WPC: Challenging geopolitical trends heighten the year of elections

Banner Image

Challenging geopolitical and energy transition dynamics take over the market outlook for 2024 at the World Petrochemical Conference by S&P Global held in Houston, Texas. As the world economies level out from the post-COVID-19 surge, it appears there will be enough runway for soft landings across the map, just in time for a massive year of elections in 2024.

With nearly half the world partaking in an election — over 70 countries — progress toward the energy transition, curbing climate change and stabilizing geopolitical relationships could be caught in a logjam, S&P Global Commodity Insights leaders said during the opening session of WPC’s executive conference on March 20.

Year of elections
Most eyes will be on the US election in November, Carlos Pascual, S&P Global Commodity Insights’ senior vice president, geopolitics and international affairs, said. "The number one geopolitical risk around the world right now is what will happen in the US elections," Pascual said. "The entire spectrum of American politics and economics has become polarized, even foreign policy issues, which at one time were considered sacrosanct in the US, such as supporting Ukraine or NATO."

Pascual points to the COP29, running from Nov. 11 to Nov. 24 in Baku, Azerbaijan, as being an open question based on US elections. One of former President Trump’s first actions as president was to pull the US out of the Paris Agreement. "Imagine the task of negotiators who are seeking greater commitments from countries at a point in time when they don't know who the US president might be," Pascual said.

The Biden administration’s Inflation Reduction Act (IRA) has heralded an investment boom in the energy transition and across the US. The expectation is that no matter who ends up in the White House on Nov. 5, most of the IRA will remain resilient, as the biggest benefactors of the legislation are typically red or swing states. Coupled with the Bipartisan Infrastructure Law, a foundation for a bipartisan look at a new energy economy is surfacing.

Another major bipartisan issue in the US continues to be China-US relations, especially with the latest pressure from mainland China toward Taiwan. "The issue is not whether there will be a reunification of China and Taiwan, but when," Pascual said. He pointed toward China’s import reliance on Taiwan for 90% of its semiconductors as a major sticking point, as semiconductors are needed to develop the more recent megatrends in AI and supercomputing. "Talks between the two countries’ presidents last November wanted to stabilize the relationship, but it is not stable. And the tension that exists in the US for [this year’s] electoral process, will continue to threaten that relationship," Pascual said.

The next few years are going to be important, especially in the US-China joust for technology and leadership and how that will pertain to the energy transition. "[Out of this] there are going to be geopolitical shocks that we have to prepare for, especially in the stability of today’s energy economy supply. … We’re going to be seeing a shifting in our supply chains. There’s going to be greater [resource] nationalism," Pascual said.

An uneven soft landing
On the economics end, the expectation for 2024 is a soft landing for most of the big economies, except Germany, which looks to face a "borderline" recession, Paul Gruenwald, S&P Global Ratings’ global chief economist, said. "If the labor markets hold up, we think it’s going to be a softish landing. That doesn’t mean no adjustment, it just means the adjustment will take place over a longer period."

The US economy, Gruenwald said, "is almost defying gravity." Of all its Western peers, the US GDP is the only one to have continued accelerating from 2022 to 2023, and Gruenwald expects it to grow 2.4% in 2024, nearly double the growth across the eurozone and behind only China’s 4.6% growth rate and India’s 6.4%. Gruenwald points to the US’ geographical separation from the two ongoing wars and its fuel and food price turbulence, as well as having more "fiscal juice," as reasons for the country’s economic overperformance.

The IRA continues to be a big windfall for the country. "It’s been a big tailwind for US investment, US new firm formation and US productivity. We’re not seeing [these] anywhere else in the world. If your productivity is going up, that means your pie is getting bigger," Gruenwald said. However, Gruenwald warned that the US is in a "classic overheating scenario."

Elsewhere, the eurozone seems to have stalled, even if geopolitical risks to its growth have not materialized as significant as feared. China’s growth out of the COVID-19 pandemic continues to be slow, and Gruenwald finds that "India will be taking the growth baton from China," as it is expected to have GDP growth rates of about 7% for the rest of the decade. "[India’s] secret sauce is private investment. Confidence is high … [India] is in a good geopolitical spot and they are building out not just services but manufacturing infrastructure. The stars are all aligning for India."

Inflationary pressures continue to lessen, Gruenwald said, after the peak in late 2022, with Europe looking to have bottomed out already. Core inflation remains above target, and a drop in US inflation from 3% to 2% will be tough to achieve if the economy remains hot.

