Shell commits to chemicals growth

SHELL has declared chemicals a priority area for growth as the oil major set out how it would reshape its business in the face of low oil prices and its integration of BG Group.

Shortly after announcing a wider mid-term strategy that puts deepwater oil production and chemicals as its  priority areas for growth, Shell took the final investment decision to build a major new petrochemicals complex in Pennsylvania, US.

Construction of the ethylene cracker and polyethylene derivatives unit will begin in around 18 months with production set to start early next decade. The complex will be fed by low-cost ethane from shale gas producers in the Marcellus and Utica basins, producing 1.6m t/y of polyethylene. Shell says the location is ideal as more than 70% of North American polyethylene customers are within a 700-mile (1,126-km) radius of Pittsburgh.

“Shell Chemicals has recently announced final investment decisions to expand alpha olefins production at our Geismar site in Louisiana and, with our partner CNOOC in China, to add a world-scale ethylene cracker with derivative units to our existing complex there,” said Graham van’t Hoff, executive vice president of Shell’s chemicals business. “This third announcement demonstrates the growth of Shell in chemicals and strengthens our competitive advantage.”

Once these projects are onstream early next decade, Shell says they will lift its ethylene capacity to around 8m t/y from 6.2m t/y today.

Commenting on the strategy to focus on deepwater oil, Ben van Beurden said he expects to see robust demand for oil and gas for decades to come. Shell is developing projects in what it describes as ‘advantaged areas’ in Brazil and the Gulf of Mexico, and expects its total production to double to 900,000 bbl/d in 2020.

The US$54bn purchase of natural gas giant BG Group has provided an opportunity to accelerate the re-shaping of Shell, said van Beurden, with further impetus provided by the drop in oil prices. Alongside existing plans to cut capital investment and operational costs, including the loss of more than 10,000 jobs over the last two years, Shell has today announced it will exit up to ten countries as it seeks to sell off 10% of its oil and gas production interests.

It has not named the countries it will leave but expects to “make significant progress” later this year.

Christian Stadler, professor of strategy at Warwick Business School, UK, said Shell has been decentralised compared to the likes of ExxonMobil and while this autonomy allows regional units to form stronger local relationships, it is more costly.

“With it also being less efficient, it isn’t surprising that cost saving factors have led them to revisit this strategy following the BG merger,” Stadler said. “I would expect when it revisits its country portfolio it will close countries less important to its strategy overall.”

Commenting on his company’s strategy, van Beurden said: “By capping our capital spending in the period to 2020, investing in compelling projects, driving down costs and selling non-core positions, we can reshape Shell into a more focussed and more resilient company.”

Conventional oil and gas, and oil sands will remain as stable cash generators, Shell says. Beyond 2020, it expects shale and clean energy sources including hydrogen, wind and solar to offer significant opportunities for growth.