IRPC ’13: Integration is crucial to compete with future US plants

By Ben DuBose
Online Editor

NEW DELHI -- Integration throughout the downstream value chain is essential if global players want to compete with future US facilities, according to Dr. Ajit Sapre, head of research and technology for private Indian refiner Reliance Industries.

Sapre, who delivered the keynote address Thursday at the International Refining and Petrochemical Conference (IRPC), referred to shale gas as a “game changer” in North America, noting that the advantage of cheap ethane feedstock appears unlikely to change anytime soon.

As a result, for companies such as Reliance that hope to compete on the global scene, it is critical to integrate wherever possible.

“An integrated approach provides synergies and gives the ability to hedge the market risk,” Dr. Sapre said.

Dr. Sapre noted that profitability cycles for petrochemical plants and refineries are often different. For example, the petrochemicals cycle of profitability repeats every seven to 10 years, he said.

“Operating rates and profits are high when supply meets demand,” Dr. Sapre said. “Additional capacity buildup then leads to lower operating rates and margins drop. That is, until supply meets demand, and everyone wants to build new plants.”

On the other hand, refinery profitability depends on crude oil prices, giving it a differently-timed cycle.

“Since the cycles are generally out of sync, the integration of refining and petrochemicals adds profitability and stability to your business,” Dr. Sapre said.

Future ethane-based US facilities will use feedstock from an adjacent refinery for three units, he explained: a steam cracker, an aromatics complex and a gasification syngas plant, he explained. Then, the syngas plant provides fuel oil and fuel gas for the refinery.

For non-US producers, there are several potential integration types to consider. The first is process integration, which means innovative designs of downstream petrochemical plants. The second is utility integration, which includes heat, hydrogen, water, steam and electricity. The third and final is the treatment of fuel gas, such as utilizing the hydrogen and hydrocarbons present in fuel gas petrochemical feedstock.

By region, the Middle East is the best positioned to execute that plan based on its newer facilities, Dr. Sapre said. Meanwhile, Western Europe sites, which are more specialized, could struggle the most.

“The integrated approach provides synergies and gives the ability to hedge market risk,” he said. “The Middle East is clearly the most advantaged based on feedstock, while Western Europe probably the least. Leaders in the industry need to survive through the market cycles.

“Low-cost importers and integrated players will run hard, while specialized companies are more likely subject to shocks,” he added.

One strategy is to co-locate facilities at major hubs, he explained, with one example being Singapore’s Jurong Island. Key companies there include BASF, BP, Celanese, EM, DuPont, Mitsui Chemicals, Chevron Oronite, Shell and Sumitomo Chemical.

By co-locating, companies can save as much as 15% on logistics costs, Dr. Sapre said.

Another international facility that could thrive in the new era is Reliance’s Jamnagar “super site” in India, which is the world’s largest refinery, he said.

Referring to Jamnagar as the crown jewel of his company’s portfolio, he noted that it has two of the largest fluid catalytic crackers (FCCs) in the world, which provide cheap feedstock for petrochemicals.

The offgas gives feed for a gas cracker, naphtha offers feed to the aromatics complex, propylene supplies feed for a polypropylene plant, and a mix of C4s serves as feed for the alkylation unit.

“Given demand, FCCs are becoming more and more a machine to make downstream products than for gasoline,” he said.

Reliance is also undertaking a massive refinery petcoke gasification project at Jamnagar, seeking an even deeper integration.

“We’re on path to become a bottomless and ultra-clean refinery,” he said. “It’s the largest petcoke gasification project in the world.”

The project is driven by a desire for energy self-sufficiency, he said, with syngas competitive with natural gas.

As other panelists explained this week, the US ethane advantage is making it tougher for international companies such as Reliance to compete on the global scene. Dr. Sapre seemed to concur with that assessment, predicting the US to become a major petrochemical exporter in the coming years.

However, the Reliance executive is confident that his company’s integration strategy will keep it competitive.

“We own and operate the world’s largest refinery complex [at Jamnagar],” he said. “We have a top 10 global ranking [in integration]. We’re moving from a regional to a global leader.”

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