Master plan for Europe
Imminent new Middle East capacity, conservative growth rates and the sourcing of advantaged feedstock pose challenges for petrochemicals production in Europe. While new and planned investments are focusing on Asia and the Middle East, a comprehensive programme is underway to secure the long-term potential of Shell Chemicals assets and infrastructure in Western Europe.
Despite the headlines over the rapidly rising consumption in Asia-Pacific, Europe remains a vitally important market for petrochemicals, with growth rates matching GDP or slightly higher.
"Although we are focusing on growing our interests in Asia and the Middle East, we remain committed to our heartlands of Europe and North America and still expect a significant portion of our total capital employed to be in these regions in the future," says Graham Van't Hoff, Vice President of Base Chemicals and General Manager of Shell Chemicals Europe.
"We expect to face a number of challenges in the future, however, including potential imports from the Middle East, declining feedstock supplies from the North Sea, environmental regulations and rising fixed costs. It is important that we take steps now to secure the long-term viability and success of our operations in Europe."
Europe's mature market, he says, has only modest growth potential. "Although we have a strong business right now, it will require some effort to overcome longer-term challenges and to remain robust throughout the industry cycle."
Significant new capacity is coming on stream in the Middle East in the second half of this decade. While most of that capacity is intended for Asia, if key markets such as China do not grow as fast as predicted some of it could flow back into Europe.
"This is not just an issue for major producers," says Van't Hoff, "it's also going to affect the derivatives and downstream players, including our customers."
The majority of assets in Europe were built in the 1970s and early 1980s and will require some investment to ensure continued integrity, capacity utilisation and regulatory compliance. "We have a number of key assets which will remain strategically important and so we are taking measures to address those critical areas," explains Rutger Beelaerts, Shell Chemicals Value Chain Manager in Europe.
Beelaerts is overseeing a programme of investment and restructuring aimed at ensuring production facilities in Europe are positioned to withstand future commercial, competitive and regulatory pressures.
"We are putting in place plans and strategies to revitalise assets and maximise performance at key production sites, which is fundamental to our global strategy of delivering bulk petrochemicals at lowest cost."
Diminishing gas reserves
Diminishing reserves of natural gas from the North Sea provide a major challenge for feedstock supply to the ethane cracker in Mossmorran, Scotland, to which Shell has 50% capacity rights. The Shell share of the ethylene is essential for production of higher olefins and alcohols in the UK.
"The Mossmorran cracker is one of the most competitive in Europe but has relied on a plentiful supply of North Sea gas for 100% of its ethane feedstock," says Beelaerts. "Declining reserves from the Brent field mean we have to attract alternative sources of gas."
Additional gas has already been secured to supply the cracker until 2011 through a major project to recover untapped reserves from Norwegian oil fields. Other options are being considered to extend the life of the cracker further.
Production of CASE (coatings, adhesives, sealants and elastomers) polyols in the UK is being switched to The Netherlands as part of an investment in production facilities at Pernis-Moerdijk.
"The polyols units at Carrington are relatively small and old. At Pernis we have a world-class, fully integrated polyols production facility with the capacity to produce CASE grades," says Beelaerts.
In France, Shell has sold to Basell its 50% share of the cracker and associated butadiene business at the Berre joint oil refinery/chemicals manufacturing site. "The chemicals site at Berre is driven by polyolefins operations and so it made strategic sense for Basell to take control of the cracker," he says.
"We continue to operate the refinery at Berre for petrochemical feedstocks but the sale of our cracker interest has enabled us to focus on operations that support our core European strategy."
The Godorf-Wesseling refinery and cracker complex in Germany has a high degree of integration and supports a large aromatics business which makes it a good strategic fit. "We will be focusing on asset integrity improvements to ensure it remains a sustainable part of the asset base."
Significant investment
A significant investment programme will focus on strengthening the position of the Pernis-Moerdijk refinery and chemical complex in The Netherlands. "This is a fully integrated, world-scale operation which utilises most of its cracker streams captively and is at the heart of our European business," says Beelaerts.
"We are planning a number of projects designed to boost the integrity and efficiency of derivative production units and build on capacity additions."
The expansion of the Pernis IPA plant will reinforce Shell's leading global position in IPA by rejuvenating assets and growing capacities. The debottlenecking is expected to increase capacity by around 50 kt per year.
The recent addition of a third reactor has also increased production of ethylene oxide/glycols (EO/G) at Moerdijk. At the same time the EO/G units benefited from the modernisation of control and safeguarding systems.
These improvements will help to reinforce Pernis-Moerdijk's position as one of the most competitive petrochemical complexes in Europe. Securing advantaged feedstock is key to sustaining that position and among the options being developed for the site's cracker is the use of hydrowax.
"Hydrowax is a by-product of a hydrocracker and is readily available from the Pernis refinery. It's a challenging material to use because it is solid at normal temperature, but it has significant economic advantages as its yields are comparable to other ethylene feedstocks," he says.
A number of Moerdijk's furnaces are being modified to 'crack' the hydrowax, a project that should be completed by 2008. Hydrowax could initially account for up to 15% of the lower olefins unit feedstock.
"Our oil/chemicals integration means opportunities like these are easier to define and implement," adds Beelaerts.
The plans being developed for Europe will be implemented over the next ten years although much of the key work will be done in the first five.
"These improvements are designed to ensure that we survive and are still there for customers if or when the squeeze comes," says Graham Van't Hoff. "It's about taking a long-term view and being proactive in providing the best possible platform for business sustainability."
European manufacturing location directory
The CASE for centralisation
Production of CASE polyol grades is being transferred from Carrington in the UK to Pernis in The Netherlands as part of a plan to consolidate European polyols production.
"We have been in the CASE business for more than 25 years and are committed to the industry and to sustaining our position as a competitive, reliable supplier," says John Johnston, CASE Product Manager.
"This move allows us to centralise European polyols production and maximise our asset utilisation and efficiency in The Netherlands. Pernis has world-class polyols production facilities, the advantage of feedstock integration, leading technology and strong supply chain and logistics operations."
There will be significant investment in a new CASE polyols line at Pernis to support the transfer of production from Carrington. "We will be investing in the production facilities to ensure we can produce the essential CASE grades and the required capacity.
"New applications for CASE polyols are still developing in Europe and this investment, when completed, will help to ensure we are well-positioned to meet our customers' requirements."
Securing gas feedstocks
Shell is one of eight major energy companies investing in a project to improve gas recovery and production from a Statoil-operated field in the North Sea.
This is key to securing additional sources of feedstock for a gas cracker in Mossmorran, Scotland. Ethylene from Mossmorran is vital to the viability of the higher olefins and alcohols production at Stanlow in northwest England.
Three platforms in the Statfjord field are being converted from predominantly oil to gas production. It is expected that the project will recover an additional 32 billion cubic metres of gas, keeping the field onstream until 2018-20.
The modification work is expected to take several years, during which time the platforms will remain in full production.
As part of the project a new gas pipeline will be laid to export the increased gas output to the UK. This will link the Statfjord field to the UK's Brent field, which has an existing pipeline to Scotland. The new pipeline is due to be laid in 2006, and to be ready for gas export in October 2007.
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