Like farmers, petrochemical producers are gloomy folk. Just as farmers look for the worst in weather forecasts, petrochem companies look for the next downturn in the industry's notorious profitability cycle.
Yet as I began reading the message of Robert Wilson, president of the Association of Petrochemicals Producers in Europe (APPE), to members in the group's 1995/96 activity review, I anticipated a rare event: a rosy forecast.
"European production of ethylene in 1995 was about 18.9 million metric tons," says Wilson. "This was in line with 1994, when the petrochemical industry benefited from increased export demand and a stock build-up in Europe that marked the end of the depressed market of the early 1980s."
A stable market after a down period; not at all bad, you might think. Then Wilson turned the optimism level a notch higher still.
"Over 90% of the available capacity of 20.7 million metric tons/year of ethylene has been utilized in the last 2 years. For the next 2-3 years, ethylene demand growth can be met by expansions at existing plants. This would avoid the construction of major new crackers, which often create overcapacity."
Size worry
Yippee, you think. A chance of increased profits with relatively little investment required, and maybe no overcapacity? Tell me more! But the build-up only makes Wilson's sucker punch feel harder.
"The aging of the European petrochemical industry is, however, an issue," he continued. "During the past 10 years, the average size of the five new crackers built in Europe was slightly above 400,000 metric tons/year. In the same period, the average size of the six new crackers built in North America was above 600,000 metric tons/year.
"It will be difficult for the European petrochemical industry to compete in the global markets of the next century from an investment base that does not include the most modern facilities, especially the necessary worldscale capacity."
Age the key
However, Roger Longley, director of Chem Systems Ltd., London, feels Wilson may be hung-up about size when the European petrochemical industry's real problem is dealing with aging.
Longley said that in North America markets are joined by pipeline, so plant capacity can be maximized. In Europe, not everything is linked by pipelines, so plant size must reflect the market it can achieve.
"U.S. ethylene crackers are on average 50% larger than Europe's," said Wilson. "Of 55 steam crackers in Europe, lots are under 400,000 metric tons/year capacity, and 10 are below 300,000 metric tons/year.
"Getting rid of these economically is the problem. The required return on investment to build a new plant is so high that it pays to keep running old plants because of capital charges."
Longley expects one, and possibly two, ethylene crackers to be shut down by 2000 because of market forces: "This is not exactly a major restructuring, but the fact that many of Europe's larger plants have expanded recently is encouraging."
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
