Low-cost ethylene allows INEOS to tap into Europe VAM deficit with new plant – exec

LONDON (ICIS)–INEOS’ return to the European vinyl acetate monomer (VAM) market, four years after closing its UK plant, makes sense after global and regional conditions changed dramatically and with the advent of cheaper feedstocks, the CEO of INEOS Oxide said this week.

Graham Beesley said Europe had become a “very sensible place to be” as a VAM production location as the region continues meeting its needs through imports and said the access to affordable ethylene was a key factor for the decision.

However, as announced by the company on 5 September, a final investment decision will not be taken until 2018 and the 300,000 tonne/year plant is not expected to be operational before 2020.

INEOS said it was considering three locations for the plant: Antwerp, Belgium, Cologne, Germany and Hull, UK.

The UK site already hosted a VAM production plant, which was shut down in 2013 on the back of uncompetitive conditions, the company said at the time.

With that closure, Europe lost half of its VAM production and since then the region has been relying on imports to cover its needs, as confirmed month after month by the European statistical agency Eurostat’s chemical trade figures.

According to ICIS calculations, European VAM consumption stood in 2016 at 1.13m tonnes (including Turkey). 

The 2013 closure of the Hull VAM plant caused a sudden spike of prices (see graph, measured on a free delivered (FD) northwest Europe (NWE) basis. June 2014-July 2017).

“There are a number of factors [why INEOS is building a VAM plant in Europe]. The supply and demand situation has changed, as Europe has lost, as well as our plants, other significant production assets since the time we closed down,” said Beesley.

“[Other factors] Include exchange rate effects and how the [VAM] market has actually performed when there isn’t really a major merchant market supplier to that market. Then, there are also factors regarding the global supply and demand situation.

“The combination of those things led us to believe that here and now we have the right to succeed [producing VAM in Europe].”

The Hull plant producing VAM until 2013 was not competitive, the company said at the time, as the technology, inherited from UK’s energy major BP, turned out to be unreliable.

However, the fact that some assets for VAM production remain at the Hull site made the location one of the candidates for the new plant, the CEO at INEOS Oxide said.

However, the fundamental change in the last four years has been the shale gas revolution in the US and how INEOS was the “first mover” creating the infrastructure and acquiring the logistics assets necessary to import ethane into Europe.

The company has invested in its sites in Grangemouth in the UK and Rafnes in Norway in order to be able to import increased volumes of ethane as feedstock. 

“We were struggling to be competitive with the [former Hull VAM] plant. When we want to go ahead with a venture, we have to ask ourselves the question: ‘Are we going to be a low-cost producer?’ When we look at the three locations, do we have the right access feedstock? And, in each of these [three locations], we have got a good story from the point of view of ethylene,” said Beesley.

“In Hull, we have got a new confidence in the ethylene supply from Grangemouth. In Cologne, we are obviously producing significant amounts of ethylene there linked to the ARG pipeline, and in Antwerp we have an import terminal and we are also in the ARG.”

The ARG is a 495-kilometre ethylene pipeline running through Germany, Belgium and the Netherlands (see bottom map).

“And then, of course, shale gas. We are confident of having ethylene at the right cost, and then obviously we want to make sensible derivatives,” added Beesley.

The INEOS executive added that the three sites would also find it manageable to source acetic acid, the other key raw material for production of VAM.

In Hull’s case, near the INEOS site, BP operates a 532,000 tonne/year acetic acid plant, while Cologne and Antwerp “are logistical hubs suited for import” to obtain the product in the global markets.

The advent of cheaper natural gas-based feedstocks has definitely prompted INEOS to adopt an strategy of producing more commodity chemicals, which, only a few years ago, would have been seen as a no-go area in Europe.

The VAM announcement this week was preceded by a pledge in July 2016 to increase ethyl acetate (etac) production at its Hull site by 100,000 tonnes/year, taking total capacity to 345,000 tonnes/year.

Those two products, VAM and etac, use ethylene as a raw material. Without more affordable feedstocks, those two announcements would probably have suffered a different fate.

“If the company [INEOS] is supplying me upstream with the feedstock to be able to go ahead and succeed, it is my job to go and grow the derivatives business, whether that’s ethylene or propylene and this [VAM] is one example where we are doing that,” said Beesley.

“INEOS Oxide is also investing significant amounts of money in, for example, EO [ethylene oxide] capacity in Antwerp and we are also increasing etac in Hull. We have been charged with finding more value downstream.”

INEOS has been through a spree of announcements to expand or overhaul its sites in Europe. In July, the company announced it was to build a “world-scale” cumene plant in Germany, while in June it announced a $2bn investment to build a 750,000 tonne/year propane dehydrogenation (PDH) unit to produce propylene as well as to revamp its two European crackers in Grangemouth and Rafnes.

While INEOS is a clear advocate for production of shale gas in the UK, a project still in its early stages, Graham Beesley would not comment on whether imports from the US would be enough to cover Europe’s needs, without the need to start hydraulic fracturing (fracking).

Public opinion in the UK has repeatedly showed opposition to the practice, according to opinion polls.

“That’s an upstream story; ours is a downstream one,” concluded Beesley.

Interview article by Jonathan Lopez