Motiva’s move into petrochemicals signals Big Oil’s future is petrochemicals

Motiva is the latest Big Oil player to diversify further into downstream, viewing the petrochemical sector as a growth engine and a means for margin security.

Storage at Motiva’s Port Arthur refinery in Texas.

Motiva, a 100%-owned subsidiary of Saudi Aramco, and an affiliate of Flint Hills Resources announced on August 20 that they have signed an agreement for Motiva to acquire full ownership interest in Flint Hills Resources Port Arthur, LLC.

The value of the transaction was not disclosed but it is expected to close in Q4 2019, subject to satisfaction of closing conditions.

Flint Hills acquired the plant from Huntsman in 2007 for $770 m.

"This marks the entry of Motiva into the chemical industry,” Wood Mackenzie Principal Analyst Patrick Kirby said.

Port Arthur, LLC includes a 635,000 tonne/year mixed feedstock steam cracker, a cyclohexane plant and associated storage and pipeline infrastructure. The chemical assets are located adjacent to the Port Arthur refinery, which is the largest in the U.S.

The refinery is fully owned and operated by Motiva, following Shell’s exit in 2017.

The steam cracker, which can handle a range of feedstocks—including ethane and those form the refinery— forms an integral part of the transaction. The steam cracker primarily produces ethylene and propylene for the merchant market.

“It remains unclear as to what Motiva has planned post-acquisition, however some options could include strengthening refinery-chemicals integration, expansion of the asset capacity or potentially longer-term derivative plant development,” Kirby said.

The company has also expressed plans for further chemical developments at Port Arthur, including a world-scale steam cracker and aromatics facility, Kirby added.

Motiva plans to operate the chemical plant while it builds three giant petrochemical units within its Port Arthur complex as part of an $18 bn expansion of operations along the U.S. Gulf Coast, according to Reuters.

Motiva has filed documents with the state to build a $5 bn steam cracker that would produce ethylene and is also refurbishing two buildings to be used as offices in downtown Port Arthur.

Motiva plans to finance the proposed petrochemical expansions in part through profits from sales of lower-sulfur marine fuel that will be mandated for shippers by the IMO 2020 regulations.

On January 1 2020, the International Maritime Organization (IMO) will implement a new regulation for a 0.50% global sulphur cap for marine fuels. Under the new global cap, ships will have to use marine fuels with a sulphur content of no more than 0.50%S against the current limit of 3.50%S to reduce the amount of sulphur oxide.

Chevron -NOVA

Just a few weeks prior, Chevron Phillips, a JV between Chevron and Phillips 66, made a $15bn bid to acquire Nova Chemicals, owned by UAE-based Mubadala.

“Such a deal would confirm the trend of Big Oil diversifying further into downstream, viewing the petrochemical sector as a growth engine. But CPCHEM and Nova Chemicals also complement in terms of products (polyethylene, polystyrene), geographic footprint and technology,” Ashish Chitalia, Wood Mackenzie Chemicals Principal Analyst.

With this acquisition, Chevron Phillips would become third largest polyethylene producer in North America, just after ExxonMobil Chemical Company and Dow Chemical Company. This deal will also mean that Chevron Phillips will become the largest producer of HDPE in North America, followed by LyondellBasell.

“The deal with Nova Chemicals would allow Chevron and Phillips 66 to diversify further into this market while increasing competitiveness and market reach,” Chitalia said.

North American ethane feedstock advantage makes the region an ideal location for acquisitions/expansions in the ethylene-polyethylene sector.

“With up to 1.5m tonnes of merchant ethylene available to CPCHEM post-Nova Chemicals acquisition, the company would be in a strong position to leverage the second expansion wave on the Gulf coast,” Chitalia added.

Big Oil sees Petchem Growth Potential

These acquisitions come as the market for chemicals is growing faster than for gasoline and other refined products.

Cars are becoming more fuel efficient. And electric vehicles are becoming more popular and consume no gasoline or diesel at all. U.S. fuel consumption for light-duty vehicles is expected to decline by 1% annually through 2050, the U.S. Energy Information Administration (EIA) said.

According to BP’s 2018 Energy Outlook, the share of the average oil barrel dedicated to transportation fuel will peak at 58% in 2025 and begin to decline. Oil consumed by industry, buildings, and power will also slump. Chemicals, however, will continue to grow, from 16% of oil demand in 2020 to 20% by 2040.

The petrochemical sector still has room to grow. Owners and EPCs have noticed and are investing in new equipment and processes to take advantage of the trend.

Owners in Big Oil are looking at flexible technologies that allow their facilities to make a wide variety of chemicals.

Crude-to-Chemicals Global Impact

In Saudi Arabia, the town of Yanbu, the oil company Saudi Aramco, and the petrochemical maker Sabic are planning a new complex that will make petrochemical from crude oil.
By 2025, the partners expect to have a facility that will make 9 million tonnes of petrochemicals from its 400,000 barrels/day of Arabian light crude oil.

Nearly half of the oil output of the Yanbu facility will be for petrochemicals, including olefins, aromatics, glycols, and polymers. Most refineries convert 5–20% of incoming oil into petrochemicals.

Aramco is considering another chemical refining project in India.

ExxonMobil has practiced direct crude cracking technology in Singapore since 2014 and is considering building another unit in China.

Several facilities under construction in China will transform 40% of their oil into petrochemicals. On top of the Hengli and Zhejiang petrochemical projects, at least three other proposed mega-refinery and chemical projects are being planned in the seven designated chemical bases in China by private companies.

Hengli’s complex will not only produce the fuels China craves but also the plastics and other chemicals the country will need for the future.

China plans to add a dozen petrochemical mega-complexes along its east coast over the next five years, in the biggest wave of expansion in its history.

The plants will be backed by state majors Sinopec and Sinochem, private groups Shenghong Petrochemical and Wanhua Chemical, as well as Exxon Mobil and Germany’s BASF.

By Heather McGuire Doyle