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November 2023

Process Optimization

The propylene production gap is an opportunity for integrated downstream players—Part 1

Among the challenges in the global crude oil refining industry are the price volatility of raw materials and the pressure from society to reduce environmental impacts, as well as reduced margins.

Petrobras: Da Silva, M. W.

Among the challenges in the global crude oil refining industry are the price volatility of raw materials and the pressure from society to reduce environmental impacts, as well as reduced margins. The latest threat is the forecasted reduction in consumer demand for transportation fuels (e.g., gasoline, diesel). This predicament is compounded by several countries—primarily in Europe—announcing the banning of internal combustion engines.

Despite the recent forecasts, the demand for transportation fuels is still the primary revenue driver for the downstream industry (FIG. 1), based on data from Wood Mackenzie.

FIG. 1. Global oil demand by derivative. Sources: Wood Mackenzie and the International Energy Agency (IEA).

FIG. 1 shows that feedstock for petrochemicals (e.g., naphtha, ethane) is expected to increase through the forecast period, while transportation fuel demand is forecast to level off or decline. Additionally, as illustrated in FIG. 2, integrated refiners tend to achieve higher refining margins than conventional refiners that keep their operations focused on only transportation fuels.

FIG. 2. Refining margins of integrated vs. non-integrated facilities. Source: Wood Mackenzie.

The improvement in fuel efficiency and the growing market for electric vehicles are two reasons for the decline in transportation fuels market share in the global crude oil demand mix. New technologies, like additive manufacturing (3D printing), have the potential to greatly impact transportation fuel demand, as well. Furthermore, the higher availability of lighter crude oils favors the oversupply of lighter derivatives that facilitate the production of petrochemicals against transportation fuels, as well as the higher added value of petrochemicals in comparison with fuels.

Facing these challenges, the search for alternatives that will ensure the survival and sustainability of the refining industry has become a constant challenge for refiners and technology developers. Due to the similarities of infrastructure, a better integration between refining and petrochemical production processes appears to be an attractive alternative. Despite the advantages, it is important to consider that the integration between refining and petrochemical assets increases the facility’s complexity, requires more capital spending and affects the interdependency of refineries and petrochemical plants. These factors must be deeply studied and analyzed on a case-by-case basis.

Based on the description above, it is possible to apply approaches detailed in the article, “Blue ocean strategy” to classify the competitive markets in the hydrocarbon processing industry (HPI).1 In this article, the author defines the conventional market as a “red ocean” where the players tend to compete in the existing market by focusing on defeating competitors through the exploration of existing demand, leading to low differentiation and low profitability. The “blue ocean” is characterized by a non-explored (or little explored) space, creating and developing new demand and reaching differentiation. This model can be applied (with some specificities once in a commodity market) to the HPI, considering the traditional transportation fuel refineries and the petrochemicals sector.

Through these characteristics, the transportation fuels market can be imagined like the red ocean, where margins tend to be low and under high competition between the players with low differentiation capacity. Conversely, the petrochemicals sector can be viewed as the blue ocean where few players are able to satisfy market demand in competitive conditions, higher refining margins and significant differentiations in relation to refiners dedicated to the transportation fuels market. FIG. 3 presents the basic concept of the “blue ocean” strategy vs. the traditional “red ocean” strategy where the players fight to win market share with low margins.

FIG. 3. Differences between the “blue ocean” and “red ocean” strategies.<sup>1</sup>

As previously explained, market forecasts indicate that refiners that can maximize petrochemicals production vs. transportation fuels can achieve increased economic performance in the short term. In this sense, oil-to-chemicals technologies can offer even more competitive advantages to refiners with the ability to make the necessary capital investments to install additional processing units at their facilities.

For some, the term “differentiation” in the HPI can be confusing. Differentiation is related to the capacity to reach more added value to the oil processed at plants. In this article’s context, differentiation relates to maximizing petrochemicals yield, creating differentiation between integrated and non-integrated players. In other words, it is possible to adapt the strategy to ensure more added value to the processed crude leaving the “red ocean” of transportation fuels and reaping the benefits of the growing petrochemicals market.

Propylene: A fundamental petrochemical intermediate

Propylene is one of the most important petrochemical intermediates—it is the second largest consumed petrochemical behind ethylene. Propylene is used as an intermediate in the production of several fundamental products:

  • Acrylonitrile
  • Propylene oxide (PO)
  • Cumene
  • Acrylic acid
  • Polypropylene (PP).

