15 January 1996 00:00 [Source: ACN]
EXXON Chemical is preparing to make a public commitment to invest in a third Singapore cracker, sources have revealed to ACN. Senior company executives have agreed in internal discussions that they are now prepared to sign a letter of intent with the Singapore Economic Development Board to push the project forward.
The disclosure eliminates lingering doubts that a further worldscale cracker investment will prove justifiable in Singapore. Notorious for its caution in petrochemical investment, the US major is highly unlikely to have advanced so far without a firm intention to push through the investment.
The determination of the EDB to secure the grassroots investment for Singapore has been made clear by industry players approached as prospective partners by the board.
In public, the EDB has played down its role in the plans, saying it will support a cracker if regional demand and investors' desire justify the investment (ACN 16 October p4). In private, though, it has played the pivotal role in pushing forward the project, ACN understands. One source told ACN he believed the EDB would be prepared to fund the whole project if multinational partners could not be secured.
However, the EDB has relaxed the tough schedules it was initially pushing for. It is now targeting completion in 2003, sources said, in time to take advantage of changes in tariffs under the Asean Free Trade Area (Afta). EDB itself would only confirm that it is conducting a study into a new worldscale cracker and for a further expansion of the second PCS cracker now under construction in Jurong. The study will be completed in 12-18 months, a spokesman said.
The Singapore authorities are under increasing pressure to maintain their leading petrochemical position in the region as Thailand, Malaysia, and Indonesia plan massive step changes in their ethylene cracking capacity. The EDB is also looking to maximise the returns that can be made from the ambitious Jurong reclamation project.
With prospective ethylene consumers clamouring for fresh supplies of feedstock in the republic, a third cracker is not an unreasonable proposition in principle. EDB itself estimates Singapore will need a further 650 000 tonne/year of ethylene as well as 350 000 tonne/year of propylene, 400 000 tonne/year of C4s and 400 000 tonne/year of BTX by 2000.
In practice though, prospective multinational investors have been wary of committing themselves to an export-oriented investment in a location without feedstock advantage and in a region rapidly progressing towards oversupply, at least at the national level. Exxon, though, will be able to integrate a cracker with its existing refinery operations in Singapore to optimise returns on both facilities, the strategic approach it favours at most of its petrochemical sites. Once the Jurong reclamation project is complete, sufficient land for a cracker will be available adjacent to the refinery.
In addition, opportunities in Malaysia look less attractive for multinationals with Petronas' commitment to retain full control of its second 600 000 tonne/year cracker in Kertih, inviting only downstream investment from foreigners. Furthermore, it does not intend to make its natural gas available on advantageous terms, sources said, eroding the apparent competitive edge of Malaysia over Singapore.
The position of other multinationals linked with the Singapore project has not been clarified. Both Shell and Mobil have been suggested as prospective partners, though Shell has been lukewarm in its assessment of the project's viability, while Mobil is thought to be focusing on paraxylene in the region. Mitsubishi Chemical has contacted the EDB to rule out any participation at the cracker level, though it may consider a downstream investment at a later date.
EXXON Chemical first flagged up its ambition to build an Asian cracker in late 1994 when Asia Pacific president Tim Hearn told ACN the US major was eyeing opportunities in Singapore, Malaysia and China (ACN 28 Nov 1994, p13).
He cautioned, however, that the timing of the cracker decision would be determined by Exxon's ability to find a good economic project. 'It has got to be a smart investment,' he said. 'I would much prefer to go late and go right than to go early and go wrong.'
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