ICIS Top 100 Chemical Companies

My recent post on the ICIS Top 100 Chemical Companies generated much discussion.

Many thanks to Lara McNamee of ICIS who posted the link to the PDF file in the comments section of the blog.

The PDF file can be downloaded by following this link

It will be very interesting to see the 2009 top 100 report and assess the growth of the Middle Eastern chemical companies as well as the impact of recession on the major European and North American chemical companies.

New Reality For Petchems

In the Chemicals and the Economy blog and an article for ICIS Chemical Business, my colleague Paul Hodges shares his view that the landscape for Petrochemicals has changed during the current downturn. As Paul states 'We came into the downturn on the back of a major boom in consumption, supported by reckless lending and borrowing and now this mind-set seems unlikely to return quickly'. If this view is correct, we are in for a sustained period of lower volumes and reduced margins but punctuated by periods of high volatility caused by oil and currency markets. This will certainly mean that the pressure that has been experienced by the manufacturing sites during the downturn will continue. As consumers in the market place shift from "wants" to "needs", exactly the same shift will apply to chemical manufacturing site managers. To make things even harder, however, managers will need to be able to cope with the consequences of market volatility. There must be a clear focus on what needs to be done to survive but this absolutely must not affect the ability to be flexible . A focus on cost effectiveness and value for money is essential. Wastes of all types must be identified and systematically eliminated using approaches such as Lean Manufacturing. Value chains within the manufacturing plant and supply chain must be shortened wherever possible using value stream mapping techniques. Organisational effectiveness is a must. Staffing levels must be reviewed critically to ensure that organisations are as effective as possible and staff should be trained and ready to play their part by being able to safely and effectively start-up, shut-down, change grade and increase production rates at very short notice. This means that simply cutting numbers is not smart enough - skills must be retained.

In short, highest quality manufacturing management will be absolutely essential if sites are to survive and thrive in the new landscape.

Friday News Round Up

Being Friday, I thought it would be a good time to give an update on some of the stories covered in earlier postings.

Naphthachimie has been bringing plants back on stream at the Lavéra Site, whilst Arkema has been forced to declare force majeure on all PVC production in France due to the shutdown of the Lavéra VCM unit.

Jurong, the Singapore Chemical Park celebrated the completion of its land reclamation project - many years ahead of schedule.

ExxonMobil shared the secrets of its success in reaching number 2 in the ICIS list of Top 100 Chemical companies. In an interview with Bloomberg, an EM spokesperson reiterated the company strategy of integration and optimisation throughout the entire value chain.

OPEC shared its view on economic recovery, stating their belief that it will be slow and gradual. The group left its world oil demand forecast for 2010 unchanged.

UK Chemical Plant Closures Hit New High

Continuing my theme of chemical plant closures, I was recently asked whether the number of UK plant closures had increased as a result of the current recession. Gut feeling says yes, but I thought I'd try and back this up with some analysis.

My quick assessment of the numbers shows that the rate has indeed increased during 2009, with 24 plant closures announced so far this year.

In the years 2000-2008, the rate was in the range 10-19 closures per year.

I don't have data to prove whether or not this trend is being repeated throughout Europe and North America but my gut feel says that this is indeed the case

Defining a chemical plant as a production, rather than blending operaton, there are approximately 400 plants left in the UK (including pharma). If this rate of closure were to continue, UK Chemicals Manufacturing will soon be a thing of the past.

Failure to Understand Reactive Chemistry Hazards Leads to Fatal Accident

A fatal blast in 2007 at the T2 MCMT plant (a fuel additive) resulted from a fundamental lack of understanding of the reactive chemistry hazards - according to the investigation carried out by the US Chemicals Safety Board (CSB). In yet another excellent video, the CSB outlines the events that led up to the incident and explains the causes. The CSB investigation found that the company, T2, did not understand the reactive chemistry hazards, having scaled up their process from a bench scale. This meant that appropriate safeguards such as adequate relief systems, safety instrumented systems, back up cooling supplies were either inadequate or not in place and consequently staff training and operating procedures did not address this risk.

Two operators were killed instantly and two were killed by flying debris. 32 people in the vicinity were also injured. The plant was destroyed.

