Petrotahlil - Plans to expand into China’s polycarbonates (PC) market is the next phase in Shell’s strategy to double its chemicals earnings by 2025, by focusing on products where the Netherlands-based oil and gas major can leverage a competitive advantage, according to Shell Chemicals executive vice president Thomas Casparie.
The firm announced on Monday that it had signed a memorandum of understanding with joint venture partner, state enterprise the China National Offshore Oil Corporation (CNOOC), to potentially develop a PC production unit at the Huizhou, China, petrochemicals facility.
Shell is already constructing a PC development unit at its Jurong Island, Singapore, facility, to work with prospective customers ahead of the larger-scale unit coming onstream, if it decides to move forward with the project.
With a projected nameplate capacity of 260,000 tonnes/year and owned 50/50 by the partners, the Huizhou unit would represent the second phase of Shell’s plans to increase chemicals annual earnings to $3.5bn-4bn by 2025, following its plan to build a shale feedstock-advantaged petrochemicals complex in Pennsylvania.
This very much fits our strategy… [in terms of] doubling the size of the earnings by 2025, but also doing so by growing more in performance chemicals, deeper in the value chain and closer to the customers,” said Shell Chemicals executive vice president Thomas Casparie.
“This is the second example of that strategy coming alive and we believe that we can do so successfully because we have a proprietary patented technology to produce [PC precursor] diphenol carbonate one in an advantaged way, both in terms of cost performance, more efficient use of energy and an CO2 footprint,” he added.
Casparie, who replaced former EVP Graham van’t Hoff in July last year, identifies cost advantage as a key driver in which chemicals markets the company chooses to expand into.
As a subsidiary of an oil and gas major with deep pockets, Shell Chemicals is comfortable with a degree of cyclicality in the chemicals markets in which it chooses to play.
“There will be cycles but we will be here for the long term, and we believe in the products where we choose to play we have competitive advantages so that we will continue to be successful in both in the up-cycle and the down-cycle,” Casparie told ICIS.
The company’s proprietary PC technology, along with access to what Casparie terms “the Chinese ecosystem for low-capital build” through state partner CNOOC, places it in the most competitive quartile for efficiency and production price, he said.
“We found a route that doesn’t use phosgene so from a safety perspective we see it as advantaged,” Casparie said. “It actually will be using CO2 as one of the feedstocks and therefore has a lower CO2 footprint.”
The announcement comes after a long period of bearishness in both Asian and global PC markets.
Asia prices have fallen on the back of weaker demand and oversupply, exacerbated by the US-China trade war, with large-scale new capacities coming onstream from Sinopec Tianjin and Zhejiang Petrochemical this year meaning little expectation for supply and demand to balance in the near future.
Shell is looking at a longer timeline, with no date set for a final investment decision for the Huizhou plant, and the Singapore demonstration unit not expected onstream until 2021.
Fundamentals are strong for PC demand in spite of the sharp peaks and valleys for the sector as new capacities come onstream, he said.
“PC is expected to continue to grow above GDP at around 4% globally and 4.8% within China, and that is very much driven by the continued growth in demand for automotive, LED lighting, lightweight materials, a wide range of electronics, so the fundamental demand is there,” he said.
“What is important is that we have a strong belief that therefore you need to have a competitive advantage in order to be successful in these [cyclical] value chains. The reason we selected PC is that we believe we've got that advantage through the tech,” he added.
With a China PC unit set to follow a US polyethylene complex, the firm is betting on more commoditised chemicals at a time when a lot of European producers are looking into specialties.
Choosing large-scale projects in cost-advantaged regions backed by efficient technologies will allow the firm to become a player in those highly competitive global markets as it expands further down the chemicals value chain,” Casparie added.
“Yes there will be cycles but we will be here for the long term, and we believe in the products where we choose to play we have competitive advantages so that we will continue to be successful in both in the up-cycle and the down-cycle,” he said.
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