UAE has 94 Years Oil Production Left?

photo: Arabianbusiness.com

According to the Eni World Oil and Gas Review, the UAE now has 94 years of remaining production. This is based on currently estimated reserves and current production levels. Interestingly, the figure has increased in recent times (it was 86 years in 2008). Of course such figures always vary, based on changes in reserve estimates and changes in production levels.

The UAE has done a tremedous job in diversifying its economy. Going back 25 years, the country was almost entirely dependent on revenues from the upstream oil and gas sector but the vision on the ruling family has led to a vibrant and highly diversified economy. Of course oil revenues are still important but other sectors such as transportation, tourism, financial services and of course, construction have been very strong (despite some blips around the time of the global financial crisis).

Following on from my previous blog posts, Iraq could learn a lot from the UAE. Iraq has a reserves/production ratio of 130 years currently. Of course this figure will shift, as new reserves are identified and production levels are ramped up. Iraq effectively has a blank canvas on which to map out the future for the economy. Hydrocarbon wealth has to be the starting point to build a strong and diversified economy but a short glance across the Arabian Gulf can show Iraq just what can be done.

The world currently has a reserves/production ratio of some 45-55 years (depending on the source of the data). However this figure has remained stable for the last 15 years or so. With more oil being discovered and improved oil recovery techniques, the much discussed production peak, has remained in the distance. Similarly, significant discoveries of unconventional oil and gas will also prolong the world's hydrocarbon future. However the Middle East, with its huge reserves and high reserves/production rations, will continue to dominate the world's oil production for many years to come.

Iraq Gas Deal Signed

Photo : dinarddiscussions.com

Reports in Arabianoilandgas.com have confirmed that Shell and Mitsubishi are set to sign a deal for a huge project to capture the gas that is currently flared in the south of Iraq. The south of Iraq holds some 70% of the country's gas reserves

Iraq desperately needs this gas to provide power, which is chronically short supply at present, with electricity supplies to much of industry being currently rationed down in summer months, in order to ensure that sufficient power is available for domestic customers.

This mammoth project will create huge logistical challenges but is an essential part of Iraq's reconstruction. Initially, the extra gas will be required for electricity generation. However as more gas becomes available, this will also create many opportunities for downstream investment.

The Iraq Government is already giving incentives for foreign investment in the downstream sector, recognising the societal benefits that this investment will bring to the country. This investment will take some time and effort to complete but new refineries with integrated crackers and downstream plants will appear on the horizon.

Iraq - Next Petrochemicals Hot Spot?

map : http://www.state.gov/r/pa/ei/bgn/6804.htm

Having recently read the excellent analysis of 'The Journey of Post-War Hydrocarbon Development in Iraq' by Ann-Marie Carberry of Contax Partners, I wonder whether Iraq is a likely future hotspot for petrochemicals development.

Iraq has substantial oil reserves, together with very significant amounts of associated gas. Much of the gas is currently flared (estimates indicate that as much as 60% is flared).

Very recently, the International Energy Agency identified Iraq, UAE and Angola as centres of supply growth in oil and gas supplies.

Now the government has recognised and is fully committed to developing the oil and gas industry. This means huge new investment and a complete rebuild of the infrastructure, including ports and transportation networks.

However Iraq also has significant internal needs for petrochemicals as it rebuilds housing and other buildings destroyed during the years of conflict.  Current production capacity is limited - the Basrah Petrochemical Complex has a small cracker and associated downstream plants but there is nothing of the same scale as new plants in nearby GCC Countries.

As with other Middle Eastern countries, developing a petrochemicals industry also brings jobs - an essential requirement for post-war stability in the country.

The challenges will be significant. EPC costs will be higher due to the security risk and lack of skilled labour locally. Lack of infrastructure will make projects more difficult to implement.

However with abundant gas and a need to develop, there is clearly potential for those who wish to develop this region and market

DuPont to Design PetroRabigh Safety Strategy

photo : arabianoilandgas.com

Very encouraging to see this week's news that Petro Rabigh has engaged DuPont Sustainable Solutions (DSS) to assist it on its journey towards world class safety performance.

DSS will initially carry out a baseline audit and will then work with Petro Rabigh to define a detailed implementation plan.

