UPDATE: Polyolefins producer Borealis made a record net profit of €1.107bn in 2016, which was a 10% increase on the €988m profit it made in 2015.
Net sales, however, fell from €7.700bn in 2015 to €7.218bn in 2016. Total sales (including pro-rata sales at equity consolidated companies such as the Borouge joint venture with Adnoc in Abu Dhabi) also dropped from €9.026bn to €8.768bn.
Mark Garrett, CEO at Borealis, spoke to Plastics News Europe, after the results announcement on 24 Feb, about the outlook for 2017.
“Demand has been quite solid in January and February,” he said. “The first quarter of this year is shaping up to be similar to the fourth quarter of last year. We would expect during the year some impact from the volumes coming online in North America.”
During the course of 2017, some polyolefin projects based on North American shale gas reserves will start up. But they will be in a ramp up phase for most of this year, Garrett said, so the impact of new output on the market will be seen more in 2018.
The expectation in the market has been that this new wave of North American production would have much lower operating costs than polyolefin plants in Europe. But Garrett says things have changed in the years since investment decisions were made on the North American projects.
“The relative [operating cost] disadvantage of Europe to other parts of the world has gone down significantly,” he said.
This narrowing of the operating cost gap between Europe and North America throws a different light on the capital cost economics of the projects. He said: “The Americans have billions of dollars invested and don’t have the [large] advantage that they thought they would have.”
The European producers have improved their margins since oil prices fell, as their feedstock prices have fallen too. Add in the costs of packaging and logistics for shipping polymer to Europe, and the North American advantage is not that strong any more, according to Garrett.
Borealis is investing in European propylene production: in September 2016 it announced a feasibility study for a propane dehydrogenation (PDH) plant next to its polypropylene plant in Antwerp, Belgium that would produce 740,000 tonnes per year of propylene.
The feasibility study will be completed this year, and the decision on whether to go ahead “could be as early as the end of this year”, said Garrett.
He said the logic of building a PDH plant in Europe is based on propane being a product that has a world market price.
Garrett said: “We looked at building a de-hy [PDH plant] in North America, because we do believe that on-purpose projects are increasing. We were the exotics in the 1990s with our de-hy in Antwerp because there were only one or two de-hys, but you see a lot more de-hy projects because the world is moving more towards light feed cracking and because the demands for refinery products are changing. There’s less demand for gasoline and diesel and more demand for jet fuel and things like that. So the structure of the refineries is changing. There’s less propylene coming off refineries.”
Borealis looked at building a PDH plant in North America, but the capital cost was much higher expensive than building it in Europe.
He continued: “In addition we had an advantage in Antwerp because it’s a brownfield site for us, plus we have all the infrastructure and we even have the plot laid out. Because of that we actually got quite good capital economics to build the plant.”
If the project goes ahead, Borealis would consume a large proportion of the propylene produced by the plant. Garrett said: “If we can find people to offtake on the other proportion, the leftover part, then more or less, the project is guaranteed – if we’ve sold it out before we build it - and that is the way it looks to be.”
Nonetheless, the feasibility study will be conducted rigorously to expose issues. “No one’s built anything like this for 20 years in Europe, so I’m asking my guys, kick the tyres on this project again and again and again. Because there must be a reason nobody’s doing anything like this in Europe,” he said.
In its results announcement, Borealis said that the Borouge 3 expansion in Abu Dhabi has started making cross-linked polyethylene compounds based on Borealis’ proprietary Borlink technology.
The next steps for Borouge include optimising Borouge 1, 2 and 3 and building another polypropylene plant, dubbed PP5, it said. “Pending approval of the project in 2017, PP5 could be up and running by around 2020,” it said.
“PP5 is very close to a green light, I would say,” Garrett told Plastics News Europe.
The company has also raised the possibility of a Borouge 4 project. It said in its results announcement: “Borouge will also focus on finding ways to create more value by stretching the oil barrel. For Borouge this means the cracking of naphtha and perhaps of other mixed feeds, and converting these to downstream products. Cracking could be done in a facility called ‘Borouge 4’. If the Borouge 4 project meets the approval of shareholders, it would be by far the most ambitious and challenging petrochemicals project that Borealis or [joint venture partner] Adnoc have ever undertaken.”
This, though, is still very early in the decision-making process. Garrett said Borouge 4 is only at “the idea generation stage”.