Document om1nLYo5nZj8O9a8JLerpDRjo

cover story Shell Chemical Thinks Growth Seven Years to Double U. S. Sales INCE ARRIVING LAST SUMMER tots as a major handicap for Shell worldwide. and enhance" category, including ethylene fom the Netherlands to become Shells U.S. and European chemical opera oxide and ethylene glycol, polyethylene Spresident of Shell Chemical tions have been cooperating more closely. (Houston), Jeroen van der Veer Among the company's milestones are the has shaken up the $4.8-bil- 1995 formation of Montell, the worldwide lion/year operation. The Shell polypropylene market leader, with Monte Oil subsidiary was already in the mdidissorno; ftahe launching in early 1995 ofcata business process redesign, and van ldysetrmVeaekrer CRI, Shell's first global chemicals terephthalate (PET), and solvents. Howev er, several businesses in which Shell has leading market positions--including high er olefins, thermoplastic elastomers (TPEs), and epoxy resins---were classified as "trans form or exit." launched a more drastic reorganization on venture; and the formation this year of These moves in top of that. product business teams that bring together chemicals are "consis He has ait staffing from 5,700 to 5,000 representatives from both sides of the tent with an overall and is focused on ensuring globally com Adantic. "We've made huge progress in the Shell strategy to petitive fixed and variable costs and on past year," van der Veer says. "Customers are streamline business- maintaining productivity improvement not very interested in the internal struc and improve momentum. "Otherwise, you're the jogger ture of Shell, especially global customers," returns--not just in who gets left behind," he says. he says. "This improved structure and align chemicals but in other At the same time, he has set an ambitious ment ofstrategies will enable us to have one pans of its port goal to double Shell Chemicals sales in the face to the customers," and he insists folio, next seven years. "Ifwe look at the history don't have double costs." of [Shell Oil], we see the chemical compa Shell has also been reappraising its world ny as being pretty static over the past 10 wide chemical businesses. In July, Evert years, and not the growth we would have Henkes, London-based strategy director hoped for." The aim ofdoubling the com for business services for Shell International pany "ft a very different mindset from the Chemical, created a stir within the industry recent past," van der Veer says. and within Shell with a presentation that Van der Veer's arrival coincides with a underlined Royal Dutch/Shells dissatis series of changes within the Royal faction with the returns from its chem Dutch/Shell group worldwide. Even after ical business (CW, July 17, p. 9).' Royal Dutch/Shell bought full control of it Henkes described only two Shell in 1984, Houston-based Shell Oil has main businesses--base petro tained a certain autonomy--partly because chemicals and Mon of concerns about product liability and tax tell--as "core," fol ation---and was excluded from the McK- lowed by insey-led reorganization launched last year. group of Recognizing global customers' desire to businesses deal with a single supplier, however, and to in the counter what is seen by Shell's competi- "sustain van der Veer: Productivity improvement and globally oompstltlve bualneaaes. 3d. CHEMICAL WEEK. SEPTEMBER 18. 1996 CMA 175138 notably its refining business," says Steven Turner, with brokerage firm James Capel (London). To get costs down, "Shell is hav ing to discard some ofits more decentralized ways," Turner adds. Since such ways have served Shell well, there is hesitation about dis carding them, he says. All these changes, says Rob Harvan of consulting firm Bonner and Moore (Hous ton), demonstrate that there is "a reinvigorated culture in Shell" that is trying to come to grips with a certain complacency that had grown up within the worlds biggest petrochemicals company. Harvan sees evidence ofthe com placency in a slowdown of technological development at Shell and ofgrowth in its spe cialty businesses in the past decade. The strategy that van der Veer talks about ties in with these changes. "To get a new mindset for the people here, we have to make very visible how serious were going to be about growth," he says. That has been framed in the top management organizadon that he put in place in February. Peter dc Leeuw, former v.p,/marketing and chemical sales, is now v.p./gtowth. Alongside him are heads ofShell's four businesses, renamed "strategy directors": Gerald Sylet base chem icals; Tom Cattarin, intermediates and sol vents; Dale Holecek, polymers; and Larry Wheeler, in charge of Shell Oil's Saudi petrochemicals joint venture with Saudi Basic Industries at ALJubail, which represents just under 5% of Shell Chemical's sales. The strategy directors "are the drivers ofthe company," says van der Veer, "with global ly coordinated strategies." FUNKED. These positions are flanked in a matrix structure by operational functions-- marketing, sales, R&D, and manufactur ing--"who can concentrate on operational excellence," van det Veer says. The job cuts are 95% complete. "Instead ofa slow process that makes everybody unhappy, we have had a lot ofvoluntary severances and very lim ited layoffs," he says. "It's better to have that behind you. We've taken out more than one [organizational] layer, and some times three." Some Shell staffers privately express con cern about the new organizations ability to maintain market-leading customer service and product development; van der Veer sees the "horizontal work processes" result ing from the cuts as creating "huge oppor tunities for people to have richer jobs, and jobs that fit the work attitudes that we fore see during the next 10 years, when people will have different expectations." Van der Veer's maxim of"growth based on world class performance" has four direc the merchant market is an important