Chemical Industry Outlook: Trends, Challenges, and Opportunities

Shaheen Chohan (00:17):
Hello and welcome. This podcast is brought to you by Industrial Info Resources. Since 1983, we have been providing global market intelligence on the industrial and energy markets. And through the combination of our trusted data, which is validated and qualified direct from source, and our analytics and forecasting tools and solutions, we help our customers stay connected and in tune with the latest project and investment opportunities and those trends that are occurring across the world. My name is Shaheen Chohan. I am the Vice President of Global Analytics at Industrial Info Resources, and I'm based in our Dubai office, and I've been with the company now for about 15 years.
Now, today, to help unveil some of the trends we are seeing from our global research, I am delighted to introduce Trey Hamblet, who is our Global Senior Vice President of Chemical Processing Research. Welcome, Trey.
Now, Trey, when we came into the beginning of the year, you were already anticipating a pretty interesting outlook for the next 12 months. The chemical industry in particular sits very close to the end consumer, and so any kind of shift in sentiment or demand, or even the economic outlook, can probably have quite a sizable near-term impact on chemical producers' confidence. And I remember when you and I were talking and looking at the outlook during COVID — that peak of COVID — even though there was some short-term erosion in consumption, the reality is long-term demand fundamentals were still pretty robust. So looking at the current situation that we're in at the moment — albeit with a little bit of uncertainty and certainly some change afoot — would you say that there is still a high degree of confidence in the industry, certainly over the mid to long term?

Trey Hamblet (02:23):
Certainly. You're correct. The industry is considered very consumer-centric, right — it follows the pattern of GDP and consumer confidence. And yes, world population estimates continue to grow. With that comes the demand for plastics, the demand for all the things that we as consumers require, and the elevation of those societies in other parts of the world that are still advancing — with first-time phone buyers, first-time automotive purchasers, etc. So the long-term outlook remains the same, and you're absolutely correct. Some of the dilemmas that we're starting with early this year are creating some confusion and concern and worries, but we don't anticipate that hampering long-term — or even really mid-term — chemical industry spend. We've seen some announced delays on previously funded, permitted projects so far this year in recent days and weeks. But we do anticipate those will be short-term impacts.

Shaheen Chohan (03:23):
So just honing in on some of those short-term impacts — and clearly everything's being defined by whether we are or aren't seeing various levels of tariffs and if so, on whom. Do you think that the tariff situation, if it continues — and I know we've got a kind of 90-day pause on these — but if we see some of those tariffs move forward, do you think that would actually impact the profitability of not just operational chemical producers? And do you think this could cause some of them to potentially hold back on expansion-type projects? Do you think we may see some of those get held back, with folks kind of sitting on their hands for a good part of this year?

Trey Hamblet (04:19):
The answer is yes. I mean, we've already seen that, we've already seen evidence of it. We've seen it in several of the very large, billion-dollar-plus projects. And while it's related to tariffs, it's really more related to the material cost of these construction projects, as well as how it impacts margins down the road. Again, the long-term economics are quite strong, but those pictures are going to change with the tariffs. And because the chemical industry is, as we mentioned earlier, so tied to the consumer, the cost of those materials as they make their way all the way through the production and manufacturing food chain will impact margins and certainly challenge decisions for some of those projects.

Shaheen Chohan (05:02):
So your team of global researchers who are making direct calls and surveys with both plant operators and project owners on a daily basis — are any of them starting to see slippage in some of those start dates, or indeed have we seen any fallout, or is everything still holding firm?

Trey Hamblet (05:28):
Specifically some of the very large carbon capture projects — we've got some of the green and blue initiatives that we really anticipated we'd see a second quarter 2025, maybe even a third quarter of this year construction start. We've seen a lot of those — half a dozen or more that I can think of tangibly — where we've seen evidence of the EPCs or the owners checking on a construction start, and they've said, you know, we're now moving this six months out, we're moving this nine months out. We need to see how the first half of this year unfolds before we make a firm decision on what we had already previously committed to. So we've certainly seen the timeline for starts tangibly move. But again, similar to our outlook maybe a year or two years ago, we have a huge accumulation of projects because we haven't seen a mass exodus to cancel projects. It's been more about "let's move it to the right," to the points we've made earlier about long-term demand, global population growth, and global demand continuing to be very strong.
Particularly when you look at the US and the cost advantage we have on our very, very cheap energy feedstocks — we have an increasing capacity of NGLs becoming available, which are very opportunistic to the petrochemical industry, as well as those commodities being exported by themselves. But we have a very structured, long-term, low-cost feedstock for the petrochemical industry.

