INSIGHT: Shell spending on step-out growth

18 March 2008 18:06  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Shell is spending heavily to grow. Over the past four years it has invested $60bn (€38bn) from profits of $93bn and handed $55bn back to shareholders. It says it will continue to spend hard to push into new areas like liquefied natural gas (LNG), gas to liquids (GTL) and oil sands.

Buried in this huge number are the monies invested in chemicals. Shell is building a new cracker and downstream units in Singapore in what is its largest ever chemicals investment in the country. In the heartlands of Europe and North America, the focus is on projects that will help maintain production reliability.

Chemicals now is closely allied to the energy giants refining business and reported in its oil products and chemicals segment. The synergies that were expected from more closely linking the two operations are beginning to show. Chemicals profits were up strongly last year not only on prices and volumes but on significantly better plant reliability – three percentage points higher over the year at 93%.

That better performance helped underpin in 2007 the continuation of a profitability profile that saw the return on capital employed in chemicals grow each quarter for two years.

The Singapore project builds firmly on Shell’s integration strategy and its desire to crack a wider variety of feeds. The 800,000 tonne/year cracker is integrated with the Bukom refinery and will be used to upgrade refinery streams to produce 450,000 tonnes/year of propylene and 230,000 tonnes/year of benzene. The project includes a 750,000 tonne/year monoethylene glycol unit and a 155,000 tonne/year butadiene extraction plant.

As many as 6,000 employees worldwide are working on the Singapore project, oil products & chemicals chief Rob Routs said on Monday. The plant will help lift Shell Chemicals ethylene capability from 6.2m tonnes/year to 7.0m tonnes/year by 2010.

Shell’s investments in Asia are already proving their worth. Routs told analysts at a Shell strategy presentation that the Nanhai petrochemicals complex in China making a great contribution to the bottom line. As China demand continues to grow, the output from that facility and the new Shell Eastern Petrochemicals Complex in Singapore becomes even more important.

Shell’s ‘strategy for the heartlands’ in chemicals applies to Europe and the US where chemicals growth will be much slower. It is based on the perceived need for steady and efficient olefins, glycol, solvents and aromatics supplies.

In Europe, for example, last year investments were made to take hydro wax feed for the Moerdijk cracker in the Netherlands from the nearby Pernis refinery. That introduces greater lower cost cracker feed flexibility. Shell has also invested in isopropyl alcohol (IPA) and flexible polyols capacity in Pernis to serve important local markets.

Shell’s plans for chemicals in Qatar look as though they have been pushed back because of an ongoing moratorium on the development of new gas-based projects in the country. Qatar is carrying out a study to assess the stability of its North gas field that is not likely to be completed until 2010. That could push the project out to 2010.

Shell’s wider capital spending plans, however, are putting it on an ambitious growth course in oil sands, GTL and LNG. At the same time it is building on its foothold in biofuels pushing ahead with second generation projects, including the use of marine organisms to produce biofuels feedstocks.

Shell is the world’s largest distributor of biofuels and blended some 5bn litres in 2007, up from 3.7bn litres in 2006, Routs said. It processes, trades, blends and distributes first generation products – those made largely from food crops – but is pushing the envelope on second generation fuels made from cellulosics and biomass. It is looking at cellulosic ethanol in Canada, for instance, and in Germany at processing biomass.

Broadening the footprint of operations extends the companies franchise away from big oil and gas to what are likely to prove to be vitally important new areas in the coming decades.

By: Nigel Davis
+44 20 8652 3214

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