The US dollar also looks to remain strong, which may present risk for the rest of the world as it will steer financing flows away from emerging markets. As always, Gruenwald said, escalation from the two ongoing wars opens the door for potential bigger risks in the macroeconomic forecast.

Energy transition logjam
Coming out of the COVID-19 pandemic and into a geopolitical entanglement of the Russia-Ukraine war has stagnated energy transition progress over the last two years. The optimistic ideology that followed global environmental events in 2021 has turned into bitter pragmatism, Atul Arya, S&P Global Commodity Insights’ senior vice president and chief energy strategist, said.

"China’s net zero goal is 2060, India targets 2070, and Indonesia’s is 2060. So how do we have a global 2050 target? That’s just not realistic. … The 1.5-degree temperature goal, we’re going to surpass that. That’s the reality."

Costs to complete the energy transition total more than $275 trillion, a number that will continue to balloon as 80% of the world is still developing their economies. "You can’t tell 80% of the population that you can’t consume more energy," Arya said, "Economic growth will always be priority number one." For these countries, coal is still king. "[N]o single fuel has ever been retired in the history of energy. And coal’s journey toward retirement will be very long and very difficult."

Energy security continues to be paramount, especially during the ongoing Russia-Ukraine conflict, and that too may hinder the renewable energy timeline. "The world has to carbonize to decarbonize."

But Arya noted there is some good news as renewable adoption continues to grow. Solar photovoltaic (PV), wind and electrolyzers grew 85%, 60% and over 300%, respectively, from 2022 to 2023. "Renewables are growing around the world, and they are good for ‘all seasons,’" Arya said.

And while the ambitious net-zero goals of 2050 may not be attainable, the technology to deliver emission reductions is already here. In the near term the focus is on coal-to-gas switching and renewable deployments. After 2030, carbon capture and storage (CCUS) is going to scale up to billions of metric tons to help decarbonize steel, cement and chemical industries; however, current capacity needs to scale up by at least 150 times by 2050 to reach net-zero targets. Electrification and low-carbon hydrogen are also in the mix of technologies in the medium- and long-term plan for decarbonization.

Energy transition is a complex and layered issue, and the way forward is only possible, Arya added, with good, strong policy such as the US IRA, which has been a stimulus for US growth and a target for foreign investment in the US. "There’s good policy and bad policy, and we need a lot of good policy to accelerate the transition. This will be a big challenge as the political cycle in most countries is very short."

Oil in a steady state
Since 2013, the crude oil supply has been firmly in a surplus, with prices per barrel dropping from over $120 in 2012 to about $80 per barrel in 2022. The surplus has been mainly driven by the strength of shale in the US, and even the two ongoing wars — Russian’s invasion of Ukraine and the Israel-Hamas conflict — have only caused temporary increases in barrel costs.

Jim Burkhard, S&P Global Commodity Insights’ vice president and head of research for oil markets, energy and mobility, expects the surplus to continue to at least 2026. Looking ahead, supply growth in Russia and Saudi Arabia is expected to stagnate through 2024 and 2025, with North American supply forecast to grow by 1 million b/d for 2024 and 800,000 b/d in 2025.

"Relative to demand growth, all the supply growth for 2024 will come from sources outside of OPEC+. And demand growth isn’t weak, although it is decelerating," Burkhard said. And while most of the supply growth will come from North America, West Africa will add an additional 250,000 b/d in growth for 2024.

As for the advent of electric vehicles (EVs), especially in China, cutting into oil demand, Burkhard estimates that today EVs have lowered oil demand by nearly 1 million b/d, and by 2030, EVs will lower demand by between 3 million and 4 million b/d. "Demand for oil won’t drop [because of EVs] but it just won’t go up as much as it otherwise would; it’s starting to have a discernible impact."

This article was first published in chemweek.com.


