Mid-Year Outlook: Post-Lockdown Demand, ESG Drive Chem Projects

Researched by Industrial Info Resources (Sugar Land, Texas)--The global Chemical Processing Industry is facing steep demand from across the industrial spectrum, both for mainstay products like ethylene, and emerging technologies like carbon-free commodity production. Trey Hamblet, Industrial Info's vice president of research for the Chemical Processing Industry, offered a detailed overview of the industry's hopes and hurdles at Industrial Info's U.S. & Canada Industrial Market Outlook event on Wednesday.

The global Chemical Processing Industry could see as much as $21 billion in construction kickoffs this year, although Hamblet believes a more realistic number would be about $15 billion. The lower dollar amount takes into account big-ticket projects that are unlikely to kick off as currently scheduled. But even that lower number would represent about 300 more project kickoffs when compared with 2021.

Total construction kickoffs for 2023 could be as high as $56 billion, as chemical producers begin to realize projects that had been delayed from preceding years amid challenges related to the COVID-19 pandemic, supply-chain issues and labor constraints. Hamblet's "more realistic" estimate of $36.6 billion for 2023 is still high when compared with previous years--and it would remain high even if more big-ticket projects are pushed out, as Hamblet expects.

Click on the image at right for a graph detailing past and projected spending in the global Chemical Processing Industry, by project type.

Hamblet acknowledged that the energy transition has hiked costs significantly for the global Chemical Processing Industry: "The largest chemical companies on the planet have spent billions of dollars over the past decade asking, 'How do we green our commodities?' It's something that had been just unachievable due to the pure cost. But investors, consumers, all of us have pushed and pushed and pushed for greener alternatives, and the economics have improved, the technology has improved, and the demand for some of these [alternatives] have improved."

Ultimately, the energy transition will require a lot of support and input from the Chemical Processing Industry, Hamblet said: "We all recognize that chemicals are very concentric to the consumer, so we do play a very key role in the greening of everything, because everything around us touches or uses a chemical commodity of some sort."

Hamblet pointed to a simple equation: Population growth means more demand for chemicals, period. As demand grows and producers continue to face challenges in constructing new plants--often resulting in delays to construction starts that can last for years--producers will be pressured to ensure their existing facilities can efficiently and effectively handle heavy production volumes.

"When utilization rates are high--and we expect them to be high for some time--that increases in-plant capital, that increases maintenance spending. The plastic demand went through the roof during the pandemic period, so that was a saving grace for some producers during that time."

ESG Initiatives Turning Chemical Industry 'Green' and 'Blue'
The global Chemical Processing Industry is expected to see $9 billion worth of projects with an environmental, social and governance (ESG) component begin construction through 2023. ESG initiatives are being pushed by investors who want to see chemical producers adopt technology that is environmentally friendly, more economically efficient and safer for consumers.

Traditional commodities such as hydrogen, ammonia and methanol are going green, or at least "blue." Green commodities can be produced via the electrolysis of water, a process that can be powered by renewable energy. While this eliminates carbon from the equation entirely, it is an expensive technology to implement and maintain. As a result, many U.S.-based producers are turning to blue commodities, which are produced using natural gas, with carbon capture and sequestration (CCS) technology used to reduce CO2 emissions.

"Ten years ago, recycling plastics meant picking up post-consumer waste and commercial waste, washing it, flaking it, putting it on a barge, sending it to Asia, and getting chairs and tables in return," Hamblet said. "The industry is closing in on that loop--Exxon Mobil Incorporated (NYSE:XOM) (Irving, Texas), LyondellBasell Industries NV (NYSE:LYB) (Rotterdam, Netherlands), Dow Chemical (NYSE:DOW) (Midland, Michigan) and others are spending hundreds of millions of dollars to turn [plastics] back into a base oil-like material that can be put into the front end of a cracker to supplement the feed and make a renewable commodity out of it."

Hamblet pointed to companies such as Air Products and Chemicals Incorporated (NYSE:APD) (Lehigh Valley, Pennsylvania), which is planning a blue hydrogen and blue ammonia project in Geismar, Louisiana. The primary product for the facility will be blue hydrogen, a portion of which will be distributed via Air Products' Gulf Coast hydrogen pipeline network, with the remainder used for ammonia production. Subscribers can learn more from Industrial Info's project report.

Other companies developing blue and green commodities include Hy Stor Energy, Itochu Corporation and CF Industries Holdings Incorporated (NYSE:CF) (Deerfield, Illinois).

"When I see names like those with hundreds of millions--or billions--of dollars targeted in a very short window, that tells me we're going to realize some of [these projects]."

Petrochemicals Lead Industry Sectors in Construction Starts
The petrochemicals sector, which is home to "big block" chemical commodities such as methanol and ethylene, is set for major progress, with as much as $17.6 billion worth of construction projects set to kick off in 2023. Hamblet pointed to the strong likelihood Dow will make an investment decision on its net-zero project in Canada before the end of 2022, with construction likely to kick off next year.

Last year, Dow unveiled plans to build a net-zero carbon emissions ethylene and derivatives facility near Edmonton, Alberta. The company says it would be the first facility of its kind in the world. Alberta's provincial government says it could be the largest investment in the province in more than a decade, according to CBC. Dow says the facility would produce about 3.2 million metric tonnes of certified low- to zero-carbon emissions polyethylene and ethylene derivatives. Subscribers can read more in Industrial Info's project report.

"There's also a good number of methanol projects that have been delayed year after year," Hamblet said. "When crude oil prices go up, that lends favor to some of those methanol projects, so there's a good chance some of those methanol projects will begin construction next year."

Eastman Chemical Company (NYSE:EMN) (Kingsport, Tennessee) plans to use high-temperature and high-pressure methanol to decompose plastics at the plastics recycling unit at its chemicals complex in Kingsport, Tennessee. The company plans to convert about 100,000 metric tons per year of non-recyclable plastic waste into premium, high-quality specialty plastics made with recycled material, via Eastman's methanolysis process. Subscribers can learn more from Industrial Info's project report.

Sectors such as industrial gases and plastics & resins also are likely to see strong demand growth through 2023, Hamblet said.

The agricultural chemicals sector is facing heavier costs due to the rising prices for fertilizers and diesel. But a decline in natural gas prices, which is expected in the long term, could alleviate some of the pressure facing producers. "When you look at some of the renewable diesel that's coming, it presents an opportunity for some of these farmers to produce winter crops that they wouldn't traditionally plant, to produce the biomass feedstock needed to produce the biodiesel or renewable diesel," Hamblet said.

Click on the image at right for a graph detailing projected spending in the global Chemical Processing Industry through 2023, by industry sector.

Maintenance-related spending at chemical plants could hit $3 billion in 2022. "When utilization rates are high, [chemical plants] run longer and harder, and it requires more maintenance," Hamblet said. "Toward the end of 2021, interviews we were having with plant [employees] showed a lot of concern and worry that a lot of things that would take two or three weeks to do, now took two or three months; things that once took two or three months, now took many, many months. But it seems like the industry has done a pretty good job in figuring those problems out, and it really hasn't become an impediment on turnarounds this year."

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