DuPont has always been an acknowledged leader in safety performance and safety culture, so this engagement shows real commitment on the part of Petro Rabigh in achieving world class levels of safety.

As those with experience in the industry know very well, safety culture takes time and significant management effort to develop but understanding current performance and then implementing an action plan is a very effective means of moving forward quickly.

This blog wishes Petro Rabigh much sucess with this positive initiative.

DuPont Continues Focus on Megatrends

US Speciality Chemicals Major DuPont gave a global media briefing in late 2010 in which it announced the alignment of its strategic themes with future growth trends. These so called Megatrends are seen as the shapers for the future of the industry and DuPont wishes to be taking a leading position. The megatrends are

• Increasing Food Production - recognising that the world's population continues to grow and needs to be fed
• Decreasing Dependence on Fossil Fuels - recognising that fuel supplies are finite and that many individuals and nations are concerned about the potential for climate change
• Protecting People and the Environment - recognising the need and desire to protect lives and preserve environments
• Growth in Emerging Markets - recognising the global shift that is taking place at a very rapid pace

Having identified the trends, DuPont is then looking at how it can differentiate itself to deal with the impacts of these megatrends. This means changing the structure of the organisation through acquisition. It means product and process innovation. It means having people of the very highest calibre, who have roles and responsibilities fully aligned with this changing cororate vision.

More recently, in May 2011, DuPont concluded the acquisition of the Danish company Danisco, a company whose product range is a very neat fit with the megatrends outlined above.

For all chemicals and petrochemical producers, it is essential to understand the factors that will shape the future of the business and to plan and manage accordingly. Innovation is the key, whether this be in terms of organisation, in terms of process, in terms of product. Standing still and hoping for the best is not an option.

Saudi Arabia to Move Further Downstream in 2011



photo : zawya.com

According to the excellent MEED, Saudi Arabia is set to further expand its downstream petrochemicals industry in 2011 with more than $20BN of new investments. With high unemployment rates and a growing young population, the government has recognised the need to provide extra jobs for the local population.

As we move down the petchems chain, many more jobs are created, particularly if consumer goods are produced locally. The country already has a solid cracker and polymers industry with SABIC and Saudi Aramco the major players. Saudi Arabia  is not alone in this thinking, with the development of the ADBIC polymer park in Abu Dhabi.

Although plastics consumption per capita is relatively high in the region, the markets are fairly small in terms of population. So to attract international companies and bring in the knowledge and expertise, attractive investment conditions will be required.

However, where there is a will, there is a way. The fact that the Saudi Government recognises the overwhelming need to create employment, means that things will certainly happen. Watch this space!

Middle East Petchems Production Capacity Soars

photo : arabianoliandgas.com

The Gulf Petrochemicals and Chemicals Association (GPCA) has published a recent report outlining recent investment in the region.

By 2015, the Gulf region will be supplying a fifth of the world's petchems output or 155 million tonnes per annum.

Saudi Arabia remains the region's biggest producer, with some 50% of the above output.

Interestingly much of the new investment results from a political, rather than economic agenda, with governments keen to maximise employment. The logical next step from this is to also move into plastics processing. We can expect to see more polymer parks along the lines of the one being devloped by ADBIC in Abu Dhabi. However the challenge for these parks is attracting investment from industry players. The incentives are good but the parks are relatively remote from the consumer markets.

The end result is uncertain but the region has certainly become a powerful player in petchems, given feedstock availability and the political will to develop employment via petchems manufacturing. With global demand unlikely to absord all of the new capacity, there will have to be rationalisation projects elsewhere.

Employee Engagement in the New Normal

In a recent blog I highlighted the factors that are important if manufacturing companies are to thrive in the new normal.

Capability, flexibility, innovation, effectiveness were the keywords used to describe how the highest level of operational capability could be achieved.

In the current climate the focus must be on existing assets, and that of course must include our human assets, the workforce.

When applied to human beings those words spell out an engaged and effective workforce. In his 2009 report to the UK government "Engaging for Success"  David MacLeod, no stranger himself to the petrochemical industry, reported that while 90% of businesses believed that engagement impacted on business success only 25% had an engagement plan.  So the question is 'Has the impact of the New Normal changed this thinking'?

There is certainly one organisation which believes, and is doing something about it by investing in the capability of their workforce. In winning their recent UK National Training Award for 2010, Warwick International reported soaring morale and a doubling of productivity, proving once again that making progress in a way which engages employees can be good for business.