Shaheen Chohan (07:09):
And you always use the oil-to-gas ratio. When you say cost advantage, what are you typically looking at as that ratio?

Trey Hamblet (07:16):
Yeah. So if you think back to when the shale gas evolution began back in the 2013, 2014 period, most of the big producers were saying we needed a 7 to 1 ratio. We were already at a 14 or 15 to 1 ratio. Then you go through the latter years of that, and we were at a 25 to 30 to 1 ratio.
And so even though crude oil prices are expected to continue to plateau, if not fall, over the next 4 to 18 months — I mean, I was looking at some forecasts only this week that, you know, many of those forecasts are putting the ballpark roughly both for Brent and WTI at around $65 per barrel this year, but possibly falling to maybe the high 50s for 2026 into next year.

Shaheen Chohan (08:13):
So do you think if we do see a softening crude price at those levels, that may erode some of the US cost advantage and pass some of that advantage over to those Asian naphtha-based producers?

Trey Hamblet (08:27):
You know, it's an incredibly complex picture because you have the LNG capacity that's coming online — a massive amount of it, a doubling of that capacity between now and 2028. In tandem with that, you have something like 35 or 40 NGL processing trains coming online, which again produces a tremendous amount of the ethane that we need for that cost advantage. So as long as our cost advantage for the NGLs remains incredibly cheap — which it's forecast to do; I think there were 50-something NGL trains brought online in the last three years, with another 35 coming in the next two years — it just continues to support the fact that we're going to have the availability of a low-cost feedstock. Because to your point, in Asia they're still predominantly consuming naphtha. And when they're consuming ethane and other NGLs, a lot of times it's an imported product from the US.
So crude oil, to try to capture the answer you're looking for — if crude oil falls into the mid-50s, that oil-to-gas ratio is going to fall. But it's still well above what US producers need to have a positive margin.

Shaheen Chohan (09:44):
And I guess also another kind of tailwind for US producers is obviously the Trump administration being very pro-hydrocarbon and really pushing for the development and the reshoring of domestic manufacturing. So this sort of push for more upstream supply from a feedstock perspective, but then also building out the domestic manufacturing sector — that must paint a very rosy, positive picture if you're a US chemical producer.

Trey Hamblet (10:18):
Yeah. Well, so much of the spending that we're tracking in the chemical industry right now is around that theme of blue and green commodities. And the IRA incentives that came out in 2022 play a huge part in that — there's some enormous spending planned on the horizon for blue methanol, blue hydrogen, blue and green hydrogen, methanol, ammonia, etc. There have been concerns that the current administration is going to pull back or repeal some of those IRA dollars, that it's going to influence that, but so far we haven't seen any tangible evidence of that. We've seen the rhetoric towards that slow somewhat and continue to gain some momentum.
There are several projects on the slide we have in front of us that shows some of the highest likelihood and highest probability projects. When you think about it, you have very traditional technology — going back to that natural gas feedstock — the SMRs, the reformers, etc. — with a structural feedstock that is very well intact and is a good, very inexpensive infrastructure here. And then as a producer, you get paid for the CO2 on the back end. You've got almost a super-commodity in comparison to the rest of the globe — because you've got a very cost-advantaged feedstock, and you're getting paid on the back end on a commodity that already has a globally advantaged cost factor.

Shaheen Chohan (11:50):
Right now, interestingly, I do want to stay with some of these clean commodities. It's always the green hydrogen that gets the attention. And that's probably one part of the market that maybe we see some slowdown. But you're very, very positive — I remember when we were having a chat very recently, you said you think a lot more momentum will be coming from the blue hydrogen, and then subsequently those downstream blue commodities as well. Could you just, for folks who are tuning in, explain the difference between green versus blue commodities from a chemical perspective?

