The Future of Petrochemicals Mechthild Wörsdörfer, Director of Sustainability, Technology and Outlooks 7 December 2018, Brussels - EU Refining Forum IEA © OECD/IEA 2018 The IEA Global Family The IEA works around the world to support accelerated clean energy transitions with unparalleled data, rigorous analysis and real-world solutions. 2 © OECD/IEA 2018 The IEA Global Family The IEA works around the world to support accelerated clean energy transitions with unparalleled data, rigorous analysis and real-world solutions. 3 © OECD/IEA 2018 The IEA Global Family The IEA works around the world to support accelerated clean energy transitions with unparalleled data, rigorous analysis and real-world solutions. 4 © OECD/IEA 2018 Exploring key “blind spots” in global energy The IEA is shining a light on areas of the energy system that do not garner as much attention as they deserve. 5 © OECD/IEA 2018 Petrochemicals today Chemicals, society, the energy system and the environment © OECD/IEA 2018 Petrochemicals are all around us Our everyday lives depend on products made from petrochemicals, Including many products for clean energy transitions. 7 © OECD/IEA 2018 Petrochemical products have been growing fast Production growth for selected bulk materials and GDP 1 200 Steel 1 000 Aluminium 800 600 Cement Index (1971 (1971 = Index 100) 400 GDP 200 Plastic 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Demand for plastic has grown faster than for any other bulk material, nearly doubling since the millennium. 8 © OECD/IEA 2018 Plastics are a key driver of petrochemical demand Per capita demand for major plastics in 2015 100 90 80 70 60 50 40 30 20 Plastic resin (kg/capita) resin demand Plastic 10 0 Korea Canada Saudi United Western Japan China Mexico Brazil India Africa Arabia States Europe Higher-income countries consume up to 20 times as much plastic per capita as lower-income economies, indicating significant global growth potential. 9 © OECD/IEA 2018 The importance of petrochemicals in oil and gas demand Primary oil demand (2017) Primary gas demand (2017) 12% 14% 12% 8% Chemicals 8% 5% Power 5% 21% Other Industry 40% Transport Buildings 4% 56% 15% Other Today, petrochemicals account for 14% of global oil, and 8% of global gas demand. 10 © OECD/IEA 2018 “Feedstocks” fly under the radar Feedstock accounts for half of the chemical sector’s energy inputs, of which oil and gas account for more than 90%. 11 © OECD/IEA 2018 No “one size fits all” for production and feedstock Oil (ethane) Oil (naphtha) Oil (other oil) Natural gas Coal/COG HVCs (mainly for plastics) Ammonia (mainly for fertilisers) Methanol (diverse products) Asia dominates both global primary chemical production and naphtha feedstock consumption. North America is the leader in ethane-based petrochemical production. 12 © OECD/IEA 2018 No “one size fits all” for production and feedstock Europe North America Middle East Asia Pacific Oil (ethane) Oil (naphtha) Oil (other oil) Natural gas Coal/COG HVCs (mainly for plastics) Ammonia (mainly for fertilisers) Methanol (diverse products) Asia dominates both global primary chemical production and naphtha feedstock consumption. North America is the leader in ethane-based petrochemical production. 13 © OECD/IEA 2018 Oil companies are strengthening links with petrochemicals Indicative economics for fuels and petrochemicals in Europe Crude cost Gasoline Refinery gross margin Retail gross margin Diesel Ethylene margin Polyethylene margin Naphtha Tax 0 500 1 000 1 500 2 000 2 500 USD/tonne For integrated refiners, the petrochemical path can offer higher margins than fuels. 14 © OECD/IEA 2018 Levels and types of integration vary between regions Legend Refineries (30 to 540 kbbl per year) Crackers (140 to 1 200 kt per year) MTO, CTO, MTP (100 to 500 kt per year) PDH (450 to 750 kt per year) This map is w ithout prejudice to the status of or sov ereignty over any territory, to the delimitation of international frontiers and boundaries, and to Markers sized according to capacity. the name of any territory , city or area. China’s petrochemical capacity follows refinery placement, with naphtha crackers concentrated in the 11 coastal provinces, while methanol-based output tends to be located in coal-producing regions. 15 © OECD/IEA 2018 What is the current trajectory for petrochemicals? The Reference Technology Scenario (RTS) © OECD/IEA 2018 Plastics continue their strong growth trajectory… Production of key thermoplastics 800 80 PET 700 70 HDPE Production (kg/capita) Production 600 60 PVC LDPE 500 50 PP 400 40 PS Production (Mt) Production 300 30 Other 200 20 RTS per capita High demand variant 100 10 0 0 1980 1990 2000 2010 2017 2020 2030 2040 2050 Production of key thermoplastics more than doubles between 2010 and 2050, with global average per capita demand increasing by more than 50%. 