The Verbund strategy that really works

22 February 1999 00:00  [Source: ICIS news]

BASF continues to prove that diversification in chemicals works. Over the past three years, the company has driven home the point that its particular form of diversification - or Verbund - is an advantage rather than a burden. Put in a nutshell, the Verbund strategy means that highly integrated chemical complexes can be run efficiently. Long product chains can produce high returns and provide very real protection against the chemical and economic cycles.

There are a number of aspects to this approach but BASF is clearly playing to its strengths - its collective knowledge of process plant technology and economics; its continued technical advance. The company is driven by the need to pick technology winners, to invest in new chemical plant and to globalise. BASF's main production complex is at Ludwigsafen on the Rhine, but there are European complexes in Antwerp, Belgium, and Tarragona, Spain. Freeport and Geismar are the primary production locations in the US. BASF is intent on building highly integrated chemicals complexes in Kuantan, Malaysia, and in China.

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The Verbund strategy has not precluded change at BASF. Indeed, management has been actively managing the portfolio in recent years. The most visible aspect has been the way in which BASF has dealt with its primary polymer businesses and the creation of the significant joint ventures, Targor with Hoechst in polypropylene and Elenac with Shell in polyethylene. However, the company has also established other major ventures with the likes of Shell (Basell); Petronas (to create the Malaysian Verbund site); Fina (to build the world's largest steamcracker in the US) and Sonatrach for a propylene venture in Tarragona. BASF has tried to divest major chunks of the portfolio, such as Kali and Salz, and made investments to bolster a range of businesses including pharmaceuticals (Boots) and animal feed.

This activity has gone on alongside, not instead of, a clear focus on capital expenditure to raise process efficiencies, and technical advance. Performance in chemicals highlights the benefits. BASF is developing new areas of expertise, but it is not losing sight of what it takes to make its core businesses work.

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The new areas include pharmaceuticals and the growing area of vitamins, supplements and nutraceuticals. BASF's interest in oil and gas should not be forgotten - it adds more cyclical resisistance.

The recent decision to buy back shares illustrates management's willingness to reward shareholders. n The ethylene expansion, new plants and pipeline proposals are vindicated by the closure of older capacity elsewhere. BP will close its 150,000 tonne a year ethanol plant at Baglan Bay in Wales and use the new capacity at Grangemouth for ethyl acetate production at Hull. The new VAM plant will come on-stream to coincide with the end of a toll manufacturing agreement with EniChem for product from the troubled Porto Marghera site near Venice. The ending of this long-term contract was a key aspect of the whole investment plan.

The new ethyl acetate plant will be based on BP's own 'direct addition' process for making ethyl acetate from ethylene and acetic acid without using ethanol. It will replace an old plant at Hull and the material from Porto Marghera. The existing Hull ethyl acetate plant will eventually be used to produce other chemicals.

This is a fairly unique opportunity for BP Chemicals to revamp the critical portion of its European production base. The ending of VAM contracts in Italy and the power plant go-ahead have given the investment package a boost and been critical in board approval for the various pieces of the jigsaw. However, the technology elements have played a crucial role. Investment in the North East deals a further blow to Baglan Bay in Wales but BP is committed to developing the site as a location for light industry. As for the new investments, they add a further degree of integration for The new ethyl acetate plant will be based on BP's own 'direct addition' process for making ethyl acetate from ethylene and acetic acid without using ethanol. It will replace an old plant at Hull and the material from Porto Marghera. The existing Hull ethyl acetate plant will eventually be used to produce other chemicals.

The new ethyl acetate plant will be based on BP's own 'direct addition' process for making ethyl acetate from ethylene and acetic acid without using ethanol. It will replace an old plant at Hull and the material from Porto Marghera. The existing Hull ethyl acetate plant will eventually be used to produce other chemicals.

The new ethyl acetate plant will be based on BP's own 'direct addition' process for making ethyl acetate from ethylene and acetic acid without using ethanol. It will replace an old plant at Hull and the material from Porto Marghera. The existing Hull ethyl acetate plant will eventually be used to produce other chemicals.

The new ethyl acetate plant will be based on BP's own 'direct addition' proces.

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