Ekaterina Kalinenko

and Luisa Sykes,
Euro Petroleum Consultants,
explain how the global
petrochemical industry can
adapt to the high level of
uncertainty and volatility in
energy markets and still
remain competitive.

T
he global petrochemical industry is navigating many challenges and adapting to very volatile
feedstock prices, changes in global supply and demand patterns, and strict environmental
regulations. The collapse in oil prices added another layer of complexity to the fundamental
changes taking place in global energy markets and impacting the dynamics of the
petrochemical sector.
The drop in naphtha prices has re-addressed the competitive position of European and Asian
petrochemical producers vs Middle Eastern and US producers. European and Asian naphtha-based crackers
have regained some competitive strength vs ethane based crackers and enjoyed strong margins throughout
2015. Ethane price advantage vs naphtha has been significantly reduced and the stronger Dollar vs the Euro
added strength to European petrochemical producers.

Winter 2016 Energy Global 27


Figure 1. US ethylene and propylene capacity expansions (1000 bpd).
The global petrochemicals landscape was changing prior to
the collapse of oil prices in 2H14. A large amount of
petrochemical capacity has been added in China, the US and the
Middle East, threatening the fragile supply-demand balance
globally. The strategies implemented by the petrochemical
industry in each region are quite distinct and are shaped by the around the world is ‘how to cope with greater degree of
particular conditions and characteristics of each region. Some of uncertainty and still run profitable operations and make the
these strategies have been challenged by the decline in oil
prices, leading to a potential re-shaping of the global
petrochemical sector.
In the US, low ethane feedstock prices have triggered a
revival of the US petrochemical sector – a substantial number
of ethylene and ethylene derivatives plants have been built and
new projects are in the pipeline. Six large scale ethylene
projects with a total capacity of 600 000 bpd are currently
under construction in the US and are expected to be completed
between 2017 and 2018 (Figure 1). The US propylene business is
also thriving. The tight US propylene market and the increase
supply of propane from natural gas production has driven the
investment in propane dehydrogenation plants (PDH) – six
projects are currently at various stages of development and are
expected to add 190 000 bpd to current production levels in
the US. As the scope for expansion in the domestic market is
fairly limited, US ethylene producers and even producers of
on-purpose propylene production will be targeting export
markets.
China is the largest consumer of petrochemical feedstock
and petrochemical derivatives. But it is also committed to a
strategy of import substitution that will impact global markets
by reducing a significant volume of petrochemical imports into
the country. China’s import substitution strategy has led to
substantial investment in the domestic petrochemical sector,
leading to overcapacity in some segments of the industry and
the recourse to export markets. However, the expected increase
in domestic demand is likely to absorb excess supply in the not
so distant future. China has limited crude and gas resources but leadership must present clear and unambiguous goals and plans.
plenty of coal availability. In order to utilise the vast coal
resources, a large number of coal to chemicals projects are
currently underway in China. However, current low naphtha
prices are challenging the fragile coal to olefins economics and motivational feedback on goals and achievements within the
some projects could be in jeopardy. Additionally, the lack of
28 Energy Global Winter 2016
infrastructure, high capital investment,
water availability and environmental
issues are also expected to restrict the
expansion of coal to chemicals projects
in the future.
The Middle East enjoys the world's
lowest cost ethylene production thanks
to cheap ethane – US$0.75/million Btu
vs an average of US$3.5/million Btu in the
US in the last three years. The region has
seen substantial capacity additions in the
last decade, growing at an average of 10%
since 2008. The expansion rate is
expected to be more moderate in the
future but several petrochemical projects
are still underway or at planning stage.
The majority of the additional
petrochemical production will be
targeting export markets.
It becomes quite clear from highlighting developments in
several parts of the globe that the expansion of the
petrochemical industry in the three geographical regions could
lead to overcapacity and intense competition amongst
petrochemical producers. The question facing many producers
right investment decisions’. Petrochemical producers globally
will need to win competitive advantage to maintain or increase
market share based on feedstock costs, location and efficient
running of their operations. Promoting maximum organisational
efficiency and improving operational performance should be
top objectives for all petrochemical operations.
‘Recipes’ to promote efficiency
during times of great uncertainty
In times of great economic uncertainty, companies are
searching for ways to maximise their returns and obtain ‘the
competitive edge’. A very effective way to promote these
objectives is to implement operational excellence models,
which are gaining a good track record within the oil, gas and
petrochemical industries. Many petrochemical companies are
adopting operational excellence models using key
performance indicators (KPIs) to measure business and
operational systems such as management and leadership, loss
of production and control, production optimisation, reliability
and maintenance, etc.
The main objective of operational excellence programmes is
to neutralise risk and maximise value creation. The operational
excellence approach is placing people at the centre of business
improvement practices. Key drivers of operational excellence for
improving organisational performance include strong leadership,
conductive organisational structure and clear focus, and a plan of
action. Strong leadership implies commitment by corporate
leaders to embrace the operational excellence approach – the
A suitable organisational structure can be categorised as including
a well informed workforce with well integrated team structures, a
clear line of accountability and performance measurements and