There is a wealth of published material on this subject, such as the guide produced by UK Health and Safety Executive. However figures show that in the US alone, 167 serious incidents of this type occurred between 1980 and 2001

Operating companies must understand and manage their risks. This type of tragic incident should not be happening in our industry.

Chemical Parks Under Threat?

From the 1990s onwards, the divestment of assets by many large chemical producers led to the break up of the single company supersites such as Wilton (UK), Marl and Leverkusen (Germany).

In order to survive the new reality, the 'Chemical Park' or 'Chemical Cluster' concept was established, with a number of operators on a site, sharing common infrastructure as well as a range of shared services.

New purpose-built parks have also been established, such as Jurong Island in Singapore, with over 94 multinational firms now present.

The concept is undoubtedly a good one. In principle, costs should be lower, as infrastructure and services costs can be shared between many parties and many suppliers/consumers are on the same site, reducing logistics costs. Permit applications for new plants are more straightforward as chemical production activity is already present at the site. Finally, the environmental issues related to plant closure should be simplified, due to the on-going industrial activity at the site

My personal experience is that whilst the concept may indeed be a very good one, participating companies need to weigh up very carefully the pros and cons for their own situation. Issues such as competitiveness of services, cost of and quality of infrastructure, flexibility of choice are very important - otherwise you may end up paying for some things you don't need and find yourself facing sharply rising future costs if the infrastructure quality is poor.

Also, in these challenging times, it is very important to consider what happens if other participating companies leave the cluster. As an example, Wilton in the UK, has suffered a number of recent plant closure announcements, with Dow Chemical, Croda, Invista and Artenius all annoucing closures.

Such a situation can increase costs and risks for the companies left behind and can, in the worst case, bring into question the viability of the entire site, unless positive action is taken to address the issues.

In balance, my view is that chemical parks are a good thing. Provided that the chemical park's strategy is consistent to the individual company operating strategy and all issues and threats have been considered and addressed, the positives do outweigh the negatives.

Avoiding a Recessionary Mindset

I've been talking a lot about impacts of recession in this blog and the need for effective management of change to manage risk and avoid creating long term issues. The same level of focus applies to the situation we will encounter post recession, when we need to drive the performance of our assets.

The London Business School provides an excellent YouTube channel called 'Survival of the Fastest'. The site has a large number of 'bite sized' video clips for managers, focusing on a wide range of topics.

There is a wealth of information that is relevant to managers involved in Chemicals Manufacturing, with topics covering a range of subjects such as innovation, people management andcost control, to mention but a few.

I've extracted just one example 'Avoiding a Recessionary Mindset'. As managers in the Chemical Industry, we have been dealing with the effects of recession for some time now, with reduced output, reductions in expenditure, job cuts and site closures very high on our priority lists. This can create a 'recessionary mindset', where our focus is on problem solving and survival.

At some time in the not too distant future, however, we will need to increase output, review our organisational requirements and adapt ourselves to the post recessionary situation. If we are stuck in crisis mode, this can be a difficult shift to make.

Ineos NOVA Annouces Breda Site Closure

photo: Ineos NOVA

As a manufacturer, it feels like I've blogged about site closures (and how to achieve succesful closure) too many times recently. Whilst site closure is necessary for operating companies and for the wider chemical industry, it's never a pleasant experience.

Another European petrochemical plant closure was announced yesterday, with Ineos NOVA announcing the closure of its Breda PS plant in the Netherlands. The plant, with a capacity of 90kT produces general purpose PS and some speciality PS. The plant employs 55 people.

Expandable polystyrene production will continue at the site, which also hosts a number of the administrative functions for Ineos NOVA.

I've talked about how to ensure successful site closure in previous posts (see 25th July blog entry for full details). One major factor in the overall closure cost is the current value of scrap metal. In late 2008, prices for mixed scrap peaked at 450 €/tonne but prices have since fallen back to 2005 levels and are currently around €180/tonne. As demolition contractors recycle everything that can be re-used, this reduced price has a big impact on the overall cost.

Top 100 Feedback

I've had some interesting feedback on the recent top 100 posting, regarding which companies are likely to dominate in the future. Three main themes are emerging.

Companies that are integrated through the entire petrochemical value chain through to commodity polymers/chemicals have a far greater chance of making it to the top 10. This means that the likes of ChemaWEyaat, SATORP and Borouge could join the 'top table'.