Employee engagement is not about applying a ubiquitous formula. It's about working things out for your own situation. I came across an excellent paper, written by Eric Thompson. Entitled  "Getting Involved" the paper suggests how you can make progress in your own environment.

Achieving employee engagement will not address every issue that petrochemicals manufacturers might face right now but it will certainly be a major factor in achieving success in the New Normal

China to Invest in Petrochemicals from Coal Facility

photo : Total

Total and China Power Investment have announced that they will carry out a study into a possible 1 million-metric-ton-per-year polyolefins complex in China’s  Inner Mongolia region. The area has abundant supplies of coal, so feedstock will be readily available

Total and China Power aim to complete the plant in around 5 years, with an anticipated cost of  up to $4 billion to build.

The facility will use a coal to methanol process, together with the methanol-to-olefins technology and an olefins cracking process that Total has been testing in Feluy, Belgium.

Interesting move and one which reduces China's dependence on imported feedstocks. I don't know how this process compares economically but an abundant supply of low cost coal has to be an advantage, particularly with ethane supply becoming tighter in the Middle East and the link between naphtha and crude oil price.

Petrochemicals Manufacturing Excellence - Are You Ahead of The Competition?

In being successful, it is important to know just what your competitors are doing.

How well placed are they to deal with the new normal?

- Have they been taking action, like Lanxess, to better position themselves?

- Are they doing things in terms of product or process innovation that will leave them better placed for the future?

I know from my own experience, that it is very easy to become internally focussed, particularly during difficult times – but a level of external focus provides a very useful sense check and challenge to what you are doing.

How do your costs compare?

- Do you have industry benchmark data you can use?
- Do you know what they are doing to address challenges?

There’s a lot of information available and as you would probably expect me to say, you can always enlist the help of consultants to give you that external perspective.

Good luck!

Manufacturing Management in the New Normal

So we've already discussed the new normal  and its consequences, together with covered short and long term success factors, what I propose is a set of challenges, designed to assess just how ready is your organisation to deal with whatever the future holds.


Firstly let’s consider management

1) Do your managers understand the potential implications of the new normal?

By this I mean do they consider the economic outlook and are they identifying the various scenarios that might be created

2) Have your managers identified the things that they must be able to control in order to adapt to a changing situation?

This means having a highly capable AND highly flexible workforce, being strongly focussed on cost effectiveness and systematically eliminating all kinds of waste.

I would like to refer to the example of Lanxess. Last year Lanxess used the strap line ‘continuity meets flexibility’ for its 2008 annual report. Taking a quote from the report “The willingness to critically review our own strategies at regular intervals has played a crucial role in our company’s successful development. In view of the major challenges we now face, our reviews are becoming increasingly stringent.”

What Lanxess did was to actively implement a number of measures designed to give it the flexibility it needed to manage during the downturn.

Looking at the 2009 annual report and the comments of Axel Heitmann, the Lanxess Chairman states “Thanks to the numerous initiatives we implemented worldwide, we succeeded in keeping as many of our highly qualified employees in the group as possible, despite the crisis. We will need them urgently when the economy picks up again.”

He goes on to talk about flexibility of workforce, flexible asset management and reduction of expenditure.
In summary, he says “We are in an excellent position to emerge from the crisis a stronger company.”

I would consider that to be a very significant success.

Long and Short Term Critical Success Factors

Given the levels of investment in new capacity in recent years, it is apparent that petrochemicals manufacturers need a number of key attributes if they are to achieve long term success


• INTEGRATION

- large, integrated sites with access to advantaged cost feed stocks
- sites with all plant units within close proximity to minimise transport costs
- a unified management structure to minimise overhead
- cost optimisation models to squeeze maximum margin out of every molecule

• LOCATION

- coastal or river location with good access and excellent logistics facilities

• TECHNOLOGY

- reliable technologies
- robust technology with good on-going development support
- low cost (every penny/tonne makes a difference

• SIZE

- for first quartile plants, economies of scale are essential otherwise fixed costs per tonne of product produced are too high

• GLOBAL REACH

- recognising that major markets are shifting, producers need to be able to quickly move products to those markets offering the best returns

However these long term success factors are relatively static and whilst organisations should look to develop in this direction over time, it is also very important to consider short term success factors.


