Slower economic growth in Europe and the U.S. and increased competition from plants in the Middle East could harm the European petrochemical industry in the early 1990s, warns Bryan Sanderson, chief executive of BP Chemicals.
Sanderson told a London conference that a combination of circumstances in Europe, the U.S., and the Middle East could spawn severe competition in export markets. And that could back out European exports when manufacturers there were facing increased competition from a possible European Community-Gulf Cooperation Council free trade agreement.
He told the conference, organized by The Financial Times, the industry must work with the EC to ensure it will not tilt the playing field in favor of Middle East petrochemical producers under a free trade agreement.
The European industry welcomes free trade and competition as long as it is fair trade, he said.
EXCESS CAPACITY?
Sanderson said in 1989, when European economic growth was projected to be about 2.5%/year and chemical growth about 3%/year, the full spectrum of announced new capacities presented a substantial risk of excess capacity. There was a general view that not all the expansions would proceed at the announced timetable.
With a more reasonable expansion program, the industry, represented by ethylene capacity utilization, was projected to operate at 85-90% of nameplate capacity.
A similar analysis, based on a possible scenario of no growth in European chemical demand in 1991 and 1992, is cause for greater concern. Utilization rates would fall to the levels of the mid-1970s if all expansion plans went on stream at their announced timetables.
"The expected utilization rate will then be just a bit higher than the disaster days of the early 1980s," Sanderson said. "A nongrowth scenario, while pessimistic, cannot be ruled out." Sanderson favors further restructuring of the industry in Europe.
He said half the olefins capacity is in the hands of companies with no plants outside their home country. This is not an appropriate structure with which to approach the post-1992 unified European market, he said. The EC clearly has a role to play in the process of restructuring.
"in reviewing restructuring proposals, whether they are acquisitions or joint ventures, regard must be paid to international competition on the world scale," Sanderson said. "We need to reinforce this message and make sure it is understood."
EASTERN EUROPE
Alan D. Plaistowe, president of Chem Systems Group, said a study of petrochemical capacity in eastern Europe shows the capital stock of some bulk petrochemical plants might not be as bad as everyone seems to think.
Some of the more modern, larger plants and refineries producing olefins and aromatics have some chance of survival with selective modernization and improved operations.
The situation is worse further down the production chain, where plants are older, often obsolete, and manufacturing inferior quality products.
"This is where modernization and privatization should start because sums to be invested are more manageable and products must be brought up to the standard to compete in the West," he said.
Much of the new European petrochemical activity in the 1990s will be generated by development of free market economies and increasing concern for the environment, said Stephen C. Burrell, vice-president of M.W. Kellogg Co.
He predicted about $8 billion will be spent during the 1990s on environmentally driven petrochemical plant additions. Several billion more dollars will be spent to clean up emissions from existing petrochemical plants.
One of the products in increasing demand because of environmental concerns is methyl tertiary butyl ether. And methanol, a feedstock for MTBE and in increasing use as motor fuel, could become one of the star performers of the 1990s, Burrell said.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
