News focus: Europe must respond to US shale gas threat

11 October 2013 10:10  [Source: ICB]

Europe’s petrochemical sector must change to deal with the new global reality of greater competition stemming from US shale gas along with other challenges, said Mohamed Al-Mady, vice chairman and CEO of Saudi Arabia-based SABIC which has major operations in Europe.

“Europe faces a new reality. The European chemical industry and various governments need to focus on more resource and cost efficient manufacturing, targeting incentives for innovation at the development stage and instituting a robust regulatory framework based on good science with clear goals,” said Al-Mady at the 47th annual European Petrochemical Association (EPCA) meeting.

Mohamed Al-Mady SABIC

SABIC

Al-Mady emphasises innovation and efficiency in Europe

“Governments must proactively support this transition – it cannot be done by industry alone,” he added.

INCREASING EFFICIENCY

SABIC is currently working to increase its productivity and efficiency in Europe.

Speaking to ICIS at EPCA, Al-Mady said the company wants to bring its plants more up-to-date through efficiency programmes and utilise the best available feedstock it can get.

“We are taking a very close look and evaluating every plant by plant, evaluating our supply chain, our procurement, benchmarking, our cost with the rest of the field, and there are some efficiency programmes that are under implementation…

“Hopefully we see the results at the end of 2014,” he said.

In April, SABIC announced it will shut down assets in Bergen op Zoom, the Netherlands, and Gelsenkirchen, Germany, which is part of a wider restructuring programme that would result in a 1,050 jobs cut.

INTERNAL, EXTERNAL THREATS

“The European petrochemical industry is challenged by factors within and outside. Within is the ageing population, regulations and decreased innovation and science output compared with China and the US.

“From the outside, it’s the shale gas threat that is coming sometime around 2016, where the US export is going to start hitting Europe, especially in the polymers market, as well as methanol and fertilizers,” Al-Mady said.

Al-Mady hopes that through innovation, SABIC can improve the products offered to customers, which can give the company an edge over competitors and help it survive these challenges.

“Innovation, market leadership – they are dependent on each other.” Al Mady also said he wants Europe to not waste the opportunity of capitalising on its own shale gas resources.

“I hope that Europe can make up its mind to harness the resources of shale gas here. 
I know the UK is working 
very hard.

“They are just about ready to make a decision on investment on shale gas – that would 
be very helpful to the UK and 
investors in the UK,” according to Al-Mady.

“It would bring more investment, so hopefully, we can have more companies around us.”

In regards to SABIC’s cracker and relatively new, low 
density polyethylene (LDPE) plant, in Wilton, UK, Al Mady said that the company is right now looking for ways to improve the site’s performance.

“We are going to look for ways to improve the cracker economics through leveraging some of the best feedstocks we can find and invest in its upgrading,” 
he said.

The CEO also stated that for Europe to be successful in competing on a global level, regulations need to be changed to help the chemical industry progress.

“You cannot have stringent regulations and expect to attract investment,” he said.

US CRACKER DECISION IN 2014

In the meantime, SABIC will make a decision on developing a new cracker in the US to take advantage of cheap shale gas feedstock by the end of 2014, said Al-Mady.

“We are studying different opportunities in the United States with a few companies and different sites based on shale gas. It takes time of course,” he said.

Downstream products being looked at include polyolefins, methanol and fertilizers.

“But [we] cannot announce something [yet]. There is good discussion with people we appreciate working with. I am sure once we are together with our future partners this will be announced. But now it is only at discussion stage,” Al-Mady said.

“We should have come up with one or two opportunities [in the US] by the end of 2014,” he added. Al-Mady said the cracker would be used to serve already established markets in the US and in South America, and would replace product it supplies from Saudi Arabia.

“We are a purely chemical company. We are not integrated upstream and not influenced via upstream. We are at liberty to seek out any feedstock wherever it exists in the world and this a really nice flexibility,” Al-Mady said.

“That means can invest on a global scale, close to the market, close to our customers and we think the future is going to be adding value to the materials we produce. We cannot stop at commodity – we need to go beyond that to reach end-market solutions [for] our customers,” he added.

  • Additional reporting by Joseph Chang in New York

By: Franco Capaldo
+44 (0)20 8652 3214



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