part tions. Capital investment has been set at a of that," says van der Veer. Shell is the top higher level than in recent years. "Our U.S. ethylene merchant marketer (chart, investment path is in the order ofmagnitude p. 37). Shell's launch earlier this year ofa new of $500 million/year," he says. He sees sub approach to merchant sales--the so called stantial opportunity to get more production "virtual" or "time share" cracker--has gar or value out of existing assets--"sweat the nered a lot ofattention. Shell is reportedly assets," as he puts it. He also sees alliances-- proposing long-term contracts in the form such as the merger, announced in July, of of 15-year leases on 50-million lbs/year Shell's worldwide petroleum additives oper ethylene blocks, with a formula-based price ation with Exxon's--as another important and a total volume of 800 million lbs, means ofgrowth. And he expects to make linked closely to the new volumes avail acquisitions. Observers see these as essential able from debottlenecking. A consultant to achieve the growth target; Van der Veer praises the scheme as "a very forward-think says they are likely to be in areas close to ing approach to providing captive eco Shell's core businesses. nomics to merchant buyers," which is also "We love existing businesses in Shell," good for Shell because it strengthens its Van der Veer says. He expects that in 10 years merchant position longer term and pro Shell will still be in basic chemicals, inter vides investment dollars up front to help with mediates, and polymers, although there capacity additions. will be changes within that He envisages that The scheme "helps to take the cyclicity Shell could make another acquisition close out," says van der Veer "So far we think it's to its metier such as the PET business it a success. The first round of offerings is acquired from Goodyear in 1992. He adds, complete, and we could well see more rounds, "Ifyou look ar our portfolio, they are all glob but they aren't planned yet. We want expe al businesses where we can lever research, rience with the first round." Shell continues logistical optimization, technical service, to find plenty ofddbotdeneddngopportunities continuous improvement, and process at its existing olefins units, he says. know-how." In polymers, substantial investment is The blueprint is being applied in Shell under way in PET bottle resin, which is help- Chemical's basic chemicals opera- don. Two small refineries--Louisiana SHELL CHEMICAL'S PORTFOLIO Land's Mobile, AL unit and St. Rose Refuting Co.'s St. Rose, LA unit-- bought during the past year represent 1995 total; $4.8 billion Otbon captive units that enable Shell Chem ical to focus on paraffinic cracker feeds to optimize chemicals produc tion rather than on feeds from refiner ies devoted to gasoline production. Meanwhile, Shell is debottlenecking olefins production. Van der Veer describes the company's ethylene pro duction as the "tree trunk" from which the branches of the business Source: Shell Oil (Houston). grow. At Deer Park, TX, 200 million Ibs/year ofnew capacity started up in April, with another 200 million SHELL'S U.S. SHARE lbs/year scheduled to come onstream by the start of 1998. At Norco, LA, an additional 400 million lbs/year 1999 total: $14.6 billion OdnrWKtan Himtsphara C% of capacity is due onstream in the fourth quarter. The additional 800 million lbs/year will bring Shell's total ethylene capacity to 5.25 billion lbs/year, exceeded in North America only by Dow Chemical and Nova. At Othar Eastern Hmtisphtra 320 million gal/year. Shell Chemical is the top U.S. benzene producer. "We really love base chemicals, and `Shell Chemicel's there ofRoyal Dutch/SheU't total ehmutal lain. Source: Shell Intenuuotiel (London). CMA 175139 CHEMICAL WEEK, SEPTEMBER18, 1996 3 8 cover story fog offiet lost polymer sales revenue from the the customer. That's basically what were share--it claims leadership in hydropro Federal Trade Commission-enforced dis doing at this moment" cessing catalysts, backed up by an alumina posal ofShell Polypropylene in early 1996, Competitors give Shell's epoxies busi supply venture with LaRoche. Through its A 200-million lbs/year PET line is starting ness high marks for its cost position based Zeolyst venture with PQ, Shell is rapidly up at Pt. Pleasant, WV that will bring on its strength in phenol, bisphcnol, and expanding its position in hydrocracking capacity to 900 million lbs/year, while a epichlorohydrin. "Fundamentally, it's a catalysts. "Our philosophy of cradle-to- strong business. Im confused as to grave has served us very well," says van der ETHYLENE MARKET MUSCLE why they're making such a fuss," Veer, and setting the CRI business up as a (in millions oflbs) Shall Ctumteil] lyonMI Phillips Amoco < auL-! ...v< QxyChwn Huntnntn Group Exxon Chunleal Union teas Pstrotamt BFSnodrfch zn RWE-DEA *~1 ** 1 1 0 MO 1,000 1,500 2,000 2.500 says one competitor, although he questions the success of Shell's 1993 purchase of water-based epoxies from Rhone-Poulenc. In Its intermediates business, Shell is "studying whether we can improve our supply position in phenol," van der Veer says. That involves looking ac investment in a world-scale unit or debottle necking. Shell has 300 million lbs/year ofcapacity, tied for third place with Arisrech, which also separate company "is a good philosophy." Industry sources estimate CRTs sales at about $450 million/year. Van der Veer says his reorganization is already producing benefits: cost savings in customer order, inquiry fulfillment, manu facturing, and R&D. "I'm pleased to see many breakthroughs," he says. "Its not always lower cost but higher flexibility at the same cost that is an advantage." Van der Veer also says he sees encouraging signs in new approaches. Through the joint venture with Exxon, "were redefining petroleum additives, "U.S ethylene surpluses bated on 1996 capacity. Source CMAI (Houiton). recently announced