ADI Chemical Market Resources Newsletter
June 14, 2010

AMERICAS

BP oil leak in Gulf of Mexico – Updates

After a series of unsuccessful efforts, BP has made some headway in containing the oil spilling out of a well at a depth of 5,000 feet in the Gulf of Mexico. Following the failed “top kill” operation, BP deployed the lower-marine-riser-package (LMRP) cap containment system, which involved an underwater robot using a diamond-edged saw to hack off the ruptured pipe from the leaking oil well, before eventually placing a cap over it. Though the diamond-edged saw got wedged in while trying to hack through the pipe, BP managed to use alternative giant shears manipulated by undersea robots to snip off the end of the pipe and then brought in a containment cap, which was similar to an earlier attempt to stem the flow of oil. The volume of oil estimated to be captured by BP has increased over the last week, starting from about 6000 barrels per day, to about 10,000 barrels according to more recent estimates.

Comments: BP has spent about USD 1.25 billion so far on efforts to contain and clean up the Gulf of Mexico oil spill. Apart from the use of booms and the controlled burning of oil, there have been three major efforts to plug the leaking oil from the ruptured oil rig at the bottom of the US gulf coast. An initial plan to place a 125-tonne dome over the oil leak dubbed the “top hat”, failed when it became blocked with ice crystals. The next effort, which involved a mile-long tube designed to capture the gushing oil also proved unsuccessful, as it failed to suck up large amounts of oil. The third attempt called the “top kill”, in which BP blasted waste material and heavy mud into the ruptured well, also proved unsuccessful.

BP, over the last week, has managed to partially collect some of the oil leaking into the gulf, over a month after the initial Deepwater Horizon oil rig explosion. BP has managed to siphon around 10,000 oil barrels a day but this amount has still come up inadequate, which has made researchers and scientists believe that the initial estimate of the oil leak had been undervalued and could be anywhere between 20,000 to 40,000 barrels a day.

Amongst other damages, the magnitude of the environmental repercussions of the spill is not fully understood – the extent of degradation to ecosystems affected by the spill has been difficult to estimate, as the spread of oil is likely to be influenced by a host of dynamic factors such as ocean currents, hurricanes in the gulf, etc.

The developments surrounding the oil spill have also proved detrimental to BP’s finances, with the company’s market capitalization and stock value plummeting sharply by about 50% within the span of a few weeks.

EUROPE

Bayer Material Science developing CO2-to-Polyether Polycarbonate Polyols process

Bayer Material Science and Bayer Technology Services are working together with RWE Power and RWTH Aachen University on the use of carbon dioxide (CO2) in the production of polymers.

The partners are constructing a pilot plant at Leverkusen, which will produce polyether polycarbonate polyols (PPPs) that will be processed into polyurethanes and will involve the chemical bonding of CO2. The partners, in recent laboratory tests, have successfully achieved the desired reactions, but are however yet to be proven in industrial application.

Comments: CO2-based degradable plastics are unique and have been a subject of research over the last two decades. The usage of CO2 as a raw material for manufacturing polymers helps cut the consumption of conventional raw materials and therefore, fossil fuels.

The polyether polycarbonate polyols (PPPs) produced by Bayer would be converted to polyurethane (PU), which will be further bonded to CO2. As CO2 has low energy density, it can further enhance polyurethane’s benefits in insulation applications. By one account, in the case of insulation application, the carbon dioxide bonded with PU improved the insulation property by about 80%.

Polyurethane is used for building insulation while lightweight polyurethane components are used to reduce weight in automotive manufacturing, which consequently results in energy savings. PU is also used for manufacturing high-quality mattresses and furniture upholstery.

The carbon dioxide for the project would be sourced through RWE Power’s lignite-fired power plant at Niederaussem. RWE is an electricity generator, operating a CO2 scrubbing system at its coal innovation center, by which the carbon dioxide is captured from the flue gas.