  • Conferences

  • Chemicals

  • Energy Transition

Related content


European petrochemical margins face grim outlook amid overcapacity

European petrochemical makers are expected to face more weak steam cracker margins in the months to come as they grapple with excess production capacity and a mixed manufacturing outlook. Europe's oversupply of steam cracking capacity is reflected in average operating rates, which for ethylene are currently at around 70%-75% when typically the industry would expect these to be well into the 80%-90% range and above, said Andy Orszynski, Chemicals Director at S&P Global Commodity Insights in an interview on May 20. Platts, part of Commodity Insights, assessed the Northwest European Cracker spot margin, a measure of profitability for ethylene-producing steam crackers, at $124.79/mt May 17 and a 2024 average of $112.96/mt to date. This is against a five-year average of $324.17/mt. Ethylene is a key building block for a number of petrochemicals. "The ethylene industry has overbuilt itself," said Tony Potter, Global Vice President of Chemicals at S&P Global, in a presentation March 20 at the World Petrochemical Conference in Houston. "Naphtha cracker margins in Europe and Asia will be below reinvestment levels in 2024 and 2025." Cracker margins have failed to recover in the wake of the coronavirus pandemic. They flipped negative in August 2022 and from April 2019 until that point had averaged $494.94/mt, Commodity Insights data showed. Industry data shows almost flat production growth in 2024. The European chemical industry's output grew slightly in the first two months of the year, up 0.4% year over year, according to the most recent Chemical Monthly Report of the European Chemical Industry Council (Cefic). This growth in volumes could "probably linked to short-term restocking" and should not be perceived as "good start of stabilized demand and ongoing recovery," Cefic said. "The chemical industry in Europe is under cost and demand pressures, and certainly more than in the other competing countries in the world. Chemicals production in Europe faces more structural challenges rather than business cycle issues. The latest announcements on closure of crackers units in Europe underpin this," Cefic said. A slew of closures in Europe has been announced for 2023 and 2024. This includes 2.785 million mt/year of aromatics capacity, 1.825 million mt/year of polymers capacity and 1.1 million mt/year of olefins capacity. An anemic industrial production outlook does not auger well for petrochemical margins in 2024. Industrial production output in the Eurozone is expected to show no growth in 2024, according to analysts at S&P Global Market Intelligence, but 2025 looks more bullish, when the Eurozone's industrial production output is forecast to rebound with a growth rate of 2.7%. This comes as global industrial production is projected to increase by 1.9% in 2024 and increase by 2.8% in 2025, a fourfold increase on growth in 2023, the analysts said. More, greener capacity clouds margins outlook The chemical industry is implementing circa 1 million mt/year of ethylene capacity cuts in 2024 via announcements from SABIC and ExxonMobil, but there is up to 2 million mt/year of new ethylene capacity due to start coming online as of 2027-2028 from new crackers being built now by Ineos in Belgium and PKN in Poland, which will more than cancel out these cuts. The Ineos project is the first new cracker in Europe in 25 years at Antwerp, with capacity for 1.45 million mt/year of ethylene and will be the largest olefins unit in Europe. The project resumed construction earlier this year after be stalled because of a campaign by environmentalists, but Ineos has not changed the plant's announced completion date of 2026. The carbon emissions at the new ethane cracker will be three times less than those at an average European cracking facility and less than half the emissions of the top 10% best-performing crackers in Europe, according to Ineos. The reductions in capacity announced by SABIC and ExxonMobil represent about a 4% decrease in current ethylene capacity but the 2 million mt of new additions from PKN in Poland and Ineos in Belgium mean an increase of about 10%, according to Commodity Insights data. "We do not expect these projects to be shelved, and they sound like they are progressing well, although timelines can always change," Orszynski said. "This means the market will probably have to see this volume - and more - leave the market elsewhere in Europe," he added. Multinationals like ExxonMobil, SABIC and Dow could use their cost-advantaged units outside Europe to import and maintain their market share on the continent. The already high living standards and low population growth in Europe will limit the growth, said Michael Liesfeldt, Director of Olefins and Derivatives for Middle East and Africa at S&P Global Commodity Insights . Single facility operators are the more likely candidates to try and hold onto their position, Orszyinski said. Industry concerns This is ringing alarm bells in the industry. Eighty-five national and European packaging industry associations have signed a manifesto calling for the EU and national leaders to "relaunch competitiveness" for their products, the European Organization for Packaging and Environment said April 15. In similar terms, Ineos Chairman Jim Ratcliffe has warned that the European petrochemical industry is sleepwalking towards offshoring its industry, jobs, investment and emissions.