expansion while the virtual cracker is a redefinition of plans. Although Shell has large what was seen as one ofthe mote dull com 200-million lbs/year unit is under con positions in chemical solvents such as iso modities," and. it presents some interest struction through affiliate Pecten Pollsters propyl alcohol and methyl ethyl ketone, it ing growth prospects. "Something as novel at Altamira, Mexico for eariy 1998 startup. is hard to see how the company can achieve as the virtual cracker would not have come With the PET market in oversupply and much growth there given that environ out of Shell a few years ago," concurs one prices down 40% in the past year, observers mental pressures put a ceiling on demand. veteran Houston analyse doubt that Shell will want to maintain its Export sales ofthese products are healthy, Shell's margins this year are lower than investment momentum. Some growth however. 1995's banner performance, although vol should come from Shell's new poly- Shell brought major increments ofethylene umes are up. "Let's hope the worst is behind oimethylene tcrephthalate polymer, Corter- oxide (EO) and glycol capacity onstream us," van det Veer says. Shell Chemical's ra, which combines the chemical resistance last year, increasing of polyester with the elastic recovery of capacity by 39%, to nylon. Production ofCorterra is starting up 550,000 rons/year and LL CHEMICAL'S RESULTS at Pl Pleasant. Further out, Shell is study 87%, to 430,000 (inmillions ofdollars) ing how to supply the U.S. market with its new Caiilon polyketone polymer. Van der Veer insists that havingTPEs and epoxies in the transform category "doesn't tons/ycar, respectively. EO consumes 1 billion Ibs/year of Shell's eth ylene output. Shell's 1M4 Sate , $3.378 $3,354 $3,687, $4,075 $4,841 Income from `' ^ ^ J'/ mean exit." In late 1995, Shell restarted higher olefins business, ongoing operations ,163 93 ; ^220 ' 223 704 the Bdpte, OH TPE unit destroyed in a fatal which takes an addi accident in May 1994. "We fed very good tional 1.4 billion Ibs/year Capital expondttim. 199 . 343 422 about our market share" in TPEs, van der Veer says. He says it is "a real global business" and that "we are very committed to it," ofethylene, gives Shell "a pretty good feeling about [higher olefins] Employ#* 5,500x 5il85^4(957 5,000 5.6651 1) Inara* is due (d internal Sbefl ii^i`im|_riiniiij'u i to Shell Qtemkal who had been part af Shell Oil nvii*fmakoi, SqqhtcShell Oii(Houitt>n). although certain segments "did not per in the U.S.," van der form well." Similarly, van der Veer says Shell sees dis appointing profitability in epoxies in certain parts of the world, and there is a "risk ofa spillover of[low] prices to the U.S. ifwe don't transform the business." Shell has leading market positions in epoxies and TPEs. In all the businesses in the transform category, to which Shell is committed, he says, the strat egy is to "make sure you have enough momentum to make sure the plants are world-scale from a cost levd and to make minor product improvements in the eyes of Veer says, although the business has been put in the transform category, "The problem is that long term this is not good enough to be very successful, ifwe're not strong elsewhere in the world," he says. "We have to be at our best, not only in this part ofthe world, but to make sure that globally we are successful in these product envelopes." An unsung success story for Shell is cata lyst business CRI. It claims leadership posi tions in ethylene oxide catalysts, regenera tion, and metals recycling. Through Criterion--in which Cytec has a 50% recent results have also been helped by the end of exceptional charges in excess of $200 million in 1994 for liability litigation and $185 million for environmental lia bilities in 1993. How docs he feel as a Dutchman running a U.S. chemical industry powerhouse? "I'm not the first foreigner [in Shell Oil]," he says. "Here in the U.S, you're part of a very dynamic, competitive, ambitious environ ment. You can feel that. The speed and flexibility is high here, and I enjoy that." --DAVID HUNTER in Houston CHEMICAL WEEK, SEPTEMBER 18. l 37 CMA 175140 % SEPTEMBER IS. iJflk&o-sjljJ-L ghell Chemical chemicalweek Thinks Growth Seven Years to Double U.S. Sales INCE ARRIVING LAST SUMMER ment of strategies will enable us to have one from the Netherlands ro become face to the customers," and he insists "we Spresident of Shell Chemical don't have double costs." (Houston), Jeroen van der Veer Shell has also been reappraising its world has shaken up the 54.8-bil wide chemical businesses. In July, Evert lion/year operation. The Shell Henkes, London-based strategy director "Oil subsidiary was already in the midstfoorfbausiness services for Shell International business process redesign, and van der VCeheermical, created a stir within the industry launched a more drastic reorganization on and within Shell with a presentation that top of that. underlined Royal Dutch/Shell's dissatis He has cut staffing from 5,700 to 5,000 faction with the returns from its chem and is focused on ensuring globally com ical business {CW, July 17, p. 9). petitive fixed and variable costs and on Henkes described only two Shell maintaining productivity improvement businesses--base petro momentum. "Otherwise, you're the jogger chemicals and Mon- who gets left behind," he says. tell--as "core," fol At the same time, he has set an ambitious lowed by a goal to double Shell Chemical's sales in the group of fcnext seven years. "Ifwe look at the history "of [Shell Oil], we see the chemical compa businesses in the ny as being pretty static over the past 10 "sustain years, and not the growth we would have hoped for." The aim of doubling the com pany "is a very different mindset from the recent past," van der Veer says. Van der Veer's arrival coincides with a series of changes within the Royal Dutch/Shell group worldwide. Even after Royal Dutch/Shell bought full control of