Petrochemical Simulator

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Licensing Contact
Anna Ibbotson
Tel:
+44 207 950 1528

The Petrochemical Simulator is our proprietary simulation model used to generate all the analyses and forecasts available when subscribing to our programs, including the Petroleum and Petrochemical Economics Program. 

Our simulation model is an experience-based database running commodity petrochemical business logic algorithms to produce multi-scenario simulations of the global industry.  It is integrated from end-use markets back to polymer consumption to intermediates, through monomers to petrochemical feedstocks.  The model considers inter-material competition, inter-regional price relationships, chain margins, product substitution, logistic costs and trade drivers.  Costs and prices are integrated from crude oil and petrochemical feedstocks through olefins and aromatics to intermediates and polymers. 

Our Petrochemical Simulator is more than just an integrated petrochemical industry simulation; it is a complete planning process that is available to our clients to license and has been proven to bring real competitive advantage to subscribers. 

Licensing the Petrochemical Simulator

The Petrochemical Simulator enables clients to align business strategy and investment planning with petroleum/petrochemical business developments.  Parameters relating to market growth, technology, competitiveness, major players, etc. can be adjusted to test assumptions and enable customised forecasting and scenarios.

The model may be used as delivered with our business logic algorithms and relationships ready programmed, or it may be customised to your company views – ensuring that the experience and expertise of your company is programmed into your version of the simulator.

Subscription to the Petrochemical Simulator is fully supported by our global team to provide on-site training workshops, custom installation of the Petrochemical Simulator software, modelling and scenario development support, etc. 

Market Dynamics

Petrochemical supply is the one side of market balances that the industry has control over, through long term investment decisions and short term production planning of operating rates.  Process technology continues to expand capacities, with one new plant capable of imposing a considerable change to market balances.  Announced new plants and projects in the planning phase provide a guide to regional capacity development for the next five to eight years.  Thereafter, assumptions on new capacity associated with investment strategies form a critical part of any long term market outlook.

Following a surge in capacity development in the Middle East which saw 12 new steam crackers enter production over 2008-2011, investment focus has now shifted to North America and Asia.  While 2012 demand growth fell short of expectations, there was also a lull in capacity additions, leaving the global ethylene operating rate static at 86%.  The surge in cheap gas availability resulting from shale gas exploitation has transformed steam cracker economics in the United States.  There are now six large scale steam cracker projects in the United States, some of which are likely to be confirmed and enter the construction phase in 2013.  Asia is driven by China, where two state-owned corporations account for three quarters of capacity. A vast investment has been injected into coal‑based MTO projects with the aim to improve self‑sufficiency on ethylene, however this threatens to tighten markets for traditional heavy cracker co-products including butadiene and aromatics.

Profitability Forecasting

Pricing and profitability of commodity petrochemicals is shaped by many dynamics, led by production costs and market strength. Production costs are driven by energy markets, through  cost of acquiring feedstock. Market strength dictates profitability, with higher operating rates supporting stronger margins in tightening markets.  Forecasts for market balances , profitability and pricing must be integrated to ensure development of a robust consistent outlook for the industry.  Arbitrage opportunities and consumer substitution further constrain inter-regional and inter-material pricing spreads. 

Volatility in crude oil prices creates a challenge for the petrochemical industry, with turbulent production costs as feedstocks derived from petroleum are typically the highest cost component.  The petrochemical industry has little control over production costs, with much larger international energy markets ultimately driving costs of most feedstocks.   Tight co-product markets have supported higher revenue from propylene, C4 and aromatics in recent years, offsetting some of the impact of high crude oil on ethylene costs and prices.  Despite lengthy markets depressing operating rates, European crackers have mostly achieved favourable profitability in recent years, however most margin has been drawn upstream to the cracker, with little value added downstream.