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Singapore’s Angle

Chemical industry keeps growing in island state despite high costs and cheaper feedstock in U.S.

by Jean-François Tremblay
April 29, 2013 | A version of this story appeared in Volume 91, Issue 17

Credit: Jurong Town Corporation
Already large, Singapore’s chemical industry is increasing in size and complexity. Shown here are chemical plants and oil storage facilities on Jurong Island.
This is a photo of various developments such as chemical plants and oil storage facilities on Jurong Island.
Credit: Jurong Town Corporation
Already large, Singapore’s chemical industry is increasing in size and complexity. Shown here are chemical plants and oil storage facilities on Jurong Island.

The shale gas revolution is attracting many new chemical projects to the U.S. But it’s not knocking the wind out of Singapore. The chemical industry in the small island state is growing in size and strength.

The resilience is unexpected. Singapore is a small market with a population of about 5 million. Moreover, it doesn’t appear to offer any cost advantage to the chemical industry. Neither crude oil nor natural gas is extracted in Singapore. And prices are high in this modern city with a first-class infrastructure that includes an airport that’s ranked as the world’s best.

Singapore illustrates how government planning and support can foster a vibrant chemical industry. Whether they are producers of basic building blocks or formulators of specialty materials, chemical firms that set up in Singapore can expect to be comfortably integrated into an industry that provides them with a growing range of raw materials. Using Singapore’s highly developed shipping infrastructure, chemical producers can easily reach customers throughout Asia while enjoying a robust legal system that protects intellectual property (IP).

“In the chemical industry, you can go where the feedstocks are, or you can go where the markets are,” said Graham van’t Hoff, an executive vice president at Shell Chemicals. “We set up in Singapore because we seek a balance of feedstocks and market proximity.” He was speaking at a media briefing in Singapore earlier this month where Shell announced it is investing in new plants to make high-purity ethylene oxide (HPEO) and ethoxylated alcohols.

The announcement of the two projects comes at a time of strong expansion for Singapore’s chemical industry. ExxonMobil is in the start-up phase of a new petrochemical complex—its second one in Singapore—at the heart of which is an ethylene cracker with a capacity of 1 million metric tons per year. A few months ago, Mitsui Chemicals’ Prime Polymer subsidiary announced plans to build a 300,000-metric-ton plant that will make polyethylene via a proprietary process that uses a metallocene catalyst.

And Shell previously announced several other projects in Singapore. It will soon launch a 20% expansion of a three-year-old petrochemical complex that will provide raw materials to the HPEO and ethoxylates plants. Shell is also boosting its capacity for polyols. Shell’s chemical operations in Singapore are underpinned by a major oil refinery there that produces fuels and supplies naphtha, a raw material for making chemicals.

The growing chemical industry helps attract other companies to the country, said Eugene Leong, director of energy and chemicals at the Singapore Economic Development Board (EDB), a government agency. Singapore, he noted, will soon boast the capacity to produce 4 million metric tons per year of ethylene, a key building block used throughout the chemical industry.

By comparison, Japan, with a population 25 times that of Singapore, produces less than 7 million metric tons of ethylene. “This much ethylene enables us to create a world-class hub,” Leong said.

But more important than mere capacity is the degree of interdependence among the chemical producers based in Singapore, he said. “High integration is the foundation of Singapore’s chemical industry.” Over several decades of planning, Leong added, Singapore has steadily expanded the range of basic materials it can provide as a means of attracting downstream chemical producers.

In the past three years, new availability of butadiene from Singapore’s ethylene plants convinced three Japanese firms and Germany’s Lanxess to set up synthetic rubber plants there. The HPEO and ethoxylates plants open up new possibilities. “HPEO and ethoxylates are a new direction for us,” Leong said. “We can go further downstream into specialty chemicals.”

Leong’s ambition is off to a strong start. On the day of Shell’s media briefing, Solvay announced plans to build a plant in Singapore that will produce specialty ethoxylated surfactants. Solvay noted that a factor in its decision was that its plant could be fed HPEO delivered from Shell via pipeline.

Although Shell is building the pipeline network, the work will be done in consultation with EDB. Solvay aside, Shell doesn’t yet know what companies will come to Singapore to use the material it will supply, van’t Hoff noted. “We coordinate with EDB to learn on which piece of land the HPEO users will be,” he said. Van’t Hoff declined to detail any incentives EDB might be providing for the construction of the infrastructure, which the government agency seems to want at least as much as Shell does.

Although the Singaporean government supports the development of the chemical industry through financial and other incentives, the incentives are not generous, according to Ashish Pujari, a director at consulting firm IHS Chemical. “Companies set up here because of the transportation infrastructure and because they can get an acceptable rate of return on their projects,” he said.

One of Singapore’s biggest initiatives for the chemical industry was to make land available for it. The Singapore government, through the state-owned company JTC Corp., planned and financed the development of Jurong Island, a huge reclamation project that linked seven islands off Singapore to provide land for the chemical industry.

The government’s financing of Jurong Island was not a gift to the chemical industry, however. Companies that want to set up on Jurong Island have to pay JTC a high price for the privilege of using the land, Pujari said. “It’s often a deal breaker for companies that want to set up here.”

Government support is not only financial. One reason chemical companies select Singapore for their plants is its strict protection of IP. Firms that use HPEO or ethoxylates to make specialty chemicals typically have proprietary formulations or processes to protect from competitors, noted Fang Yea Yee, Shell’s general manager of ethylene oxide and glycols. Major international producers of synthetic rubber also have proprietary manufacturing processes to safeguard.

Reports of IP theft in China no doubt make such companies cautious about building their plants there. A recent study by Kroll Advisory Solutions, a risk mitigation firm, noted that China and other developing countries are becoming R&D hubs for industries such as chemicals and pharmaceuticals and that some firms are willing to use questionable methods to shortcut the R&D process.

EDB’s Leong stressed that the Singaporean government’s support of the chemical industry through financial and legal terms is justified in view of the benefits that chemical manufacturing brings to Singapore. “The jobs created are among the highest-paying ones in Singapore,” he said. In a speech during the announcement of the Shell investment in HPEO and ethoxylates, Lee Yi Shyan, senior minister of state for trade and industry and national development, said that Jurong Island provides 24,000 permanent jobs for Singaporeans.

There are additional benefits, Leong said. Companies with plants in Singapore often build R&D centers or even move their headquarters to the city-state, developments that provide additional career opportunities to Singaporeans. Lanxess, for instance, moved its global headquarters for butyl rubber to Singapore soon after its decision to build a plant on Jurong Island, Leong noted.

In the future, under a strategic plan called Jurong 2.0, Singapore will strive to make itself even more desirable as a location for international chemical companies. “We aim to provide a location where people have the confidence to invest with a 20- to 30-year time horizon,” Leong said. “We provide the stability.”


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