PP is responsible for a major portion of propylene demand, followed by acrylonitrile and PO.

Propylene is normally produced in three commercial grades:

  1. Refinery grade, with a purity varying from 50%–70%. For example, refinery-grade propylene is used to produce cumene.
  2. Chemical grade, with a purity varying from 92%–96%. Chemical-grade propylene is used to produce acrylonitrile, PO and acrylic acid.
  3. Polymer grade, with a purity of up to 99.5%. This grade is used to produce PP.

The primary sources of propylene are the steam cracking processes, fluid catalytic cracking units (FCCUs) in refineries, olefins metathesis, propane dehydrogenation (PDH) and methanol-to-olefins processes.

According to industry forecasts, the petrochemical market is expected to grow over the next several years and be a major driver of increased oil demand globally (FIG. 4). This is the primary reason refiners are investigating—and investing in—integrating petrochemical processing capacities into their existing facilities. This will enable refiners to maximize their margins.

FIG. 4. Petrochemicals feedstock demand is forecast to increase significantly to 2040. Source: Wood Mackenzie.

As global petrochemical demand increases over the next 20 yr, the production of petrochemical intermediates has become the focus of many refiners and process technology licensors. One such needed intermediate is propylene. Based on data from Honeywell UOP, there is a growing propylene production gap (FIG. 5).

FIG. 5. Global propylene production routes and the growing propylene gap. Sources: Honeywell UOP and IHS Markit.

Due to the high added value of propylene, it is anticipated that refiners capable of maximizing propylene production can enjoy a significant competitive advantage in the market. As shown in FIG. 6, the global propylene market is forecast to surpass $150 B by 2033. The largest market for propylene will be the Asia-Pacific region.

FIG. 6. Size of the global propylene market ($B), 2022-2023. Source: Precedence Research.

One area of interest is PDH technologies, and the increase in licensed units. For example, the Turkish company SASA Polyester has announced plans to install a 1-MMtpy PDH unit—the world’s largest—at its facility in Yumurtalık, Turkey. According to Market Research Co., the PDH-to-propylene market will increase from $10.3 B in 2022 to nearly $23 B in 2031, a compound annual growth rate (CAGR) of more than 9%.

A key issue: Competitiveness in the global propylene market

Despite the advantages, the competitiveness of the global propylene market is strongly dependent on operating costs. The primary factor in producing propylene is the cost of raw material; however, another fundamental factor is the processing technology applied in propylene production. FIG. 7 shows the propylene cost curve by production technology.

FIG. 7. Global propylene production cost by technology. Source: Wood Mackenzie.

Of note is the competitive advantage of producing propylene through refinery purification, involving propylene separation from fluid catalytic cracking (FCC) liquefied petroleum gas (LPG) and olefins recovery from offgas. This data reinforces the advantage integrated refiners have in maximizing propylene in their refining assets. Propylene production via steam cracking or PDH is cost competitive but is subject to the cost of feedstocks.

In the short term, there is a potential competitive imbalance in the HPI due to the growing demand for petrochemicals and the regions that have more integrated assets. Total capital investments in crude-to-chemicals complexes were approximately $300 B in 2019, with 64% of spending being made by producers in Asia. FIG. 8 provides a comparison between the relation of crude oil distillation capacity and the integrated refinery capacity for each region. As shown, Asian players have a larger integration capacity vs. other regions. This provides integrated Asian producers a significant competitive advantage.

FIG. 8. Crude oil distillation capacity and integrated refinery capacity, MMbpd, by region. Sources: Wood Mackenzie and Refinery Evaluation Model Chemicals (REM-Chemicals).


Maximizing propylene production can offer attractive opportunities to refiners, especially those in markets that are dominated by transportation fuels such as gasoline and diesel. Forecasts show a significant demand increase for petrochemicals globally, which is the driving force for refiners to integrate petrochemical processing units into their existing refining assets.

The synergy between refining and petrochemical processes enables integrated complexes to share materials and infrastructure, which creates additional value and increases processing margins. The development of crude-to-chemicals technologies reinforces the necessity of closer integration of refining and petrochemical assets, especially with the demand for petrochemicals and transportation fuels moving in opposite directions in the long term.

Part 2

Part 2 will be featured in the December issue. HP



  1. Kim, W. C. and R. Mauborgne, “Blue Ocean Strategy,” Harvard Business Review, October 2004.

The Author

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