Shell focuses on profitable upgrading of hydrocarbons

Biz models.pngBusiness models have been changing over the past decade in the chemical industry, as illustrated in the above chart.

Initially, the dotcom era began to put pressure on former ‘specialty businesses’, as customers discovered they were paying over the odds for technical support that was no longer required. The internet made it much easier to obtain low-cost supplies (often from Asia) of the molecules they required.

Then high oil prices pressured the former ‘commodity’ businesses, as it became more difficult to pass on these higher costs down the various value chains. And in turn, this has led the majors to implement strategies that prioritise site and business integration as a way of mitigating the problem.

Thus Steve Pryor, ExxonMobil Chemicals president, told EPCA last year that businesses need to be “tightly integrated to maximise the value of every molecule and minimise costs“. And now Shell’s Ben van Beurden, Shell’s chemicals EVP, has told ICIS’s Nigel Davis that even the phrase “refinery/chemicals interface” represents an out-of-date concept.

Van Beurden went on to explain that in Shell’s view, “as long as you have an interface, you have a problem“. And thus the chemicals business needs to focus instead on becoming the “highest profitable hydrocarbon upgrader“. By this, Beurden said its role was to enable the company to “capitalise on low-value and other refinery streams and add value to the whole“.

These are major changes in business models, which take time to implement. But as they become more apparent, so it will become clear that the chemicals landscape is undergoing a profound change from that which has applied over the past 30 years.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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