European Petrochemical Industry

1
European Petrochemical Industry
John F. Wyatt, Parpinelli TECNON, Milan
Paper presented at Algerian Petrochemical
Seminar 26th February 2001
2
European Petrochemical Industry Outline

• West European Market for Petrochemicals
• Petrochemical Industry Restructuring
• Strength/Weakness of European Petrochemicals
• Drivers for the Future
• Market Growth
• Feedstock
• Refinery Integration
• Strategy/Positioning of Major Players
• Conclusions

3
Western Europe (countries indicated with )
Population 450 million
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European Chemicals v Total Market
INDEX 1990 100
500
Petroleum
400
Asian Crisis
Total market
300
Chemicals
200
Automotive
Paper
100
Steel
1990
1998
European Datastream index
5
Market Demand
European share of world petrochemicals demand is
falling but Volume demand and market
concentration is attractive
6
Market Demand
West European share of World demand ()
7
Market Demand
West European share of World demand ()
Note coproduct monomer has lower decrease
8
Market Demand
Historical European market growth has exceeded
macroeconomic growth and Indications are
that petrochemical derivatives continue to
penetrate European markets
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Market Demand
Basic Petrochemicals - Europe v World
Million tons
Million tons
1980
2000
C2 C3 C6 PX
C2 C3 C6 PX
10
Market Demand
Thermoplastics - Europe v World
Million tons
Million tons
1980
2000
PE PP PS PET
PE PP PS PET
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Supply and Demand
European SD balances have followed global cyclic
trends Historical export posture characteristic
of the 1980s has disappeared Investment
following mid 1990s has been slow with resultant
improvement in plant utilization
12
European Supply and Demand Ethylene
Million tons
Capacity
Demand
13
European Supply and Demand Propylene
Million tons
Capacity
Demand
14
European Supply and Demand Benzene
Million tons
Capacity
Demand
15
European Supply and Demand Paraxylene
Million tons
Capacity
Demand
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Industry Restructuring
European petrochemicals through repeated
rationalisation restructuring has been moving
from a National, balanced operational
structure
To Product focussed, world scale regional
manufacturing centre
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Historical Development
State Aid
Refinery Integration
Balanced operation Multi-product lines Small
scale
Consumer or semi-finished products - principally
to domestic market
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Historical Development

• Sites were under single ownership
• refining and/or chemical origin
• minimise intermediates product flow
• maximise sales to consumer/processing sectors

BP Baglan Bay(UK), Basf Ludwigshaven(D), CdF
Carling(F), Montedison Porto Marghera(I) PQU
Santo Andre(B), Repsol Portollano(E)
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Historical Structure no longer valid!

• Small scale
• Too many product lines damaging to
• Investment
• Infrastructure
• R D support
• Limited bargaining power for raw materials

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Search for the Optimum Petrochemical Industry
Structure
National compromise
Short term gains
Common solutions
Optimum structure
??
Condominiums
Asset stripping
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Industry Restructuring
Result Increased number of interfaces between
the upstream to downstream integrated chain
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Strengths and Weaknesses
Strengths are Market Driven Weaknesses are
Supply Driven
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Strengths
Established Market Support world scale domestic
investments Significant high technology/high
value added sector Infrastructure Marketing
expertise Distribution networks Storage
logistics support Headquarters Several
international and regional major players
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Weaknesses
Feedstock Limitations Major importer of naphtha
in competition with Asia Fragmented Production
Base Many manufacturing sites add to fixed
and logistics costs
25
Weaknesses
Scale Average European capacities are
approximately 65 of US Gulf Coast/Middle East
plants Utility Costs Intervention by National
governments still leading to non-competitive
fiscal burden - but this is changing
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Drivers for the Future
Market Growth Feedstock Refinery
Integration Strategy/Positioning of Major Players
27
European Market Growth
European petrochemical demand is expected to
grow on average at between 3.5 and 4.0 per
year In all sectors, demand growth, between 2000
and 2010, exceeds projected investment in new
capacity In addition to new ethylene and polymer
capacity to satisfy domestic demand, significant
on-purpose production of propylene and
paraxylene will be required
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European Market Growth
29
European Market Growth
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Feedstocks
Europe imports 50 of olefins feedstock
requirements and competes strongly with Asia
for available supplies
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Ethylene Variable Cost
US/ton
European Naphtha
Saudi Propane
Saudi Ethane
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Feedstocks
Result Erosion of competitive position in export
markets Drive to refinery/petrochemical
integration Development of partnerships/commercia
l agreements for secure supplies
33
Refining/Petchem Integration
European petrochemical manufacturers have
frequently changed position
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Refining/Petchem Integration
The 1960-1970 Period DIVIDE!

