new unconventional liquids will be
brought online. By 2010, the world oil
consumption will reach 91.5 million bar-
rels per day and by 2025, that number
will be 120.8 million barrels/day.
PETROCHEMICALS
Troubles Ahead, but Signs
of Movement
Bill Hyde, director of C4 Olefins and
Elastomers, CMAI, told market outlook
attendees that the global petrochemical
supply balance is tightening up due to
capacity rationalization (not demand
growth, which he said is flat) at the
same time the world is on the cusp of
exponential growth in new capacity. As
a result, the industry is moving towards
a possible wreck, or at least some
major difficulties, he said.
For highly leveraged companies connected to the industry, this is a time of
significant risk, he said.
Hyde explained that the value chain
for the industry is pinned between two
dominant forces—the energy infra-
structure on one end and consumers of
finished goods on the other. In between
are the related industries such as goods
producers, retailers, compounders and
base petrochemical producers, which
tend to fight over the defined amount of
value that exists.
Supply and demand dynamics in the
value chain are volatile, influenced by
numerous events related to supply interruptions in energy and feedstock values,
inventory stocking or destocking, evolving variations in trade patterns and
consumer confidence. When the consumer stops moving, however, the gears
of the industry cease, he explained. So
since the world’s consumers are currently overly indebted and cautious
about spending, things have slowed
almost to a halt.
However, “We are starting to see
signs of consumers rolling forward,” so
there is hope that the trends may start
back up the other side, Hyde said.
“In our view, the economy is right
about at the tipping point. If we haven’t
started into slight growth, we will in a
short amount of time,” Hyde says.
Lower energy prices actually tend to
give consumers forward momentum
through increased spending ability, and
those consumers are also seeing lower
food prices, extensions on unemployment benefits and other falling prices.
Meanwhile, construction costs have
declined, interest rates are historically
low, and trillions of dollars are flowing
into restarting economies through various stimulus packages.
Still, what has occurred has the
potential for longer-term effects because
of the places in the world where capacity is being added, Hyde said. Some
countries don’t require high rates of
return to justify investment. Other locations, like the Middle East, have a significant raw material cost advantage.
“This makes them [the places with
those two advantages] competitive anywhere in the world because these are
places we can’t export to competitively.
So they push themselves into the market, and others deal with the fall out,”
he said.
