fter a dismal 2020,  the chemical industry has made a comeback on strengthening demand and disruption of energy supply. As economies emerged from national lockdowns and severe restrictions imposed to contain the pandemic, oil prices soared as demand rose as supply had failed to keep pace. In October 2021, the benchmark Brent crude breached the psychological key threshold of US$80 per barrel, over 50% higher from the start of the year, and it has stayed high since in spite of attempts by governments to tamp down the price hike.

Russia’s invasion of Ukraine on 24 February 2022 sent oil prices even higher to surpass the critical US$100 mark, the first time since 2014, on fears of further sanctions on one of the world’s biggest oil and gas producers. Brent crude nearly topped US$140 a barrel in March after the US disclosed it was in active discussion with Europe on possible ban of Russia’s oil import.

While oil prices have eased from their lofty heights, they have remained high. The increase is a boon for industry players, especially those which are also supplying natural gas, as the price increase of natural gas has outstripped even that of oil.

A major chemical hub, Singapore is reaping the benefits from the industry’s turnaround. Chemical manufacturing output rose 43.8% to S$92.4 billion in 2021, with improvements registered across the board. Petroleum top the list with a spectacular 62% increase to S$35.6 billion, followed by petrochemicals at 51.6% to S$38.6 billion; specialty chemicals, 11% to S$12.6 billion; and others 3.2% to S$5.7 billion.



Bumper year for industry majors

Bolstered by the sharp increase in oil and gas, oil majors made a comeback in 2021 from the lows in 2020 when the pandemic induced lockdowns triggered a collapse in crude prices.

“Oil companies benefitted from an extraordinary alignment of the planets,” Mr Moez Ajmi, oil industry expert at EY consultancy, told the AFP. Apart from higher energy prices, companies were in a better position to ride the price rise having earlier “cleaned up” their assets retaining only the most profitable.

Aramco’s net income surged 124% year-on-year to US$110 billion in 2021 on higher crude oil prices, stronger refining and chemicals margins, while Shell celebrated a ‘momentous year’ with adjusted earnings of US$19.3 billion, from US$4.8 billion in 2020, boosted by significantly higher profits in trading of liquefied natural gas (LNG).

ExxonMobil, Chevron and BP rebounded from losses in 2020 to post their highest profit in years. ExxonMobil reported earnings of US$23 billion in 2021, a reversal from the US$22.4 billion loss in 2020, Chevron made a net income of US$15.6 billion, following a loss of US$5.5 billion in 2020, and BP posted underlying replacement cost profit, used as a proxy for net profit, of US$12.8 billion for 2021, against a net loss of US$5.7 billion the previous year. For ExxonMobil and Chevron, they were the best results since 2014, and for BP, since 2013.

Energy prices will stay high notwithstanding economic uncertainties

Oil and gas prices are expected to remain high in spite of the many uncertainties weighing on the global economy. International agencies have cut the global growth forecast downwards as the year progresses as the fallout from Russia’s invasion of Ukraine reverberates across the world. Both the warring parties are key suppliers of fossil fuels, food grains, metals and fertilisers.

In its June 2022 Global Economic Prospects report, the World Bank revised its growth forecast downwards. It expects global growth to ease from 5.7% in 2021 to 2.9% in 2022 - significantly lower than 4.1% it anticipated in January. Growth in 2023-2024 is expected to hover around 2022 levels while inflation remains above target in most economies.

“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” said World Bank President David Malpass.

But oil and gas prices will stay high on supply concerns. Europe has historically relied on Russia for over a quarter of oil supplies and around 40% of its natural gas, most of which is delivered through pipelines, and countries are scrambling for alternative supplies after they curtailed Russian imports.

Demand, however, has remained firm fuelled by record breaking temperatures across the northern hemisphere, though a recession may undercut demand. In its July outlook, the International Energy Agency (IEA) expects oil demand for 2022 to reach 99.2 million barrels per day (mbpd), increasing to 101.3 mbpd in 2023 to exceed pre-Covid high of 100.2 million bpd set in 2019.

