INSIGHT: BASF will develop syngas opportunities

08 July 2008 17:04  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--BASF continues to press home its innovation and growth message, suggesting on Tuesday that the progress being made on the use of synthesis gas to feed its chemicals plants will change the nature of the industry. 

The company knows it is heading into tougher times, with the prospects of pain in businesses like petrochemicals. But it expects to continue to squeeze more profit out of the portfolio as a whole this year - with $120/bbl oil price average predicted but lower chemicals growth.

CEO Jurgen Hambrecht says that higher costs have been passed on in product prices but admits that cracker margins will be pressured between now and 2011, with up to 5% of BASF’s operating profits exposed.

It hasn’t seen the hit yet from new petrochemicals production volumes and weakening supply/demand balances, although the high price of naphtha clearly hurts.

The highest ever third-quarter Europe ethylene contract increase of $190/tonne, though, will go a long way to help restore the margin balance against significantly higher naphtha costs.

BASF has outperformed others in the chemicals sector, Hambrecht says, although the company has not necessarily been rewarded to the same extent as is peers by the financial markets.

BASF is a company with both commodity and speciality businesses and is probably the most adept at defining which is which. It has looked closely at each of its strategic business units (BSUs) and created definitions of commodities and specialties which Hambrecht says set new industry standards.

The analysis looks at how markets work the impact of raw material costs on product prices, the competitive landscape and other factors to define specialties.

On this basis BASF says that its portfolio is 63% speciality-oriented by sales with 37% in commodities. This excludes oil and gas and the metals trading operations acquired with Engelhard.

The biggest portfolio shift in recent years came in 2006 with the acquisitions of catalyst maker Engelhard and the construction chemicals business of the former Degussa. In 2003 the specialties/commodities split was 54% to 46%.

About three quarters of the group’s mainstay chemicals business is commodity-oriented, however, so the next few years, particularly given new olefins capacity additions, could be difficult.

But BASF has not only been driving operating costs down - and production plant maintenance periods up - but shifting the portfolio and production balance so that it is less reliant on ethylene.

President of the petrochemicals division, Albert Heuser, says that the cracker products balance will change given shifts in the portfolio and the adoption of world-scale metathesis technology.

Divestment of the commodity styrenics business is “in progress”, he says, and will lessen BASF’s reliance on bought-in benzene.

Divestment of its share in the 610,000 tonne/year ethane cracker in Geismar, Louisiana, in the US and of the acrylonitrile business at Seal Sands in northeast England will also change the company’s cracker product requirements.

BASF is moving towards being long in ethylene, globally, and less short in propylene and benzene. Its heavy reliance on the cracker, however, has to continue until, perhaps, new technology steps in.

BASF wants to use Fischer Tropsch processes to make propylene and C4s. The purchase of Engelhard and its process technology catalyst expertise has been key to the work which, the CEO says, could begin to show promise in five years’ time.

BASF is also looking to make benzene from natural gas and has a new ethylene oxide catalyst in its labs.

Pushing the technology envelope at such a basic level will eventually help BASF to move away from its reliance on naphtha as the primary feedstock for such a great part of its portfolio.

It opens up a host of feedstock opportunities too - the use of coal, natural gas and even renewable resources alongside oil.

BASF’s is not simply a commodities versus specialties story but one in which chemistry is applied creatively to develop new feedstocks and ultimately, new markets.

It appears that progress continues to be made on multiple fronts.

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By: Nigel Davis
+44 20 8652 3214

< previous article(ICIS Chemical Business podcast November 2, 2009)

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