Chemicals to Create New Demand for Fossil Fuels as Gasoline and Diesel Wane

Petrochemicals will begin to overtake gasoline and diesel as the main sources of demand for oil and gas by 2023, the International Energy Agency (IEA) reported in a new five-year outlook released this week.

“Demand for products ranging from fertilizers to plastics and beauty products will drive roughly a quarter of the expected oil demand growth to 2023,” Reuters reports. “The shift represents a major challenge to the oil industry, as many of the petrochemicals will be produced using gas, cutting out refineries. At the same time, growth in gasoline and diesel usage will be held back by fuel efficiency improvements and declining consumption in the developed world.”

The IEA still projects world oil demand growing by 6.9 million barrels per day over the next five years, with petrochemical feedstocks accounting for one-quarter of the increase.

“Global economic growth is lifting more people into the middle class in developing countries, and higher incomes mean sharply rising demand for consumer goods and services,” the report stated. “A large group of chemicals derived from oil and natural gas are crucial to the manufacture of many products that satisfy this rising demand.”

The feedstocks for those products, including ethane, liquefied petroleum gases, and naphtha, “pose a bigger threat to the refiners’ market share than electric vehicles and gas-powered transportation combined,” the agency added, since they’re processed outside traditional refineries. Which means that, by 2023, available refinery capacity will exceed demand by about three million barrels per day.

The IEA expects jet fuel demand to grow 1.2% by 2023, gasoline and diesel by 0.7% each.

In a separate report, the Paris-based agency sees surging shale oil production in the United States grabbing market share from the Organization of Petroleum Exporting Countries (OPEC) and driving the once-formidable cartel into an over-supply in 2019 and 2020, Reuters notes. That’s in spite of OPEC’s sustained effort to drive up global oil prices by curtailing its own production.

“The United States is set to put its stamp on global oil markets for the next five years,” Executive Director Fatih Birol told media at the CERAWeek energy conference in Houston.

“The irony is that the substantial gains in output from shale will only be possible because of the OPEC cuts, which has tightened the market and boosted prices,” notes Oilprice.com. “This fact is not lost on OPEC producers.”

“If you are a shale oil producer, who brought you back? It was OPEC,” United Arab Emirates Oil Minister Suhail Al Mazrouei said recently. “Without OPEC, there’d be chaos in the market.”

But despite the high degree of volatility, Birol and OPEC Secretary General Mohammad Sanusi Barkindo both warned CERAWeek participants that flat fossil investment in 2017 and 2018 could portend a supply crisis as soon as 2020.

“Investments are not sufficient enough to make us feel comfortable; the investment appetite is still weak,” Birol said. “We are sowing the seeds for a future energy crisis,” Barkindo agreed.