17 © OECD/IEA 2018 Petrochemicals grow more than any other oil demand driver Oil demand growth to 2030 mb/d 10 8 3,2 6 2,5 9,6 4 1,7 2 0,6 1,6 0 Shipping/ Passenger Aviation Road freight Petrochemicals Growth other vehicles 2017-2030 Petrochemicals are the fastest growing sector of oil demand – over a third of growth to 2030 and nearly half to 2050. 18 © OECD/IEA 2018 Underpinned by robust growth for primary chemicals HVCs (mainly for plastics) Ammonia (mainly for fertilisers) Methanol (diverse products) Regions with a feedstock advantage and a strong source of domestic demand account for the lion’s share of production increases in the longer term. 19 © OECD/IEA 2018 An alternative, more sustainable pathway The Clean Technology Scenario (CTS) © OECD/IEA 2018 Petrochemicals take an environmental toll Global final energy demand and direct CO2 emissions by sector in 2017 1 500 2500 Direct CO 1 200 2000 2 emissions (MtCO Final energy demand 900 1500 Direct CO 2 emissions 600 1000 2 /yr) Final (Mtoe) demand Final energy 300 500 0 0 Chemicals Iron and Steel Cement Pulp and Paper Aluminium Despite being the largest industrial energy consumer, the chemical sector ranks third among industrial CO2 emitters. 21 © OECD/IEA 2018 Building towards a more sustainable chemical sector Pollutants from primary chemical production Relevant UN SDGs Reference Technology Scenario Index 2017 = 100 200 Carbon dioxide Air pollutants 150 Water pollutants 100 Clean Technology Scenario Carbon dioxide 50 Air pollutants 0 Water pollutants 2017 2030 2050 By 2050, environmental impacts under the Clean Technology Scenario decrease across the board, including CO2, air and water pollutants. 22 © OECD/IEA 2018 Plastic recycling increases sharply in the CTS Secondary plastic production, primary chemical production savings and plastic collection rates 200 100% rate collection average Global Secondary plastic production (2017) 160 80% Secondary plastic production (RTS) 120 60% Secondary plastic production (CTS) 80 40% Primary chemical savings (CTS) 40 20% Global average collection rate Global production/savings (Mt) Global production/savings 0 0% 2017 2030 2030 2050 2050 2030 2050 Secondary plastic production Primary chemical savings By 2050, the collection rate for recycling nearly triples in the CTS, resulting in a 7% reduction in primary chemical demand. 23 © OECD/IEA 2018 Plastic waste leakage is an urgent pollution problem Annual and cumulative ocean-bound plastic leakage by scenario 60 600 (Mt) leakage waste plastic Cumulative 50 500 CTS Annual leakage 40 400 RTS annual leakage 30 300 RTS cumulative leakage 20 200 CTS cumulative leakage 10 100 Plastic waste leakage rate rate (Mt/yr) leakage waste Plastic 0 0 2010 2015 2020 2025 2030 2035 2040 2045 2050 The recycling infrastructure necessary in the CTS lays the groundwork to drastically reduce plastic pollution from today’s unacceptable levels. Cumulative leakage more than halves by 2050, relative to the RTS. 24 © OECD/IEA 2018 Reducing CO2 emissions in the chemical sector Direct CO2 emissions by scenario 2,5 25 Cumulative emissions (GtCO emissions Cumulative ) 2 2,0 20 CO Additional emissions (RTS) 1,5 15 Energy-related emissions (CTS) Process emissions (CTS) emissions (Gt 1,0 10 Cumulative emissions reductions (CTS) 0,5 5 Annual Annual 2 ) 0,0 0 2017 2020 2025 2030 2035 2040 2045 2050 Chemical sector emissions of CO2 decline by 45% by 2050 in the CTS, with energy-related emissions declining much less steeply than process emissions. 25 © OECD/IEA 2018 A more sustainable chemical sector is achievable Contribution to cumulative CO2 emissions reductions between the CTS and RTS 6% 9% Alternative feedstocks 35% Plastic recycling 25% Energy efficiency Coal to natural gas feedstock shifts 25% CCUS A ambitious, balanced portfolio of options are required to deliver emissions reductions; 24% cumulative reduction from RTS to CTS from 2017 to 2050. 26 © OECD/IEA 2018 CCUS delivers more than one third of CO2 savings in the CTS CCU/S deployment in the CTS and the RTS 500 25% Proportion of total generated total of Proportion Capture for storage 400 20% /yr) 2 300 15% Capture for utilisation 200 10% Capture for storage, % of total generated Emissions (MtCO 100 5% Capture for utilisation, % of total generated 0 0% 2017 RTS CTS RTS CTS RTS CTS RTS CTS RTS CTS RTS CTS RTS CTS 2020 2025 2030 2035 2040 2045 2050 Additional CO2 capture capacity deployed in the CTS relative to the RTS is primarily for storage applications. 27 © OECD/IEA 2018 The CTS can be pursued cost-effectively Cumulative capital investments by scenario 500 1 250 Avoided production 400 1 000 Coal to gas capital savings 300 750 Electrolysis Carbon capture USD billion 200 500 Bioenergy based production 100 250 USD billion, HVCs Core production equipment 0 0 RTS CTS RTS CTS RTS CTS Ammonia Methanol HVCs Savings due to recycling and coal-to-gas feedstock switching mean the CTS (USD 1.5 trillion) is less capital-intensive than the RTS (USD 1.7 trillion).