The Oil Industry's New Growth Engine

The strategic pivot:

Oil companies are increasingly turning to petrochemicals as a strategic hedge against the energy transition. 

While demand for gasoline and diesel will gradually decline as electric vehicles gain market share, petrochemicals (especially plastics) represent a growth opportunity.

This explains Abu Dhabi National Oil Company's (Adnoc) €15 billion acquisition of German chemicals company Covestro, the largest takeover deal in Europe in 2024.

 

Adnoc has strategically examined future growth areas through 2050 and identified four key pillars:

• Natural gas
• Chemicals
• Renewables
• Low-carbon fuels

Petrochemicals are chemical products derived from petroleum (crude oil) or natural gas. They serve as the basic building blocks for countless everyday materials including plastics, synthetic fibers, detergents, adhesives, and many other manufactured products that are essential to modern life.

The Shifting demand pattern:

The International Energy Agency (IEA) forecasts a significant shift in how oil is used:

Current oil usage (2024):

• 40% goes to road vehicles
• 20% goes to industrial and chemical sectors

Projected oil usage by 2050 (conservative scenario):

• 35% will go to road vehicles
• 25% will go to industrial and chemical sectors

Projected oil usage by 2050 (net zero scenario):

Industrial and chemical uses will consume six times more oil than road transport
This means petrochemicals will become the main driver of oil demand growth at some point this decade.

Middle eastern oil producers lead the charge:

Traditional oil-producing countries are rapidly expanding their petrochemical footprint:

Saudi Aramco (world's largest oil company):

• Purchased 10% of China's Rongsheng Petrochemical for $3.4 billion
• Seeking similar stake in Hengli Petrochemical
• Breaking ground on new refinery and petrochemical plant in China's Fujian province

Adnoc (Abu Dhabi):

• Acquiring Covestro for €15 billion
• Positioning chemicals as a core growth pillar

China's central role:

China dominates both production and consumption of petrochemicals:

• China's petrochemical sector alone now uses more oil than the entire nation of Japan (the world's 5th largest oil consumer)
• China has invested heavily in domestic petrochemical plants to reduce dependence on imports
• This Chinese capacity expansion has created a global oversupply

Current market challenges:

Despite the long-term strategic value, petrochemicals are facing severe short-term headwinds:

• Global oversupply 
• Plants running at approximately 80% capacity (pricing power only returns at 90%+ utilization)
• Market expected to remain oversupplied into 2027
• European plastics production fell 8.3% in 2023

The alternative materials c    hallenge:

Bioplastics and recycled plastics struggle to compete with conventional petrochemicals:

Global Production (2023):

• Fossil-based plastics: 374.2 million tonnes
• Recycled plastics: 36.5 million tonnes
• Bioplastics: Only 3 million tonnes
• Scale disadvantage: Petrochemical crackers produce around 1 million tonnes of product, while bio-based processes cannot approach this scale
• Cost disadvantage: Current oversupply and cheap prices for conventional plastics make alternatives less economically viable
• Niche applications: Bioplastics can only compete in premium markets like cosmetics where higher costs are acceptable

Oil companies are primarily focusing on reducing energy use rather than switching to alternative materials to meet climate commitments, suggesting that conventional petrochemicals will remain dominant for the foreseeable future despite environmental concerns.