Pressure Mounts on European Petchems

As the wave of new capacity comes on line, pressure is mounting on petrochemicals producers in Europe.

Just taking ethylene capacity as an indicator, almost 7 million tonnes new capacity started up in 2009, another 7 million tonnes is due to come on-stream in 2010 and a further 5.5 million tonnes in 2011. Almost all of this new capacity is in the Middle East and Asia.

With the construction sector is still relatively weak and the automotive sector potentially at a turning point, given the withdrawal of economic stimulus initiatives, producers have increasingly relied on growth in Asian markets to fill the demand gap.

However there is little doubt that steadily increasing volumes of ethylene and derivatives will be arriving in Europe, increasing the pressure on producers. All have been through major cost cutting programmes over the last couple of years and have little room for further manoeuvre in this regard.

As a consequence, further capacity reduction is almost inevitable. However against a difficult political backdrop, as demostrated by recent strikes in France related to refinery closures, it is very difficult to predict just where this will happen.

GCC to Supply 20% of Global Petrochemicals by 2020

photo : GPCA

According to estimates by the Gulf Petrochemicals and Chemicals Association (GPCA), the GCC will meet 20% of the world's petrochemical demand by 2020.

The growth of petrochemicals in the region continues to be very impressive. Current petrochemical output in the region is some 63 million tonnes and this will almost double between now and 2015, with a number of large scale projects projects underway throughout the region.

The annual GPCA Forum is now underway and the agenda has a strong focus on sustainability issues and on achieving success in the post-recession environment.

In implementing such a huge investment programme (estimated at approximately $170 billion between now and 2015), producers in the region will face a number of challenges and issues but these will be overcome, given the right skills and resources. There is little doubt that over the coming decade, the region will develop into the global petrochemicals hub.

World's Largest Polymer Park Changing Face of Plastics Conversion

photo: Arabianoilandgas.com

With up to 15 million tonnes of new polymer capacity coming on stream in the GCC region from highly integrated and effficient plants, the obvious next step was to improve the integration of these plants with the downstream convertors. The new Abu Dhabi Polymers Park is a huge step in achieving that goal.

The park, developed by the Abu Dhabi Basic Industries Corporation (ADBIC), a state owned organisation, will cost some €3.5 billion to complete and once fully operational, will consume up to 2 million tonnes per year of polymers (mostly PE, PP, PVC and Polyester).

The park's developers have given considerable thought to the design of the cluster and have come up with a very well structured package. The park will have purpose designed logistics facilities, a nearby deep-sea container port, flexible supply chain and technical service capabilities and competitively priced utility and land costs. Unlike existing clusters, the concept has been carefully designed from the outset, rather than evolving out of large corporate supersites, as was the case with many of the European clusters.

So with leveraged procurement, high quality logistics, on-site technical support capability and competitive land and utility costs, it sounds pretty good. Add to that a growing local market and zero tax on company and private income and you have an irresistible opportunity.

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.

Where Next For European Petrochemical Manufacturers?

photo: arabianoilandgas.com

Times have been tough lately for European petrochemical producers. With demand depressed since the second half of 2008, margins have been squeezed and profitability has been severely impacted.

This is further compounded by the tidal wave of new capacity coming on stream in the next few years. A number of huge petrochemical complexes are now commissioned and many more will start-up between now and 2012.

For the manufacturers this translates into significantly reduced operating rates, demands to cut costs and a highly concerned workforce, worried about future job security.

This is not an easy set of factors to manage. Strong leadership is absolutely essential. Costs must be cut but without significantly increasing the levels of risk - effective management of change is a must. There must be an absolute focus on 'doing the right things' and eliminating all types of waste throughout the entire supply chain and in all of the service functions. Good people management means communication (and more communication), empathy and a very clear sense of direction.

Even with all of this, there will be casualties. More plants will have to close down in order to restore the supply/demand balance and as I've noted previously, this is a process which needs strong project management in order to achieve best results.

It is a very tough and sometimes lonely time for manufacturing managers. Most important is to take control - identify strategies for dealing with all of the issues and keep looking at the horizon. In this way you'll be best prepared for whatever is coming.

Site Closure

There have been many announcements of site closures in Europe in recent months. Given the new petrochemicals capacity coming on line in the Middle East, there are undoubtedly more to come in the coming months and years.

Site closure is a strategic decision, based on the long term economics of a business. The business aims will have been defined as part of the decision process.

However, Site Closure is unlike any other project; as well as being complex, with EHS, technical and regulatory challenges, it is also highly emotionally charged, with many of the people involved in the process being directly affected by the consequences. Having been in the middle of this process several times myself, I can state from experience that it is very different from other types of project.

A well-managed site closure process will achieve all of the aims of the impacted business, it will ensure a positive transition for the impacted employees and will satisfy all regulatory requirements. All of this whilst controlling costs and taking advantage of a number of financial opportunities which can arise.

The flip side is that poorly managed site closure can have a number of serious consequences, impacting both the profitability and the reputation of the parent company.

For example, the process can become unnecessarily protracted, leading to significant extra cost. Staff morale can decline sharply in the period between announcement and closure, leading to increased risk, unreliable production and hence customer dissatisfaction.

Key staff can be lost early in the process if thought has not been given to their future in the organisation. Legacy issues such as land contamination can lead to problems with regulators or landlords. The resale value of assets is not realised and property value (lease or freehold) is not optimised.

With the 'typical' cost of a site closure in the order of $10-15 M, the difference between a successful outcome and a poorly managed outcome can be very significant.