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Watch: Plant integration, feedstock flexibility key to survival in volatile environment

In the petrochemicals industry, a new breed of investments is combining both feedstock flexibility and traditional routes to secure production margins. This trend is seen in the Middle East, and has also emerged in Asia. In this video, analystEshwar Yennigalla explores the value of plant integration and how it's becoming the new normal.

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Video Transcript

Plant integration, feedstock flexibility key to survival in volatile environment

By Eshwar Yennigalla, Analyst, Petrochemicals

Welcome to the Snapshot, a series examining the forces driving and shaping global commodity markets today.

In a highly volatile price environment, investment strategy analysts look at an amalgamation of both innovative and traditional decision making. It’s no different in the petrochemicals industry. Upcoming strategies involve feedstock flexibility or newer sets of feed altogether – veering away from the use of just naphtha.

The new breed of investments combines both strategies to secure the recent run of high naphtha-based production margins for the petrochemical industry.

Experts project plant integration as the best bet going forward, primarily in the Middle East and Asia, using different approaches.

In Saudi Arabia, the next wave of petrochemical projects is integrated with respective refineries.

When we add the feedstock flexibility component, the Petro Rabigh complex already utilizes 400,000 barrels per day of crude oil and 1.2 million tons per year of ethane as primary feedstock.

It produces 18.4 million metric tons per year of refined products, and 2.4 million metric tons per year of petrochemical products.

In the next phase, the majority of these refined projects will be consumed to produce aromatics and other petrochemical derivatives.

A similar trend has emerged in Asia. China’s upcoming Zhejiang Petrochemical complex at Zhoushan is a perfect example.

The first phase will process 20 million mt per year crude oil and produce 5 million mt per year of aromatics.

This will be one of largest extraction of petrochemicals from a refinery when completed by 2019.

Similar integrated projects include Reliance’s Jamnagar complex, Petronas’ RAPID project and Hengli’s Refinery and Petrochemicals project in Dalian, China.

The primary idea here is to maximize naphtha margins for chemical production through integration. However, it does have an added exposure to crude oil dynamics. This is also a major reason for these projects to be located near the demand areas rather than source of feed.

Integration towards specialty grade petrochemicals is also becoming a new norm. Recent additions in the Middle East such as elastomers, urethanes and certain copolymer grades were all first of their kind projects in the region.

As more integrations involving further flexibility in process chain become the new normal, the chemicals market prices will be more tied down to individual market fundamentals as the feedstock margins will be secured in the volatile environment.

Until next time on the Snapshot, we’ll keep an eye on the market.