And the answer is clear: SABIC Europe is aiming to be one of the top two marketers of polyolefins in Europe.
The company currently is the fourth largest seller of polyolefins in Europe. It also occupies the same position worldwide, selling roughly 4.9 million tons of polyolefins per year, behind ExxonMobil at roughly 6.5 million metric tons, Dow Chemical at about 7.5 million metric tons, and Basell at nearly 9.0 million metric tons.
SABIC is now finalizing plans for the big project it will rely on to fulfill its European goal: its fifth ethylene cracker, envisaged for its site in Geleen, the Netherlands. That cracker and a series of new plants and expansions are part of the company's Europe 1 project to expand Geleen and its site in Gelsenkirchen, Germany.
Between Geleen and Gelsenkirchen, SABIC Europe has a total polyethylene capacity of 1.48 million metric tons per year - 47% of SABIC's global polyethylene capacity - and 1.09 million metric tons of polypropylene, 65% of total SABIC polypropylene capacity. The feedstock at Geleen is from the company's own naphtha crackers - crackers No. 3 and 4 are its current workhorses, supplying a total of 1.25 million metric tons of ethylene and 675,000 metric tons of propylene. Production in Gelsenkirchen depends upon feedstock secured under a long-term contract from the neighboring BP cracker.
But beyond that, SABIC Europe sells 2 million metric tons of polyethylene and 1.2 million metric tons of polypropylene, some 100,000 metric tons of other polymers, and 2.5 million metric tons of other chemicals, including ethylene glycol, methanol, styrene, and butadiene. These products, and the difference over European production, are imported from SABIC's sites at Yanbu and Al Jubail in the Saudi Arabian peninsula.
The Europe 1 project - budgeted at nearly $1.8 billion - is set to start up in 2009, says Frans Noteborn, chief executive officer of SABIC Europe. It will offer the company full backward integration, he says, while helping lock in its leadership position. The project is on track, he emphasizes, and he and his management team hope to wrap up the final decision on engineering and construction early next year.
BASF built Europe's last new cracker in 1994 in Antwerp, Belgium, points out Sebastiaan Kostering, SABIC Europe's business director for olefins and intermediates. So although there have been expansions through process improvements, growth in European ethylene supply has not kept pace with growth in demand, he says.
The result is that the industry is running its crackers at above 95% effective capacity utilization. SABIC Europe, Kostering adds, has been running at nearly 100%. “It's the whole concept of SABIC: We produce ethylene, we use ethylene, we import ethylene, we sell ethylene. So we are always able to run our crackers flat out.”
The Europe 1 project will add another 400,000 metric tons of ethylene capacity to the company's European slate. But even more important, Noteborn says, the proposed cracker will be a “propylene machine” that will use metathesis technology to produce up to 620,000 metric tons of propylene. It will also make benzene and ethyl tert-butyl ether.
Looking five years ahead, “propylene will not be tight?it will be very tight,” Kostering says. The industry is predicting a global demand increase over that time of 14 million metric tons of propylene, he points out. But current industry plans call for only 5 million more metric tons from new crackers and cracker expansions, and another 4 million metric tons through propane dehydrogenation and metathesis. Projected cracker propylene output is modest because, unlike the proposed Geleen project, most new crackers are based on ethane and don’t turn out propylene.
Of the other potential source of propylene - petroleum refineries - “We have no idea what oil refineries are doing,” Kostering concedes. “They will run propylene through their reformers for gasoline until the chemical market can offer an attractive enough price to compete.”
The Europe 1 project will give SABIC Europe the opportunity to increase the scale of its polyolefin plants. “After Europe 1, we will scrap all our smaller units. Only the very largest will be left,” Noteborn says. That, in turn, will solidify the company's top spot in polyolefin capacity per site: SABIC Europe already boasts more than double the average plant size per site of its nearest competitor, Borealis.
The company acknowledges the two other announced European ethylene additions - Ineos’ plan for an 800,000-metric-ton facility in Wilhelmshaven, Germany, by 2008 or 2009; and BASF's 300,000-metric-ton expansion in Antwerp by 2007. But Noteborn and his team are not worried by the competitive threat.
SABIC Europe aims to have full backward integration into olefins. It is working on cost improvements. And it intends to expand its existing business platform, through expansion in the Netherlands and Germany, as well as through increased imports from Saudi Arabia.
In fact, Kostering adds, SABIC's strategy “is to develop undisputed cost leadership and complementary growth positions in Europe.” Given that SABIC itself began production only a little more than two decades ago, this goal may be well within reach.