Companies with excellent product & application innovation can also be strong. The model followed by DuPont is a good example of this.

Finally, major players could emerge from oil and gas rich states (Russia and Venezuela are good examples), where feedstock is plentiful and cheaper, so further large, integrated facilities could develop.

Whatever the theme, the absolute key to success is to have a clear strategy, backed up by excellent implementation.

Lyondell Basell Announces Carrington LDPE Closure

photograph: LyondellBasell Lyondell Basell has today announced the closure of the Carrington LDPE Plant in Manchester, UK. A company spokesperson said that the plant was no longer economically viable, citing the current market environment, future projections for LDPE and the relatively small scale of the plant (185kT). The closure further magnifies the ethylene supply/demand imbalance in the UK, which now has a significant excess of ethylene. From a personal point of view, this is the plant where I started my career as a young engineer quite some years ago. Initially as an LDPE plant process engineer as subsequently as part of the design team for the 'newer' LDPE production line. Having seen it built and been a part of the commissioning team, I'm very sad to see it go.

Top 10 Chemical Companies in 2008 and in 1998

ICIS has recently published its fascinating analysis of the top 100 chemical companies in 2008 (ranked by sales). The names in the list will not be a surprise to many; BASF, ExxonMobil, Dow Chemical, LyondellBasell, Du Pont and Shell figure prominently in the list.

What is more interesting is to look back to the top 10 in 1998 and look at the differences. BASF, Dow and Du Pont were all present but other names have disappeared completely; ICI, Hoechst and Rhone Poulenc were very big 1998.

New additions to the top 10 are the likes of SABIC, Sinopec, LyondellBasell and Ineos, with SABIC and Sinopec growing very quickly in recent years. LyondellBasell and Ineos are, of course, new companies formed in recent years and which have grown through successions of acquisitions.

The brave amongst us might like to try and predict what 2018 might look like. New names like Borouge and ChemaWEyaat may well appear, with some European and North American companies coming under some pressure?

SATORP Achieves Substantial Cost Reduction

Following on from my previous post on the cost savings achieved by Dow and Saudi Aramco at Ras Tanura, I have now learned that Total and Saudi Aramco have reported cost savings of over 20% on the SATORP integrated refinery project. This has been achieved by slightly delaying the project and lengthening the EPC selection process in order to take advantage of lower construction costs. As noted previously, the IHS CERA downstream index showed an increase of over 40% for construction costs between 2006 and Q3 2008, reflecting the significantly increased demand for new construction in this period. Even so, to achieve a 20% reduction in cost for a project as large and as complex as SATORP and in such a short period of time is highly impressive. I'm informed that Saudi Aramco and Total will be presenting details of this project as a case study at the forthcoming Petchem Arabia meeting , which takes place in Abu Dhabi during October.

Solar Power to Achieve Grid Parity?

I read with interest that the US based renewable energy First Solar has agreed to build the world’s largest solar power plant in China. The initial agreement is for a 30 MW demonstration plant in Inner Mongolia by June next year, which if successful could develop through a total of four phases to take the site’s total generating capacity to 2 GW by 2019.

Solar power, although often considered to be 'free' has been held back due to the very high investment costs associated with the technology. However the development of 'thin film' technology is significantly reducing investment costs and many industry experts now believe that grid parity (the point at which solar power becomes as cheap as energy from the grid) is only some 3-5 years away in some countries.

As this technology consumes significant amounts of chemicals, notably silicon, this could present an opportunity for the chemical industry, although we can expect the situation to be very volatile as solar panel producers race to achieve the lowest cost technology and highest market share.

Sadly I can't see grid parity being quite as close in the clouds and rain of North West England.

Lavéra Shut Down Due to Major Steam Leak

photo: La Provence /Naphthachimie

A major steam leak on Saturday 5th September has led to a total shutdown of all of the petrochemical plants at the Lavéra Site, near Marseille in the South of France.

This has affected plants owned by Ineos, Arkema and Naphthachimie (a Total/Ineos JV). Early reports indicate that these shutdowns are already impacting a number of markets, most notably for polypropylene.

