Oil industry investment in petrochemicals poses risk for independent producers

Moody’s Investors Service has said that it expects large oil companies to accelerate investment in new petrochemicals capacity over the next decade, increasing business and event risk for rated petrochemical companies.

Major oil companies are accelerating their investment in petrochemical capacity, and over the next decade, investments by major multinational oil producers will substantially outpace investments by independent petrochemical companies such as LyondellBasell, Dow Chemical, Westlake Chemical, Ineos, and Trinseo in building new capacity.

Moody’s Sector in Depth reports also says that major oil companies are investing in large integrated refinery and petrochemical complexes to lower the cost of producing petrochemicals in countries without access to low cost feedstocks.

Many of these facilities will utilise new technologies to lower costs and convert a much larger share of the refinery output into petrochemicals.

New catalysts and processes are available that can convert a much larger share of a refinery’s output into petrochemicals or petrochemicals feedstocks.

Given the size of these new facilities, it is expected that independent petrochemicals producers will experience lower and more volatile margins over time.

Over the next decade, Moody’s predicts that independent petrochemical companies will lose market share, and may even have to shut smaller facilities that lack access to low-cost feedstocks.