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Global Impact and Implications of Low Crude Oil Prices

  • May 2015
  • -
  • Frost & Sullivan
  • -
  • 61 pages

Scope

This Frost & Sullivan research service offers an overview of the impact and implications of low crude oil prices across developed and emerging economies. It discusses the effects on upstream projects, refining, petrochemicals, polymers, specialty chemicals, biofuels, end-user applications, and gross domestic product of select countries. It provides a list of the top 10 things chemical companies should know, and examines how select companies have been and will be affected.

Key Findings

Which regions will gain from lower oil prices?
•With government structural reforms expected in the short term, net oil importers China, India, and South Africa will be able to boost domestic production and consumption because of lower oil prices. This will help drive their competitiveness in the global market as well.
•Japan’s domestic consumption is expected to be steady, with an expected increase in exports as overseas economies improve.
•With oil production driving the resurgence in the US economy in the past few years, sustained low prices even in the short term are expected to negatively affect exploration and production (E&P). Domestic consumption, however, will increase as consumer spending power improves, driving transportation and residential usage.

Which regions will lose?
•The Russian economy is already struggling to cope with the weak ruble. Since the economy depends on oil revenue, lower prices will cause spending in key industries to decline. Sanctions from the West also are restricting the economy.
•Federal budgets in Venezuela, Mexico, Libya, and Nigeria depend on oil revenue. Lower prices will have a negative effect on net exporters.

Which regions will see mixed effects?
•Lower prices have positively affected domestic competitiveness of many downstream industries in Europe, but overall demand patterns are not expected to change.
•The impact on Middle Eastern countries varies, with Saudi Arabia expected to fare much better than other members of the Organization of the Petroleum Exporting Countries (OPEC), including Iran, Iraq, and Kuwait.

What is the investment climate?
•China is expected to continue investing in building its polymer capacities to cater to domestic consumption as well as export demand, which is expected to impact prices.
•Investment in upstream is expected to reduce in 2016, while the downstream investment climate will be bullish.

What is the outlook for mergers and acquisitions?
•Upstream companies are trying to diversify into specific downstream businesses to capitalize on lower prices and also create larger revenue streams to hedge on future price fluctuations.
•At the same time, downstream companies are either acquiring, expanding, or developing partnerships with upstream companies to help secure future energy supplies and also help them optimize costs along the chain.

How will inventory management help?
•Downstream chemical companies' margins and competitiveness mainly will be driven by how they manage customer price expectations and raw material procurement.
•Backward-integrated chemical companies will be better positioned to balance upstream volatility in the long term.

What are the opportunities for polymers?
•Polymers used as metal substitutes are expected to benefit from lower oil prices, but effects will vary depending on the polymer and application.
•For instance, automotive lightweighting trends using plastic materials are expected to accelerate. Polyethylene (PE) and polypropylene (PP) are expected to be used more in packaging applications.
•The effect on engineering polymer prices will be more subdued in part due to value chain dynamics. Demand in price-sensitive applications such as construction and automotive will witness moderate growth.

What are the opportunities for specialty chemicals?
•Specialty chemicals catering to the automotive and construction industries are expected to gain due to lower oil prices.
•Competitiveness in Europe will improve considerably because of comparatively lower energy and raw material costs.
•Companies that are backward-integrated will be in a better position to expand margins and capitalize on growth in the long term.
•Companies with a strong oil and gas product portfolio or exposure will find it increasingly difficult to compete if oil prices remain low.

Which end users will be most affected?
•Consumer demand and overall economic health drive the automotive and construction industries; sustained low oil prices are expected to most affect these industries.
•Lower energy and transportation costs are expected to increase competition among airlines and agricultural businesses, especially in regions that are price-sensitive or have weak demand.
•Sustainable shifts across product lines will be possible if current low oil prices remain stable.

How will the renewable energy and materials space be affected?
•Renewable energy opportunities will continue to flourish in Europe and North America because this space is driven more by policies and subsidies than shifts in crude oil prices alone. For instance, solar panels are becoming a significant and cheaper source of electricity in some regions of the United States because of tax credits.
•Bio-based material applications will increase more in personal care and packaging applications than in construction and automotive.

Table Of Contents

Global Impact and Implications of Low Crude Oil Prices
Table of Contents

Executive Summary
Crude Oil
Upstream
Refining
Petrochemicals
Polymers
Specialty Chemicals
Biofuels
End-user Industries
GDP
Conclusions and Implications
The Frost and Sullivan Story

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