IHS WPC 2014: Producers adapt to rapidly changing petrochemical landscape

19:42 PM | March 26, 2014 | Francinia Protti-Alvarez in Houston

While US producers have entered growth and investment mode thanks to the surge in unconventional energy production, producers in all regions must adapt in response to challenges in development of human resources; innovation and R&D; and cost and feedstock competitiveness, according to speakers on an executive panel at the IHS Chemical World Petrochemical Conference in Houston Wednesday.

"At Dow, we have been closely tracking the surge in [US] investments, and it is much bigger than what we, or anyone, had previously anticipated," says Jim Fittering, executive v.p./feedstocks, performance plastics and supply chain at Dow Chemical. Producers have announced plans for at least 10 new crackers as well as a similar number of expansion projects. “Announced’ doesn’t mean built, but it’s still an indication of what companies think about the [US] investment thesis,” Fitterling says. “I think it’s likely we could see six crackers in the 2017-2019 timeframe.”

Investing: Infrastructure, R&D and human capital

Several risks and potential “speed bumps” are out there, Fitterling adds. The shortage of skilled trade workers as well as professionals trained in sciences, technology, engineering and math (STEM) were highlighted during the session. "[This] shortage of skilled construction workers is coming at a time where a lot of the baby boomers are coming to retiring age… we all have our labor needs. We are all competing for the labor force. The advantage goes to those who strike first and get their steel in the ground," Fittering says.

More public-private cooperation is necessary to develop strong industry talent, says Warren Wilder, executive director/downstream and chemicals at Saudi Aramco (Dhahran, Saudi Arabia). “We need more job and skills training for crafts and trades as well as to bolster on-the-job training," he says, adding that "new generations have new expectations, as a result the work force is becoming more demanding on the employer and we need to recognize that."

In Mexico, meanwhile, poor energy policy has curtailed foreign investment in the energy sector while Pemex's limited budget has focused investment on crude oil assets. As a result, the country imports one-third of its natural gas from the US, with further imports also arriving from other countries partly as a result of the lack of investment into adequate pipeline for natural gas imports, said Jose Valdez Simancas, president of Alpek (San Pedro Garza García, Mexico), during the discussion. 

"As a result of reduced oil production, basic petrochemical feedstocks have also been limited. Petrochemical production has only increase 2%[/year] since 2005 compared to 4% [/year] increase in demand. Mexico's feedstock is limited but with the [energy] reform and US shale we think Mexico can improve its feedstock position to come close of that in the United States," Simancas adds.

Need to develop long-term strategies 

In Europe, ethane imports may be part of the short-term solution to address the region's poor competitiveness, but they do not constitute a long-term strategy or solution, producers say. 

There could be some advantage to bring ethane to Europe and for producers who do not have to invest too much on retrofitting projects, says Daniele Ferrari, CEO of Versalis (Milan). “It is part of a short-term solution we have --including rationalization-- but on the longer term we need to work on our energy policy and [further develop our capacity for] innovation." 
In addition to investments on flexible crackers at Dunkirk, France and Bridisi, Italy, Versalis is investing in biobased chemicals through various joint ventures including one for butadiene and another for natural rubber.

The petrochemical landscape is evolving rapidly and this was underlined in the Mideast, where increased use of heavier feedstock has also opened up the opportunity to increase production of specialty chemicals and aromatics. "The shift [to use of] heavier feedstock is transforming [Saudi Arabia's petrochemical industry] form producing mostly commodity chemistry to higher value-added chemistry," Wilder says.

Producers in Europe need to adapt strategies, Ferrari says. "There is no large economy that can afford to abandon its petrochemical industry,” Ferrari adds. “We need to find the right balance between demand, innovation and competitive energy and feedstock costs.”