23 April 2012 15:49 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS)--It’s not the name change or rebranding that’s important but the acknowledgement that steps have to be taken to return Eni’s petrochemical and polymers operations to profitability.
Eni's versalis is the new name for the Italian energy group’s former Polimeri Europa businesses. The name change represents a cultural shift in a company that was traditionally confined to Europe, says CEO Daniele Ferrari. The company, he adds, has to be revitalised through a completely different business model.
“Obviously, we’re living in a world that is changing – politically, strategically and financially,” he says. “We have seen financial power move to Asia, an ageing population, a financial crisis and stagnant growth.”
These factors have hit Europe’s petrochemical producers hard and Eni’s petrochemical businesses, in particular, have performed badly.
The energy group’s loss in petrochemicals last year of €276m ($363m) was made against the backdrop of a strong first half for the sector generally. It was €163m worse than in 2010, another good year for other players in the business.
The company’s cracker complex in Porto Torres, Sardinia, alone lost €650m between 2002 and 2010.
The difficulties facing the industry in Europe are well known but Polimeri Europa was not best placed to deal with them. A lot of this had to do with history and the location at the start of the 1970s and 1980s of its legacy manufacturing units based on political rather than industrial logic.
Now, most versalis assets and sales are confined to Europe. Clearly, some of its manufacturing plants are not the best located. Polimeri Europa was created as a joint venture between Eni and Union Carbide in 1995.
Last year, however, Eni took steps to deal more actively with the situation in chemicals. The 250,000 tonne/year cracker at Porto Torres was idled. The site is being turned over to bio-based chemical production as part of a joint venture project – Matrica – with Italy’s Novamont.
Eni has about 8.5% of Europe’s 27m tonnes of ethylene capacity, but further cuts will be made. Ethylene production capacity at the 760,000 tonne/year cracker in Priolo, Sicily, will be reduced, the company says. The cracker is inefficient and poorly integrated downstream.
The linear low density polyethylene (LLDPE) plant at Priolo has lost money for years. Now versalis plans to close a 150,000 tonne/year polyethylene (PE) production line at the site and build capacity to recover C5 and C9 cuts from the cracker. Included in the €220m project for Priolo are plans to build new units for isoprene and tackifier resins.
Central to versalis’s plan is a focus on C4-and-higher cracker value chains and particularly on elastomers, products that can produce healthier returns than some other polymers.
Reduced ethylene capacity at Priolo, however, will be balanced by a capacity increase at the more efficient 1990s vintage Brindisi cracker and, therefore, not reduce the availability of C4 and C5 cracker products for elastomers.
Versalis wants to maximise paraxylene (PX) production from its xylenes streams at Sarroch in Sardinia. It acknowledges that it needs to address performance issues at the Porto Marghera cracker complex near Venice. It wants to see the site return to profitability by 2014.
About 50% of versalis’s sales are made in Italy, and 90% in Europe, so the strategic plan is focused on increasing the global presence of the company, as well as increasing efficiencies, restructuring and diversification. There is €2bn to spend through 2015.
“In Europe, we have good infrastructure and a well-qualified workforce – but change is necessary, particularly in Polimeri Europa,” Ferrari says. “Our integration and overall efficiency can be greatly improved.”
The versalis CEO clearly believes that steam cracker overcapacity in Europe remains an issue despite some cutbacks in the past five years. His company thinks that there is more capacity rationalisation to come.
Expansion outside Europe is being targeted through the licensing of technology and joint venture agreements. The company’s licensing activity started more than five years ago. A focus will be on elastomers, the fastest-growing business and the most profitable in the versalis portfolio. Talks are underway concerning potential partnerships in southeast Asia and South America. The Middle East poses something of a problem, at present, because of a lack of butadiene (BD) availability.
The new strategy focuses on four core business units: styrenics, elastomers, PE and intermediates.
Not surprisingly, the styrenics unit is changing fast, having seen site closures and renewed emphasis on assets in Mantua, Italy, and in Hungary.
Elastomers output is set to expand, with turnover doubling in the next five years, from 15% of the company total currently. A total of €500m will be spent on the business, including plant expansions in Europe and growth in Asia and to some extent into green chemistry. Asia and South America are targeted because of high end-use demand.
The important PE business continues to be restructured, with production cutbacks and a realignment towards more profitable products such as ethylene vinyl acetate (EVA) copolymer. EVA can be sold into the growing photovoltaic sector.
In olefins and intermediates the objective, according to the company, is to increase efficiency and relocate within Europe. Additional C5 lines will be built and more focus will be put on PX. Versalis does not currently extract C5 and C9 streams but believes they can add value to the mix.
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