Oil & Gas

From exploration to distribution

Week 4 V22 The Petrochemical Industry in Brief
Michel Duc

W4V22 - Petrochemical Industry p. 1

IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

Introduction

It is amazing how many products of our everyday life are made from oil and gas... and very
few people from the general public are actually aware of it. It is in fact a fairly recent
industry that has made it possible to produce all these goods: this is the petrochemical
industry.
I will first explain to you why the petrochemical industry should be considered as a major
branch of the chemical industry. Then, I will give you insights into the business fundamentals
that drive this industry. We will finally review the routes from petrochemical feedstocks to
plastics, which are the main products of this industry.

A Major Branch of the Chemical Industry

The petrochemical industry is actually a major sector of the large-scale chemical industry.
Oil refineries and natural gas processing units produce streams that can be upgraded into
petrochemical plants to make higher-end products. These products are first chemical
intermediates, also called base chemicals. They are at the origin of a very important
international trading activity.
Base chemicals are the precursors of an extraordinary large variety of more complex
molecules that are used to make consumer products, including plastics and resins, synthetic
rubbers, synthetic textiles, paints, cosmetics, medicines and so on The profusion of
petrochemical-sourced consumer products is just amazing and keeps increasing day by day.
Just look around you and you will realize that they are a part of your everyday life.

Characteristic & Megatrends of the Petrochemical Industry

Petrochemicals are at the heart of an extended value chain. The related industry covers the
production of base chemicals and the manufacturing of raw plastics and resins.
As their name infers, petrochemicals come basically from petroleum, that is to say crude oil,
but also from natural gas, and, to a much less extent, from coal and biomass. The feedstocks
used by the petrochemical industry are made of mixed hydrocarbons, which are molecules
consisting mostly of carbon and hydrogen atoms. The hydrocarbon streams used are either
specific oil cuts from refineries or condensable products from natural gas processing units.

W4V22 - Petrochemical Industry p. 2

IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

Petrochemicals do not reach the final consumer, i.e. - the man in the street. They are
actually at the heart of a Business-to-Business activity. Once converted into plastics and
resins, they are first sold to customer industries, named converters, who transform and
shape them into consumer goods. As a result, few of us make the connection between
the petrochemical industry and the commonplace objects that surround us, commercialized
by retailers.
Proceeding through the petrochemicals value chain, the value of the products progressively
increases.

Oil & gas are quoted on markets at around 100 to 800 Euros per ton of oil equivalent.
Base chemicals are typically traded at prices from 500 to 1,500 Euros per metric ton.
Commodity plastics & resins are generally commercialized at around 1,000 to 2,000 Euros
per ton. Final consumer goods can be even more expensive.
The level of capital investment required to build a new production facility is very different
for each of these industries: very high for oil & gas exploitation and petrochemical
production, much lower for the manufacturing of consumer goods.
This is why there are only a few large companies producing oil and gas. A few more
manufacture base chemicals. Substantially more companies are involved in the production
of raw plastics and resins, whereas millions of smaller companies make the consumer end
products.
Trading is a core activity at each step of the Oil & Gas-to-Plastics value chain.
Each step provides opportunities to buy, sell, exchange or swap products to optimize chain
costs and asset utilization.
Each region of the world has its own specificities in terms of economic outlook and ability to
welcome investments in petrochemicals :
Europe, North America and Japan are homes to the historical petrochemical
companies. North America is undergoing a rebirth of its petrochemical industry

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IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

thanks to shale gas. In contrast, the European petrochemical industry is stagnant or

under reorganization.
Saudi Arabia has developed a solid core petrochemical industry thanks to local access
to cheap raw feedstocks. This country has become a major exporter of
petrochemicals.
China is still importing massive quantities of petrochemical intermediates. It benefits
from large manufacturing infrastructures to make plastics and resins, locally
converted into consumer goods that are re-exported worldwide.
India is becoming another actor in petrochemicals with a fast-developing industry.

The petrochemical industry is, first and foremost, a global industry, particularly with regard
to the very active trading related to it.
Among the historical companies, BASF was still the leading petrochemical company in 2014.
New players belonging to the fast-growing emerging economies in Asia, such as Sinopec and
Reliance Industries, have more recently joined the group of leading petrochemical
companies. Within the new players, new petrochemical companies have also emerged from
countries benefiting from advantaged feedstocks, such as SABIC. The growing capacity of the
new players is also partly due to the acquisition of activities from historical companies.
Another characteristic of the petrochemical industry is that its products are manufactured
mostly to common specifications, especially for base chemicals. This guarantees to all the
purchasers of petrochemicals the same characteristics and properties from one country to
another, in line with the global nature of this industry.
The manufacturing technologies are available from existing petrochemical producers and
engineering companies. They are being continuously improved and can be acquired by
purchasing licenses.
The design and construction of petrochemical manufacturing plants require, however,
massive capital investments. As feedstock and energy costs are high and product prices
generally set by the market, the only way to make a good profit margin is to build large-scale
production facilities and play on economies of scale.
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IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

From Feedstocks to Plastics

We have seen that petrochemicals are mainly sourced from oil and gas and that their
production is energy-intensive. The fraction of oil and gas effectively consumed by the
petrochemical industry remains, however, modest compared to the fraction used for
transportation fuels and residential heating: less than 10% of crude oil and 3% of natural gas
consumed annually is used to manufacture petrochemicals.
The main basic feedstocks of petrochemical platforms are:
Natural Gas Liquids (NGL) consisting of ethane, propane and butane coming from
natural gas processing units
by-product cuts of oil refineries such as naphtha, and mixed butane & propane, also
called liquefied petroleum gas (or LPG).
The petrochemical platforms convert these feedstocks first into the so-called olefin and
aromatic intermediates.
Ethylene is the major petrochemical intermediate . This is the smallest buildingblock. Ethylene represents over half of the total base chemical production volumes.
Propylene is often a side product of ethylene production.
Aromatics form the second main group of building-blocks in volume. They consist
basically of BTX (Benzene, Toluene and Xylenes).

The final purpose of all these petrochemical intermediates is mostly to manufacture large
commodity plastics and resins, as shown by their respective annual production tonnages.
Ethylene can afterwards be converted into lightweight plastics called polyethylenes, or it
can be chemically transformed, after further steps, into polyvinyl chloride (PVC), a plastic
material encountered in the building industry.
In the same way, propylene can be used to make polypropylene, a versatile plastic.
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IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

Aromatic intermediates require further chemical modifications so as to be, in turn, possibly

converted into useful plastics and resins. One of these plastics, polyethylene terephthalate
(PET), is often the material of choice to make water and carbonated beverage bottles.
In the same way, some aromatic-sourced plastics, such as polystyrene, are used to make
dairy food packagings, building insulation boards or consumer electronic casings.

W4V22 - Petrochemical Industry p. 6

IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015