Due to the increasing global emission of carbon dioxide, there are many companies researching methodologies to harness spent carbon dioxide and reuse it for polymer production, making it biodegradable. Some of these organizations, such as DSM, Novomer, Empower, China National Offshore Oil Corporation, etc. are in the process or have already introduced their versions of carbon dioxide/monoxide and alkylene (ethylene, propylene) based polymers. Examples include Novomer® PPC/PEC and Empower QPAC® poly (alkylene carbonate). Similarly, Bayer is getting involved through the polyurethane route. The high cost of the PU-CO2 product will be largely compensated by enhanced insulation properties, translating overall system costs to be almost similar to or slightly higher than that of traditional polyurethane.

Borealis inaugurates LDPE plant

Borealis officially inaugurated its additional LDPE plant in Stenungsund, Sweden on June 02, 2010. The investment of more than €400 million (USD 482 million) at the Stenungsund site comprises the new 350 KTA high-pressure LDPE plant along with modernized compounding and material-handling facilities.

Comments: The new LDPE plant at Stenungsund will focus on products catering primarily to the wire and cable application. The added capacity will be focused specifically on the company’s newest products such as Supercure™ products for extra high voltage cables, and Visico™ products for low and medium voltage cables.

The start-up of this facility has reinforced Sweden’s location as strategically vital to Borealis’ ongoing enhancement of its capability to provide advanced materials to the growing wire and cable market. The new LDPE unit would enable Borealis to maximize the flexible feedstock – olefin – polyolefin integration and has increased the total polyethylene capacity of the Stenungsund site from 580 KTA to 700 KTA. As a result, the older PE capacity of about 230 KTA will be gradually phased out through 2010. Borealis’ northern European base has thus evolved into a leading world-scale PE facility for advanced infrastructure applications and is a continuation of a €42 million (USD 51 million) cross-linkable polyethylene capacity upgrade brought on stream during 2007.

Shell enters into Marcellus Shale Play in USD 4.7-billion deals

Royal Dutch Shell has agreed to buy the subsidiaries of oil and gas exploration company East Resources located in Warrendale, PA for USD 4.7 billion in cash. Shell will acquire about 650,000 net acres in the Marcellus shale play from East Resources, and about 1.05 million net acres overall through various sites in PA, WV, and NY. The sale includes East Resources’ natural gas and oil production operations and most of its holdings in related businesses. The deal is expected to boost Shell’s North American natural gas production by about 8%.

Shell has also acquired about 250,000 net acres of mineral rights in the Eagle Ford shale play. Shell will be the operator and will integrate these new assets into its existing south Texas operations.

Comments: Marcellus is one of the largest shale gas players in North America. The major advancement taking place in the development of shale gas is increasing natural gas capacity on a global scale.

With the acquisition of East Resources, Inc, Shell is expected to increase its natural gas production by 8%. East Resources Inc was primarily involved in shallow wells. With the later development of the Marcellus shale play, the company slowly emerged to become a major competitive force in the natural gas market.

Other companies who have made investments in shale plays in the United States include ExxonMobil, and foreign firms from India, Japan, Norway, and France. Marathon Oil Corporation, however, is one company, which is reducing its investments in shale formations, as the price of gas now is comparatively low.

DSM and Mitsubishi complete exchange of Polycarbonate and Polyamide businesses

DSM Engineering Plastics business has completed the previously announced acquisition of Mitsubishi Chemical’s (MCC) polyamide business in exchange for DSM’s polycarbonate business. The companies had signed contracts for the swap in February. Both businesses have an annual sale of about €90 million (USD 108 million) each.

Comments: The exchange of the polycarbonate and polyamide divisions between DSM and MCC provides a strong strategic fit to the business portfolio of both companies. The acquisition of MCC’s polyamide business would enable DSM Engineering Plastics to further reinforce its position as one of the leading players in the polyamide engineering plastics market segment. More critically, it would provide DSM with the platform to strengthen its presence in the Japanese markets, a key region where innovation and sustainability are driving growth. The acquisition would also enable DSM Engineering Plastics to augment its service and innovation capabilities in the automotive, electrical, and flexible packaging sectors outside the realm of Europe and the United States including the Japanese and the burgeoning Chinese markets. The intended swap will also include MCC’s PA 6.66 business and manufacturing, as well as IP in the field of automotive exterior and other application areas.