it in 1984, Houston-based Shell Oil has main tained a certain autonomy--partly because ofconcerns about product liability and tax ation--and was excluded from the McKinsey-led reorganization launched last year. Recognizing global customers' desire to deal with a single supplier, however, and to counter what is seen by Shell's competi and enhance" category, including ethylene oxide and ethylene glycol, polyethylene terephthalate (PET), and solvents. Howev er, several businesses in which Shell has leading market positions--including high er olefins, thermoplastic elastomers (TPEs), and epoxy resins--were classified as "trans form or exit." These moves in chemicals are "consis tent with an overall Shell strategy to streamline business es and improve returns--not just in chemicals but in other tors as a major handicap for Shell worldwide. parts of its port Shells U.S. and European chemical opera folio, tions have been cooperating more closely. notably its refining business," says Steven Among the company's milestones are the Turner, with brokerage firm James Capel 1995 formation ofMontell, the worldwide (London). To get costs down, "Shell is hav polypropylene market leader, with Monte ing to discard some of its more decentralized dison; the launching in early 1995 of cata ways," Turner adds. Since such ways have lyst maker CRI, Shell's first global chemicals venture; and the formation this year of product business teams that bring together served Shell well, there is hesirarion about dis carding them, he says. All these changes, says Rob Harvan of representatives from both sides of the consulting firm Bonner and Moore (Hous Atlantic. "We've made huge progress in the ton), demonstrate that there is "a rdnvigotated past year," van der Veer says. "Customers are culture in Shell" that is trying to come to grips not very interested in the internal struc with a certain complacency that had grown ture of Shell, especially global customers," up within the world's biggest petrochemicals he says. "This improved structure and align company. Harvan sees evidence of the com placency in a slowdown of technological development ar Shell and ofgrowth in its spe cialty businesses in the past decade. The strategy that van der Veer talks about tics in with these changes. "To get a new mindset for the people here, we have to make very visible how serious we're going to be about growth," he says. That has been framed in the top management organization that he put in place in February. Peter de Lecuw, former v.p./marketing and chemical sales, is now v.p./growth. Alongside him are heads of Shell's four businesses, renamed "strategy directors": Gerald Syler, base chem icals; Tom Cattarin, intermediates and sol vents; Dale Holecek, polymers; and Larry Wheeler, in charge of Shell Oil's Saudi petrochemicals joint venture with Saudi Basic Industries at Al-Jubail, which represents just under 5% of Shell Chemical's sales. The strategy directors "are the drivers of the company," says van der Veer, "with global ly coordinated strategics." FUNKED. These positions are flanked in a matrix structure by operational functions-- marketing, sales, R&D, and manufactur ing--"who can concentrate on operational excellence," van der Veer says. The job cuts are 95% complete. "Instead ofa slow process that makes everybody unhappy, we have had a lot of voluntary severances and very lim ited layoffs," he says. "It's better to have that behind you. We've taken out more than one [organizational] layer, and some times three." Some Shell staffers privately express con cern about the new organization's ability to maintain market-leading customer service and product development; van der Veer sees the "horizontal work processes" result ing from the cuts as creating "huge oppor tunities for people to have richer jobs, and jobs that fit the work attitudes that we fore see during the next 10 yean, when people will have different expectations." Van der Veer's maxim of"growth based on world class performance" has four direc tions. Capital investment has been set at a higher level than in recent years. "Our investment parh is in the order ofmagnitude of5500 million/year," he says. He sees sub stantial opportunity to get more production or value out of existing assets--"sweat the assets," as he puts it. He also sees alliances-- such as the merger, announced in July, of Shells worldwide petroleum additives oper ation with Exxon's--as another important means of growth. And he expects to make (continued on next page C M A 175141 (continued from preceding page) acquisitions. Observers see these as essential to achieve the growth target; Van der Veer _says they are likely to be in areas dose to ^^Khell's core businesses. "We love existing businesses in Shell," Van der Veer says. He expens that in 10 years Shell will still be in basic chemicals, inter mediates, and polymers, although there will be changes within that. He envisages that Shell could make another acquisition dose to its metier such as the PET business it acquired from Goodyear in 1992. He adds, "Ifyou look ar our portfolio, they are all glob al businesses where we can lever research, logistical opdmization, technical service, continuous improvement, and process know-how." The blueprint is being applied in Shell Chemical's basic chemicals opera tion. Two small refineries--Louisiana Land's Mobile, AL unit and Sc. Rose Refining Co.'s St. Rose, L4 unit-- bought during the past year represent - captive units that enable Shell Chem ical to focus on paraffinic cracker feeds to optimize chemicals produc tion rather than on feeds from refiner ies devoted to gasoline production. Meanwhile, Shell is debottlenecking olefins production. Van der Veer ^^lescribes the company's ethylene pro^^Buction as the "tree trunk" from which the branches of the business grow. At Deer Park, TX, 200 million Ibs/year of new caparity started up in April, with another 200 million lbs/year scheduled to come onstream