石油化学新聞 2002/1/28　

ニッセイ基礎研究所・百嶋氏に聞く　
　　　どうする日本の石化過剰設備問題

  「過剰設備問題を解決していくことが、日本の石油化学工業にとって当面の大きな課題だ」(正野寛治三菱化学社長)。
　過剰設備問題がこのところ頻繁に取り沙汰されるようになってきた。輸出の減少に加え、内需の低迷で、石化プラントの稼働率が一頃よりも低下していることが背景にある。今年のエチレン生産は７百万�dを下回ると予想する向きも多く、需給ギャップが一段と拡大する可能性が高い。「今年は業界再編の年になる」(山本侑出光石油化学社長)と言われる中で、日本の石化各社は過剰設備問題への答えを出し、将来への明確なビジョンを打ち出していけるのか。かねてから、過剰設備の解消の必要性を強調してきたニッセイ基礎研究所主任研究員の百嶋徹氏に聞いた。

(Chemical Week Cover Story Mar 20, 2002)

Petrochemicals
By Sam Cage, Peck Hwee Sim and Robert Westervelt

Petrochemical producers were hoping that the current industry trough would be more bearable than the last, following a heavy round of consolidation since the mid-1990s. In the U.S., 40% of ethylene capacity is concentrated in the hands of five producers, up from just 25% in 1995. The top-five producers in Europe account for 50% of capacity. The industry posted its worst results in 20 years during 2001, however, dashing those hopes.

“This is still in a cyclical business,” says Theo Walthie, president/hydrocarbons at Dow Chemical. “There will be periods of slow growth or even contraction, and periods of strong growth,” Walthie says. “That’s what drives the cycles, and I don’t see that changing.” Petrochemical demand should continue to grow at 4.5%/year over the course of the entire cycle, he says. Producers say consolidation has been necessary just to remain competitive.

Producers were also pounded by unusually high natural gas prices in the U.S. in early 2001. The higher feedstock costs were coupled with overcapacity from an aggressive buildup of capacity, and the recession, which killed demand and pricing. Total U.S. thermoplastics demand declined 3.3% in 2001, to 75 billion lbs, says the American Plastics Council (Arlington, VA), as a weak economy hurt demand. Declining prices also gave buyers a strong incentive to deplete inventory and hold off purchases as long as possible.

Most producers and analysts agree that demand and margins have hit bottom, but they differ on how long they will stay there. Opinions also differ on whether consolidation will iron out volatility in the future.

A lot of consolidation has already taken place in olefins, styrene monomer, and styrenic resins, says Andrew Mackenzie, group v.p./chemicals Americas at BP. “More consolidation may be needed in polyolefins, where quite a few companies are deeply in the red,” says Mackenzie. BP and Solvay swapped their respective polypropylene (PP) and engineering plastics business last year, and created separate high-density polyethylene (PE) joint ventures in Europe and the U.S. .

Consolidation in the styrenics industry has been driven by four major players - Atofina Petrochemicals, BASF, Dow Chemical, and Nova Chemicals - and more consolidation can be expected, especially in Europe, says Chris Pappas, senior v.p. and president/styrenics at Nova. Performance in the styrenics industry has been very weak for the past 10 years. Nova mothballed 100 million lbs/year of polystyrene (PS) capacity at Belpre, OH last May and its PS plant at Joliet, IL last February.

But consolidation has not helped at the bottom of this cycle, industry sources say. “Fewer players should mean less volatility, but there are no guarantees,” says C.L. Tseng, executive v.p./Formosa Plastics (Livingston, NJ). “Major players are still vying for market share under very turbulent conditions and competition is intense.”

Buyers are also getting bigger and more powerful, says Rich Pisarcyzk, senior v.p./basic chemicals at ExxonMobil Chemical. Companies simply need greater scale and an improved cost position just to keep pace, Pisarczyk says. “This usually bodes well for buyers because cost savings get passed on downstream via producers improved cost position,” he says.

Even though larger companies have more financial and operational flexibility to idle capacity, they are often reluctant to do so because they tend to have the lowest-cost production, says Evert Henkes, CEO of Shell Chemicals. “Bigger companies can also be less inclined to behave well in terms of disciplined investment,” says Henkes. “Bigger players have larger production units, and any decision to idle capacity necessarily means closing a world-scale production plant.” The risk is proportionally greater if a large player does behave badly, he says.

Consolidation has been so extensive that no single player, or even group of players, has gained a significant advantage over any others, producers say. “We have not been alone in consolidation,” says one major producer. “Others have cut costs and gained scale as well.” Smaller players may get hurt, however, because they lack scale and ability to cut costs relative to larger players, he says.

Despite the problems, producers see no end to the consolidation cycle. “If you look out over the next five years markets such as polypropylene and polyethylene will continue to consolidate,” says Peter Huntsman, president and CEO of Huntsman. “Unless you’re a multi-billion lbs/year player, it will be very difficult to compete.”

Smaller players such as Huntsman must carve out a niche. “Our Odessa polyethylene plant is a 200,000-m.t./year gas-phase, and the reactor there can produce specialty products. There will be a niche for smaller players who can differentiate themselves, but, in some products, we may be better off aligning ourselves with larger players.”

Consolidation will also be driven by a desire to forward integrate from ethylene, says Huntsman. “Companies won’t invest money to make PE,” he says. “Companies will spend the money on a PE plant merely to get rid of ethylene. I don’t think you’ll see anyone building a merchant ethylene glycol (EG) facility. There are times when you’ll be able to make money in merchant EG markets, but it will only happen about once every 15 years.”

