Houston’s petrochemical industry is making a massive shift in response to 2022’s curveballs. Is it ready?

The good news is the petrochemical industry, flush with cash from soaring commodity prices elevated by the pandemic and the war in Ukraine, has a strong financial footing as it heads into 2023. The bad news is it faces a bevy of new obstacles that will require massive investments in the years ahead, the London financial services firm Deloitte said in its annual outlook released Tuesday. The world economy is sinking, dragging down demand for chemicals in the short-term and hitting the industry’s revenues just as it embarks on what could be its next big pivot. Still, its efforts to remake itself into a more resilient, climate-conscious industry could result in a dramatic transformation, Deloitte said.

“Even though we're facing headwinds, there's also the opportunity to really think about things strategically and lean into the macro trends that are in front of us,” said David Yankovitz, Deloitte Consulting’s U.S. chemicals leader. The industry must bolster weak supply chains while reducing emissions, producing lower-carbon products and using recycled materials to make new ones, Deloitte said. For the most part, Yankovitz said, the industry is prepared to make these changes. The path ahead will separate the strong from the weak as the industry’s largest chemical companies have room to spend while some others may be unprepared for the investments required. “The companies that have been disciplined, have performed well, have the balance sheet to be able to really invest,” he said. “Quite frankly, there's also probably going to be companies that don't have the balance sheet to be able to go do that.” The chemical industry is at the cusp of a materials transition, Yankovitz said. The smartest companies are rethinking how to use their resources more efficiently and are branching into new sources of materials, such as using recycled plastics or plant-based feedstocks to make their products.