by the start of 1998. At Norco, LA, an additional 400 million Ibs/year of capacity is due onstream in the fourth quarter. The additional 800 million lbs/year will bring Shells total ethylene capacity to 5-25 billion lbs/year, exceeded in North America ~ only by Dow Chemical and Nova. At 320 million gal/year, Shell Chemical is the top U.S. benzene producer. "We really love base chemicals, and the merchant market is an important part of that," says van der Veer. Shell is the cop U.S. ethylene merchant marketer {chart, p, 37). Shells launch earlier this year ofa new approach to merchant sales--the so called "virtual'' or "time share" cracker--has gar nered a lot of attention. Shell is reportedly proposing long-term contracts in the form of 15-year leases on 50-million lbs/year ethylene blocks, with a formula-based price ^^knd a total volume of 800 million lbs, ^^pnked closely to the new volumes avail able from debottlenecking, A consultant praises the scheme as "a very forward-think ing approach to providing captive eco nomics to merchant buyers," which is also good for Shell because it strengthens its chemicalweek merchant position longer term and pro vides investment dollars up front to help with capacity additions. The scheme "helps to take the cyclicity out," says van der Veer. "So far we think it's a success. The first round of offerings is complete, and we could well see more rounds, but they aren't planned yet. We want expe rience with the first round." Shell continues to find plenty ofdebotdeneddng opportunities at its existing olefins units, he says. In polymers, substantial investment is under way in PET botde resin, which is help ing offset lost polymer sales revenue from the Federal Trade Commission-enforced dis posal of Shell Polypropylene in early 1996. A 200-million lbs/year PET line is starting up at Pt. Pleasant, WV chat will bring capacity to 900 million lbs/year, while a 200-million lbs/year unit is under con struction through affiliate Pccten Poliesters at Altamira, Mexico for early 1998 startup. With the PET market in oversupply and prices down 40% in the past year, observers doubt that Shell will want to maintain its investment momentum. Some growth should come from Shell's new polynimethylene tcrephthalate polymer, Corterra, which combines the chemical resistance of polyester with the elastic recovery of nylon. Production of Corcerra is starting up ar Pt. Pleasanc. Further out, Shell is study ing how to supply the U.S. market with its new Carilon polyketone polymer. Van der Veer insists that having TPEs and epoxies in the transform category "doesric mean exit." In late 1995, Shell restarted the Bdprc, OH TPE unit destroyed in a fetal accident in May 1994. "We feel very good about our market share" in TPEs, van der Veer says. He says it is "a real global business" and that "we arc very committed to it," although certain segments "did not per form well." Similarly, van der Veer says Shell sees dis appointing profitability in epoxies in certain parts of the world, and there is a "risk of a spillover of [low] prices to the U.S. ifwe don't transform the business." Shell has leading market positions in epoxies and TPEs. In all the businesses in the transform category, ro which Shell is committed, he says, the strat egy is to "make sure you have enough momentum to make sure the plants are world-scale from a cost level and to make minor product improvements in the eyes of CMA 175142 the customer. That's basically what we're doing at this moment." Competitors give Shell's epoxies busi ness high marks for its cost position based on its strength in phenol, bisphenol, and epichlorohydrin. "Fundamentally, it's a strong business. I'm confused as to why they're making such a fuss," says one competitor, although he questions the success of Shell's 1993 purchase of water-based epoxies from Rhone-Poulenc. In its intermediates business, Shell is "studying whether we can improve our supply position in phenol," van der Veer says. That involves looking at investment in a world-scale unit or debottle necking. Shell has 300 million lbs/year of capacity, tied for third place with Aristech, which also recently announced expansion plans. Although Shell has large positions in chemical solvents such as iso propyl alcohol and methyl ethyl ketone, it is hard to see how the company can achieve much growth there given that environ mental pressures put a ceiling on demand. Export sales of these products are healthy, however. Shell brought major increments ofethylene oxide (EO) and glycol capacity onstream last year, increasing capacity by 39%, to 550,000 tons/year and 87%, to 430,000 tons/year, respectively. EO consumes 1 billion lbs/year of Shell's eth ylene output. Shell's higher olefins business, which takes an addi tional 1.4 billion Ibs/year of ethylene, gives Shell "a pretty good feeling about [higher olefins] in the U.S.," van der Veer says, although the business has been put in the transform category. "The problem is thar long term this is not good enough to be very successful, ifwe're not strong elsewhere in the world," he says. "We have to be at our best, not only in this part of the world, but to make sure that globally we are successful in these product envelopes." An unsung success story for Shell is cata lyst business CRI. It claims leadership posi tions in ethylene oxide catalysts, regenera tion, and metals recycling. Through Criterion--in which Cyiec has a 50% (continued on next page) (continued from preceding page) share--it claims leadership in hydropro cessing catalysts, backed up by an alumina supply venture with LaRoche. Through its Zeolyst venture with PQ, Shell is rapidly expanding its position in hydrocracking catalysts. "Our philosophy of cradle-tograve has served us very well," says van der Veer, and setdng the CRI business up as a separate company "is a good philosophy." Industry sources estimate CRTs sales at about $450 million/year. Van der Veer says