Shell’s base chemicals operation in the United States of America (USA) Gulf Coast region has taken advantage of changing hydrocarbon market dynamics to strengthen its advantaged feedstock processing capability and simplify its business. The turnaround in performance and competitive positioning achieved is vital to the success of Shell’s chemicals business in the USA and for future security of supply to customers in North American heartland markets.
Since the start of this decade seismic shifts in North American energy markets have brought about fundamental changes in the economics of petrochemical production in the region. The biggest feature of this has been the growing disparity between oil and gas prices, hence the relative costs of the two alternative sources of petrochemical feedstock (see box next page). As a consequence, ethylene production based purely on crude oil-derived generic liquid feeds has come under severe pressure. At the same time, wider availability of domestic gas has opened up new opportunities for sourcing cost advantaged ethane-based feedstock.
The pace of this change proved challenging for North American producers, including Shell’s base chemical operations in the Gulf Coast area of the USA. Its five ethylene plants, spread between the Deer Park, Texas, and Norco, Louisiana, chemical manufacturing facilities were significantly impacted by the shifting market dynamics.
“Initially, we were not well positioned to respond to the scale or speed of change in hydrocarbon markets,” says Dan Carlson, General Manager Lower Olefins, Americas. “We saw the oil price rise from under $20 per barrel early in the decade to a peak around $140 per barrel by 2008. Meanwhile, natural gas prices did not keep up with rising crude and we were not able to take full advantage of the lower cost gas feeds.
“In addition to technical constraints that limited our ability to process more gas feedstocks, there were challenges relating to infrastructure and how to deal with changes to the product mix.” Big investments in working capital and long, complex supply chains for liquid feeds left the business exposed to changing market forces. “When crude was cheap and changing by just a few cents per day we could manage the volatility, but at or above $80 per barrel and changing by several dollars daily it was a different ballgame.”
In response to this, in 2008 the business embarked...
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