Downstream companies are reporting lingering impacts of COVID-19 in third-quarter earnings. It may be after 2022 until refining and petrochemical company revenues and EBITDA fully recover, according to new findings from Deloitte’s “Building resilience in oil, gas, and chemicals: Navigating disruption and preparing for new opportunities in refining and petrochemicals,” three-part research series.
Even then, downstream companies face significant disruptions and long-term structural changes over the next 10 years, including the energy transition/sustainability, shifting end markets, feedstock availability and international trade barriers. In fact, according to the analysis, if domestic fossil fuel demand declines and refined product exports do not increase, U.S. refinery earnings could fall by 20% in 2030 compared to a business-as-usual scenario.
Refiners have borne the brunt of the decline in fuel demand from COVID-19, and declining automotive sales and air travel have reduced demand for major petrochemical and refined products. This upheaval brought to the fore the industry’s long-term risks. Now is the time for companies to rethink their strategies, become more resilient, prepare for the future and identify new opportunities, according to Deloitte.
U.S. petrochemicals are at a crossroads, experiencing both cyclical and structural shifts across these major areas:
- Shifting end markets: demand from automotive and construction is changing as disruption intensifies, providing an opportunity to diversity into higher value-added products.
- Changing feedstock dynamics: the US feedstock advantage may persist through the 2020s.
- Overcapacity and trade barriers: the industry has entered a period of overcapacity relative to demand, while import demand in Canada, Mexico and Europe remains weak.
- Sustainability/circular economy: heightened support for reducing emissions and preferences toward sustainable consumption will spur development of new products/business models; the energy transition could create opportunities for chemical producers by raising demand for lightweight plastics and advanced materials needed in electric vehicles (EV).
To help petrochemical companies navigate disruption and prepare for new opportunities, Deloitte’s report suggests these levers:
- Deliberate market strategy: Focus on the long-term to build a robust product portfolio.
- M&A driven growth: double down on M&A to make smart moves that increase long-term value.
- Digital acceleration: invest/deploy digital technologies to increase agility and lower costs.
- Innovation: commercialize new products or tech that taps into long-term growth markets.
- Talent strategy: develop a future-ready workforce with digital skill sets.
To read the entire report, visit: www.deloitte.com