his reorganization is already producing benefits: cost savings in customer order, inquiry fulfillment, manu facturing, and R&D. "I'm pleased to see many breakthroughs," he says. "It's not chemicaiweek always lower cost but higher flexibility at the same cost that is an advantage." Van der Veer also says he sees encouraging signs in new approaches. Through the joint venture with Exxon, "we're redefining petroleum additives, while the virtual cracker is a redefinition of what was seen as one of the more dull com modities," and it presents some interest recent results have also been helped by the end of exceptional charges in excess of $200 million in 1994 for liability litigation and $185 million for environmental lia bilities in 1993. How does he feel as a Dutchman running ing growth prospects. "Something as novel as the virtual cracker would not have come ouc of Shell a few years ago," concurs one veteran Houston analyst. Shell's margins this year are lower than a U.S. chemical industry powerhouse? "I'm not the first foreigner [in Shell Oil]," he says, "Here in the U.S, you're part of a very dynamic, competitive, ambitious environ ment. You can feel that. The speed and 1995's banner performance, although vol flexibility is high here, and I enjoy that." umes are up. "Let's hope the worst is behind --DAVID HUNTER in Houston us," van der Veer says. Shell Chemical's SEPTEMBER IS. 1596 Benlate DF Litigation Fourth Ruling Against DuPont SEPTEMBER 18. upont cannot stem a recent spate Dof unfavorable rulings in Benlate DF fungicide lawsuits. Early this month a Hawaii state judge ruled that the company had witheld evidence chat might have shown chat Benlate was contaminated with the weed killer sulfonylurea (SU). That marks the fourth time since January 1995 that a judge has found DuPont guilty of legal misconduct in Benlate cases. The current ruling is based on testimony in a July 1993 Benlate hearing in Hawaii in which a DuPont attorney' claimed that the company had no "ongoing" tests of possi ble SU contamination; however, the judge agreed with plaintiffs chat DuPont withheld early test data contracted to a California lab that might have influenced the S4.35-million settlement. DuPont says the latest ruling mirrors the finding last year of a Georgia judge, who fined the company $ 115 million for alleged- ly withholding the same test data (CW Sept. 6,1995, p. 18). "Former plaintiffs who voluntarily see ded their Benlate cases more chan three years ago now seek more money from DuPont based on allegations ofscientific and legal misconduct thac are untrue," accord ing to a company statement. STILL HOPEFUL. DuPont is appealing the Georgia case and looks to a favorable out come to remedy the other misconduct rul ings, including another one from a Hawaii court in January 1995 and one from a Miami court just two months ago. In other Benlate litigation, last June a Miami judge awarded $4 million to a woman who claimed that exposure to Ben- late during her pregnancy caused her son to be bom without eyes. DuPont is also appeal ing thac verdict. --JUDY STRINGER 5 m ^ y Audit Privilege EPA, States Battle over Immunity ALTHOUGH MORE THAN 18 STATES HAVE PASSED AUDIT PRIVILEGE BILLS that give immunity to companies thac voluntarily disclose noncompliance found during environmental audits, the measures apparendy do not have EPA!s sanction. According to the Washington T Foundation, EPA says it will revoke state-delegated authority over air, water, or hazardous waste programs where the agency deems a states immunity bill might weaken enforcement ofa federal program. This year Michigan, New Hampshire, South Dakoca, and South Carolina passed audit privilege bills, joining 14 states that have enacted similar legislation (CW Nov. 1, 1995, p. 34); however, the state bills do not protect companies against federal agencies or courts. EPA defends its policy, promising to waive or reduce penal ties for violations discovered in an audit, but it reserves the righc to consider each case individually. Earlier this year EPA instructed its regional offices to review state audit protection laws before approving state air programs. The Washington Legal Foundation says many states have felt the impact of chat directive--including Colorado, Idaho, and Texas, which have had approval for state-run federal waste and air permit programs withheld or declined. EPA has been allegedly pressuring states con sidering immunity bills not to enact them. The foundation is call ing for the adoption of a federal policy to protect audit information. Federal legislation on audit privilege was introduced in the Senate last May but foiled to gain support {CW, May 29. p. 13). --JUDY STRINGER FOR BASF, BIG CHEMICAL & ENGINEEBING NEWS SEPTEMBER 1 , 1996 sayS_ we ^ ourselves what mar S STILL BETTER kets will be served? What do they mean to our portfolio structure? What do we need in raw materials? All those questions are tied together." Restructuring and becoming `transnational,3 the huge, integrated company still believes in huge, integratedplant sites the business could not be abrupt. Patrida L- Layman C&EN London The magnetics sale fits in with guidelines the company has established for underperforming businesses and assets. The company has established deadlines n 1932, two German industrial firms-- for making such assets attractive to BASF Ichemicals producer BASF (Badische over the long-term, he says; if it becomes Anilin und Soda Fabrik at that time) dear they cannot meet the deadlines, and electricity company AEG--began a and that they would receive better care collaboration that culminated in the first from someone else, BASF is willing to let tape recorder, introduced in 1935 at the the business go. Berlin radio exhibition. Last month, BASF Another example is BASF's pending signed a letter of intent to exit the mag sale of most of its holding in German pot netic tapes business by selling its magnet ash producer Kali & Salz to