S & P Global expects oil prices to stay high in the near term. “We foresee that Brent price will remain well supported in our base case at above US$100 per barrel on average for the next two years,” said Mr Ethan Ng, Director, Oil Markets, Midstream & Downstream Consulting, S&P Global Commodity Insights. On average Brent was trading at US$71 per barrel in 2021.

But he does not expect prices to skyrocket though Covid-19 may spring some surprises, as the resurgence in Asia has shown. “Covid-19 affects demand acutely, whereas the Russia-Ukraine crisis mainly pertains to the supply side. Covid-19 resurgence obviously is hard to predict especially if you look at China and more recently - Japan. We are actually seeing a worse situation than last year even though the rest of the world seems to have come out of the pandemic conditions by now.”

The elevated prices will underpin the profitability of industry majors in the months ahead, especially those who are supplying LNG. LNG prices have spiked as European countries like Germany and Italy, which were heavily dependent on Russian gas, are trying their levelled best to switch to LNG to replace missing Russian gas imports piped overland.

Shell is the world’s largest LNG trader with over 40 LNG carriers while Chevron is managing nearly 150 terminals and has stakes in some of the biggest LNG development plans, such as the Gorgon Project in Australia.

Tight capacity bolsters margins for refineries

Consumers are suffering pain at the pump as fuel prices which were elevated even before Russia invaded Ukraine have soared since mid-March outpacing the increase in crude prices, and the shortfall in refining capacity to process crude into petrol and diesel is to be blamed.

As Shell’s global chief executive Ben van Beurden told reporters in June 2022, there were several reasons for the decline in refining capacity. “First of all, companies like us have started to shut down refineries, partly to convert them into biofuel facilities.”

In Singapore Shell has halved its refining capacity at Pulau Bukom to lower its carbon emissions. In 2021, Shell succeeded in reducing carbon emissions by four million tonnes from its worldwide operation of which 580,000 tonnes were from Bukom.

China, which has the highest refining capacity in the world, has restricted exports of refined products for domestic reasons, while sanctions on Russia have resulted in lost refining capacity and fuel supply.

As for the US, second only to China in capacity, not all the refineries which shuttered during the pandemic-induced recession in 2020 have reopened. Some are closed for good as the US is going through an energy transition from fossil fuels to renewables. The present refining capacity is estimated to be about a million barrels a day below what it was before the pandemic.

As a result, refining margins – the difference between what they pay for crude oil and what they can make selling the refined products – have surged. In its May 2022 report, the IEA noted, “Global refinery margins have surged to extraordinarily high levels due to depleted product inventories and constrained refinery activity.”

Refiners, especially those that export a lot of fuel to other countries, benefit most, including US’ Valero and India’s Reliance Industries.

More refining capacity is set to come online in the Middle East and Asia, adding global refining capacity by 1 million bpd per day in 2022 and 1.6 million bpd in 2023.

Renewed interest in fossil fuel investment to plug supply shortfall

The world is facing its worst energy crisis in decades and Europe is at the epicentre, IEA Executive Director Dr Fatih Birol told Euronews. “We are in the middle of the first global energy crisis. It is felt everywhere around the world. But the most in Europe. Europe was the main buyer of Russian energy around the world: oil, gas, coal and others.”

It is undermining climate ambitions and earlier reservations about investing in fossil fuels.

On 1 June 2022, the Netherlands and Germany announced plans to jointly develop and exploit a new gas field in the North Sea, a day after Russia cut its gas supplies to the Netherlands. This comes a year after the German state of Lower Saxony refused to issue permits for drilling near the eco-sensitive islands of Schiermonnikoog and Borkum. The first gas from the platform - to be powered by German wind farm nearby - is expected to be extracted by 2024.

In the same month, UK regulators gave Shell the go-ahead to develop the Jackdaw gas field in the North Sea, east of Aberdeen. Slated to begin production in latter part of 2025, Jackdaw could account for 6.5% of UK gas at its peak. Shell’s proposals for the Jackdaw field were rejected on environmental grounds in October 2021.

According to research group Climate Action Tracker (CAT), new LNG facilities are also being proposed in Italy, Greece and Canada while the US, Qatar, Egypt and Algeria have all signed deals to export LNG to Europe.