These short term factors all come down to what I would call ‘smart management’.

This means being able to identify potential issues ahead of time and develop strategies to deal with them.

The strategies will vary from one situation to the next, but I believe that all will require the highest levels of operational capability and by this I mean

• Flexibility - the capability to quickly and effectively respond to market volatility e.g. quick, safe and effective shut down, the ability to move turnarounds at short notice, swift rate changes and swift product changes

• Cost effectiveness – everyone in the organisation understanding that every penny matters AND working together to optimise costs

• Competitiveness – knowing what the competition is doing and being better than them e.g. innovation, workforce flexibility, logistics etc

Success in the New Normal

In my previous post, I referred to the 'New Normal' and what it might mean for petrochemicals producers. Today, I cover the question ‘what will success mean in this New Normal?’

We are very unlikely to see a repeat of the boom years of profitability, high operating rates and substantial capital investment.

So what success will mean is

• Firstly - Being ahead of the competition – across a balanced scorecard of key benchmark indicators as well as less tangible factors such as innovation and people development

• Being profitable and having monies to selectively invest in 'winner' projects

• Finally - Achieving sustainable improvements that leave you well positioned for the future e.g. innovation, organisational improvements, reliability etc.

So having defined success, the next question is 'how do we achieve it?'

Petrochemicals Manufacturing Strategies for the New Normal

Last week I attended the excellent Petchem Arabia conference, organised by the World Refining Association. The conference was very interesting and most valuable, giving an insight into the major issues affecting the future of the industry in the region.

My own presentation was 'Manufacturing Challenges for the New Normal'. Over the course of this week, I'd like to share some of my key themes.

The term ‘new normal’ was coined back in march 2009 by Bill Gross, founder of PIMCO, the California – based investment solutions provider. PIMCO was one of the few organisations that warned of the risks associated with the sub-prime housing bubble that drove economic boom years.

In terms of the economic recovery, PIMCO discredited the idea of a sharp rebound from recession and a rapid return to the activity levels of the boom years. Instead, they referred to a ‘New Normal’ which would bring lowered living standards, higher unemployment, stagnant company profits, heavy government intervention in the economy and disappointing equity returns.
So the key issues for petrochemicals manufacturers are

• End consumers are shifting from ‘needs’ to ‘wants’ significantly changing spending behaviour

• Financial crises, fears of ‘double-dip’ recession and fear of unemployment are driving these behaviours

• Temporary factors such as government stimulus packages have distorted demand but have not necessarily given a sustainable boost to the economies

So the net effect is increasing volatility and highly variable demand levels. And this is creating a major headache for manufacturers.

How to deal with this headache will be the theme of blog posts this week.

NiTech Solutions Wins ICIS Innovation Award

NiTech Solutions has won the prestigious ICIS Innovation award in the SME (Small/Medium size Enterprise) category.

As some may know, I do have a particular interest here - in my role as the Engineering Director with NiTech Solutions.

This award is fantastic news for an SME which is looking to make a breakthrough in the equipment market.


The picture shows the plant that won the award - installed with Genzyme, the leading biotech company. This technology essentially replaces a standard stirred-tank batch reactor and offers a major cost reduction - in both capital and operating costs, as well as better product quality, lower carbon footprint and waste reduction.

The technology is applicable to a wide range of applications, such as crystallisation, biodiesel, hydrogenation, polymerisation and pharmaceutical API's.

The mixing in the NiTech Continuously Oscillatory Baffled Reactor (COBR) is much more efficient than the mixing in a standard CSTR. The mixing, combined with high surface area per unit volume, means that steam and cooling water usage is much reduced. Furthermore conditions very near to plug flow can be attained at relatively low flow rates resulting in consistent product quality and yield.

Very much one of the 'green technologies' we hear so much about!

BP Sets Up New Safety and Risk Unit

photo : Wikipedia

The incoming BP Chief Executive Bob Dudley has announced that the company will set up a new Safety and Operational Risk function.

This change, implemented as a result of the Deepwater Horizon incident, creates a division reporting directly to Dudley and with responsibility "for ensuring that all operations are carried out to common standards, and for auditing compliance with those standards".

Dudley has also announced that BP will also review how it rewards its managers, with the stated aim of encoraging excellence in safety and risk management.

