INSIGHT: INEOS plans to open up Europe ethylene gateway

09 August 2010 17:16  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--INEOS’s plans to build and operate a deep-sea ethylene terminal near Antwerp in Belgium has raised a few eyebrows but highlight some European ethylene realities.

European olefins and polyolefins players are having to rely heavily on integration to see them through this difficult supply-driven period. Significant additional ethylene and polyolefins capacities are coming on-stream in the Middle East and more are expected.

The product from them is largely destined for fast-growing markets in Asia but Europe has for years been reckoned to be under threat from higher import volumes. Yet while this has long been the view of many, current reality is proving to be different.

True, it takes time for new facilities to reach full commercial production: there are engineering and sometimes feedstock and other constraints.

It is also abundantly clear that some units will only come on-stream much later than originally planned.

Companies may be prepared for the worst but are also preparing for a possible future in which overcapacities do not necessarily loom large. There are opportunities to be had, or rather opportunistic moves to make, to take advantage of a developing situation.

INEOS appears to be wanting to take advantage of a period of more readily available deep-sea ethylene to put its crackers and ethylene consuming units in Europe on a firmer footing.

It plans to build and operate a 1m tonne/year ethylene terminal at its Zwijndrecht facility in Belgium which is run by INEOS Oxide.

“The operation of the new deep-sea terminal, which is expected to start in 2012, will significantly change the shape of the ethylene market in Europe,” is its claim.

The terminal will be connected to the INEOS ethylene consuming plants in the Amsterdam, Rotterdam, Antwerp (ARA) area and also to the ARG ethylene pipeline that connects Antwerp to Cologne and the Ruhr in Germany.

According to INEOS Oxide CEO Hans Casier, the terminal would secure the competitiveness of the company’s plants in Antwerp and balance INEOS’s requirements for ethylene across western Europe.

“The INEOS Group is the largest consumer of ethylene in Europe,” he said in a statement.

“It is also clear the new INEOS Ethylene Terminal will re-shape the ethylene market in Europe, opening up a new gateway to world markets”, he added.

There are five ethylene terminals in Europe, each of which contributes in its own way to the region’s chemicals and polyolefins effectiveness. But it has been difficult to export ethylene to Europe.

If it were to be built, the INEOS facility would be likely to have spare capacity and possibly open up the prospect of third party access.

This hasn’t been confirmed and is one of the aspects of the project that is being questioned. Another, clearly, is the storage capability of the facility.

It is far from certain that INEOS’s requirements alone would be sufficient to enable efficient operation of the terminal and its storage. The terminal would help raise the competitiveness of the INEOS ethylene chain plants in Europe and could put older, less efficient plants along the ARG under further pressure.

INEOS will want to take full advantage of the new facility and is believed to be in talks with Arkema and Total about pipeline connections in France.

The move highlights the vulnerability of the isolated crackers in Europe with little downstream integration. Among these are the crackers that consultants KPMG and others have determined might be forced to close in an extended period of global overcapacity.

Access to new sources of ethylene in Europe, however, opens up a range of possibilities that might help improve liquidity and the ability of players to operate effectively in a much more competitive cost environment.

On paper the Middle East crackers always come out top in delivered cost terms but that fact alone does not mean that European plants will close. Downstream integration to first-line derivatives and beyond is hugely important in Europe as is the olefins delivery infrastructure.

Deep sea ethylene volumes currently are available out of the Middle East with regular volumes from Iran and considerable availability reportedly from some of the recent start-ups in Saudi Arabia, which are awaiting effective off-take from new downstream units.

An issue hanging over greater ethylene availability, however, is the apparent shortage of long-haul carriers and the length of time it takes to ship product from the region to northwest Europe.

The INEOS facility may not be complete until 2012 but would, if open to third party access, provide a convenient buffer to help European players manage maintenance turnarounds and other shortages more effectively. Shutdowns currently are tightening the market with unplanned events causing further tension.

The investment makes a great deal of sense for a company that has not been able to invest in new ethylene capacity for various reasons. It is better to have the flexibility in a more liquid market and to have the ability to push that liquidity inland.

For more on INEOS visit ICIS company intelligence
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By: Nigel Davis
+44 20 8652 3214

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