• A period of easy access to feedstock
• Petchem Companies going on their own

• Crude less than 2/bbl (below 10/bbl in 1999 )
• Petchem Companies mainly Chemical Companies
• Expectations for High Petrochemical Growth

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Refining/Petchem Integration
The 1970-1980 Period BRIDGE!

• Access to feedstock more difficult
• and expensive
• Petchem Companies Look at Security of Supplies

• Yom Kippur War, Crude rises above 10/bbl
  (40/bbl in 1999)
• Iranian Revolution, Crude jumps to over 30/bbl
  (70/bbl in 1999)
• Chemical Companies consider back-integration
• Petchem Companies include more Integrated Oil
  Companies

36
Refining/Petchem Integration
The 1980-1990 Period DIVIDE.

• Incompatibility the focus for refiners
• is Gasoline
• Competition for the same Naphtha Feedstock

• Cyclical Profitability in Petchem Business
  Disincentive for Refiners
• Refiners need Capital to Invest into Conversion
  Capacity
• Petchem Companies Invest for Access to
  Non-Refinery Feedstock

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Refining/Petchem Integration
In 1980 gt85 of Ethylene Was Produced from Naphtha
By 1990lt65 of Ethylene Was Produced from Naphtha
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Refining/Petchem Integration
The 1990-2000 Period BRIDGE...

• Issues of Volume Quality in Gasoline Push
  Refiners Back to Petrochemicals

• Gasoline Market Stagnates and then Turns to
  Negative Growth
• Regulations on Gasoline Quality Call for Benzene
  Removal
• New Conversion Capacity in Refineries Adds
  Flexibility
• at the Gasoline/Petrochemical Interface
• Profitability in Petrochemicals Exceeds Refining
  Margins
• Increased Synergy

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Refining/Petchem IntegrationBridging the
Divide

• The 1980-2000 period driven by Refinery
  Forces

Petchem Driven
Refinery Driven
Bridge
Divide
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Expected Impact at the Gasoline/Petchem
Interface Gasoline Composition in Western Europe
Decrease
Increase
Increase
Decrease
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Expected Impact at the Gasoline/Petchem
Interface Naphtha use by Industry
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Expected Impact at the Gasoline/Petchem Interface
Primary BTX Production in Western Europe
MMT
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Expected Impact at the Gasoline/Petchem Interface
Primary BTX Production in Western Europe
Future Yields Will Favor Petchems, Mostly at the
Expense of Bottoms
Integrated Refining/Petchem Operations Will Exert
a Growing Influence
MMT
44
Propylene Production from FCCs in Western Europe
Expected Impact at the Gasoline/Petchem Interface
MMT
?
45
Propylene Production from FCCs in Western Europe
Expected Impact at the Gasoline/Petchem Interface
MMT
FCCs Role in Propylene Production Is Set To
Continuously Increase
?
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Strategy/Positioning of Players
Product strategy focus is stimulating the
development of petrochemical clusters
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Contribution to Fixed Costs
Strategy/Positioning of Players
Processing Commodities Base PCs
Central Support 20 30
10 Manufacturing 40
30 80 Marketing
40 40
10
48
Contribution to Variable Costs
Strategy/Positioning of Players
Processing Commodities Base PCs
Feedstock 40
60 90 Utilities
20 15
5 Logistics 40
25 5
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Strategy/Positioning of Players
Olefins
Aromatics

• Positioning in National/European industry
• Competition driven by feedstock position
• Partnerships/Commercial agreements
• Government incentives
• Base petrochemicals becoming increasingly
  merchant

50
Strategy/Positioning of Players
Polymers, Fibers, Intermediates

• European operation integrated in Global business
• Target to maximize volume sales
• Competitive position driven by cost of sales
• Centralized business support
• Multiple sourcing close to markets

51
Strategy/Positioning of Players
Result Development of competitive Site
Infrastructures Offered
by Energy rich operators
To International polymer/intermediate world
players
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Chemical Cluster
Strategy/Positioning of Players

• Centralised energy/utilities supply (e.g. Enron)
• Base petrochemicals nucleus
• World scale commodity manufacturing units for
  regional market supply
• Processing sector investment

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Conclusions

• Western Europe continues to be an
• attractive market
• Domestic investment
• Net trade in monomers expected to be marginal
• Import vulnerability of derivatives from Middle
  East

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Conclusions

• Company Strategy
• Increase number of interfaces in industry
• resulting in larger merchant market for
  monomers
• and greater price transparency
• Product focus as majors develop regional
  activity
• within a global business

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Conclusions

• Industry Restructuring
• Increases refinery/petrochemicals integration
• Developing partnerships for feedstock sourcing
• Emergence of Chemical Clusters