23 October 2013 17:15 [Source: ICIS news]
(recasts, clarifiying cracker title in fourth from last paragraph)
LONDON (ICIS)--The Grangemouth oil refinery will struggle to remain competitive if the petrochemical plant is permanently closed at the highly-integrated site, a consultant said on Wednesday.
The refinery will suffer if it can no longer send naphtha, off gases and propylene to the petrochemical plant, as well as having to bear the cost of running previously shared services such as power on its own, David Jones, managing director of Industrial Commercial Ventures, said on Wednesday.
“If you abruptly take out a part of the complex, how sustainable is the refinery? You can’t remove a part of the site without impacting the rest: you’ve taken away a major element in the strength of the site.”
INEOS petrochemicals consumed 900,000-1m tonnes/year of naphtha from the refinery. “You can’t just redirect that amount of volume within the refinery site. The naphtha becomes an export product but globally the market has plenty of supply from shale oil whilst petchems are weak. They’ll find a home for it but at what value?”
Jones said the refinery will become less competitive and very vulnerable, especially as oil refining in Europe is a difficult market with weak margins.
He is also concerned about the impact of the petrochemical closure on the future operation of the Forties oil and gas fields. These feed the Forties Pipeline System (FPS) with ethane and propane which were used by the petrochemical site.
“It is critical to redirect gases produced by the FPS. There is no connection to the national pipeline grid for the gas to be fed into. If there is a problem in disposing of the gas then crude processing will be affected.”
Such a shutdown would impact the UK economy, especially the exchequer which relies on tax income from the North Sea.
Italy-based Versalis operates an 80,000 tonne/year polybutadiene rubber plant and a 30,000 tonne/year styrene-butadiene rubber plant at Grangemouth. Jones thinks these operations could also be vulnerable.
“Versalis is integrated with INEOS at Grangemouth for butadiene. It’s a symbiotic relationship because both companies avoid paying transport costs. I wonder how long that plant is sustainable just on imports of BD,” he said.
Jones argues that the INEOS petrochemical site is losing money, though through cashflow rather than profit and loss (P&L). “They rightly argue that they have had to invest in the site and that is why it is making a loss. To be honest the site was not sustainable on a cost basis – they had to do something.”
He believes the smaller, 320,000 tonne/year, G4 naphtha cracker would have had to shut in 2016 for the site to have had a chance of remaining competitive. He added: “On paper the [700,000 tonne/year] KG [ethane] cracker is efficient but supply of ethane from the FPS has declined by 60% in the last 10 years.”
The Scottish government is looking for a buyer for the site, but, says Jones, the prospect of selling it is not credible.
“INEOS are good at dealing with costs on-site – it’s in their DNA. If they can’t make it work, no-one can.”
Jones does not believe the Grangemouth petchems closure will have a major impact on polymer customers – many of whom are in continental Europe - because the company will be able to source easily from elsewhere in its network. He says UK customers will need to adjust, though imports are increasingly available.
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