Therefore, on observing we realize companies are focusing on cost and becoming more cost-conscious. To counterbalance the growth and trends, it is recommended to focus on efficiency.
  • Chemical companies are tweaking their strategies:

    “Chemical businesses are focusing on building their capabilities for tomorrow, taking cost from the supply chain and supercharging it,” said Patrick Hore, Global Vertical head of chemicals at Maersk.

    Companies are expected to take a more disciplined route in terms of capacity additions as the returns are expected to be more modest and all the key players are determined to focus on the core capabilities and strategies.

    Digital and advanced analytics help in enhancing the new level of productivity.

    Experts advise companies to work on reinventing their interface with oil refineries since the gas-driven era is dropping down. Similarly, they are expected to manage the transition linear to a circular economy. Because in the linear-based economy, plastic-based products get used once before they are disposed of.
  • Clean Technology Scenario:

    The growing number of applications in cutting-edge technologies, and clean technologies which are essential to building a substantial energy system helps in the production, usage, and disposal of petrochemical-derived products.

    In the Clean Technology Scenario, it is expected that there would be a reduction of 45% in direct CO2 emissions by 2050 and the emissions are expected to reduce by 60% in the CTS than that of RTS by 2050.

    However substantial efforts are expected as the industry is experiencing shifts from conventional methods to CTS, which is led by carbon capture, utilization and storage, coal-to-gas feedstock shifts, and energy efficiencies.

Best practices suggested by experts to improve value:

Capturing value across all the workstreams and employing best practices across financial and functional benchmarks. When intense interactions emerge within the organizations, that’s when the organizations can identify the real insights and understand what to prioritize and where to start.

Therefore, the experts were encouraged to come up with a data analysis set, idea-generation workshops, discussions on internal subject-matter experts and focused effort on unearthing ideas from the results obtained. This will lead to solid initiatives and a bankable plan that creates a more tangible impact.

Experts also advise focusing on bringing a more disciplined approach to ‘Capital spending’. Since the Petrochemical industry is naturally a capital-intensive sector, the players are expected to focus on the investment to generate good returns. Getting access to advanced feedstocks, deploying robust capital approval processes, value engineering, design optimization, incentives, and control towers during execution are all crucial for the development of the Petrochemical industry.

Take away:

The Petrochemical industry is struggling with improper capital planning, potential oversupply, limited supply of advantaged feedstock and improper workforce management. However, the pressure on using fossil fuel more to bring up the economy, electrification and increasing incorporation of digital initiatives such as cutting-edge tools, and digital insights are monitoring the demand changes, capacity additions, cost shifts and other factors. These factors are bolstering the growth of the Petrochemical industry.

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