Expertise
Strategic Challenges of Oil Refining and Petrochemicals in Central Asia and the Caspian
Igor Alekseev, Managing Director and Partner, Boston Consulting Group (BCG)
What challenges and opportunities does the refining and petrochemicals sector face, and what awaits it in the near future? The conclusions and forecasts in this article are based on the results of BCG’s global research and analysis prepared by the company’s offices in Tashkent, Almaty, and Baku.
Global Challenges of Refining
The first and most significant trend in the global market is a change in the structure of demand for petroleum products. A slowdown in motor fuel consumption is already observable, primarily gasoline, driven by rising sales of vehicles with electric and hybrid powertrains. Over the next ten years, the share of biofuels is expected to increase, and subsequently, so will hydrogen. For refineries, this means a shift in the product slate toward defensive products and feedstock for petrochemicals.
The second trend pertains to the geographical distribution of new capacity. Most modernization and grassroots refinery projects are expected to be clustered in the Middle East, Southeast Asian countries, and China. Commissioned capacity will exceed incremental demand in these regions, resulting in intensified competition in the global market. For export-oriented projects in Central Asia, this implies the need for highly targeted identification of the segments to which the product will be supplied.
The third direction is the strengthening trend at refineries in developed markets toward processing alternative feedstocks. Technologies for processing bio-feedstock and used oils, together with traditional petroleum fractions, are already being implemented. This makes it possible to obtain “green products” and premium certificates.
To this is added the ESG factor: in the 2030–2035 horizon, new policies will come into force aimed at reducing CO₂ and methane emissions, lowering specific losses while simultaneously improving energy efficiency and expanding the share of products with a low carbon footprint supplied to premium markets. For refineries, this means rethinking the entire business model, assessing the end-to-end margin of the product basket, and subsequently implementing modernization projects.
A significant share of refineries will be compelled to undertake technological transformation to remain competitive under changing conditions. The foundation of this transformation will consist of programs focused on technological modernization and operational efficiency, including the introduction of artificial intelligence tools, the modernization of individual processes, and the acquisition of new competencies.
Key constraining factors even today are access to low-cost financing for modernization projects and a shortage of talent and competencies in the sector for these projects.
Petrochemicals Trends
The situation in petrochemicals largely mirrors that of refining. One of the most visible trends is the rise of self-sufficiency in China and Southeast Asia. In particular, over the past five years, the region’s self-sufficiency in the olefins-ethylene chain has increased from 58% to 83%. For propylene, it has risen from 83% to 93%. For the xylene chain from 62% to 103%. In other words, a region that was previously regarded as an obvious target for export deliveries is becoming self-sufficient. This intensifies competition among projects and sharply reduces export potential for external players.
At the same time, Europe’s role in global consumption of petrochemical products is declining. Over the next five years, its share is expected to fall from 18% to 14% of global demand. Thus, we see the window of opportunity for new projects in the commodity plastics segment gradually closing. Less contested will be specialty plastics and chemicals for the needs of new materials and pharmaceuticals.