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Shell focuses on profitable upgrading of hydrocarbons

Chemical companies, Economic growth, Futures trading, Oil markets
By Paul Hodges on 04-Oct-2010

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Shell’s chemicals EVP, has told ICIS’s Nigel Davis that even the phrase “refinery/chemicals interface” represents an out-of-date concept.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.