Malaysia's Petronas remains cautious on the near-term petroleum refining business outlook amid the fragile transportation fuel demand recovery in Asia, with the state-run oil and gas company seeing a greater need to diversify its product slates by expanding into chemicals.
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Global energy prices are going up and demand seems to be coming back, but the industry would have to be alert and assess the sustainability of the high prices and demand recovery trend, Petronas executive vice president and CEO of downstream Arif Mahmood said during a CEO conversation session at the S&P Global Platts Asia Pacific Petroleum Conference Sept. 27.
In terms of the petroleum refining and oil products business, Petronas remains cautious as Asia may struggle to show any fresh significant uptick in demand, especially in the aviation fuel front with regional economies slow to open up their travel borders, Mahmood said.
In line with Mahmood's near-term regional middle distillate demand assessment, Asia's jet fuel/kerosene demand this year will likely remain close to 30% lower than 2019 levels on average, before improving to just 12% below in 2022, according to JY Lim, advisor oil markets at S&P Global Platts Analytics.
"When it comes to petroleum products, I don't expect to see a sharp uptick in margins [from current levels in the near term]," he said.
Mahmood also said that Asia's investment interest in refineries and purely refining business would be tepid in the next five years due to the volatile and fragile transportation fuel demand recovery as well as acceleration toward energy transition, while there is huge oversupply in refining capacity in Asia.
However, there could be a push toward investment in chemicals as too much exposure to the refining business poses a risk in a volatile market, said Mahmood, adding that Petronas' new integrated refining and petrochemical complex is a prime example of the company's strategy to diversify by boosting its focus on chemicals, as well as upgrading refined product specifications.
Malaysia's Refinery and Petrochemical Integrated Development, or RAPID, facility, located in the Pengerang Integrated Complex and owned by Petronas and Saudi Aramco, was launched in late 2019.
The RAPID refinery in Johor is one of the biggest projects that Petronas has undertaken, with a refining capacity of 300,000 b/d and 3.3 million mt/year of petrochemical capacity.
Industry sources agreed that oil companies with a mixture of petrochemicals in their refining business portfolio have fared better than those fully focused on petroleum products in times of volatile middle distillate demand since the outbreak of the COVID-19 pandemic.
Demand for certain petrochemical products like polypropylene and polyethylene, for example, recorded a sharp uptick in South Korea as these products are essential for making plastic disposable syringes and hypodermic needles, as well as protective medical suits and gears, Platts reported earlier.
Base chemicals demand from the food packaging industry and sanitary goods manufacturers has also witnessed a sharp increase, primarily due to the stockpiling of medical hygiene materials as well as an increase in delivery services during the course of the pandemic, downstream industry sources in Thailand and South Korea said.
Although oil and refining remain Petronas' core business, the company is committed to net carbon zero by 2050 and is taking a variety of steps to decarbonize, Mahmood said.
"We are conducting [upstream] projects [with more focus on] flaring than venting, which would lead to a reduction of [greenhouse gas] emissions although it won't eliminate it ... and we are looking at carbon capture," he said.
Having incorporated carbon capture in offshore and onshore processing facilities for over 10 years, Petronas is embarking on its first complete carbon capture, utilization and storage project through offshore carbon capture and storage, or CCS, implementation.
It is doing this while maturing technologies for onshore processing plants to utilize CO2, and converting it into petrochemical products, Petronas said in its latest activity outlook report for 2021-23.
The company's first CCS project, upon completion in 2025, will be the world's largest offshore CCS project to date.
In addition, Petronas is looking at biorefining for the production of sustainable aviation fuel, or SAF, and the company is also exploring technologies that could help enhance the efficiency in cleaner energy output and convert of CO2 to value added products, Mahmood said.