MCC will be able to fortify its global position in polycarbonate through the addition of DSM’s high-end polycarbonate Xantar® business, which primarily focuses on the European market.

DSM will compound polycarbonate in Gent, Belgium for MCC, while MCC will compound polyamide in Kurosaki (Japan) for DSM through its MEPCOM Kyushu joint venture. MCC will also continue PA polymer production in Kurosaki on behalf of DSM.

Sasol Builds TEAL Plant in Germany

Sasol’s Sasol Olefins & Surfactants (O&S) business will build a plant to produce purified tri-ethyl aluminum (TEAL) at Brunsbuettel, Germany. The plant will have an initial capacity of 6 KTA. It is expected to be on stream in early 2012.

Comments: Sasol is one of the biggest producers of TEAL (Tri Ethyl Aluminum), which it makes captively for alcohol production at the Ziegler plants – located at Lake Charles, LA, and Brunsbuettel, Germany.

In addition to Sasol, historically, other producers have a production facility that was mostly intended for captive consumption, which was then converted to supply to the merchant market. The captive consumption of TEAL can be attributed to the following factors:

1. In the 1960s, the production of alcohols using the Ziegler process or variants thereof necessitated captive TEAL production units. TEAL is used in stiochiometry amounts in these processes. To date, some of these plants continue to operate and use TEAL captively.

2. In addition to Ziegler alcohols, the modified Ziegler process for the production of alpha-olefins (now owned and operated by INEOS) also requires significant amounts of TEAL.

As the TEAL facilities were in place (for captive consumption), the increasing demand for TEAL due to polyolefin’s market led to few only new TEAL capacities brought on-stream then. The polyolefins were the key drivers for the merchant market supply of TEAL, which has been supplemented over the years by PO catalyst systems switching to TEAL as the preferred co-catalyst.

Currently, there are three major suppliers in the merchant market namely Albemarle, AkzoNobel, and Chemtura. They dominate the TEAL market with a global presence. The three companies have a presence in all polyolefin-producing regions globally either in the form of a manufacturing facility, blending/ repackaging facilities, joint ventures, or sales/ marketing offices. Other smaller suppliers include Nippon Aluminum Alkyls, Tosoh Finechem Corporation, Liaoyang Petrochemicals, Tianjin Lianli Chemical Company, Gulbrandsen Chemicals, and others.

This plan to produce 6 KTA of TEAL in 2012 is a strategy enabling Sasol to enter the merchant market catering to both current and future growth markets of the polyolefin industry. Presently, Sasol is using its TEAL for captive production of Ziegler alcohol and alpha olefins. Since the TEAL facility is already in place, Sasol can enter the market at a faster rate and be well-positioned to construct another capacity to meet the future market. 

MIDDLE EAST & AFRICA

Abu Dhabi starts the world’s largest Ethane Cracker

Borouge has started operations at the ethane cracker and polyethylene unit of its USD 5 billion, phase two expansion in the Ruwais facility. This 1500 KTA cracker is the world’s biggest ethane cracker and will take 12 to 18 months to ramp up production to full capacity. Borouge is also starting the biggest olefins conversion unit of 750 KTA, converting ethylene to propylene. Two polypropylene plants, with 400 KTA capacities, are part of the second-phase expansion project and will be started up in the next few months. The expansion will bring the company’s total production capacity to 2000 KTA.

Comments: Borouge is a joint venture between the companies Abu Dhabi National Oil Co. (ADNOC) and International Petroleum Investment Co.’s (IPIC) Borealis A/S. Borouge’s 1500 KTA plant will be the second petrochemical complex in the UAE. The total cost for the construction of the plant is estimated to be USD 5 billion.

The Middle Eastern region will be a major area of focus shortly for petrochemical production. The market share of the Middle East is estimated to be equal to the market share of the United States and Europe by 2015. Oil producers in the Middle East are now attempting to maximize their profits and readily abundant supply of crude oil by expanding into other opportunities in the petrochemical industry. The major players in the Middle East include UAE, Saudi Arabia, and Iran. The estimated combined petrochemicals capacity of these countries is about 150,000 KTA by the year 2015.

