Shell Poised to Reenter Polyethylene Market After 8-Year Break

Royal Dutch Shell Plc, which last produced polyethylene eight years ago, is poised to reenter the market to increase profit from petrochemical production.

Shell is considering the construction of an ethylene cracker in the U.S. -- announced in June 2011 -- as one route back to polyethylene, known as PE, Graham van’t Hoff, chemicals executive vice-president, said at a briefing in London. There are other options and management has yet to commit to any project, he said.

“It’s more than possible that we will reenter PE,” said the executive, who became head of chemicals Jan. 1. “For the technology, do you buy off the shelf or do more than that? And these are the key questions that we are working through.”

PE is used in consumer goods including garbage sacks and food packaging. The Anglo-Dutch energy company exited the market when it sold its stake in Basell NV in 2005. Since then the field has become populated by low-cost producers in Asia and the Middle East, including Saudi Basic Industries Corp. The emergence of the shale industry in North America has now changed the market and Shell is considering a new cracker complex in western Pennsylvania, van’t Hoff said.

For cost of production, the stiffest competition is in North America and the Middle East rather than Asia, the Oxford University chemistry graduate said, adding that it’s probably cheaper to build a plant in the U.S. because of the abundance of raw materials.

Core Business

Shell remains indirectly involved in PE production through an equally owned joint venture with CNOOC Petrochemicals Investment Ltd. Shell first supplied PE in a partnership with BASF SE called Elenac, which in turn became one-half of the joint venture with Basell. Shell exited that agreement on strategic grounds. Chemicals still generated $1.4 billion in profit for Shell last year, with 18 million tons of product.

“The Basell journey didn’t work out,” van’t Hoff said. “We’re looking at PE as a route to monetize ethylene. Some people would look at PE very much as a core business in its own right.”

Abu Dhabi-owned competitor Nova Chemicals Corp. announced in January that its low-density PE facility in Moore, Ontario, had restarted production at full capacity, part of its strategy to increase petrochemical production amid growing demand in North America.

Integrated Operations

Under van’t Hoff, Shell is driving harder to optimize and integrate chemicals with drilling and refining operations. After a decade or so of restructuring, the focus has returned to expanding the business as demand for petrochemicals is forecast to double by 2030, according to Shell. Projects under way or under evaluation include ones with Qatar Petroleum, and an extension of the Sadaf business partnership with Sabic.

The executive said he draws a line at specialty chemicals as those products don’t match Shell’s competence in big process-engineering and complexes. While competitor Total SA sold some resins businesses to Arkema SA in 2011, it continues to produce the Bostik consumer-adhesive brand, among other products in the specialty market.

“There may be places where money is being made, but that’s not necessarily what we’re good at,” Van’t Hoff said. “If you want to play with chemistry sets, you naturally go to a pure chemical company.”