Potash Corp. ic products operations to Turkish elec of Saskatchewan (PCS) (C&EN, Sept. 9, tronics company RaKS. page 8). "Potash is not a core business of The business isn't a big part of BASF, but it is of PCS--this deal will help BASF--only about 3% of total sales in them go global," Strube says. European 1995 of the company that topped antitrust authorities have expressed some ^tEN's Global Top 50 list this year. But concern about the purchase, but Strube decision to shed some of its history believes the deal ultimately will go is a dramatic indication that the Ger through; "We are convinced the question man chemicals giant is grappling with can be resolved. The sales and market po the thorny challenge of reshaping itself sition of PCS is in North America and Asia, to capitalize on the strengths in its and Kali & Salz is in Europe. The real com tightly integrated portfolio. petitors to any European producers are "Magnetics were originally close to the C.I.S. [former Soviet Union], Israel, and our core competencies--pigments, coat ings, and plastics," Jurgen Strube, chair man of BASF, tells C&EN. "But in the 1980s, the business changed dramatical ly. It is now driven by consumer elec tronic equipment manufacturers. There fore. [BASF's magnetics unit] is better off in the hands of a company focusing on these businesses." Although the magnetics business had been losing money over the past few years, and management was sometimes criticized for not bailing out earlier, the exit took time, Strube says. "We have struggled very hard to turn the business around. And we have done so, so other partners couid be attracted to the busi ness. It is difficult to find a partner inter ested in a company posting losses, but if Jordan." Such global concerns arc playing an in creasingly important role in shaping the companies of the chemical industry. As Strube puts it, "We are following and serv ing our customers. We must identify op portunities arising from the decisions of our customers. What kinds of companies, for example, are establishing a base in Chi na? Should BASF establish a base there, too, or will those customers be satisfied [with being] supplied with imports?" The company must then ask itself, he continues, "Do we really want to invest so much in country A or B? Or would that be an accumulation of risks so big we don't want to? .Are the rewards big enough? It is not top-down analysis, but a bottom-up demand from our custom ^ys doing better than breakeven, somemight be interested." ^^Besides, he adds, the employees in the business "had made sacrifices in the past." That dictated that the company's exit from ers" that shapes the company's decision on what its priorities will be. Also contributing to the priority setting, Strube adds, is the implication for raw ma terials. "We don't want to be raw materi als driven--for example, to say that we need a cracker in each major market," he Such questions become particularly important when the company begins considering a major investment, such as the one it is negotiating for China. BASF's earliest investments in China, in the be ginning of this decade, were small and scattered--dependent. Strube says, on the desires and locations of the compa ny's joint-venture partners. Since then, however, BASF's historic preference for large, integrated sites has come to the fore in its proposals for a major petrochemicals complex in Nan jing, near Shanghai, worth some $4 bil lion--a sum that has raised eyebrows in the financial analyst community. Strube doesn't envision "Ludwigshafen 2," a duplication of its highly inte grated and intertwined, massive head quarters complex. "Ludwigshafen can not be repeated," he states. "There are 131 years of development in the chemi cal industry there, it simply cannot be re peated." He cites BASF's integrated site in .Antwerp, Belgium, as an appropriate model for the Chinese site. Integration is particularly important-- and valuable--to BASF, Strube contends. He refers to the concept of "verbund"-- basically translated, a compound or associ ation, but in context, much more. "It does not mean just integrated production units. It also involves know-how sharing; inte grated energy management; and synergies in logistics, distribution, and infrastructure as well as in raw material supply and waste management," he says. And although financial analysts often criticize the company's integrated depen dence upon "heavy chemicals"--of the major German chemical producers, it is the least diversified into areas such as pharmaceuticals and health care--BASF remains convinced of the soundness of this approach. As Strube argues, "We believe that in logistics, infrastructure, and energy man agement alone, BASF profits from an inte gration bonus worldwide of at least 1 bil lion deutsche marks [about $675 million] every year." He cites an example; In Ant werp, BASF has "optimized energy man agement in our 50 plants. Despite our en ergy-intensive processes, and due to our energy recovery systems, we need almost no fossil fuels to generate process steam." (continued on next page) C M A 175144 rw* *.' CHEMICAL & ENGINl^EERINGj' djt NEWS PSatrhiciea Ll.lLrayemoan,rCg&aENnLiozndeons to better focus its portfolio on global marketst the beginning of the year, Anglo- In the leadership category. Shell tone, which will be supported Al Dutch oil and chemicals giant Royal- Dutch/Shell pulled into place a newly reorganized structure that abol places a variety of units, including sty rene, propylene oxide, ethylene oxide and ethylene glycol, polyethylene by a new plant opening in the U.K. this August, and Corterra, a polytrimethylene tere ished its former complex matrix of re terephthalate (PET), catalysts, and hy- phthalate carpet fiber, for gional, functional, and business-sector -drocarbon and chemical solvents. which a plant will come on organizations. Instead, the corporation "These businesses," says Henkes, "we stream in Mount Pleasant, settled on four overall businesses-- must sustain and enhance." An example W.Va., in the third quarter of exploration and production, oil prod he dtes is Basell, the 50-50 joint venture this year. ucts, gas and coal, and chemicals-- in styrene and propylene oxide with According to Henkes, "The which, in turn, guide a number of op BASF in Moerdijk, the Netherlands. criteria for these businesses erating companies. 