teams. A clear focus and plan of action is the ‘touching stone’ of
the operational excellence process requiring a good
communication system. The aim is to identify all the areas that
need to be tackled and improved with particular emphasis on
training and development. A clear plan of action is designed to
promote best practices and work towards improving
organisational performance.
Implementing operational
excellence programmes
Petrochemical companies can post dozens of implemented
operational excellence projects similar to the programme
developed and implemented by Petrochemical Industries
Company (PIC). The achieved results were presented at the
International Operational Excellence Conference, organised by
Euro Petroleum Consultants (EPC) in Istanbul, Turkey in
spring 2015.
Based in Kuwait, PIC was founded in 1963 as the first
chemical fertiliser complex of its kind in the region. Today, PIC
is a petrochemical industry leader in Kuwait and throughout
the Middle East. In addition to manufacturing and marketing
fertilisers, olefins and aromatics in Kuwait, PIC participates in
multiple joint ventures that also produce and market
chemicals both locally and internationally.
At the initial stage of the programme development, PIC’s
concept of operational improvements implied formulation of
vision, strategy and objectives. The company decided to
develop the programme on the basis of three classical
principles: lean production (lean), quality management
(six sigma) and project management (PM).
Among the top priorities were HR performance, focus on
the consumer’s individual needs and the process approach
under the slogan ‘Better, Faster, Cheaper!’. The operational
performance metric included criteria such as expenditure
level, production cycle time and the rejection rate.
Improvements were introduced by using a standard procedure
aimed at building a knowledge management system as the
backbone for further optimisation. A critical factor was
effective employee engagement, i.e. explicit goal setting and
adequate incentives, effective interaction and communication,
and a consistent process of project evaluation and selection.
Such process needs to be well established, continuous and
consider borrowing needs.
According to PIC, thanks to continuous leadership training
of top managers, annual awareness sessions and quarterly
trainings for identifying improvement possibilities, the
company saved US$173 million, successfully completed
524 projects, obtained 84 certified project managers (leaders),
acquired new competencies and revised the corporate culture
to conform to the best global practices.
Operational excellence was no less topical for Russian
petrochemical companies. One of the most remarkable
examples is the new production system developed under the
operational excellence programme and implemented at the
enterprises of the Russian petrochemical giant
PJSC SIBUR Holding. SIBUR is a Russian gas processing and
petrochemicals company headquartered in Moscow. It
operates 26 production sites located throughout Russia and
employs over 25 000 personnel.
SIBUR pursued an ambitious goal – to gain operational
excellence and become world class in terms of market
competitiveness, return on assets and production
competencies. The efforts were focused on the creation of a
system of unified principles, standards and procedures to form
the kernel of the corporate culture for continuous
improvement of the whole company.
The system was built by reorganising the company culture,
in the first place, through integration of the leadership vision
and practices, teamwork in addressing problems, diagnostics
of the business goals described above, implementation
mechanism structuring (analysis – implementation –
maintenance) and release of the available added value
potential. Apart from attaining the global objectives, the
expected deliverables included the development of the ‘road
map’ with sustainable annual cost recovery, a significant
increase in the daily average output and perceivable
improvements in the corporate culture.
The operational excellence pilot project was launched at
SIBUR’s synthetic rubber plant. The top priority task was to
optimise workplaces and to motivate staff to get involved in
generating ideas for performance improvement. It was
elimination of losses and recognition of each participant’s
contribution to the plant’s performance that was used as the
foundation for the improvement programme. The results
obtained built a case for rolling the programme out across the
entire organisation.
Tomskneftekhim, another SIBUR plant, and one of the
largest Russian polymer producers, has also benefitted from
the implementation of the operational excellence programme.
The first stage of the programme involved training key
executives to understand the principles of the programme. In
the opinion of the company’s management, organisational
changes depend on how well managers understand the
essence of the corporate improvement culture, and the actual
results impacting the workplace where the updated plant
management system is expected to have maximum effect.
As the improvement projects were being implemented,
the updated estimates showed a two fold growth in the
economic benefit of the projects, with work time losses
reduced by 40% and the increase in the plant’s profitability
nearly 20 times as high as the consultancy costs.
Conclusion
The petrochemical industry needs to adapt to the high level
of uncertainty and volatility in energy markets and still remain
competitive. Investing in projects benefiting from competitive
advantage is one of the keys for success, as well as having a
clear view of what markets and clients are more promising.
Investing in operational excellence will guarantee best
practices, best results and best operational performance.
Operational excellence models are being widely applied
across the petrochemical industry as the positive impact of
their implementation becomes more evident. These models
are based on the concept of leadership, teamwork and
problem solving, aiming to create a continuous improvement
environment throughput the organisation, focusing on
client/market requirements and optimising all activities for
the best operational results.
This article was originally published in the December 2015 issue of
Hydrocarbon Engineering. Register for your free copy of the magazine here:
http://www.energyglobal.com/signin/?mgz=hydrocarbon-engineering
Winter 2016 Energy Global 29