Long-term cost advantage likely to benefit North American petrochemical sector, amid expected global economic recovery
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Long-term cost advantage likely to benefit North American petrochemical sector, amid expected global economic recovery

By GlobalData Energy 15 Dec 2020 (Last Updated December 15th, 2020 14:37)

Long-term cost advantage likely to benefit North American petrochemical sector, amid expected global economic recovery

The Covid-19 outbreak and associated collapse in crude prices had resulted in North American petrochemical majors taking proactive measures by reduction of capital expenditure (capex) for 2020. The actual capital budgets for 2021 and beyond would also depend on the prevailing macro environment and oil price scenario. Several producers in the region are directing capex towards maintaining the asset integrity of existing facilities and focusing on advantaged projects. Companies strive to pace investments efficiently in line with market trends and boost their competitiveness to seize further opportunities for growth over the long-term.

The petrochemical capacity additions in the region are largely concentrated in the US, leveraging low-cost feedstock through an abundant supply of Ethane from shale. The US is followed by Canada, though a distant second. The pandemic and the resultant impact on feedstock costs have prompted petrochemical majors in the region to announce project delays. The progress of under-construction projects was affected due to limitations in the movement of contract personnel and travel restrictions.

The demand for polymers in North America in 2020 was affected due to weaker demand in end markets such as automotive and construction among others. As the global economy progresses towards a gradual recovery and industrial & business activities slated to return to normal, demand for polymers is set to strengthen and likely to reach pre-covid levels in the medium-long term.

Petrochemical producers have responded to challenging market conditions by reducing production and maintaining/adjusting operating rates to match market demand. They are taking proactive measures by lowering operational and capital expenditures, to enhance competitiveness and long-term growth. The shale gas advantage had boosted

petrochemical investments in the region, primarily in the US, however, the oil price crash narrowed the advantage and could affect the profitability. Producers are likely to remain flexible and manage near-term constraints to reap benefits in the mid-long term. United States, being one of the largest producers and supplier of petrochemicals globally, would look forward to seize right opportunities for growth.

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