United Petrochemical Co to invest USD 700 million in PTA and PET plants in Kuwait

United Petrochemical Co. is to build two petrochemical plants at the cost of USD 700 million in Kuwait. The new entity has been formed by Kuwait’s Qurain Petrochemical Industries Co and United Industries Co in a 90:10 venture. The two plants will be the country’s first to produce purified terephthalic acid (PTA) and polyethylene terephthalate (PET). All relevant licenses have been received by the company to go ahead with the project.

Comments: PTA is used in the production of film and fiber, while the majority of it is used as a precursor in PET production. The demand for PTA is expected to steadily increase in the future. PET is a widely used plastic whose applications include water bottles, cups, food packaging, etc. The Middle East, in the short and quite possibly long-term, is going to be a major hub of petrochemical production because many producers in this area are taking advantage of the abundant supply of crude oil available and expanding into the petrochemical industry.

ASIA-PACIFIC

Indian court passes ruling on 1984 Bhopal gas leak incident; survivors seek extradition of ex-Union Carbide boss

Coal-to-Olefins project completed in China

The Shenhua Baotou Coal-to-Olefins project was completed in Baotou, Inner Mongolia Autonomous Region on 31 May. The project targets production volumes of 1800 KTA of methanol and 600 KTA of polyethylene and polypropylene. The project is expected to be operational this year and is the world’s largest coal-to-olefins project.

Comments: There are three coals to olefins plants in China, scheduled to commercialize this year. These are located in (1) Datang, in Inner Mongolia, with a capacity for 460 KTA of PP; (2) Baotou, in Inner Mongolia, with 600 KTA of PE and (3) Ningxia Autonomous Region, with 500 KTA of PE.

All of these coal-to-olefins plants will contribute to reducing China’s dependency on foreign crude oil and is a relatively new approach to the sustainable development of China’s petroleum and chemical industries. In addition, it will significantly reduce China’s import of both PE and PP resin.

For coal technologies, government regulation plays a vital role, and China government most of the coal-related developmental and pilot scale plants. One of the advantages for China is that it is one of the most economical regions to use coal as polyolefin’s feedstock because it has both the infrastructure and the government support to use it.

Although coal-to-olefins technology can be economical when the oil prices are more than USD 55-60/barrel, the capital costs for the same are much higher than its petrochemical counterpart. In addition, one of the economic obstacles is transportation costs, because the factories must be built near the coal mines in northwestern China, which is far from the region where PE and PP resin converters are concentrated.

OPAL to postpone Initial Public Offering

ONGC Petro additions Ltd (OPaL), a joint venture between Oil and Natural Gas Corporation (ONGC), Gujarat State Petroleum Corporation, and GAIL India, has postponed its initial public offering.

OPaL was initially slated for a fiscal 2011 listing, but it will now happen in the next calendar year. ONGC and GSPC hold 26% and 5%, respectively in OPaL, while GAIL holds 19%.

Comments: OPaL is setting up a mega petrochemical project in the Petroleum, Chemicals, and Petrochemical Investment Region (PCPIR)/Special Economic Zone in Dahej, Gujarat. The investment outlay for the project is expected to be over USD 3 billion. The complex will have an 1100 KTA dual feed cracker, which also includes naphtha – the product slate would primarily comprise HDPE (swing and dedicated lines), LLDPE, PP, Benzene, Butadiene, CBFS, and Pygas.

Even though the Indian market is faced with oversupply currently, it is expected that India will have about 1000 KT of polyethylene deficit by 2012, which is the time, OPaL is targeting the commencement of production. OPaL is expected to come under public ownership through an initial public offering (IPO), targeted just before the completion of the project which is slated for December 2012. About 25 % of the equity is expected to be raised via the IPO. Some international players tipped to obtain a stake in the project include Ineos, Mitsubishi Chemical, and Mitsui Chemicals.