“There seems to be really a gold rush for new fossil fuel infrastructure,” Professor Niklas Höhne of NewClimate Institute, a CAT partner, told BBC News.

As part of “REpowerEU”, the European Commission has earmarked up to €12 billion for gas pipelines and import facilities for LNG to secure energy supplies while renewable capacity is built.

The energy shortfall has also prompted countries which had committed to fighting climate change to reconsider using coal, one of the dirtiest sources of energy, as a stop gap measure to meet immediate supply shortage. Among them are Austria, Germany and the Netherlands.

Rebound in energy mergers and acquisitions

Global mergers and acquisitions (M&As) in the oil and gas industry rebounded in 2021, rising 16% to US$335 billion in 2021, even though the volume of activity was largely flat at around 1,800.

“With oil prices edging upwards in 2021, oil and gas companies felt more confident in undertaking high-value deals to push forward their growth plans,” said data and analytics company GlobalData.

In terms of transaction value, the upstream sector topped the list with transaction value of US$120 billion. It also recorded the highest growth of 48% compared to 2020.

“This growth in deal making was largely driven by the shale and subsea themes,” said Ravindra Puranik, Oil & Gas Analyst at GlobalData. “The US shale plays, particularly the Permian Basin, remained the most attractive target for oil and gas M&As in 2021. The oil and gas assets in the North Sea also witnessed several deals in the last year.”

All regions except China, the Middle East and Africa reported an increase in deal value in 2021.

In terms of value, the largest deal involved Aker BP’s proposed US$13.9 billion acquisition of North Sea operator Lundin Energy. Announced in December 2021, it was concluded on 20 June 2022. The merged company is the second largest operating company on the Norwegian continental shelf. Its substantial resource base provides a sound foundation for future growth.

According to GlobalData, Aker BP, ConocoPhillips, Pioneer Natural Resources, Cabot Oil & Gas and Santos Ltd, were among the top companies in deal-making across the upstream oil and gas sector while Brookfield Infrastructure, Energy Transfer, Qatar Investment Authority, Stonepeak Partners and Altus Midstream were among the key dealmakers across other sectors.

Decarbonising Singapore’s energy and chemical sector

Efforts are being taken to reduce carbon emissions to limit the adverse effects of climate change, possibly the single biggest threat to humanity, as it is amplifying extreme weather, including heatwaves, droughts and floods in many parts of the world. With its high carbon footprint, the Energy and Chemical (E&C) industry is key to the global drive to decarbonise. According to the Energy Studies Institute, the chemical industry is the third largest source of direct carbon dioxide emissions from industry worldwide and contributes to about 6% of global greenhouse gas emission, a leading cause of global warming.

As part of the Singapore Green Plan 2030, the government aims to transform Jurong Island, home to more than 100 leading E&C companies, into a sustainable E&C park that operates sustainably and exports sustainable products globally.

The EDB has set aspirational targets for the E&C sector – to increase its output of sustainable products by four times from 2019 levels and achieve more than six million tonnes of carbon abatement per year from low-carbon solutions, all by 2050. To reach these long-term goals, the board has established several milestones, namely to increase the output of sustainable products by 1.5 times from 2019 levels, ensure that the refineries and crackers in Singapore are in the top quartile of the world in terms of energy efficiency, and realise at least two million tonnes of carbon capture potential, all by 2030.

“The global energy transition presents an opportunity for companies on Jurong Island to transform and innovate as they navigate towards a low carbon future. We look forward to working with the Energy and Chemicals industry to develop sustainable solutions for Singapore and beyond.” said EDB chairman Dr Beh Swan Gin.

To support the industry in its efforts to transform Jurong Island and achieve the targets the government is putting in place several infrastructure and support measures. High on the list is a joint study by the Agency for Science, Technology and Research, EDB and JTC Corporation on the potential of a carbon capture and utilisation (CCU) test-bedding facility on Jurong Island.

The CCU Translational Testbed leverages the latest test bedding technologies, such as modularisation and digitalisation, to accelerate the development of CCU technologies from feasibility at lab-scale to technology translation in industrial settings. Such infrastructure will help to support research institutes and companies to develop and scale their CCU technologies in Singapore. 

