‘Near zero carbon petrochemicals by 2050’ but at higher price than production now: BNEF

Near zero-carbon petrochemicals production could be a reality by mid-century if some $759bn is invested in slashing sector emissions using electrification, carbon capture, usage and storage (CCUS) and other key CO2 technologies, according to new calculations from BloombergNEF (BNEF).

But BNEF cautions that “low-carbon routes [for the petrochemical sector] will remain more expensive than today’s production”, despite steep cost declines, in 2050, raising the possibility of “green premiums” and creating “strong incentives to replace or reduce plastic and chemicals use in markets with net zero mandates”.

The report, Decarbonizing Petrochemicals: A Net Zero Pathway, conceded that the “extra” spend – roughly 1% of the analyst group’s estimate to pay for decarbonisation of the total global energy system – would be “capex-intensive but crucial to meet net-zero goals and avoid the risk of stranding assets over their long lifetimes”.

Electrification and CCS are “likely to play a central role in reducing emissions from the production of high-value chemicals” (HVCs), feedstocks used in plastics manufacture that account, with a view to cutting up-to-2% of global emissions – equal to that of the aviation sector and double the aluminium industry’s climate-impacting output.

“Governments and corporate net-zero commitments are pushing the petrochemicals industry to cut its emissions by 2050. Despite facing a more complex decarbonisation path than any other sector, petrochemicals players’ net-zero targets cover more of the global manufacturing capacity than other heavy emitters like steel and cement,” said Ilhan Savut, sustainable materials analyst at BNEF and lead author of the report.

“Large-scale capex spending must start before the end of the decade if the petrochemical industry has any hope of reaching net-zero.

“Deploying these technologies will be expensive in the short term, but it could set the sector on a lower-cost decarbonisation path,” said Savut. “Given their long asset lifetimes, chemicals players must move quickly and fund net-zero projects as soon as possible, or risk getting locked out of key technologies. Investments today will be key to managing longer-term costs and pay dividends post-2035.”

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According to the BNEF number-crunching, CCUS “could be the cheapest option” for net-zero petrochemicals and abate the emissions of 40% of HVC production by 2050, with another 35% in reductions reliant on new electrified cracker designs, which could provide the only net-zero production route that is cost-competitive with conventional technology.

Savut noted that bioplastics are the “only commercially available net-zero route today” that would growth to make up 2.5% of the market by 2050 but was complicated by “high costs and a lack of sustainable biomass”.

The report flagged the “unique opportunity” CCUS was to expected to play for international oil companies (IOCs) in their energy transitions, given their existing in-house expertise in the technology “could accelerate cost declines”.

“Oil companies have been exploring a greater footprint in the petrochemicals space as a hedge against declining fuel demand. If these companies shift the focus of their CCUS investments into downstream assets, they could lead the transition by expanding net-zero petrochemicals production and driving down costs for the entire sector.”

Downstream oil & gas, chiefly refineries, will be central to the petrochemicals supply chain’s decarbonisation, the report underlined.

“In a net-zero scenario, refinery retirements start in 2030 as demand for transport fuels peaks and then begins to fall due to passenger car electrification. This leaves a gap in aromatics supply that can currently only be addressed by using green methanol feedstock – an expensive route that would triple the price of many chemicals,” said Savut.

“This process would account for 20% of chemicals production, up from 0% today, unless refiners make a dramatic pivot to focus on chemicals production while simultaneously decarbonising their operations.”

“Chemicals are crucial inputs to many industrial supply chains, so decarbonising them could increase costs across several sectors. Unless cost declines are significantly accelerated, taxpayers will likely pay for long-term abatement either through higher prices or subsidies.”

The report highlights the role of policymakers in “kick starting” the petrochemical sector’s decarbonisation, by bridging the gap between current carbon prices of $90/tonne of CO2 and the $250/tonne at which 80% of all net-zero HVCs production would be competitive with unabated production.

“To incentivise quicker action, governments can provide longer-term subsidies to early adopters to justify higher production costs and invest in enabling infrastructure such as CO2 transport and storage networks and grids providing 24/7 clean power,” said Savut.

‘Near zero carbon petrochemicals by 2050’ but at higher price than production now: BNEF News

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