Issue Date: May 12, 2008
ExxonMobil Chemical Sticks To The Script
JIM HARRIS, a 30-year veteran of ExxonMobil Chemical, says there's no way to consistently predict the ups or downs of the petrochemical industry. The best way to prosper over a long period of time, he says, is to steadily build new production facilities and ignore the industry's profit outlook.
"You take a very long view, and you don't attempt to invest at the peak, don't try to invest in the valley, but you invest for the long haul and let the chips fall where they may," he says. Harris is ExxonMobil's senior vice president in charge of the company's polymers, synthetic rubber, adhesives, films, packaging, and labeling businesses.
Whatever ExxonMobil Chemical has been doing, its recent financial performance has been stellar. In 2007, it earned $4.5 billion in net profit on sales of $36.8 billion. In the first quarter of 2008, chemical earnings declined 17% compared with the quarter one year earlier but still exceeded $1 billion.
Harris points out that ExxonMobil Chemical, a subsidiary of Exxon Mobil Corp., has not only delivered high profits in recent years but also achieved an exceptionally high rate of return on capital employed, much higher than its industry peers. This strong financial performance, he notes, helps ExxonMobil Chemical secure the financial backing of its parent company when embarking on major capital expenditure projects.
And ExxonMobil Chemical is building a lot of them right now. A long-discussed $5 billion joint-venture refinery and petrochemical project in China's southeast province of Fujian is at the peak of construction and is scheduled to begin production early next year. In Singapore, ExxonMobil has started building its second wholly owned petrochemical complex in the city-state, due to come on-line in 2011.
Until construction began in July 2005, the Fujian project had been under discussion since the early 1990s. Harris says it took a long time to move forward because nothing this complicated had been done before in China. The project involves three partners: China Petroleum & Chemical Corp. (Sinopec) with a 50% stake and ExxonMobil and Saudi Aramco, each with 25% shares. The venture also will operate a network of 750 gas stations in Fujian.
The Fujian project marks the first time foreign players have secured the right to invest in a Chinese refinery that is fully integrated with a petrochemical plant. Shell tried but failed to gain Chinese approval to build such an integrated complex in the southern province of Guangdong and eventually built a stand-alone petrochemical plant with partner China National Offshore Oil Corp. It began operations in 2006. And five years ago, ExxonMobil Chemical was considering building a petrochemical complex integrated with a refinery in Guangdong province, but the project did not go ahead (C&EN, Feb. 18, 2002, page 24).
INTEGRATING refineries and petrochemical plants is one of ExxonMobil's preferred methods for improving the viability of its projects. "We believe that the need to integrate refining and chemicals was of extreme importance in our being successful in the longer term in China, rather than being a stand-alone chemicals complex," Harris says. Insisting on the refinery did prolong the negotiations, he acknowledges.
In Singapore, ExxonMobil Chemical's petrochemical facilities are fully integrated with an older ExxonMobil oil refinery. Harris says there is nothing new about the refinery-chemical integration, but there aren't that many companies that actually do it effectively.
"It's not just about sitting next door to each other or moving materials from one side to the other; it's also about having common safety and maintenance practices, sharing workforces, and operating as one large unit where you can maximize overall profitability of fuels and chemicals," he says. When sharing sites, ExxonMobil and ExxonMobil Chemical each contribute, according to an accepted formula, to the cost of shared services such as fire-fighting units or first-aid clinics.
Refinery-chemical integration is not the only way ExxonMobil Chemical improves the viability of its projects. The firm also looks at whether proposed plants will have access to secure supplies of competitively priced raw materials and whether they can efficiently deliver their output to the marketplace. "Our strategies are not unique, but our perseverance and dedication in implementing them is relatively unique," Harris says.
In the realm of R&D, Harris says ExxonMobil's focus is on developing new products that have market potential. He notes that ExxonMobil and ExxonMobil Chemical annually spend about $1 billion combined on R&D and employ about 15,000 researchers. "Our researchers should not just be at the bench rattling test tubes and making things that are innovative. They also have to be able to figure out that it is something that the world needs," Harris says.
Metallocene catalysts for polyolefin production serve as examples of this link between basic research and actual products. Harris recalls that metallocenes were invented in 1982 but that it took ExxonMobil Chemical until 1992 to launch the first product based on the technology.
For the past five years, the metallocene polyolefins market has been growing 20% annually. And earlier this year, 26 years after the discovery of metallocene catalysts, ExxonMobil Chemical launched Enable, a type of metallocene polyethylene that can be processed in the same equipment that is used for traditional linear low-density polyethylene. Before the launch of Enable, Harris says, plastics processors needed to buy different machines if they wanted to process metallocene polyethylenes.
EVEN THOUGH ExxonMobil Chemical has a growing range of specialty products like metallocene plastics and separator films for lithium-ion batteries, it still stands out because it is deeply involved with commodity chemicals. In recent years, Huntsman Corp., BP, Dow Chemical, and other big chemical companies have sold off major components of their commodity chemical businesses, sometimes announcing at the same time a new focus on specialty chemicals.
Samuel Liew, a consultant with Chemical Market Associates in Singapore, says there are good reasons for getting out of commodities now. Later this year, he points out, at least five and as many as seven world-scale petrochemical complexes will come on-line worldwide, mostly in the Middle East. And next year, in China, several new facilities will join that roster, including the ExxonMobil complex.
"You see a flood of materials coming up," Liew says, "and if your competitiveness is not extremely high, then you have to look for something that is more of a niche, more specialized, more customized." He expects ExxonMobil Chemical will feel the pressure, despite the high integration of its facilities.
Harris says ExxonMobil will not move out of its commodity business and focus on specialties anytime soon. Commodities, he says, are a fundamental characteristic of ExxonMobil Chemical, and he doubts that a chemical company can do well by focusing exclusively on specialty products. "If you don't have commodities in your DNA, it will be difficult to be successful at specialties," he says.
According to Harris, the businesses of specialty and base commodity chemicals share several traits. "A focus on the feed advantage, integration, R&D, execution, operations reliability, and so forth—that is just as applicable in the specialties side of the business as it is in the higher volume business," he says. "If you can't do the base, you might as well not be there."
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