North America has regained some competitiveness compared to the rest of the world because natural gas prices have fallen sharply over the past year. Whether that remains depends on how much natural gas prices climb relative to crude oil prices, some observers say. “With higher natural gas and naphtha prices expected to arrive with economic recovery, it is likely that imports to the U.S. will increase faster than exports from the Americas region,” says Sabic. North American companies will likely replace production facilities with those based in regions with access to cheap feedstocks, which in turn will encourage further consolidation of the European and North American industries, says Sabic.

Nova’s exports should return to 15%-20% of output as the “Alberta Advantage” returns, says Pappas. Nova lost its feedstock cost advantage last year due to higher Alberta gas prices relative to benchmark New York Mercantile Exchange natural gas prices. Alberta now has a more than 6 cts/lb feedstock cost advantage over the Gulf Coast ethylene producers and polyolefins chain, says Pappas.

Gulf Coast producers will also face difficulty in competing with the Mideast in Asia, producers say. Mideast producers have no outlet for methane and ethane, and they operate at a significantly lower cost, says Mackenzie. The return to cost parity for ethane-based U.S. petrochemicals, compared to naphtha-based petrochemicals, however, is enough to prevent a major influx of imports from the Mideast, he says.

Volatility of energy prices means that different feedstocks will have the advantage at different times, favoring producers with flexibility of feedstock, says Pisarczyk. ExxonMobil operates flexi-crackers at Beaumont, TX and at its new complex in Singapore.

Formosa also designs its crackers with full swing-feed capabilities, taking up to 70% naphtha, or 70% ethane-propane mix, says Tseng. “This allows us to reduce the impact of cyclical feedstock price swings.”

Another problem is that petchem producers are adding ever-bigger plants, which make it difficult for the market to absorb the capacity quickly. “Companies are building larger plants, and there is a proportionately greater capacity overhang when they come onstream,” says John Marcantonio, consultant at Tecnon OrbiChem (London). Also, consolidation does not necessarily deter investment by new entrants, says Marcantonio. The competitive position of the U.S. will likely be eroded as capacity comes onstream elsewhere, particularly in the Mideast, says Marcantonio. Smaller U.S. players will likely concentrate on domestic markets.

“The days of the U.S. as an exporter are limited,” says Henkes. Ethane cracking will be more competitive as long as gas prices are below $3/million Btu. But Shell believes that the gas price will be equivalent to naphtha in the long term. This will mean further rationalization as gas crackers will close. Vinyls will be the main exports from the U.S. in the long term because of low-cost electricity to produce chlorine, says Gary Adams, president of CMAI (Houston).

Exports may be declining but the domestic U.S. market is still growing, other producers say. “North America is not a shrinking market,” says Dan Smith, CEO of Lyondell Chemical. “Petrochemical demand here is growing at 1.25-1.5 times GDP.” U.S. petrochemical makers may continue to gradually lose exports, but they still have the largest market to serve from its doorstep. Market share of exports has slipped from 20%-25% 20 years ago, to about 10%. “That will continue to shrink,” he says. Markets in Asia and Latin America now have enough domestic demand to support a domestic industry, he adds. “There are other places that have advantages on feedstock and labor cost and production will shift there.”

Many petrochemical players are tightening their belts until the market improves. Producers need to bring themselves to breakeven on a cash basis for the coming year, says Mackenzie. “If no sharp recovery occurs, they will have to further cut expenditure,” he says. BP recently announced delays in its purified terephthalic project in Europe and is considering capacity rationalization in its European PS business.

Others say they do not plan any changes. Shell says the economic downturn has not forced the company to adjust any of its plans. “We have looked at all of our plans to see how strong they are in the current economic environment,” says Henkes. The company’s plans were formulated to take account of the downturn so there is unlikely to be a need for major revisions, he says. Adjustments will be made if a worsening economic situation demands them, he adds.

Sabic says it is continuing to expand global capacity, with the longer-term aim of becoming a “significant petrochemical player in all of the major regions of the world.” The downturn has not forced the company to adjust any of its current plans, and Sabic says it will make further acquisitions and form new joint ventures and alliances in regions outside the Middle East. Sabic is reportedly interested in bidding for the respective petrochemical businesses of DSM and ENI.

ExxonMobil is focusing on projects that will help increase efficiency and reduce costs of operations rather than add on new capacity, says Pisarczyk. ExxonMobil has started up two major petrochemical complexes, one in the past year, at Yanbu, Saudi Arabia and Singapore, which added a total of 1.6 million m.t./year of ethylene capacity, 1.02 million m.t./year of polyethylene, and 575,000 m.t./year of polypropylene. The company is scheduled to bring on a 120,000-m.t./year expansion at its Baytown, TX cracker in the middle of 2002. “We are focusing on things we can control, such as costs, reliability of operations, feedstock optimization and integration,” says Pisarczyk. “We don’t know when the upturn will come, but we’re positioning ourselves as well as we can so we can catch the upturn when it does.”

The company is planning to expand its cogen capacity of 1,700 megawatts worldwide by 40%-50% over the next three years, says Pisarczyk. The company will continue exploring opportunities to consider operations in places that provide access to competitive feedstocks and scale, says Pisarczyk. ExxonMobil is reviewing plans to build jv crackers with Sinopec in existing refinery complexes at Guangdong and Fujian, China. It is still studying the possibility of building a cracker at Jose, Venezuela, he adds.