Olefins Pipeline May Restructure UK Chemicals

27 July 1998 00:00  [Source: ICB Americas]

By Sean Milmo

An ethylene pipeline extension that BP Chemicals is planning in northwest England could eventually be linked across the North Sea to the main ARG network in mainland Europe in a major expansion of Europe's petrochemicals pipeline system.

The pipeline, an extension of the Grangemouth-Teesside pipeline along the UK's northeastern coast, will initially provide feedstock for a new vinyl acetate monomer (VAM) plant at BP's acetyls site in Hull.

The VAM unit, the first to be built at Hull, could be as large as 250,000 metric tons per year, making it by far the biggest single-train VAM plant in the world.

The Hull complex already has nearly 750,000 tons of annual acetic acid capacity. The pipeline will enable BP to run an acetyls site with a total annual capacity of about 1 million tons.

The 117-kilometer (73-mile) pipeline will have a 12-inch diameter instead of the normal 8 inches, ensuring it will be the right size for an extension across the North Sea for a connection with the ARG network in Europe's petrochemicals heartland in the Benelux countries and northwest Germany.

"The link with the ARG pipeline is something that is only being talked about at the moment, but it is a concept which is being taken fairly seriously," Iain Macdonald, chief executive of BP Chemicals' acetyls operation, told a press briefing in London on July 20.

Most of the landowners along the route of the proposed Teesside-Hull extension have already agreed to the building of the pipeline, and the UK government has indicated it will give its approval.

BP is already expanding the ethylene capacity of its petrochemicals site at Grangemouth, Scotland, from 700,000 tons to more than 1 million to take advantage of additional gas feedstocks from the North Sea.

The company is also negotiating with ICI, and possibly with a consortium including BASF and Shell, to take control of the 865,000-ton-per-year ethylene plant at Wilton, Teesside. The cracker, in which BP already has a 20 percent stake, is the largest in Europe.

A North Sea link with the ARG pipeline would a major step toward a European ethylene pipeline network comparable in cost and effectiveness to the one in the US Gulf. It would also give continental European petrochemical producers greater access to the benefits of North Sea gas feedstocks.

Elf Atochem is planning to build a 360-kilometer extension to an ethylene pipeline between Fos-Lavera on the Mediterranean coast and Balan-Variat, near Lyon, to its petrochemicals site at Carling. Once completed, the French network could be further extended to the ARG pipeline, providing the first north-south network in continental Europe.

BP is considering two options for a VAM plant at Hull. One is a 150,000-ton-per-year, single-train facility that would use similar technology to the 150,000-ton VAM unit in South Korea, which is a joint venture between BP, Union Carbide and Samsung. The other is to build a 250,000-ton, single-train plant based on an undisclosed technology.

"It is not a completely new technology, but it is still a breakthrough," says Nick Coleman, BP's acetyls business manager.

The company is carrying out a feasibility study on the project so BP's board can make a decision on the new plant and the pipeline later this year. The new facility would come on stream in 2000.

BP has a contract with Enichem, under which the Italian company is supplying VAM on a toll basis from its plant in Porto Marghera, Italy, until 2000. If BP opts for a 250,000-ton plant, it will close its 110,000-ton VAM unit at Baglan Bay, south Wales.

"The additional capacity at Hull will replace the 100,000 tons per year of US imports coming into Europe, where domestic annual capacity is only around 750,000 tons," Mr. Coleman says. "Also, nearly all the VAM plants in the world are over 20 years old. After some debottlecking, the VAM sector is moving into an era of building new plants."

The new VAM unit at Hull, which will make BP the largest VAM producer in Europe along with Celanese, will further strengthen BP's cost position in acetic acid. But BP still regards itself primarily as an acetic acid player rather than a supplier of acetyls derivatives.

"We are not driven by derivatives like some of our competitors," Mr. Macdonald says. "We are instead driven by acetic acid."

BP's technology and its access to cheap raw materials has enabled it to increase its share of the global acetic acid market from 15 percent to 22 percent during the last 10 years. In the same period, its main rival Celanese has increased its share from 20 percent to 25 percent.

BP claims, however, to be the global leader in the merchant market for acetic acid with 44 percent. Celanese's share is only around 15 percent.

Together, BP and Celanese dominate the global sector. The other main players, Millennium, Daicel and Acetex, have shares of 7 to 8 percent, followed by Eastman at 2 to 3 percent.

BP boasts that its Captiva technology, an advance in the methanol carbonylation process using an iridium catalyst, makes it the lowest-cost producer. Celanese is close behind with a lithium catalyst system.

"The future of acetic acid production lies with low-cost technology and cheap raw materials," says Mr. Macdonald. "Anything else in uneconomical."

But a lot will depend upon how BP's competitors exploit the ending of its control over the methanol carbonylation technology, which BP acquired from Monsanto in the mid-1980s.

Celanese has been held back by a 12-year licensing agreement with BP, which expired only this April, and has restricted its use of the Monsanto technology to its Clear Lake site in the US. Licenses issued to Millennium, Daicel and Acetex with similar restrictions are scheduled to expire after 2000.

Celanese is building a new 500,000-ton acetic acid plant in Singapore that incorporates the company's improved version of the Monsanto process. A similar-size plant that BP is building in a joint venture with the Malaysian oil and gas company Petronas at Kertih, Malaysia, will feature the Captiva technology and come on stream by the end of next year.

BP is predicting a "rocky" period and soft acetic acid prices after the two plants start operating. "With around 1 million tons of new capacity coming on stream in a global market of 5.5-to-6 million tons and at the same time as an Asian downturn, there will be a heavy amount of oversupply," Mr. Macdonald says.

"The battle will be fought the hardest in Asia, but the effects will spread globally. We believe in the long-term future of the acetic acid sector, although the market will be rough for a while."

BP believes that with the two leaders probably consolidating their global positions after a period of falling prices, the long-term prospect is one of price stability and improvements in earnings for the remaining producers.

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