It appears that a sudden and catastrophic failure of a 25 bar steam header caused the incident, which also led to a minor ethylene release from a nearby pipeline. Initial reports from the operator, Naphthachimie, suggest that the incident was caused by 'operational reasons' as they consider that the system was well maintained and regularly inspected. Some of the local unions have, however, expressed concern about the potential impacts of on-going cost cuts at the site, with reductions of 24% targeted by 2013.

Most importantly, no-one was hurt in this incident but, whatever the cause, such a major shutdown is very costly and a major concern issue for all impacted parties.

Dow and Saudi Aramco Achieve Savings on Ras Tanura?

I was very interested to read a report this week in Reuters claiming that Dow and Saudi Aramco had achieved savings of $4BN on an estimated total investment of $20BN in the Ras Tanura petrochemical complex.

As reported previously in this blog, construction costs are down, with the CERA downstream index showing that on average, the cost of building new refineries and petrochemical plants fell 9 percent between the third quarter of 2008 and the second quarter of 2009, after several years of steady and significant increases.

If the reported savings at Ras Tanura are correct, then Dow and Saudi Aramco have been highly successful in demanding cost reductions from managing contractors. Clearly, the managing contractors will be looking to their sub-contractors and equipment suppliers to achieve substantial savings. In some cases, where order books are weaker, this will create major problems and some may not survive.

After years of very high inflation in new plant construction, it is now necessary for all parties to work smartly to achieve economies and satisfy the end clients. The days of 'just get it built' are clearly over.

Effective Problem Solving in New Plant Start-Ups

There has always been a need for effective problem solving in new plant start ups. Given the huge sums currently being invested in new plant, this is very relevant right now.

There has been a surge in new plant construction in recent times, with project costs varying from tens of millions of dollars for smaller plants up to billions of dollars for large petrochemical complexes. These investments are justified due to the returns that they will create but experience has shown, that these returns will only be realised if the plants are capable of sustained operation at the highest rates. There have been many reported instances of plants failing to achieve the nameplate capacity for a variety of technical reasons. In many cases, this failure to achieve capacity has lasted for an extended period of time. This means reduced revenues as well as operational stress. It is highly frustrating for all parties concerned and can result in a lot of additional expenditure on quick-fix ‘solutions’ which ultimately do not resolve the underlying issues. In addition, the quick-fix solutions waste time as well as expenditures since each quick fix solution delays finding the real cause of the chronic problem. It is always important to focus on the problem solving capability of the operating team. The ability to identify and prioritise the problems gives a very good starting point, as not all problems can be tackled simultaneously. However, this in itself is not enough. Problems, once identified, need to be tackled using rigorous problem solving techniques so that the root causes can be identified and permanent solutions implemented. In all operating plant environments, it is desirable to have this problem solving capability. On a new plant start-up, it is absolutely essential.

Economic Recovery - Optimism for Chemicals Manufacturers?

After a particularly hard year, chemicals manufacturers are looking for some light at the end of the tunnel, signalling an end to a sustained period of plant closures, job losses and significant cost reduction.

The question of whether we are now entering a sustained recovery is now being widely debated in the media. My colleague Paul Hodge has examined this question closely in his excellent 'Chemicals and the Economy' blog and has been closely following trends in automotive and construction markets as well as looking at factors such as the impacts economic stimulus packages, particularly in China and the US.

Certainly companies have seen improved results in the first half of 2009, with demand increases in many sectors of the industry. For manufacturers, however, I see very few signs of this translating into increased levels of spending. Capital investment is still being limited to sustaining and HSE related projects and all discretionary costs are still being very tightly controlled.

The message for manufacturers is that the challenges will continue for some time yet. There may still be a requirement to reduce staffing levels to achieve cost targets. Delays or deferral of major turnarounds may be requested. There will be cancellation or deferral of ‘non-essential’ capital expenditure. There will be frequent changes to production plans due to low inventory levels.

As a consequence, it is still essential to closely monitor the morale of your operating teams and to manage the situation carefully. Most important is to ensure that levels of risk do not increase to unacceptable levels.

Dust Explosions

Build up of combustible dust in chemical plants, food plants and other industrial premises can provide the fuel for devastating dust explosions that can lead to death and injury, can destroy plants and damage local communities. The US Chemical Safety Board (CSB) has produced yet another excellent awareness video highlighting the risks associated with dusts. I would highly recommend this video to all of those for whom dust explosion could be considered a risk.