The Organization of the Petroleum Exporting Countries (OPEC) on Wednesday, December 11, lowered its forecasts for oil demand growth this year and next, noting weakness in China and India. This is the fifth consecutive revision of forecasts by the cartel of producers, who already have rather inflated expectations compared to other forecasts.

In its December report, OPEC indicates an expected increase in global oil demand in 2024 of 1.61 million barrels per day, a 210,000-barrel downward revision from its November forecast. Until August, forecasts remained unchanged, but data in recent months have forced producers to revise them.

The weaker outlook poses a challenge to OPEC+, the coalition of OPEC and its allies such as Russia. As a result of declining prices, OPEC+ has postponed planned production increases until April 2025, Reuters reports.

Downward revisions were made for China, India, the rest of Asia, the Middle East and Africa based on new data. Forecasts for OECD countries in the Americas and Asia-Pacific were also lowered. This was only partially offset by higher forecasts for demand in OECD countries in Europe.

According to OPEC data, Chinese oil demand decreased by 81,000 barrels per day in October compared to the same period last year, while September saw an increase of 57,000.

Forecasts for 2025 have also been lowered - from the previously assumed 1.54 million barrels per day to 1.45 million. Nevertheless, global demand is expected to increase on an annualized basis from 103.82 million barrels per day in 2023 to 105.27 million in 2025.

OPEC still forecasts higher demand growth than the International Energy Agency (IEA), which represents developed countries. The IEA forecasts demand growth of 920,000 barrels per day in 2024, while OPEC assumes an increase of 1.6 million. The IEA's new forecasts are due to be published on Thursday.

The ORLEN management board has decided to suspend the implementation of the Olefins III project at the main ORLEN plant in Plock in its original form. ’From now on, work will be carried out under the New Chemistry project, in a manner that allows for rationalisation of necessary expenditures,’ the company announced.

The decision was prompted by the rise in investment costs, which increased from the initially estimated PLN 8.3 billion to PLN 25 billion, with final calculations indicating a figure as high as PLN 45—51 billion. In the company’s assessment, continuing the project in its current form could lead to losses estimated at around PLN 15 billion.

’Analysis has shown that the original assumptions of the Olefins III project were inadequate for the current economic realities. In the interest of the company’s financial stability and the effective use of the investments made so far, we have decided to change our approach,’ said a representative of ORLEN’s management board.

So far, the company has invested around PLN 12.6 billion in the project. Instead of continuing with the original Olefins III concept, ORLEN plans to utilise the existing infrastructure for a new undertaking called New Chemistry. This project will involve the construction of modern facilities for olefin production, enabling an ethylene production capacity of 740,000 t. The planned completion date for the new project is no earlier than 2030.

’From around 2030, New Chemistry will take over the functions of the installation currently operating under Olefins II and will be used throughout the entire operational cycle of the Plock plant,’ the statement noted.

During a Wednesday press briefing, ORLEN’s CEO, Ireneusz Fafara, commented on the decision to halt the Olefins III project and announce the New Chemistry programme. He emphasised that completely halting the investment would have been too costly; therefore, the new initiative will be designed to incorporate some of the existing and planned infrastructure.

’The Olefins III project in its previous scope was a monumental, unnecessary, poorly prepared, and utterly irrational investment,’ Fafara assessed.

The Olefins III project began in June 2021, when ORLEN signed an agreement with a consortium of companies: Hyundai Engineering from South Korea and Tecnicas Reunidas from Spain. The initial cost of the investment was estimated at PLN 13.5 billion. In May 2022, a construction permit was obtained, and in February 2023, the first assembly works began. It was planned that construction would last until early 2024, with production starting at the beginning of 2025. However, during implementation, costs rose, and the launch date was postponed to H1 2027.

The Olefins III project was intended to be the largest petrochemical investment in Central and Eastern Europe in 20 years. Its goal was to increase the availability of petrochemicals on the domestic market, reduce imports, and generate PLN 160 million annually for the state budget. However, changing financial assumptions and organisational problems made further implementation in its original form unprofitable.

Under the New Chemistry programme, ORLEN plans to build installations that will make use of the investments made so far. The new project will be better suited to current market realities, and its details will be developed in the coming months. The decision to change the strategy aims to minimise losses and efficiently utilise available resources, while also increasing the company’s competitiveness in the future.