China turns PP net exporter for first time in March amid capacity expansion

China's commitment to self-sufficiency in the petrochemicals industry has led the polypropylene market to witness a new wave of capacity expansions since 2019, industry sources said, but receding domestic demand amid a subdued macroeconomic climate is pushing Chinese suppliers to seek alternative homes for its surplus cargoes. In a historic first, China flipped into a net PP exporter in March, marking the highest outflows on record, based on customs data back to 2012. In March, PP outflows surged by 87.6% month on month and 88.6% on the year to 312,400 mt, outpacing inflows of 295,441 mt, up 28.45% on the month but down 10.58% year on year, according to latest data from the China Customs Statistics Information Center. "This milestone of China's PP exports surpassing its imports in March 2024 is a significant achievement toward its strategic goal of enhancing self-sufficiency," said Feng Shaohua, Executive Director of Polymers & Plastics at S&P Global Commodity Insights. Feng noted that China has significantly expanded its PP capacity over the last five years, with virgin PP capacity reaching 47 million mt/year, while consumption is estimated to reach 39 million mt/year in 2024. The rise in China's production capacity over the years has worked to weigh on domestic prices. On an ex-works basis, the Platts-assessed PP Raffia Chinese domestic prices have averaged Yuan 7,422.08/mt in the year through May 9, losing 21.6% or Yuan 2,044.77/mt from the same period in 2018, Commodity Insights data showed. Chinese PP heads south The rise in China's PP exports in recent years has undoubtedly shifted market and pricing dynamics, particularly in the Southeast Asia region, sources said. "With new capacities coming online, Chinese PP producers will explore more export markets, particularly in developing countries geographically close to China, price-sensitive markets, or those with free-trade agreements with China," Feng said. China's PP exports to Vietnam surged by 145.7% on the month and 127.8% on the year to 49,357 mt in March, customs data showed. Vietnam emerged as China's largest PP trading partner in March, accounting for approximately 15% of all exports in the month, followed by Brazil and Bangladesh, which took 29,039 mt and 24,519 mt, respectively, the data showed. Elsewhere in the region, Chinese PP cargo exports to Thailand also grew by 74.8% month on month and 27.2% year on year in March to 15,235 mt. "Before July 2023, we did not see as much Chinese PP in the local Thai market, but now due to their large capacity and economies of scale, we're seeing more and cheaper cargo from Chinese factories enter our customers' warehouses," a Thai producer said. Market sources said that the influx of competitively priced Chinese materials has lengthened the market, exerting downward pressure on prices. Platts assessed CFR Southeast Asia PP raffia and injection prices, down by $35/mt on the year at $980/mt as of May 8, Commodity Insights data showed. China retains dual position despite new PDH capacities Although China has emerged to be a regional exporter in recent years, Feng noted that the country will continue to import PP, especially impact copolymers, in spite of expectations of fresh PP supplies to emerge on the back of expansions in the upstream feedstock propylene arena. A detailed analysis of the customs data by Commodity Insights revealed that PP exports were predominantly driven by PP homopolymer -- commonly traded in raffia or injection grades -- due to its relatively low cost and ease of production. PP is typically produced through naphtha steam crackers or propane dehydrogenation units. Meanwhile, PP copolymer, particularly the impact copolymer grade, accounted for 81,418 mt, or 27.5%, of the total PP imports in March 2024. Although PP copolymer is consumed in smaller quantities -- as it is expensive and challenging to produce -- its application in more demanding uses drives China's PP imports. According to Commodity Insights data, in China, approximately eight new propane dehydrogenation (PDH) units came online in 2023, contributing to an additional 4.8 million mt/year of propylene production capacity and requiring up to 5.76 million mt/year of propane feedstock at full capacity. Approximately eight more PDH plants, with a total propylene capacity of 4.46 million-4.86 million mt, are scheduled to commence operations in 2024, with five more plants announced for startup in 2025.


