INSIGHT: Total to benefit from ethane push

19 February 2008 17:12  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--There can be little doubt that feedstock costs are key in chemicals.

Producers may espouse the virtues of complexity and the ability to serve multiple markets from a co-located group of plants, but complexity breeds costs as much as it delivers the benefits of greater integration.

In some ways this is why refinery/petrochemicals integration has only in a few instances really worked.

Companies have tried hard to better link the two operations but have faced very real challenges attempting to make refiners think like chemists - and vice-versa.

The road to better integration has proved to be far from easy also as each side of the business coin tries to beat the other up over transfer pricing.

A better way of doing it is to keep things simple. Crack heavy feeds where you need to, provided you can add enough value to the by-products, and go for broke to gain equity in the output of plants based on cost-advantaged raw materials.

To some extent that strategy is all but played out, but there are still pockets of ethane to be accessed and new petrochemical frontiers to be broached.

The better established petrochemicals players at the same time continue to attempt to make the most of the refinery-petrochemicals interface and put their existing cost base in order.

Total, for instance, took the opportunity at the end of last week to talk further of its goal to have 35% of its capital employed in petrochemicals based on ethane - or in Asia.

The French oil and petrochemicals group does not yet have a chemicals foothold in China but is working on it. It has developed in the interim a competitive petrochemicals facility at Daesan in South Korea with Samsung.

Total’s ongoing projects, however, have the ability to transform the group’s petrochemicals operations. The company says it will optimise the gasoline pool thanks to the integration of petrochemicals and refining.

A couple of its research projects - currently at the pilot plant stage - could add important new revenue streams. One is to transform FCC gasoline into propylene; the other is a methanol-to-olefins (MTO) pilot.

On the one hand, Total has to reduce the break-even point of its naphtha-based petrochemicals platforms - in a world of high priced oil and potential oversupply, all petrochemical makers will have to - and on the other it needs to access cost-advantaged feedstocks.

The company’s investments across the portfolio, however, include not only a focus on getting performance at the integrated production locations right - for the making of base petrochemicals styrenics and polyolefins – but on making the right deals that will bring cost-effective growth.

Total’s 50:50 venture in South Korea is lifting production capacity by 30%, with the expansion is expected on-stream this year. A debottlenecking project at the Qatar Petrochemical Co (Qapco) venture, in which total has a 20% stake, was completed at the end of 2007. 

Much of Total’s future petrochemicals performance, however, rests on the Qatofin project, also in Qatar, for a 1.3m tonne/year ethane cracker and derivatives plants in which it has a 22% stake.

Also of vital importance is the Arzew project in Algeria with Sonatrach in which it has 51%.

The two projects are vitally important for the group. Qatofin is aimed for 2009 start-up; Arzew for 2013.

The Qatofin start-up may come at a difficult time for petrochemicals given expected looser supply/demand balances but by 2013 the industry should be firing again on all cylinders. It could be a good year for growth.

By 2015 Total wants to be generating 50% of its petrochemicals profits from assets based on ethane or based in Asia. It is pinnings its future on the growth of low-cost feedstock capacities and more market-facing growth.

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