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Shell to invest $3-4 billion/year in chemicals through next decade

June 5, 2019
Chemical Value Chain

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Shell says it will continue to invest $3-4 billion every year through the next decade in its chemicals business, and that it aims to expand into selected derivative and performance chemicals.

The company, which sold 17.6 million metric tons of chemicals in 2018, outlined plans for its chemicals business on Tuesday as part of a wider strategic update for 2021-25. Part of that strategy will be an emphasis on “value over volumes” in what Shell describes as its increasingly market-facing businesses of chemicals, and integrated gas and oil products. The company labels these businesses “leading transition themes” and Ben van Beurden, Shell CEO, says they will be critical for the company to capitalize on an energy transition to a lower-carbon future. “Petrochemicals demand is set to grow above GDP growth levels. And chemical products are expected to play a role in lowering the carbon intensity of the global economy. They are less resource-intensive compared with alternatives and they are lighter, which enables energy efficiencies,” he says.

Investing $3-4 billion annually in chemicals through the next decade “is expected to ensure continued growth, focused on the areas where we see further opportunity to use our strengths and our proximity to markets,” according to John Abbott, Shell’s downstream director.

Shell sees an opportunity to be “part of a larger growth market in chemicals,” and believes it can expand its business into selected higher-value performance chemicals, Abbott says. “This is an exceptional opportunity to make the chemicals business even stronger,” and the strategy will be appraised going forward, he adds.

Despite declining demand for, and stricter regulation of, single-use plastics, “demand for plastic resin is set for strong growth even in a future of extremely high recycling rates for single-use packaging,” says Abbott. Shell is a founding member of the Alliance to End Plastic Waste.

The company is feedstock-advantaged, with local sources under long-term contracts, Abbott says. He highlights Shell’s steam-cracker project in Pennsylvania, which will use ethane feedstock sourced from shale gas producers in the Marcellus and Utica basins, and the market proximity of its Nanhai joint venture with CNOOC (Beijing) in Guangdong Province, China, where “we doubled the site’s cracking and styrene capacity last year to access the large and growing Chinese demand.” Shell also recently started up a fourth alpha-olefins unit at the company’s Geismar, Louisiana, site, he adds.

The three projects are pillars of Shell’s cash-growth commitments to the end of 2025, and represent 75% of the company’s projected chemicals cash growth to the end of that period, Abbott says.

He also says the company has “a healthy series of options we can choose” for future growth projects. A presentation slide during the update highlighted three potential projects: an ethylene glycol (EG) plant at Geismar; the Nebras cracker and derivatives project near Basra, Iraq; and further expansion of the Nanhai complex.

Shell expects to see cash-flow growth from its chemical projects that will enable the company to deliver on its commitments of $5-6 billion of cash flow from operations, and $2-3 billion organic free cash flow, by 2025. This represents a return on average capital employed of about 15%, says Abbott. “We expect the chemicals business to help Shell to thrive through the energy transition. The fundamentals and the benefits of this business are strong,” he says.

By Mark Thomas

Source: Chemical Week

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