Why the oil industry may thrive without gasoline

Source: By Shelby Webb, E&E News • Posted: Wednesday, February 28, 2024

A photo collage of a giant hand holding and oil barrel with various items made from petrochemicals pouring out of it

POLITICO illustration/Photos by iStoc

The oil industry is increasingly turning to a widespread product to help keep crude in the market amid pressure to address climate change: petrochemicals.

Petrochemicals are oil-derived compounds used in everything from plastics to medical equipment. And demand for them is expected to skyrocket, with help from renewables and low-carbon energy.

The International Energy Agency forecasts that petrochemicals are set to account for more than a third of growth in oil demand through 2030 and more than half starting in 2050 — ahead of diesel fuel for trucks and aviation and shipping fuel. They could consume an additional 56 billion cubic meters of natural gas annually by 2030 — an amount equivalent to about half of Canada’s total gas consumption today, according to the agency.

“I would say that really if we look globally, petrochemicals are becoming the largest driver of global oil demand,” said Kate Hardin, executive director of Deloitte’s Research Center for Energy and Industrials.

The projected growth not only could affect emissions, but could offer the oil industry a lifeline at a time when climate policies, a shift to electric vehicles, investor pressure and declining refinery capacity are expected to increasingly strain the sector. The current push for clean energy is helping petrochemical growth by relying on plastics and polymers used in technology such as wind turbines, solar panels and electric vehicle parts.

Tanya Vetter, vice president of strategy and planning for ExxonMobil Product Solutions, said her company expects petrochemical demand to grow 40 percent by 2030 and double by 2050, while company officials expect gasoline demand to decrease in the 2030s.

“We look at industry trends and demand to try to identify the opportunities to transform the business as we evolve to meet society’s ambitions,” Vetter said. “We’re really focused on facilities that can produce high-value products that customers ultimately want, while reducing emissions.”

The forecast surge in petrochemicals comes as refining capacity in the U.S. and other developed nations is set to drop, putting further pressure on oil companies to find alternative products to gasoline. S&P Global forecasts global refining capacity to decline 24 percent by 2050 to meet worldwide emissions targets, with most of those early cuts happening in North America and Europe. That reduction while demand for gasoline remains relatively high has already led to high profit margins for refiners and industry concerns of reduced supplies at the pump.

Environmental groups and those who live near petrochemical plants say that trading gasoline for petrochemicals will do little to help the environment.

The production of petrochemicals like ethylene, olefins, propylene, acetylene, methanol and ethane has led to the release of toxic emisions in nearby communities and prolongs oil production and its environmental consequences, they say.

Patrick Grenter, director of the Sierra Club’s Beyond Dirty Fuels campaign, said oil companies are looking to petrochemicals to keep demand for oil and gas alive, even as appetite for fossil fuels wanes because of climate concerns.

“As we’re seeing as that market share erodes, fossil fuel executives are doing all they can to maintain the status quo. They basically have had a free pass to pollute for decades, and they want to hold on to that as much as they can to protect their profits,” he said.

A boost from renewables?

Petrochemicals have been a major part of processing oil for about 100 years, first growing sharply to supply World War II efforts with new materials like plastics and polymers.

Since then, they have seeped into almost every facet of modern life. Along with plastics, they are used to make clothing, plastics, adhesives, lubricants, paints, fertilizers, food preservatives and digital devices. Twelve percent of global oil demand came from the petrochemical sector in 2018, according to the International Energy Agency. By 2050, it could capture 55 percent of crude oil demand.

Petrochemicals are already among oil companies’ biggest moneymakers. Vetter with Exxon said the “higher-value” petrochemical products — like polyethylene and propylene used in plastics — account for about 40 percent of the company’s downstream earnings.

Most of the global rise of petrochemical use in coming years will come as emerging economies develop and urbanize, according to the IEA, fueling more demand for a range of products. But clean energy projects are definitely a driver too, according to David Yankovitz, a principal and chemical practice leader with Deloitte.

“In fact, 75 percent of all lowering of CO2 emissions will go through the chemical industry, with things like EVs, wind turbines, solar panels, lightweighting — all the things that we need for a net-zero world,” Yankovitz said.

For example, wind turbine rotor blades are often produced from ethylene as a base chemical. Silicon layers in solar panels can be sandwiched between two panels made from ethylene. Plastic parts can make planes and cars lighter weight, helping them run more fuel efficiently.