Songwon expands new isobutylene facility

Songwon Industrial Co. Ltd. has increased capacity at its new isobutylene (IBL) production facility located at the Maeam site in South Korea. The plant started production in May 2009 with a capacity of 30 KTA and has now been successfully expanded to a total capacity of 40 KTA.

Comments: High-purity isobutylene is utilized in the production of butyl rubber and polyisobutylene. Isobutylene is commonly separated and isolated from mixed C4 streams (from olefin plants and catalytic crackers) via acid extraction (with sulfuric acid) or chemical conversions (through reactions with water or methanol). A process for the production of high-purity isobutylene by selectively alkylating phenol to a mixture of tertiary-butyl-phenols (TBPs), removing the normal C4s, and then dealkylating TBP to release isobutylene is developed and discussed in this review.

The major fuel application for Isobutylene is in its use as a raw material for oxygenates, methyl tert-butyl ether (MTBE), and ethyl tert-butyl ether (ETBE), as well as for iso-octane. Environmental regulations have slowed the growth of chemical markets for isobutylene in the United States and Japan with the gradual cessation of MTBE use in reformulated gasoline, and mature markets have come to witness modest growth. Stronger isobutylene demand in other parts of Asia, Central and South America, and Central and Eastern Europe is forecast through 2012.

Songwon Industrial Co. Ltd. started its new USD 20 million isobutylene production facility, located at the Maeam site in South Korea. It is based on proprietary TBA (t-butanol) cracking technology. This will ensure the highest quality consistently, and would thus enable Songwon to be a strong competitive force in the marketplace with added environmental benefits of the new IBL process.

Catalytic cracking of TBA has a number of key advantages in comparison with the other technologies to produce IBL, which are mostly derived from oil. It is no longer affected by the volatile market pricing of IBL, which is an important component in its wide range of antioxidants and will use less energy to achieve its production volume. This makes it not only cost-efficient but more importantly, sustainable over a longer period.

Reliance brothers in a further truce

Anil Ambani of India’s Reliance Group has withdrawn a two-billion-dollar defamation suit against his elder brother Mukesh Ambani in a further sign of a truce between the siblings. Anil had filed a defamation suit against Mukesh in 2008, seeking damages after the latter’s comments were published in The New York Times (NYT). The article in the NYT (June 15, 2008), quoting Mukesh Ambani, stated that Anil Ambani was running an intelligence agency that comprised a network of lobbyists and spies before their (brothers’) split and that it allegedly tracked activities of many bureaucrats and competitors. Anil had alleged that these comments were false, defamatory, malicious, and baseless.

Comments: The defamation suit was filed in September 2008 essentially after Mukesh Ambani’s Reliance Industries Ltd. (RIL) had blocked his younger brother’s move to acquire South African telecom giant MTN. RIL had sent a legal notice to MTN asserting its right of first refusal to a stake in Anil Ambani-managed Reliance Communications (RCom), which eventually resulted in the Anil Ambani group dropping its merger plan with the South African telecom company.

Over the past few weeks, however, in an unexpected turn of events, the two brothers have gone about settling several of their legal disputes amicably. Last month, in a major re-unification development, the Ambani brothers canceled their non-compete agreements. This was just after a Supreme Court verdict on a major legal battle, which ensued for almost 5 years, regarding the sale of gas between the two brothers.

With huge cash flow at its disposal, and with the non-compete clause off its back, the Reliance group would have many investment possibilities opened up – both brothers would have greater flexibility to participate in high-growth sectors of the Indian economy, such as oil and gas, petrochemicals, telecommunications, power, and financial services.

In the past, when the brothers operated under the unified empire led by their father Mr. Dhirubhai Ambani, the Reliance group was a serious business force to reckon with. However, the family division and the consequent feud resulted in a major drain on company resources with the brothers fighting each other in long-drawn courtroom battles, rather than focusing their efforts on the competition. It is about time that the Ambani brothers got back to doing what their family has done best for several years: making money for their shareholders!

