Europeans face hard choices
15 Jan 2000
Bryan Sanderson, managing director, chemicals at BP, charged Europe's operators with the responsibility of pulling down their out-of-date and 'less than world-class' plants, in his presentation.
'Europe is the largest regional player, hosting 38 per cent of world turnover, of which petrochemicals is the largest sector,' he said.
'There is a perception that Europe has low potential for growth. But, if you consider ethylene as a benchmark, then analysis shows that our existing demand base is so much larger than Asia's that the real demand growth in Europe, over the next decade, will be similar.
'Europe must seize the competitive high ground. In ethylene and polyethylene markets in Europe, competition has squeezed out 40 per cent of producers, between 1980-90. By 2005, there will be just a dozen players in each sector.
'Companies operating in the US consistently earn higher returns for shareholders. The implications for the industry here are severe.
'Over the past decade, the European chemical industry has invested Ecu32bn (£21.4bn) abroad, mostly in the US. Over the same period,Europe has received only Ecu6bn (£4bn), mainly from the US. This negative balance of investment is a sign of the need to push our reforms even harder.
'One illustration of the challenge we face is plant size. Analysis of cracker operations shows that the typical US unit is some 50 per cent larger. Here, the majority of units are below 450k tpa, and European plants tend to be older.
'The focus on world scale operations has important implications. For ethylene, it now takes about two years of market growth to fill a 750k tpa cracker, compared with about a year's growth in the 1970s. The rate of change for polyethylene has been even more dramatic.
'A more competitive approach has led us in BP to consider the ideal petrochemical site. We consider a hypothetical naphtha cracker, with a full suite of derivatives, at lowest production cost. Over the period 1990-96, such a plant would have achieved a pre-tax return on sales of 25 per cent almost three times that of the average player.
'A number of years ago, we closed our Baglan Bay cracker because we felt that it was uncompetitive. In its place we have been developing our operations, notably at Grangemouth. The Scottish plant is comfortably within the top quartile of Europe. But, it still lacks true world scale and full integration. The cracker is being expanded to 750k tpa and we have plans to take that to 1.2m.
'We will also be scaling up the derivative portfolio, to include 750k tpa of polyethylene and a new 300k tpa polypropylene unit.
'Overall, manufacturers need to focus Europe's resources into the hands of those who possess and can sustain competitive advantage. There will be casualties, but the share of the available prize depends upon the degree to which we respond with imagination.