CCU - the process of capturing carbon dioxide to be recycled for further usage - is seen as key in Singapore’s effort in meeting its climate goals.

Research is also being stepped up into green hydrogen – the holy grail of decarbonisation. Green hydrogen can be produced through different pathways. The most established involved the use renewable electricity to split water into hydrogen and oxygen in an electrolyser. No carbon dioxide is created in the process and the only byproduct is water.

Low carbon hydrogen has been identified by the government as a viable way in bringing the power sector - which now produces 40% of the country’s emissions - to net zero by 2050. But until now the high costs involved in producing, storing and transporting hydrogen have proved to be a deterrent in adopting hydrogen as a green fuel.

On 1 July 2022, a new S$25 million research institute was set up at the National University of Singapore (NUS) to create breakthrough technologies that will make hydrogen a viable green energy source. Led by Professor Liu Bin, who also established the NUS Green Energy Programme, the Centre for Hydrogen Innovations (CHI) is tackling both the technological and infrastructural challenges of creating a competitive hydrogen economy.

For starters, the centre’s primary focus is on hydrogen carrier and supply chain studies. “While hydrogen can be imported through pipelines, this can only be done for short distances from countries like Malaysia. Liquefied hydrogen is very energy-intensive and would require investments in new infrastructure,” Prof Liu told The Straits Times.

One team will look at developing more energy-efficient and greener methods of extracting hydrogen from ammonia. “Ammonia is known to be an effective carrier of hydrogen and a potential carbon-free fuel, but current processes for extracting hydrogen from ammonia are technically complex,” said the NUS.

Another innovative project will consider how hydrogen can be converted directly from water into a high-energy density liquid hydrogen carrier. “Such a breakthrough would bypass the step of extracting hydrogen from water to form hydrogen gas, avoiding the safety hazards and costs involved in transporting, storing and utilising hydrogen,” NUS added.

To boost local on-demand production of hydrogen, another CHI project aims to use a novel battery system that can combine electricity storage and hydrogen production. Using specially formulated chemicals powered by renewable energy such as solar, the system allows for stable hydrogen production and electricity storage. The stored electricity could then be used to charge electric cars or supply Singapore’s power grid.

Industry makes the transition

Jurong Island’s plan builds on current efforts by industry leaders to transition to a more sustainable future. As part of its shift from oil and gas to renewables and low-carbon energy, Shell is building a new pyrolysis oil upgrader in Bukom to improve the quality of pyrolysis oil, a liquid made from hard-to-recycle plastic waste, and turn it into chemical feedstock for its plant. The treated pyrolysis oil can be used to produce circular chemicals for everyday products, from tyres to mattresses.

Slated to start production in 2023 with a capacity of 50,000 tonnes per annum, equivalent to the weight of about 7.8 billion plastic bags, it is Shell’s first pyrolysis plant globally.

The plant is a key element in the transformation of Shell Energy and Chemicals Park Singapore in Bukom, which will focus on low-carbon energy products like biofuels; incorporate circularity, such as waste plastics for feedstock; as well as provide renewable energy.

Following the upgradation of its Bukom refinery, Shell is able to blend sustainable aviation fuel (SAF). SAF is approved for use in aircraft operating today when blended in a ratio of up to 50% with conventional jet fuel. Shell’s SAF is made from waste products and sustainable feedstocks and blended with conventional jet fuel. The company aims to produce around 2 million tonnes of SAF a year by 2025 globally.

ExxonMobil will begin supplying SAF to Singapore Airlines in July 2022 under a pilot on the use of SAF in Singapore. The one-year pilot comprises 1.25 million litres of neat SAF supplied by Neste and produced from used cooking oil and waste animal fats, and blended with refined jet fuel at ExxonMobil’s facilities in Singapore.

From the third quarter of 2022, all Singapore Airlines and Scoot flights are to use this blended fuel, which is expected to reduce about 2,500 tonnes of carbon dioxide emissions during the pilot.

Exxon Mobil is exploring the possibility of building carbon capture storage (CCS) hubs in South-east Asia, similar to its project in Houston, Texas.