EPCA delegates prepare for downturn in chemical industry

Braving the storm

08 October 2008 21:04  [Source: ICB]

Europe's petrochemical sector is bracing itself for a tough few years, and delegates at the recent EPCA meeting in Monaco were looking for long-term solutions

WILL BEACHAM/LONDON

AN OUTSIDE observer watching the procession of Ferraris, Bentleys and convertible Rolls-Royces careering around the hairpin bends of Monte Carlo, Monaco, would have no inkling of an impending economic downturn. Looking down on the opulent cocktail party at this year's European Petrochemical Association (EPCA) event, held by the pool in one of the principality's best hotels, the same observer would remain in equally blissful ignorance.

But listen to the conversations going on, and it is clear that people are worried. After enjoying its best three or four years ever, Europe's petrochemical sector is battening down the hatches. The collapsing financial sector, weakening demand, high and volatile feedstock prices, and the imminent arrival of millions of tonnes of Middle Eastern polymer capacity were hot topics throughout the three-day event at the end of September.

Yet chemical industry executives are optimists by nature, so rather than wallowing in misery, what most focused on was how to emerge in a healthy state from it all.

In the short term, further delays to commercial production at Middle East projects offer hope that the market will not be flooded, at least until the global economy picks up again and demand returns.

Gulf Petrochemicals and Chemicals Association Secretary General Abdullah S. bin Zaid al-Hagbani told ICIS that most of the new polymer capacities in the Middle East would only come into commercial production in the second half of 2009, with full production in 2010.

FEEDSTOCK SHORTAGE

In the longer term, though, he warned that European petrochemical players had to invest in the Middle East or face feedstock shortages in years to come.

Al-Hagbani added that because the Gulf region would be refining an increasing proportion of its oil domestically, there would be less product available for export to Western refiners and downstream consumers.

Western petrochemical companies need to act now, he said, by cooperating with Gulf companies to ensure access to chemical feedstocks in the future. "In 20 years' time, if you are not tied up with a refiner or have global reach, you will have problems," he said. "By 2025, there will be a shortage of available feedstocks in Europe."

PROXIMITY ADVANTAGE

In his keynote speech, Francois Cornelis, president of French group Total Chemicals, said the best way to compete with the Middle East would be to exploit cluster synergies, with European companies taking advantage of their greater proximity to customers.

He insisted that moving Europe away from commodity chemicals simply would not work. "The grand vision of Europe centered on high-tech firms while the rest of the world produces base chemicals is nonsense. Chemicals is a highly integrated activity that will not perform in the downstream without the backing of the upstream."

Cornelis suggested that an extended ethylene and propylene (PP) pipeline linking the nine major European hubs would permit higher operating rates and trade.

UNIPETROL FALLS SHORT

There were some interesting encounters on the sidelines of the conference. Francois Vleugels, CEO of Czech refining and chemical group Unipetrol told ICIS: "There is no way we will meet our full-year earnings before interest and tax (EBIT) forecasts. We would need a miracle to do that as we were too far behind in the first half."

At the end of its first half, the company had only achieved EBIT of koruny (Kc) 1.49bn ($82m, €60m) against a full-year target of Kc4.8bn.

Vleugels said: "We had a disastrous June, with ethylene and propylene prices fixed while feedstocks rocketed." Since then margins have gradually improved and in September were back to normal.

To survive in this environment, Vleugels has been modernizing Unipetrol, boosting noncyclical products, and saving €3m ($4m) in fixed costs by closing regional sales offices.

BEWARE THE RUSSIANS

Poland and the Czech Republic are heavily dependent on Russian crude oil flowing through the Friendship pipeline.

During the summer, the two countries agreed to allow the US to site radar missile shields on their soil. Vleugels said Russian supplies were then cut. Unipetrol was able to bring in alternative supplies via the Mediterranean, however.

For oil and chemical groups in Central and Eastern Europe, rising tension between Russia and the West, especially since the conflict with Georgia, makes finding alternative supplies even more crucial.

 

EVONIK UNVEILS CHEAPER MMA PROCESS

PETER TAFFE/MONTE CARLO

Investment costs in petrochemical plants have risen fast, as the prices of steel, concrete and labor have escalated. Raw materials and energy have also become more expensive, which has put pressure on producers to improve the competitiveness of their processes.

These trends persuaded German producer Evonik Industries to unveil a new methyl methacrylate (MMA) process called Aveneer. Taking the conventional acetone cyanohydrin route, Evonik has developed a catalyst that removes the need for sulfuric acid and the associated acid recovery unit.

Gregor Hetzke, head of Evonik's performance polymers business unit, said the process brought significant capital and operating cost savings. "The new technology achieves cost leadership for production in the future," he added.

In the conventional process, which accounts for about 60% of world capacity, ammonia and methane are reacted together to form hydrogen cyanide, which is further reacted with acetone to make acetone cyanohydrin. Sulfuric acid converts the cyanohydrin to methacrylamide sulfate, which is then treated with a methanol/water mixture and heated to form MMA and ammonium bisulfate. For every tonne of MMA produced, the conventional process creates around 1.2 tonnes of ammonium bisulfate by-product, which has to be disposed of.

The key to the Aveneer process is an inorganic catalyst that remains in the process loop and replaces the sulfuric acid. Hetzke said catalyst life was still being evaluated, but the expectation was that it would be more than a year before removal and regeneration are necessary.

Aveneer's main benefit is its elimination of the sulfuric acid recovery, handling and storage equipment, which accounts for a significant portion of capital costs and about half the energy consumption of a conventional plant. Ammonia consumption is also reduced, and ammonium bisulfate by-product is eliminated.

"We feel we are very competitive to [global methacrylates producer] Lucite's new process," said Hetzke.

Aveneer can be applied to new plants and the conversion of acetone cyanohydrin ones. Evonik is confident that pilot plant testing has reached a stage where the process can be scaled up. Basic engineering will start next year on a commercial plant with possible start-up in 2012.

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