IHS Global Insight Perspective | |
Significance | The launch of the facility reflects Shell's strategy of focussing on growth markets for petrochemicals and using cutting-edge technology and economies of scale to gain an edge over competitors. |
Implications | Petrochemical demand in Asia is forecast to grow by between 4.5% and 5% per year, suggesting good market opportunities for Shell Eastern Petrochemicals Complex (SEPC). The facility will, however, have to compete with a rise in petrochemical capacity within China, which might start to restrict market opportunities over the coming decade. |
Outlook | The launch of the project on schedule and the employment and investment opportunities it is expected to bring to Singapore will further consolidate Shell's relationship with the government, paving the way for approvals to expand capacity and construct additional units over the coming years. |
Capturing the Asian Tiger
Shell has opened the colossal, multi-billion-dollar Shell Eastern Petrochemicals Complex (SEPC) on Jurong and Bukom islands in Singapore in a bid to capture rising Asian petrochemical demand. The complex consists of an ethylene cracker and butadiene extraction unit on Bukom Island, and a mono-ethylene glycol (MEG) plant and butadiene plant on Jurong Island. The ethylene cracker started up in March and is capable of manufacturing 800,000 t/y, while the 750,000 t/y MEG plant—which produces raw materials needed for polyesters, plastic packaging, and other products—has been operating since November 2009. In addition, the complex has the capacity to produce 450,000 t/y of propylene and 230,000 t/y of benzene and modifications to Shell's 500,000-b/d Pulau Bukom oil refinery have also been undertaken to ensure it can process a wider range of crude oils and improve supplies for the ethylene cracker. A new ethylene jetty and cryogenic terminal to facilitate the export of products to regional markets has also been established. Shell broke ground on the complex in 2006 and over the last four years the project has involved more than 15,000 workers and consumed enough steel to build three Eiffel Towers.
According to Shell CEO Peter Voser, "this project clearly demonstrates Shell’s strategy to focus on growth markets and to integrate oil and chemicals manufacturing to gain efficiencies". The strategic location of Singapore, in the heart of South-East Asia with China to the north and India to the west, also positions Shell well to serve rising regional petrochemical demand throughout Asia. The Asia-Pacific region already accounts for around 70% of global MEG demand, while overall demand for petrochemicals is projected to keep growing at a rate of 4.5% to 5% per year. On a global level the International Energy Agency (IEA) also estimates that non-OECD Asia will account for 60% of global growth in petrochemical demand up until 2030. Despite these statistics, there are some uncertainties over the wider trajectory of the economic recovery in Asia, particularly as economic stimulus spending, which was high following the global financial crisis, starts to slow down towards the second half of 2010. However, the region is faring better than most, while the project will operate over a longer 20-30 year period, outliving the more severe impacts of the global economic slowdown.
The SEPC complex could also face some competition from existing investors in Singapore's petrochemical sector and from ExxonMobil, who together with Saudi Aramco and Sinopec have opened large refining and petrochemical manufacturing capabilities in Fujian, China (see China: 13 November 2009: ExxonMobil, Saudi Aramco Start Up Massive Refining and Petrochemical Complex in China). The Fujian facility is in a good position to serve rising Chinese demand for ethylene, while a rapid build-up of domestic petrochemical manufacturing capabilities within China launched in the wake of the slowdown could gradually restrict opportunities for Shell to sell into the country over the next decade. Nevertheless, SEPC has a number of advantages that will put the facility in a good position to capture rising Asian demand. By being located in Singapore the facility benefits from good availability of gas feedstock, a location proximate to many potential customers—as the area is already a significant petrochemical hub—as well as well-developed logistics to support the export of products to regional customers. The integration of the ethylene cracker with the Pulau Bukom oil refinery, which can process a variety of heavy crude oils, stands to improve the margins between feedstocks and high-value-added petrochemical products while the two facilities also share infrastructure and are designed to handle a wide variety of materials to take advantage of fluctuations in market conditions for various products. On the technical side, the plant uses Only MEG Advantage (OMEGA) technology for conversion of ethylene into MEG, which maximises the production of MEG-per-tonne of ethylene and reduces waste streams of water. SEPC is also the largest integrated refining and petrochemical complex of Shell and by utilising economies of scale the facility can win market share.
Outlook and Implications
Looking ahead, Shell has more plans to expand its petrochemical facilities in Singapore. The company is already in advanced stages of planning to establish a high-purity ethylene oxide (HPEO) plant on Jurong Island to provide products to detergent manufacturers. Shell Chemicals executive vice-president Ben van Beurden believes that there is a clear market for the HPEO facility and is aiming to make a final investment decision on the project by end-2010 or 2011. Shell has indicated it may be considering construction of a liquid petroleum gas (LPG) import terminal, which could be supplied by Qatar to reduce reliability on naphtha feedstock for SEPC. Shell also looks to be utilising its existing relationship with Qatar Petroleum International (QPI) to expand its presence following the two companies’ decision to invest in two petrochemical joint ventures in Singapore in 2009 (see Singapore: 11 November 2009: QPI, Shell to Jointly Invest in Singaporean Petrochemical Projects). Shell has also not ruled out expanding capacity further at the petrochemical facility through debottlenecking the existing ethylene cracker, although the company appears to be waiting to assess better the future trajectory of the petrochemicals market.
The expansion of SEPC could be facilitated by the strong relations Shell has built with the Singaporean government over the last 120 years. Prime Minister Lee Hsien Loong believes the petrochemical facility will attract around US$2 billion in fixed-asset investments to the city state, encouraging other companies to relocate there. China's NOCs could also become more important investors in the refining and petrochemical operations in Singapore in years to come following PetroChina's decision to purchase a stake in Singapore Petroleum Company (SPC) and Sinopec's reported plans to establish petrochemical facilities there (see Singapore – China: 20 April 2010: Sinopec Reportedly Eyes Refining, Petrochemical Complex in Singapore).
Running the SEPC facility will provide employment opportunities for 200 workers and strengthen the Singapore government's justification for investments in LNG receiving capacity. SEPC is efficient and Shell has succeeded in reducing the facility's carbon footprint by using waste heat to support power production processes and by converting carbon dioxide waste into products. However, the scale of SEPC means that it will undoubtedly still have a significant impact on carbon dioxide emissions, which could also incentivise the Singaporean government to resist an international agreement on emissions output, if it limits the petrochemical sector's future growth prospects.