Encouraging downstream processing: industrial policy or resource nationalism?

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Why is it crucial to consider downstream processing at this time? There has long been a discussion in economic policy circles about downstream processing, most notably in the context of central planning or mercantilism, as evidenced by the former Soviet Union. With the fall of the Soviet Union, the demise of central planning, and the dismal outcomes of industrial policy as it was implemented in both developed and developing nations during the 1970s and 1980s, it would have been simple to assume that this conversation had come to an end. It seemed reasonable to assume that recent history would have provided enough empirical proof to reassure even the most doubtful. Over the last three decades, global trade has expanded at an unprecedented rate, leading to a significant decline in poverty. This can be attributed, at least in part, to specialization and the dispersion of supply chains. Notably, global trade has outpaced global GDP growth, refuting the claims made by proponents of policies
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Getting ready for the challenges of the new downstream industry: a plan for integrating petrochemicals

Beginning and Background

    The COVID-19 pandemic has a big effect on the downstream industry. For example, because people couldn't move around as much, the market for crude oil dropped by a huge amount. All players in the downstream industry were affected by the crisis, but the data from the International Energy Agency (IEA) in Figure 1 shows that the most integrated players were affected less than those whose only source of income was transportation fuels.

Figure 1: How the COVID-19 pandemic affected the corners of the oil and gas industry (IEA, 2021).

The information in Figure 1 shows that combining petrochemicals with the downstream industry has benefits, especially since the demand for transportation fuels is going down around the world. Transportation fuels are becoming less important to the world's crude oil demand as fuel efficiency improves and the market for electric cars grows. New technologies, such as additive manufacturing (3D printing), could have a big effect on the demand for transportation, which could have an even bigger effect on the demand for transportation fuels. Also, there are more lighter crude oils on the market, which leads to an oversupply of lighter products that make it easier to make petrochemicals instead of transportation fuels. Petrochemicals also have more value than fuels. It's interesting to see that sales of electric cars are expected to grow even more in 2021, even if there is a pandemic. This is according to data from the International Energy Agency (IEA), shown in Figure 2.

Figure 2: How the Electric Car Fleet Has Changed Over Time (IEA, 2021).


  Because of these problems, refiners and technology developers are always looking for alternatives that will help the refining business stay alive and grow. Because of these similarities, better integrating the refining and petrochemical production processes seems like a good option. According to some predictions, the chemicals market will be twice as big in 2030 as it was in 2016. Refiners that focus on transportation fuels can make an extra US$15 per barrel processed, while petrochemicals players can make up to US$30 per barrel processed. In this way, petrochemical integration not only lets you join a very valuable market, but also a market that is growing and will stay strong compared to the transportation fuels market. Even though there are benefits, it's important to remember that combining refining and petrochemical assets makes things more complicated, costs a lot of money, and changes how refineries and petrochemical plants depend on each other. These facts need to be studied and examined in detail for each case.


According to the most recent predictions, the Asian market will account for 90% of the expected rise in world crude oil consumption from 2019 to 2026. Most of this rise is due to the demand for petrochemicals. According to data from Asian Downstream Insights (2021), the demand for petrochemicals in the Asian Market is expected to grow by 4.25 percent each year over the next five years. Because of this, players in the Asian downstream sector are leading the world's efforts to integrate petrochemicals, which means they are spending a lot of money on capital improvements in chemical refineries, especially in China.

What does the Petrochemical Integration mean?


The main goal of bringing the refining and petrochemical industries closer together is to take advantage of the benefits that already exist between them so that the whole crude oil production chain can make more money. Table 1 shows the main features of the petrochemical and refining industries, as well as the possibility for them to work together. As was already said, the petrochemical industry has been growing much faster than the transportation fuels market over the last few years. It also has a better future and is less harmful to the environment than crude oil products. The technologies behind the refining and petrochemical industries are similar. This means that they might be able to work together to lower costs and make the products that companies make more valuable. A block diagram in Figure 3 shows some ways that the petrochemical business and refining processes could work together.

Figure 3: How Refining and Petrochemical Processes Work Together

For example, process streams that refiners don't think add much value to, like fuel gas (C2), are attractive to the petrochemical industry as raw materials. Similarly, refiners can use streams that aren't useful to them, like butanes, pyrolisis gasoline, and heavy aromatics, to make high-quality transportation fuels. This can help the refining industry meet environmental and quality standards for derivatives.  The ability to combine and work together between processes depends on the refining strategy used by the refinery and the consumer market. For example, Fluid Catalytic Cracking (FCC) and Catalytic Reforming can be improved to make petrochemical intermediates while streams that will be added to the fuels pool are harmed. For FCC, installing units that make petrochemical intermediates, also known as petrochemical FCC, is meant to cut down on the production of streams used to make transportation fuels. However, the process is very difficult and needs materials with the best metallurgical properties, which means the capital investment is high. 

Figure 4 shows a description of the petrochemical integration grades that was suggested by the IHS Markit Company.


IHS Markit (2018) shows Levels of Petrochemical Integration in Figure 4. The suggested classification says that the highest level of petrochemical integration is at the crude to chemicals refineries, where the processed crude oil is completely turned into petrochemicals such as BTX, Ethylene, and Propylene.It is possible to add more value to processed crude oil through integrated refining schemes. In the past, the refining industry grew steadily and worked on making fuels for transportation. This may explain how traditional refining schemes looked. In the downstream industry, the demand for transportation fuels is going down while the demand for petrochemicals is going up. This is the major reason why the downstream industry needs to change its focus. As the market for petrochemicals grows, some refiners are trying to combine their refining and petrochemicals assets more closely. They want to better meet market needs, make more money, and lower their operating costs. The refiners are using the most integrated refining methods, which are shown in, to reach this goal.

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