INSIGHT: Maximising value in the product chain

09 September 2008 16:33  [Source: ICIS news]

By John Richardson

SINGAPORE (ICIS news)--Squeezing the last cent of value out of each barrel of oil has become of much greater importance as a result of high energy costs, a bleaker demand outlook for chemicals and the build-up of feedstock-advantaged Middle East capacity.

Hence, Shell Chemicals is putting great store in its refinery/petrochemicals integration capabilities.

“I think we are in a unique position and it’s a key part of our strategy,” says Allen Kirkley, vice-president of strategy and portfolio at Shell. "The idea is to get the maximum value out of the bottom and top ends of each crude barrel."

Starting with the bottom end first, the oil-to-petrochemicals major is focusing on extracting as much margin as possible out of hydrowax, which is produced by hydrocrackers.

Hydrowax can be cracked to make olefins and has a relatively low alternative value in refinery-product markets.

“It is also very competitive with naphtha as a cracker feedstock because of its high hydrogen content,” Kirkley adds.

A key component of its “Houdini” project in Singapore is debottlenecking the hydrocracker at Pulau Bukom in order to provide sufficient hydrowax to feed Shell’s adjacent new 800,000 tonne/year cracker, due on stream by 2009/10.

The cracker will feed a 750,000 tonne/year monoethylene glycol (MEG) plant on neighbouring Jurong Island, via an undersea pipeline.

The cracker will have the flexibility to operate on other liquid feeds - and might source some of its raw material from the condensate splitter on Bukom, Kirkley adds.

Petrochemical Corp of Singapore, a joint venture of Shell and Japan's Sumitomo Chemical, operates two existing cracker complexes on Jurong Island.

“But the whole point is to maximise the use of hydrowax to achieve the best possible economics,” says Kirkley, who adds that work to convert the Shell cracker at Moerdijk in the Netherlands, is on track. Start-up is due in the first half of next year.

Furnaces at the 910,000 tonne/year cracker are being adapted to run on the new feed. Similar work is also taking place at the hydrocracker at Pernis.

Shell claims a further advantage for the Houdini project - also called the Shell Eastern Petrochemicals Complex (SEPC): the new MEG plant will employ the company’s Omega technology.

The caims for Omega include a very high rate of conversion of ethylene oxide to MEG - meaning a much lower percentage of less valuable products such as diethylene glycol than competing routes.

But the MEG plant will be the only facility directly downstream of the SEPC cracker. Ethylene, propylene and benzene will, however, be supplied to the Ellba Eastern styrene-monomer/propylene oxide plant at Jurong, a joint venture of Shell and BASF.

Kirkley said that some of the ethylene and 450,000 tonne/syear of propylene would initially have to be exported, although he added that discussions were taking place to add further derivative capacity.

This could either be 100% owned by Shell, with over-the-fence partners or through joint ventures in Singapore or elsewhere.

SEPC published an Environmental, Social and Health Addendum report in October last year in which it said that three hectares of extra land had been allocated in Jurong, next to the new MEG facility, for “potential further expansion activity”.

Kirkley declined to say whether this might be further MEG capacity and stressed that Shell doesn’t own the land.

Shell has also been unable to say by how much it will be long on ethylene and propylene. But the same report mentions that a 140 metre jetty will be built to export C2.

This will be able to handle vessels between 4,200-12,000 square metres with peak loading of one shipment a week.

The report adds that the butadiene - SEPC will produce 155,000 tonnes/year - and raffinate-1 will also be for export. SEPC’s benzene capacity is 230,000 tonne/year.

The success of the Singapore complex will be under close scrutiny during a period of rapid capacity build-up

“The Middle East crackers are so advantaged that they will run at high rates no matter what the market conditions, whereas the liquids-based new plants in China are likely to always run close to maximum for strategic reasons,” says Paul Hodges, chairman of UK-based consultancy International eChem.

But Kirkley adds: “The less well-integrated producers will remain marginal producers – meaning the price setters. Although we cannot be as competitive as the Middle East, working on improving refinery/petrochemicals integration can help a lot.”

He says that economics are converging, however, between gas crackers in the Middle East and liquids crackers elsewhere.

Project costs have risen everywhere with labour a particular challenge for the Middle East. Ethane gas shortages also mean that most of the region’s new crackers starting up in 2005-15 are using a mixture of liquefied petroleum gas (LPG) and ethane feed.

This might amount to a strong case for new refinery-based petrochemicals projects. Shell signed a letter of intent in June to examine building such a complex with Qatar Petroleum and PetroChina in China.

And even in the US, reports about the industry’s death could be premature.

“While no-one can accurately forecast when the US might move from an export market to an import market for chemical products, the impact of declining gasoline demand or increased availability of natural gas liquids and associated ethane could impact the timing of such a shift,” says Kirkley.

In the longer term, Kirkley sees opportunities in the US and elsewhere through tapping into greater availability at the top end of the crude barrel.

“By the top end I mean dry gases, or refinery off-gases, that we can extract olefins from more effectively using selective catalysts in upstream catalytic cracking units," he says.

"The availability of these gases, or light ends, is likely to increase as gasoline demand declines in the West due to energy-cost concerns and increasing use of biofuels.”

Shell is firmly behind second-generation rather than first-generation biofuels because of food versus fuel concerns. But as for research on using biomass to make petrochemicals, Kirkley says: “It’s on our radar screen but no active research is taking place”.

This is not the case with methanol-to-olefins (MTO), where a pilot plant is running in Holland. Selective catalysts are being tried out to maximise production of either ethylene or propylene.

MTO could be an option in Qatar where Shell is involved in the Pearl gas-to-liquids (GTL) project, due on stream at the end of this decade.

Synthesis gas (syngas) from the project’s air separation unit could feed a methanol plant which would then produce olefins. The GTL facility will also produce high paraffinic naphtha which could be used to feed a conventional naphtha cracker.

Shell makes a convincing case about its ability to maximise the links between its refinery and chemicals businesses and is involved and some interesting attempts at changing the technology paradigm.

The proof of the pudding, though, will be how profitable its chemicals business proves to be in a competitive environmental that is unlikely to get any easier; it is more likely to become a great deal more complex and difficult.

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By: John Richardson
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