There is a push to find alternatives to petrochemicals, and analysts expect a growing number of substitutes to be made using plant products and other feedstocks.

“For petrochemicals, it’s full steam ahead, but it’s based on a changing landscape,” Yankovitz said. “It is fossil fuel-based chemicals, that’s part of it, but there’s going to be new technologies around bio-industrial technologies like, as an example, advanced recycling.”

Bioethylene, which is being eyed for some of the same applications as ethylene, can be made from sugar cane instead of oil, for example. Occidental Petroleum announced in 2021 it would construct a pilot project with Houston-based startup Cemvita Factory to make bioethylene out of carbon dioxide, water and light.

But many petrochemical alternatives are not widespread in the market and can cost more to produce than fossil fuel options. Biopolymers, an alternative to some petrochemicals, make up just 1 percent of global production of plastics, according to 2022 data from trade group European Bioplastics.

Although the Biden administration issued an executive order setting a goal of replacing 90 percent of U.S. plastics with biomaterials over the next two decades, the high cost of production remains a barrier, according to a 2021 analysis by S&P Global. That likely means petrochemicals will remain dominant for many years in an industry that relies on them as a feedstock.

The refinery factor

Some companies have started to shed some of their refining assets in favor of facilities that can produce petrochemicals.

Vetter with Exxon pointed to the 2023 expansion of the company’s Beaumont refining capacity at a facility that both produces petrochemicals and refines crude. That expansion adds 250,000 barrels a day of refining capacity to the site.

Vetter said the integrated facilities make financial sense. The company can use the same feedstock — crude — to make both fuels and petrochemicals, and can switch between the two easily. If the market margins for refining are higher, it can refine, but if the market swings and certain petrochemicals are in higher demand, it can redirect the feedstock and begin producing more chemicals.

“So even today in the base case, we can adjust how much gasoline we make, how much diesel we make, or base [feedstocks for petrochemicals] we make,” she said. “So there’s a fair bit of flexibility within our integrated assets to really adjust to demand as it evolves.”

‘Really nasty’

Emissions data provided by petrochemical companies to EPA and compiled by the Rocky Mountain Institute shows the U.S. industry emitted about 156 million metric tons of carbon dioxide a year in 2019, 1 million tons of methane and 15 million tons of nitrogen oxides. Some studies, including one from University of Miami researchers last year, have warned of cancer risks from petrochemicals.

Some residents who live near petrochemical facilities say they cause an odor to permeate the air.

One of those residents is Terri Blackwood, who says she never knows when the “smells” will come. Her house along the Houston Ship Channel is less than a mile away from Exxon’s integrated facility in Baytown, Texas, and Blackwood has watched the facility grow as the company built new units dedicated to petrochemical production.

Most days, she says, everything seems fine. But once every few months, pungent odors start seeping through her air conditioning vents, she says.

“Sometimes it’s tar with chemical on top of it. Sometimes it’s a really nasty, sewer-ish chemical smell,” Blackwood said. “Sometimes it’s very thick. Sometimes you accidentally breathe it in your nose, and it gets stuck in your throat.”

Blackwood said she calls an Exxon safety hotline when issues arise but that she rarely gets a response.

Grenter, with the Sierra Club, said those types of complaints are common around petrochemical facilities.

“We know even the ‘state of the art’ facilities have been beset by pollution problems impacting communities by them,” he said. “And we know it disproportionately impacts brown and Black communities.”

In response to E&E News questions about complaints of pollution and smells in Baytown, Exxon spokesperson Lauren Kight said the company follows up on every question from community members near their plants “because being a good neighbor is our priority.”

“We investigate all neighbor questions, including odors, and if we trace it back to our operations we work to quickly resolve and will cooperate with all agencies in the process,” she said.

The American Fuel & Petrochemical Manufacturers, a trade group for the industry, did not respond to requests for comment.

On its website, the organization says its members abide by numerous chemical policies and regulations administered in the U.S.

“There are also international conversations occurring regarding the sustainability of single-use plastics and potential solutions,” it says.

Grenter said there’s still an obvious environmental impact from petrochemical facilities, even if they don’t contribute as much to carbon dioxide emissions as refineries and fossil fuels.

“These are highly polluting facilities that still incentivize and require fracking and other toxic ways of extracting oil and gas, dangerous and polluting pipelines, and contribute to climate change,” Grenter said.

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