Borealis Sees U.S. Ethane Benefit One Year Before Tankers Dock

Borealis AG, the Abu Dhabi-owned maker of chemicals, is already benefiting from rival Ineos Group Holdings Ltd.’s plans to import cheaper ethane into Europe, even though the first tankers won’t dock for another year, according to Chief Executive Officer Mark Garrett.

The prospect of Ineos shipping ethane from the Marcellus and Utica formations on the U.S. east coast starting in mid-2015 has already affected the price Borealis secured for ethane from Norway’s Statoil ASA this month by reducing the supplier’s pricing power, Garrett said in an interview at London’s Heathrow Airport.

“It’s already impacted the thought processes,” Garret said. “Statoil realized that if they wanted to carry on selling ethane they will have to compete with the stuff that will be brought in by Ineos.”

Borealis, based in Vienna, is studying whether it can also import U.S. ethane as an alternative to sourcing the feedstock from the North Sea. Rather than operating a fleet of smaller ships to run North Sea supplies, importing from the U.S. would require the purchase of large tankers to keep the cost-per-ton down and guarantee security of supply. Borealis would also have to ensure sufficient storage facilities.

How Ineos gets on with its plan will provide valuable insight for Borealis as both companies would take ethane from the same U.S. formations and use the same Marcus Hook export terminal. For Statoil (STL), it was a case of negotiating a price with Borealis for a long-term supply agreement rather than blending the ethane back into natural gas supplies.

“We think it’s great Ineos is doing it, as it’s helped us in our other negotiations,” the CEO said. “We’ll also see that it works as they are a bit ahead of us in the time schedule.”

Technical Review

Borealis, 64 percent owned by International Petroleum Investment Co. and 36 percent by Austria’s OMV AG (OMV), is reviewing the technical aspects of the project, including the need to adjust crackers to accept more ethane, Garrett said.

The bulk of Europe’s crackers are mixed feed or run on naptha, so would require a complete revamp to convert them to ethane, Garrett said.

U.S. shale gas and the expansion of energy companies in emerging markets are changing the hierarchy of global petrochemical companies, with Borealis, China Petroleum & Chemical Corp. (386), known as Sinopec, and Saudi Basic Industries Corp. (SABIC) increasing the challenge to the likes of Dow Chemical Co. (DOW) and DuPont Co., Garrett said.

That means a new chapter for Europe’s chemical industry will emerge, Garrett said. The 1990s was a period of consolidation, with the creation of Borealis from the combination of assets owned by Statoil, Neste Oil and OMV, and Ineos being formed from BP Plc’s divestment of its operations.

Garrett said he expects another wave of consolidation in the region as more intense competition will put the squeeze on Europe’s higher-cost chemical facilities, many of which are more than 30 years old.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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