INSIGHT: LyondellBasell targets feedstocks and costs

27 February 2012 17:12  [Source: ICIS news]

By Nigel Davis

LyondellBasell olefins plant in Channelview, TexasLONDON (ICIS)--Petrochemical companies make the most of whatever the markets throw at them by doing what they do best. And a relentless focus on assets and availability separates the better from the less well performing in a process industry driven by operating and logistics efficiencies. Ultimately, attention to the basics pays off.

LyondellBasell says it has been applying that approach and last year achieved production volume records at more than 30 of its sites. It also lifted capital spending to $1bn with attention paid to small projects which, it says, will generate high returns. This year, spending is planned to rise to $1.4bn.

The company saw profits drop off at the end of the year, with an adjusted fourth-quarter net profit of $230m well down from the $909m made on the same basis in the third quarter. LyondellBasell was deeply affected by the slump in demand in the fourth quarter, with customers destocking and delaying orders.

Sales were down across the board, with earnings before interest, tax, depreciation and amortisation (EBITDA) at $536m down by 51% from the year-earlier period and 70% down on the third quarter of 2011.

For 2011, however, LyondellBasell lifted earnings across most of its portfolio but particularly for olefins in North America and at its Houston refinery, both of which benefited from advantaged feedstock.

Full-year 2011 EBITDA was $5.28bn, up from the $3.99bn in 2010.

The shale gas phenomenon lies behind the 25% profits increase in 2011 in olefins and polyolefins in North America, where US ethane feedstock cracking capabilities were raised by 5%. The olefins and polyolefins business in the company’s Europe, Asia and International (EAI) segment lifted profits by 14%.

Profits growth in the Houston refinery was raised by consuming an expanded crude mix – it used to refine heavy, sour oil from Venezuela.

LyondellBasell’s performance has been driven by operating US crackers close to capacity to take advantage of ethane economics.

The company has a number of projects that will raise ethane cracking capacity but it also focuses on feedstock flexibility in certain locations that gives it the opportunity to crack naphtha, propane and cost-advantaged condensates. Its earnings from North America in the first half of the year, however, will be hit by its own and others' maintenance turnarounds.

Investor Relations senior vice-president Sergey Vasnetsov says the firm's North American crackers are in the first or second quartile as regards cost performance. Globally they are in the first quartile of performance.

The company believes that it can generate between $250m and $500m of additional EBITDA from $500m of investment in the business. It is adding 500m lb/year (225,000 tonnes/year) of ethane cracking capability to be ready this year, which could generate up to $100m/year of the total amount.

Expanding the cracker at La Porte, Texas, will give it an additional 850m lb of ethylene capacity by 2014 and up to $250m of additional profit.

Other projects will add 500m lb of propylene capacity from its flexi-crackers and 100m lb of ethylene and polyethylene (PE) capacity from debottlenecking plants in the US midwest.

In Europe, LyondellBasell has rationalised four polymer plants and sees itself in a strong competitive position. However, it continues to appraise the portfolio, Vasnetsov says.

The company tends to operate its European crackers at a high rate, being olefins short. The business restructuring in EAI, however, has been designed to release $250m/year in cost savings and efficiencies.

Business management functions are being focused in the Netherlands and a single sales organisation is designed to reduce the number of channels to market.

LyondellBasell is looking at further market segmentation in the EAI businesses and to “re-balance” its customer service teams.

European business has been severely hampered by very weak market conditions for olefins and polyolefins and the company says it will be “vigilant” as it pursues restructuring – and a return to stronger profitability.

There are some indications that margins are improving in the first quarter, but across the year growth is expected to be flat.

Taking advantage of the ethane situation, particularly in North America, continues to lift the company. It does say, however, that earnings in the North American olefins and polyolefins business will be hit in the first and second quarter by a major scheduled maintenance turnaround at its Channelview, Texas, crackers that will take one plant off line for seven weeks and affect output for another for around half a month.

The LyondellBasell maintenance work coincides with a number of turnaround projects across the industry in the first half.

($1 = €0.74)

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By: Nigel Davis
+44 20 8652 3214



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