EPCA: EU moves to ethane

Sean Milmo

26-Sep-2014

Europe’s petrochemical producers continue to find ways to maintain their competitiveness through feedstock improvements, but high energy costs are still a big problem

The statistics on the current performance of Europe’s petrochemicals sector still make grim reading. But at least there are now signs of brighter long-term prospects for the industry.

 

The PVC sector in Europe has seen extensive rationalisation recently

Copyright: Getty Images

Production and consumption levels of ethylene fell in 2013 to 18.5m tonnes and 19.0m tonnes, respectively; they are around 14% below levels before the 2008 financial crisis, according to figures from Petrochemicals Europe, the Brussels-based petrochemical producers association.

Ethylene capacity at just below 24m tonnes/year was only slightly lower than the 2007 level but a quarter higher than that in 1998 when output and consumption was the same as it is today. Thus utilisation rates of ethylene crackers languished at an average 79% of nameplate capacity in 2013.

Yet today’s petrochemical producers in Europe have to deal with higher energy and feedstock costs, with an oil price over 1.5 times higher than it was in 2007, and around 2.5 times higher than in 1998. At the same time, producers are trying to claw their way back to pre-crisis utilisation rates and output levels with plants that are becoming increasingly aged as a result of being deprived of investment. Few major new derivatives facilities have been built in recent years.

This lack of investment contrasts with the huge sums being poured into new petrochemical projects in the US to take advantage of cheap shale gas-based feedstocks. Imports of US ethane-derived petrochemicals will soon become a big challenge to the competitiveness of Europe-based petrochemicals businesses in their own domestic market.

“It’s not looking good for Europe, but Europe seems agnostic about the fate of European chemicals,” said Jim Ratcliffe, INEOS chairman, in a recent interview with the company’s magazine INCH. “I can see green taxes. I can see no shale gas. I can see closure of nuclear. I can see manufacturing being driven away.”

Nonetheless Europe’s petrochemicals sector still has considerable competitive advantages both within its own domestic market and internationally. These mainly stem from its technological know-how and its network of integrated refining-petrochemicals sites and complexes in which a lot of its petrochemicals are produced.

A strategy of a growing number of petrochemical producers is to concentrate more on the manufacture of high-end commodity or specialty products with raw materials supplied as cheaply as possible by many elderly upstream plants.

Also, European petrochemical companies have now adopted strategies in which they aim to be much more active in tackling the issue of high cost energy and feedstocks. Much more progress is being made in reducing the sector’s dependence on naphtha, currently accounting for around 70% of ethylene cracker feedstocks, by laying the basis for the greater use of ethane and the liquefied petroleum gases (LPGs) propane and butane.

ETHANE IMPORTS ON THE WAY
The biggest cuts in feedstock costs – at least for a while – could come from plans to import shale-based ethane from the US. These are being led by INEOS, one of Europe’s biggest polyolefin and polyvinyl chloride (PVC) producers, which is already well advanced in its objective of setting up a trans-Atlantic infrastructure for the purchase, transportation and storage of US shale ethane.

Around 800,000 tonnes/year of US ethane will start being delivered next year to its 560,000 tonne/year cracker at Rafnes, Norway. Facilities are also being built at its refinery-petrochemicals site at Grangemouth, Scotland, for the arrival of US ethane supplies from 2016.

Turning Grangemouth into a shale gas-based facility is part of a survival plan for its petrochemicals operation, which INEOS had threatened last year to close because of its high costs. It is investing £300m ($480m; €380m) – £230m of which is backed by a loan guarantee by the UK government – in restructuring the site.

This involves the closure of a 335,000 tonne/year old ethylene cracker and 180,000 tonne/year butadiene unit. The remaining, more modern 740,000 tonne/year ethane cracker has been running at only 50% of 
capacity because of shortages of gas from 
depleted UK gas reserves in the North Sea, but will be brought back to full output.

Borealis, another major European polyolefins producer, has signed a 10-year deal with Antero Resources, a US shale gas producer, for the supply starting in 2016 of 240,000 tonnes/year of ethane to Borealis’ 625,000 tonne/year cracker at Stenungsund, Sweden. It is investing €120m in logistics and the upgrading of the cracker, which can operate on mixed feedstocks but is predominantly naphtha reliant.

SABIC Europe has also announced that it is modifying its 865,000 tonnes/year UK cracker at Wilton to operate on ethane from the US.

With SABIC following the example of INEOS, the UK’s three ethylene crackers will all shortly be based on ethane. The third — an 830,000 tonne/year unit at Mossmorran is an ExxonMobil/Shell joint venture supplied by Norwegian North Sea gas.