The blog applauds these actions, this is an appropriate response to such a catastrophic incident, putting process safety and risk management to the top of the corporate agenda. The only question is, why was this action not taken after Texas City?

Shell to Close Ethylene Capacity at Wesseling

photo : eagleburgmann.com

Shell has announced that it will close the 2B Rheinland cracker in Wesseling, Germany, by the end of 2011 and cease benzene and toluene production from the unit before the end of 2012.

So far, European ethylene production has been left relatively intact, given the difficulties associated with its import.

However with Ineos having recently signalled that it may build a 1m tonne ethylene terminal at Antwerp, which would give a significant extra input to the ARG network, together with the large increase in global capacity coming from start-ups in the Middle East and Asia, this situation is surely under threat.

Shell's announcement is not a major surprise, with the Wesseling cracker being relatively small and uncompetitive. It would not be a surprise if more such announcements were to follow in the not-too-distant future.

Typhoon Leads to Petrochemicals Shutdowns in Taiwan

photo : http://www.cdn.wn.com/

Chemicals manufacturers are very familiar with the need for comprehensive risk assessments and the implementation of appropriate mitigation measures. However, some events are beyond the wildest imagination of most manufacturers.

Producers in Taiwan have been forced to shutdown petrochemical facilities in Kaohsiung in southern Taiwan because of flooding caused by Typhoon Fanapi.

A report in John Richardson's 'Asian Chemical Connections Blog', published by ICIS, indicates that the flood waters reached a height of more than 100 centimetres in the petrochemical parks.

No doubt the plants will restart swiftly once the waters have receded but one can imagine significant damage to equipment (IP65 is a standard for most instrumentation but only gives protection against water spray and not total immersion) as well as the awful mess that will have to be cleared before things can return to normal.

Shale Gas Prospecting Moves to UK

photo : Shaun Dunmall (Flickr)

The race for shale gas continues to gather pace, with  reports of UK being one of the newest sites for exploration.

For the British, Blackpool is a traditional seaside town, with its iconic tower, donkey rides and amusement arcades on the famous 'Golden Mile'.

That reputation may be set to change however, if the company Cuadrilla Resources is able extract gas from the nearby Bowland shale. Cuadrilla is a new name in the industry but apparently is significantly backed by private equity.

There are some concerns about the extraction of shale gas. The US Environmental Protection Agency is currently investigating the potential problems associated with hydraulic fracturing and in particular the need for high volumes of water, together with the risk of contamination by the chemicals used in the fracking process.

For the UK, with a dwindling supply of gas coming from the North Sea and an increasing reliance on imports from countries such as Russia, the possible availability of shale gas is is potentially very good news. Apparently suitable geological conditions exist in much of the North West of England, North Wales and in the area around Oxford. If Cuadrilla achieve success, we may very well see many more companies joining the hunt.
_______________________________________________________________________
Update - thanks to the reader for the following comment on shale gas prospects in the UK

"Boring Rock" - Prospects for Shale Gas in Britain provides the comments of Mike Stephenson of the British Geological Survey. The article can be read at http://www.naturalgasforeurope.com/

ICIS Publishes Top 100 Companies For 2009

ICIS has recently published its regular Top 100 Chemical Companies feature, together with an excellent analysis of the events of the last year.

The Top 5, ranked in terms of sales, are BASF, Dow Chemical, ExxonMobil, Sinopec and Lyondell Basell. Of these, Sinopec is new to the top 5, having been ranked 8th last year.

Looking back over the last year, it is really quite remarkable that the major chemical companies have fared so well in adapting to an economic crisis that saw an oil price crash from a peak of $147 per barrel down to $32 per barrel and a virtual collapse in markets such as construction and automotive.

Clearly survival required significant cost reduction across the board. Reduced working capital, operating and maintenance cost reductions and reduced capital expenditure were commonplace, the only difference being the depth of cuts from one company to the next.

This blog has talked much about a new normal in the post recession period. The challenge remains a difficult one for all chemicals producers as we move forward. It will be necessary to deal with the economic conditions that this new normal will bring, whilst also adopting strategies to address the impacts of the recent cost cuts in areas such as capital expenditure.

However, in having survived so far, companies have clearly demonstrated that they have the management capabilities and willingness to adapt.