WPC: Energy transition faces discord amid geopolitical pressures

Geopolitical pressures — including rising resource nationalism and a year in which over 50% of countries will be having elections — as well as inflationary pressures have sent energy transition progress into “discord.” A specialty chemicals panel session held March 19 at the World Petrochemical Conference by S&P Global in Houston, Texas, tracked the challenges and opportunities of the energy transition for the industry. Speaking at the session, Roman Kramarchuk, head of climate markets and policy analytics at S&P Global Commodity Insights, said that if the short-term scenario continues, global temperatures could rise 2.4 degrees Celsius by 2100, far above the Paris Agreement’s goal of a 1.4-degree increase. “Over the past few years, we’ve certainly been trending more towards our ‘discord’ scenario,” Kramarchuk said. “We’re trending toward a longer runway for fossil fuels and less [greenhouse gas (GHG)] emission reductions. This is a case of less GDP growth, less trade and less technology transfer.” Since 1990, world GHG emissions have grown 45%, with mainland China, India and the Middle East representing the biggest increases in emissions, at 304%, 241% and 181%, respectively. Over the last 25 years, the Commonwealth of Independent States and the EU have cut their emissions the most, with decreases of 39% and 31%, respectively. The US has cut emissions 1% since 1990. Of S&P Global Commodity Insights’ three energy and climate scenarios, only one, “green rules,” has global temperatures near the Paris Agreement’s 1.5-degree goa, with an expected increase of 1.7-degrees Celsius by 2100l. The “green rules” scenario, however, assumes more technology transfer, cooperation and policy-driven outcomes than is currently happening. “2030 is not that far away,” Kramarchuk said, “and when you think about what the energy transition will take, solar panels can be constructed fast, but anything beyond that — like an onshore or offshore wind plant or a nuclear unit — we’re getting into lead times of 5, 10, or 20 years.” While the US Inflation Reduction Act has helped speed these transformational energy products along, there are still a lot of slowdowns in permitting, especially in Europe. “We joke that there needs to be a ‘Complexity Reduction Act’ in Europe to move things forward,” Kramarchuk said. Harald Schwager, deputy chairman of Evonik Industries AG’s executive board, added that companies are stuck in a hard place. Evonik has signed power purchase agreements (PPAs) to be powered fully by renewable energy by 2030. “The question will be, will production capacity be hampered by the regulatory process and will we have sufficient infrastructure in place to transport enough renewable power for site demand by then,” Schwager said. Distant peaks Commodity Insights’ energy and climate base case pegs the peak years for coal, oil and gas demand to be 2022, around 2030 and 2040, respectively. “When there is a surprise need for energy,” Kramarchuk said, pointing toward the COVID-19 pandemic and a drought in China, which caused a boost in coal usage, “fossil fuels fill that need.” However, “there’s more investment in renewable capacity than we’re seeing in upstream oil and gas,” Kramarchuk said. Under all scenarios, renewable electricity will be the lion’s share of newly generated energy sourcing. Rebecca Liebert, president and CEO of Lubrizol Corp., said that it is the duty of specialty chemical producers to be agile and proactive in bringing innovative and more sustainable products to market. “Political and technical factors are all things we must account for in our bring-to-market timelines. And we get it right a lot of times, but we get it wrong some of the time. Sometimes you get to market before the market is ready for your product. And I think that’s great, to have a solution on the shelf as the market comes along.” Schwager agreed: “In the specialty chemical industry, we have more good ideas than we have money. And there’s no regret on moves for improved efficiency.” While there has been little movement on target setting and market-based mechanisms for growing renewable energy, COP28’s first global stocktake committee called for “countries to contribute to triple global renewable energy capacity and double global energy efficiency by 2030.” “Even though we are heading for the discord path right now, with all the technology solutions and innovation pushes, we’ll be shooting up ahead towards the ‘green rules’ scenario in the long-term,” Kramarchuk concluded. This article was first published in chemweek.com .


BASF's Finnish pCAM plant start delayed due to permit appeals

Two NGOs appealing against permits Initial plan was to start end of 2023 BASF is facing a delay of the operational start of its newly built precursor cathode active materials (pCAM) plant in Finland due to two non-governmental organizations (NGOs) appealing against already-granted permits, a spokesperson for the German petrochemicals company confirmed to S&P Global Commodity Insights Feb. 27. BASF initially aimed to start commercial production at the Harjavalta plant at the end of last year. “The necessary permit to operate this plant has been granted last year by the relevant authorities,” the spokesperson said. “However, two NGOs have filed an appeal against the already granted permit. Next steps and timing will depend on the furtherance of the judicial process before the Vaasa Administrative Court,” said the spokesperson. The pCAM plant will use renewable energy resources, including hydro, wind and biomass-based power and will be supplied with nickel and cobalt from Nornickel’s adjacent refinery. The plant is part of BASF’s plan to supply the battery industry and subsequently automotive industry with lower carbon emission cathode active material. Platts, part of S&P Global Commodity Insights, assessed cobalt metal in-warehouse Rotterdam at $15/lb on Feb. 26, stable from the previous assessment Feb. 23, while the nickel-cobalt black mass EXW Europe payables was at 54% Feb. 26, also stable.