The determination of INEOS to make radical changes in its feedstock supplies has been underlined by its decision in August to take a majority share in a shale gas exploration and production scheme in central Scotland. “INEOS may ultimately opt to drill for shale gas itself,” said Gary Haywood, chief executive of INEOS Upstream, before the decision was announced. His business has put together a team of experts, including US shale gas specialists, which has raised speculation that the company’s shale plans in the UK and Europe extend beyond the Scottish project.

The company has also been at the forefront of consolidation initiatives in the European petrochemicals sector. This summer it took full control of Styrolution, its styrenics joint venture with BASF, which has around a quarter share of the European polystyrene market.

It has been following a similar strategy in the PVC sector. In May the European Commission gave the go-ahead to the joint venture merger of chlorovinyls activities of INEOS and Solvay, which are numbers 1 and 2 in the sector. INEOS aims to take 100% ownership of the venture after three years.

INEOS is, however, having to divest around 1m tonnes/year of PVC and vinyl chloride monomer (VCM) capacity, and a chlorine plant at Tessenderlo, Belgium, as well as control of a 700,000 tonne/year chlorine facility at Runcorn, in northwest England.

SUPPLY CHAIN REINFORCEMENT
As well as triggering more consolidation, petrochemical companies have also been participating in a trend towards the creation or reinforcement of European supply chain. These aim to have a preponderance of higher margin products, serving growth sectors like auto-mobiles, household appliances, packaging and personal care.

“The strengthening of supply chains or the building of new ones is an important part of the growth strategy in petrochemicals and other chemicals,” says Steve Elliott, chief executive of the UK Chemical Industries Association (CIA). “There has been a hollowing-out of supply chains in the UK and other European countries as a result of the closure of chemical plants. These now need to be restored.”

At the starting point of these new or reinforced supply chains are integrated petrochemical sites providing raw materials for networks of downstream manufacturers. A long-term expectation – backed by the European Union and trade associations like the European Chemical Industry Council (Cefic) – is that these sites will collaborate with other chemical segments but also other industries.

This is the vision behind the Sustainable Process Industry through Resource and Energy Efficiency (SPIRE), a public private partnership (PPP) covering eight process industries including chemicals, engineering, metals and ceramics, which is an important component of the EU’s seven-year Horizon 2020 research programme.

It will be developing technologies and business models that will combine the know-how and expertise within the industries in order to make the whole of European industry more competitive.

“SPIRE’s focus is on dramatically improving the resource and energy efficiency – and therefore the sustainability and competitiveness – of a broad cross-section of Europe’s industrial process sectors, including petrochemicals,” says Loredana Ghinea, a Cefic official who is executive director of A.SPIRE, the industrial consortium partner behind the PPP.



EPCA Board Member Interview

Q&A WITH RAINER DIERCKS, BASF

What are the main problems facing the European petrochemicals sector in its efforts to be more efficient and more internationally competitive?

The raw material cost advantages of the Middle East and North America with its shale gas are putting increasing pressure on the European olefin and polyolefin industry.

However, imports of cost-advantaged raw materials to Europe face significant hurdles with regard to logistics, which raises questions about their competitiveness. Thus, European petrochemicals production will not be able to directly benefit from raw material advantages in other regions.

How much do the solutions to these problem lie with initiatives by the petrochemical industry itself?

We believe European producers that operate well-integrated production sites in close proximity to customers, with advanced energy integration and optimised product usage, are well positioned to compete globally. At BASF, we are putting a lot of effort into technology optimisation and operational excellence.

Furthermore, with our Verbund concept, we are strongly forward integrated into high value and innovative products. Therefore, we are optimistic about staying competitive.

How much are the solutions dependent on EU and/or government measures, and other forces like market trends and feedstock and energy prices?

Our industry is energy intensive and the high energy costs in the EU are a threat to competitiveness. To justify investments in a market, we need affordable energy prices and reliable framework conditions. High energy costs are largely related to regulation. We need a balanced energy and climate policy that recognises that the chemical industry competes at global levels and cannot pass on additional costs to customers.

Another example is shale gas: Although Europe is not likely to experience the same kind of shale-gas boom as we see in the United States, European shale gas can play a significant role in improving the security of our energy supplies. This however depends on our regulators and their willingness to give the technology a fair chance.

Does more work need to be done on identification of operational risks like operating aging petrochemical plants?

We do not see an increased risk potential in operating proven petrochemical plants. On the plant control level, there is no difference between existing and newly built plants. This is guaranteed through intensive maintenance and regular turn-arounds. BASF is also upgrading its aging plants through state-of-the-art engineering in maintaining safety standards. When addressing problems with plants operating over long periods, inspections and investments are essential to achieve high levels of safety and reliability.

What are the advantages of having petrochemical plants that are highly integrated within complexes?

Integrated complexes are a key strength of BASF, as we have been running the Verbund concept at our sites for decades. We are using most of the cracker products within our sites and are strongly forward-integrated into higher value and innovative products. Verbund and strong integration lead to very efficient production processes as well as better cost structures, for example, through energy and logistical savings. It also reduces the impact on the environment.