Reliance in talks to acquire a stake in US shale gas assets

Reliance Industries (RIL) is close to buying up to a 40 per cent stake in shale gas assets owned by Texas-based Pioneer Natural Resources Co. for around USD 2 billion. RIL is in talks to buy the stake from Pioneer, which has about 3,10,000 acres in the Eagle Ford Shale play in South Texas. A team of RIL officials is currently in the U.S. to negotiate the deal.

Comments: Reliance is one of the fastest-growing organizations – via acquisitions and mergers. Reliance through their impeccable record established shareholder confidence with their ability to raise capital and expand projects – and succeed.

Recently, RIL is becoming more aggressive to take advantage of the economic crisis around the globe. In addition, during the last few years. RIL has consecutively discovered gas wells in KG-D6 (Krishna-Godavari basin, Bay of Bengal) making the company significantly cash rich.

This year, Reliance has already invested in shale gas sources by acquiring a 40% stake in Atlas Shale’s acreage position. The Pioneer Natural Resources Co., acquisition talk comes as the reinforcement of the company’s commitment to invest globally, especially in gas exploration.

Shale gas has been produced for more than 100 years in the Appalachian Basin and the Illinois Basin of the United States; the wells were often marginally economical. Higher natural gas prices in recent years and advances in hydraulic fracturing and horizontal completions have made investing in shale gas wells a more profitable venture. Typically, the exploration of shale gas tends to cost more than gas from conventional wells. However, this is often offset by the low risk associated with shale gas wells.

Indian state advocates second PCPIR

The southern Indian state of Tamil Nadu has proposed a Petroleum Chemicals and Petrochemicals Investment Region (PCPIR) to be set up in the Cuddalore-Nagapattinam region. A petroleum refinery project being implemented by Nagarjuna Oil Corporation, a joint venture of Tidco and Nagarjuna group, will be one of the anchor units in this PCPIR. The Nagarjuna refinery will go on stream in 2011.

Besides this one, the state is also pushing for the creation of a second PCPIR in the Ramanathapuram district, for which it has sent a concept paper to the Union chemicals and fertilizers ministry. An area of about 25,783 hectares along the coastal stretch of Thiruvadanai taluk has been identified by the district administration. An investment inflow of Rs 90,000 crore (USD 19 billion) has been budgeted for the project.

Comments: The Petroleum, Chemicals, and Petrochemical industry in India has been well established, and has recorded healthy growth over the years. This industry contributes positively to national economic growth and regional development and holds tremendous potential for further development.

In order to bolster investment in this sector and promote the country as an important hub for both domestic and international investors alike, the Indian government has facilitated the establishment of a transparent investment-friendly policy and facility regime under which integrated Petroleum, Chemicals & Petrochemical Investment Regions (PCPIRs) may be set up. A PCPIR would comprise a specifically delineated investment region with an area of around 250 square kilometers, planned for the establishment of manufacturing facilities for domestic and export-led production in petroleum, chemicals & petrochemicals. Essentially, each PCPIR would constitute a combination of production units, public utilities, logistics, environmental protection mechanisms, residential areas, and administrative services. They would also be equipped with a processing area, where the manufacturing facilities, along with associated logistics and other services, and required infrastructure will be located, and a non-processing area, including residential, commercial, and other social and institutional infrastructure.

The PCPIRs would reap the benefits of co-siting, networking, and greater efficiency by using common infrastructure and support services. The PCPIRs would have world-class infrastructure and provide a conducive environment for setting up and conducting businesses.

The Union government has so far given the nod to six sites across the country for the development of the PCPIRs: Paradip in Orissa, Haldia-Nayachar in West Bengal, Dahej in Gujarat, Visakhapatnam in Andhra Pradesh, Mangalore in Karnataka and Cuddalore-Nagapattinam in Tamil Nadu. Tamil Nadu, if the new PCPIR in its Ramanathapuram were to be approved, would be the only Indian state to host two PCPIRs. Typically, the regional state governments would play the lead role in setting up the PCPIR – the state government would be responsible for identifying a suitable site and providing the required infrastructure at the site.

 

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