INSIGHT: Shell lifts chemicals earnings on shale and integration

17 March 2014 17:00  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Investors are asking where Shell will spend its money rather than where the cuts might come as CEO Ben van Beurden talks about hard choices on capital allocation and asset disposals.

The energy giant is cutting back in Australia, Italy and on US gas to liquids, and at a management briefing on 13 March explained its decision to reduce upstream shale gas spending in the US this year by 20%.

Some see growth in the stock given that management has flagged a stronger focus on shareholder returns.

What is not at stake for Shell, however, is investment on stand-out projects in chemicals, the part of the business once overseen by van Beurden that has been turned around since the crash largely on the back of US shale.

The timing of those investments, however, is another matter.

"Chemicals have seen earnings of $1.8bn in 2013, compared to $350m in 2009 thanks to being much clearer about where money can be made, Shell’s Downstream segment director, John Abbot said at a management briefing last week.

“We turned the US-based chemicals from losses in [the triennium] 2007-2009 to profit in 2010 onwards," he added.

The turnaround came as Shell shifted its chemicals strategy in the US sharply away from heavier feedstocks and towards cost advantage natural gas liquids (NGLs).

Chemicals return on capital employed (ROACE) has improved markedly and at 16% in 2013 was more than double the 7% return earned by the group’s downstream businesses as a whole.

Shell has moved in the US as the chemicals landscape has changed with cheap gas feedstocks helping to lift margins for petrochemical producers.

The physical shift to crack more ethane and gas liquids and less in the way of heavier feedstocks was supplemented by the divestment of Yabucoa refinery in Puerto Rico, which had supplied heavy liquids feedstock to its US Gulf Coast crackers, and withdrawal from the C4’s venture, Sabina, in Port Arthur, Texas, with BASF and Total.

Abbot said that global demand for Shell’s chemicals had been robust in the past three years and talked about growth opportunities in the Middle East and North America.

“On the Chemicals side we expect global base chemicals demand to grow at or above GDP growth, due to growth in the developing economies, and the drive for energy and resource-efficient products,” he said.

“We have seen North America re-emerging as a chemicals exporter and there have been significant feedstock price movements over recent years. This is being driven by developments like North America shales, declining gasoline demand in Europe, highlighting the need for feedstock flexibility elsewhere and exposure to gas feedstock pricing,” he added.

Shell’s major cracker project in the north east of the US and its polyethylene investment is still very much on the cards as the company seeks to monetise its shale gas position in the Marcellus shale deposit, either through chemicals or LNG (liquefied natural gas).

The company is working on its 100,000 bbl/day refinery complex at Scotford in Alberta, Canada, a plant which is integrated to Shell’s oil-sands upgraders and whose hydrocrackers are integrated with chemicals. There is chemicals growth potential in Scotford and at its plants on the US Gulf Coast, Shell said last week.

On the Gulf Coast, at Geismar in Louisiana, Shell is looking at plans to debottleneck existing ethylene oxide (EO) and ethoxylates production capabilities and on investing in a new crude EO unit. Farther afield, in Europe there are plans to possibly debottleneck crude EO production capacity at Moerdijk in the Netherlands and in EO purification.

The Al-Karaana Petrochemical Complex project in Qatar took a step forward in February with the front end engineering and design (FEED) contract announced. The complex will be centred on a world-scale steam cracker and have a 1.5m tonne/year ethylene glycol plant, 300,000 tonnes/year of alpha olefins, using Shell’s SHOP (Shell Higher Olefins Process) technology, and a 250.000 tonne/year oxo alcohols unit.

The derivatives expansion on the US Gulf Coast is a project for 2015 alongside the debottlenecking of Shell’s Singapore cracker on Bukom Island, which will increase the capacity for olefins and aromatics production from the site by 25%.

Further out Shell says it is working with its joint venture partner, SABIC, on the expansion of “various projects” at the Saudi Petrochemical Company (Sadaf) and is looking at expanding its partnership beyond Saudi Arabia.

It is also working with PetroChina and Qatar Petroleum on a proposed refinery and petrochemicals complex in Zhejiang province in China.

In the longer-term, a major growth opportunity could be to add value in chemicals to its gas gathering project in Iraq, which started operation in May last year.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s
Asian Chemical Connections blog

By: Nigel Davis
+44 20 8652 3214

AddThis Social Bookmark Button

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly

Get access to breaking chemical news as it happens.
ICIS Global Petrochemical Index (IPEX)
ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index

Related Articles