How much can the European petrochemical industry be damaged by competition from low-cost, shale gas–derived US petrochemicals?

We expect that the shale gas benefits in North America will be captured in big commodity products in the first steps of the value chain, like in polyethylene and polypropylene. These large volume commodities will be exported because the North American market can probably not absorb all the new capacities. This will influence certain segments of the European chemical industry, for example polyolefins.

What are the prospects for investment in the European petrochemical industry?

Big investments in the petrochemical industry are of course linked to the availability of cost-competitive raw materials as well as a stable investment climate. In Europe, the state of both these factors is not satisfactory. Europe is an important location for BASF and we are looking at investment opportunities on a case-by-case basis to develop our Verbund structures and invest in specialty products.


EPCA Board Member Interview

TOTAL STRENGTHENS EUROPEAN PRODUCTION PLATFORM
Some of the leading European petrochemical producers have been developing solutions to the sector’s problems, which is helping to boost long-term prospects for the industry.

Among these is Total Refining & Chemicals, which has been investing in the further integration of its two major refining-petrochemicals complexes in Antwerp, Belgium, and Gonfreville, in northern France.

“Integrated platforms show much improved break-even points,” explains Olivier Greiner, vice president marketing, Base Chemical division, for Total Refining & Chemicals. “They are therefore more resistant to the low margin levels that we are currently experiencing in Europe.”

“We are strengthening the competitiveness of our platforms at Antwerp and Normandy by achieving the deepest possible integrations of our refining and petrochemical assets there,” he continues. “This integration includes among others a single management team, valorisation of all streams across the platform, such as fuel gas, steam and hydrogen, and sharing of logistical assets.”

A key part of Total’s competitiveness strategy in its Refining & Chemicals business in Europe is the gaining of greater flexibility of feedstocks. “It is important to achieve as much flexibility as possible between naphtha, butane, propane, refinery off-gases and ethane cracking,” says Greiner. “We can now sometimes reduce the share of naphtha in cracking processes to as little as 15% when other feedstocks are more attractive.”

“These solutions require flexible furnace technologies,” he adds. “But they also need adequate logistics, and last but not least, competent supply teams that can grab opportunities on the market.”

Total last year approved a €1bn modernisation project for its production facilities at Antwerp. One of the important parts of the project is the building of a new plant, due to come on stream in early 2017, which will convert low-value refinery fuel gases into low-cost petrochemical feedstocks. The shutdown of the smallest of the three steam crackers with capacity of 220,000 tonnes/year and two polyethylene (PE) lines is also part of the modernisation programme.

The Antwerp site makes base chemicals including olefins, C4 fractions and aromatics, some of which are used to manufacture advanced polymers like metallocene-based polypropylene (PP) and high density polyethylene (HDPE).

Safety and asset reliability are not only regarded by Total as essential drivers for sustainability in the operations of its plants; they are also considered by the company as underpinning production efficiency.

“We’ve realised that reliability of assets is a key driver to enhancing safety since downtime can often generate a higher incidents rate,” says Greiner. “It also raises the economical performance of the plants. Therefore we have launched a wide availability project aimed at systematically tackling all drivers leading to a better availability of our industrial equipment.”

Integration has also resulted in Total putting the running of its refineries and petrochemicals under a single management team, both centrally and on its sites.

“One single organisation manages both refining and petrochemical activities,” explains Greiner. “This system extends from the corporate level – in areas like technical support, purchasing, human resources, strategy and research – to the site level where refining/petrochemical platforms are controlled by a single management team and optimised as a single industrial asset.

“The benefits are significant in terms of cost savings but also in terms of the focus on operations more than on interfaces. Our people are encouraged to develop innovative approaches and creative solutions to capture all the benefits of integration.”

While the company has been reinforcing integration in its two major refining-petrochemicals sites, it has been reorganising its less profitable assets by adapting them to market changes.

The petrochemicals platform at Carling, eastern France, where one cracker was shutdown six years ago, is being transformed. Last year, it announced it would be shutting down its second and only remaining cracker at the site, with capacity of 320,000 tonnes/year, in 2015, because of lack of demand.

The company is investing €160m to develop and expand new polymer activities at the site in 
order to give it a sustainable future. It will become, with increased polystyrene (PS) capacity, the main PS production centre for Total, which has close to a 25% share in the European PS market.

Carling will have a new high-tech resins production facility, and a PP compounding line. The existing PE production unit at Carling is also being upgraded to make advanced plastics for the medical and electrical cable markets.

The plans will be conducted without redundancies. We’re adapting production capacities to demand trends,” says Greiner. “This involves replacing, in a socially responsible way, non-competitive capacities with new activities. What we are doing at Carling is an example of the way we intend to adapt our European assets to changes in the market.”

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