The petrochemical sector is on the tail end of a major build out of new and expanded plants enabled by cheap natural gas. Focused on the Gulf Coast and North East, massive investments in ethylene crackers coupled with low commodity prices have turned the US petrochemical sector into one of the world’s most competitive. However, the recent construction boom is already beginning to lead to a glut of chemicals and plastics, while a similar build out is underway in Asia and the Middle East which may continue to depress product prices.
Chemical companies are facing declining profitability while service providers need to prepare for the switch from building to maintaining plants or switch their focus to export infrastructure if they are to remain profitable. The US is seeing increasing investment in LNG, oil export and refining infrastructure, though uncertainties around the global economy are putting many new investments at risk. Producers are increasingly focused on external markets to improve pricing and LNG facilities and Crude export terminals are being built to take advantage of pricing differentials between the US and the rest of the world. Refineries designed for heavier crude are trying to adapt to the rush of ultra-light oil flowing from shale plays.
For service companies in the downstream space, successfully adapting to changing conditions will be required for continued success. As CAPEX levels fall drastically, companies will be forced to adapt their focus towards turnarounds and maintenance services. Geographically, work will be more diverse, and to capture CAPEX opportunities companies should widen their focus towards LNG, export infrastructure, and other industries such as biofuels.
Companies that don’t prepare for the changing environment and differentiate themselves through technology, robust competitive advantages, or execution will struggle. Despite the changing landscape, companies can be successful via a focus on profitability and innovation.