Trey Hamblet (12:23):
Certainly. I mean, it's obviously the same molecule — it's the same commodity, has the same chemistry, flash points and all those combustion points, etc. But the green commodity is originating from that renewable power, which we have a significant challenge with because data center construction is just enormous — we need all the power we can get to support those. Everybody is in need of power. The challenge for the green commodity is access to the renewable power to produce it. But then also it has to — despite being the same chemistry, the same molecule — be transported separately to carry that green flag. It has to be consumed separately to carry that green flag. And we don't have the infrastructure to carry out that lifecycle of that commodity.
Into your point: yes, there's been a lot of hype around the green hydrogen commodity over the last 3 to 5 years, and of the tens of billions that we've seen identified and planned for green hydrogen, we've only at this moment got nine operational, commercial-scale green hydrogen units across the entire US. So hundreds of projects, tens of billions — we've materialized nine units. That kind of tells you there's a bit of a challenge to overcome.
On the question you asked about blue — yes, we very much anticipate we're going to see more of the blue, whether it be Air Products in their Dora project, Linde in their project, or OCI in Beaumont. But again, it comes back to the point we talked about earlier — they're getting some very significant credits to capture that CO2. There's a very tangible financial incentive behind those and in their commodities that feed other chemical commodities. It takes chemicals to make chemicals. So if we can put blue hydrogen, blue methanol, blue ammonia into the market, everyone who consumes it downstream gets to carry a part of that ESG flag.

Shaheen Chohan (14:33):
Right. Now, in a sense, the US is kind of playing catch-up when it comes to certainly the green and blue hydrogen market. Where else in the world, if you could put your finger on it, are some of the other hotspots in terms of CapEx as well as operational capacity for the green and blue commodities?

Trey Hamblet (14:56):
Yeah, so Europe has made some significant advancements on the green hydrogen, certainly at a greater pace than we have here. I think that's largely tied to the fact that they don't have that natural gas cost advantage that we have to get through to traditional hydrogen the way that we do. And so Europe has certainly advanced, and there's a tremendous number of green hydrogen projects planned across even Oceania, Latin America, etc. — though we haven't seen those materially advance in any great numbers yet. Yes, to your point, there have been other regions of the world that have reached for green hydrogen as their solution, and probably the most successful region so far has been Europe.

Shaheen Chohan (15:37):
So just focusing very quickly on Europe — is it more towards the green side, bearing in mind they've got a very well-entrenched renewable infrastructure?

Trey Hamblet (15:48):
Yes, very much the green side rather than the blue side.

Shaheen Chohan (15:57):
That's great. So, Trey, just in summary, I guess it's probably fair to say that your researchers are still pretty confident about the mid to long-term outlook for the chemicals market. So in conclusion, could you just summarize some of the particular trending sectors or indeed geographies for this year that you want to make sure folks who've tuned in — and some of your customers — pay attention to?

Trey Hamblet (16:18):
So for the balance of 2025, we're going to keep a very close watch on any significant challenges domestically to the IRA dollars and the things that are going to potentially hamper some of the carbon capture. Because if you look at the individual list of the biggest projects, they all have some sort of blue or green component to it. So if you look at what's really trending, that's what people are watching the most. When you get outside of that, there are other themes. There's advanced plastic recycling that continues to advance, and there's a significant amount of spend for that, particularly in Europe as well — it's moved significantly here in the US, with domestic firms spending billions of dollars in advanced plastic recycling in Europe. So there are other themes and other trends. Domestically, that happens to be the largest.
Agricultural chemicals, even ammonia — there's a very big thirst for ammonia in Europe being imported from the US, but then when that ammonia lands on the shores in Europe, it's being converted to other downstream commodities. So that's a sector to watch quite closely. Those are the couple that top my radar as I think about the year as a whole.

Shaheen Chohan (17:36):
Great. Well, Trey, as always, I really enjoy the conversation when we do get that time together. That brings us to the conclusion of today's podcast. Thanks, Trey, for sharing your insights and perspectives today. And thanks to everybody who's joined us. If you have any questions, then please do reach out to either myself or Trey on the contact details you can see here. I hope you've enjoyed the discussion as much as I have, and I hope we have helped you all better navigate some of the currents of change that we're seeing today. Thank you.