'This will be a handsome world-scale are [that they have] fast, posi For the chemicals opera operation," he says. "There is no inten tive, and material impact [on tion, as for the others, the past tion of this joint venture being global; it Shell's sales and earnings]." year has been preoccupied is just a manufacturing, single-site ven Fast is important: The Carilon with the reorganization, says ture. We will be the operator. This is a project, for example, had lan Evert Henkes, director of very focused manufacturing joint vul guished for nearly a decade strategy and business servic ture. BASF will market its half of the before the company finally es. Henkes is, in effect, the production, as we will ours." threw its weight behind de successor to the corporation's As for PET, he notes, "depending on veloping it. "It is important to reduce former chemicals coordinator. what parameter you measure, we are the time from discovery of the mole Chemical sales totaled about second or third globally. Until last year, cule to market," he says. "We want few 15 billion in 1995. The newly the business was attractive not just for and large, not a ragbag of products. Our rganized operation is only growth but for margins; today, growth strength is dealing with large units on a now coming up for air and is (is still strong], but the margins are not low-cost basis, not in niche marketing." ready to discuss with the out side world the reorganization that has given Shell Chemical a dozen operating business es--ones the company is now attractive. We must look at the cycles, and make sure we can make an accept able return." ^ One problem he sees is increasing capacity worldwide: With the new PET The company has developed a new process for methyl methaaylate, and, Henkes says, it is discussing commer cialization with a potential partner. Ad ditionally, he says, "we would expect in and wants to stay in. The capacity coming on-line from various to make an investment in another Car chemicals operation also in producers worldwide, he says, "we ilon plant outside Europe and would cludes a research structure will drop down in the rankings. To expect to announce that by year-end." that debuted in April, one sustain our position, must we build The next plant, he adds, will be larger that Shell Chemical hopes more capacity, adding to a capacity than the U.K. plant, which will have a will make its efforts more co- ' " spiral? It is a conundrum we must con capacity of 44 million lb per year. ordinated and effective. tinue to evaluate. Are there ways to The company's answer to "under- A five-person business com- j.'. = achieve leadership--for example, in performing" businesses, he says, is rel mittee now leads Shell Chem cost or quality--to allow us to have an atively simple: Transform them or exit ical, with responsibility for acceptable return in margins at the them. For example, it is changing its Shell Chemicals Europe, pet trough of the cycle? Part of the exami marketing strategy in thermoplastic rochemicals outside Europe, nation of the options we have is feed elastomers to emphasize its Kraton specialties, research and tech stocks. We have a lot of p-xylene, but special grades. It has already exited the nical services, and strategy and busi it's in the wrong place and is the wrong crop protection chemicals business, ness services. They, in turn, work with sort," he points out, although he adds, selling that unit in 1993. the teams running the operating busi "that doesn't mean we can't Shell's polyvinyl chloride (PVC) nesses, which range from basic petro change that. I would rather business has been reorganized and re chemicals to fine chemicals. not get into purified tere- engineered over the past couple of Shell Chemical has roughly sorted phthalic add. But, we won't years, he says, and the company has those businesses into three categories, predude any option if it is the developed better relations with cus which are, according to Henkes--'lead way to get cost advantage tomers and suppliers. "Rovin, our ership" businesses, "new" businesses, and enjoy the growth PET joint venture with Akzo Nobel, is a and "businesses not currently meeting has got," leader in the industry," Henkes says. requirements." New businesses are being "In that way, being in the PVC busi CMA 175145 found, selected, and devel oped, Henkes suggests. Ex ness] we are maximizing shareholder value. But it's a lousy business, right amples are Carilon polyke now," it's in a cyclical downturn. "Pa- fcontinued An npyt nnopt (continued from preceding page) CHEMICAL & ENGINEERING NE tience is a factor/' he continues. "In s consideration, we are not a short- in operator. We will have to continto evaluate the business." In epoxy resins, he concedes, "we are a leading producer, but up to now, we haven't managed well on a global basis. We need to optimize what we have globally. What we have on a local or regional basis might not make sense." He says Shell looked at what Ciba and Sandoz might do with their epoxy resins and "concluded that get ting together might not be acceptable to various regulatory authorities. We will go with organic growth," that is, growth through the company's own ef forts rather than through acquisitions in this area. Shell's latest venture to be an nounced is another effort to transform an underperforming business, petro leum additives. In a 50-50 venture. Shell and Exxon Chemical will com bine their oil additives businesses, with start-up planned in 1997. The model for the additives joint venture, says Henkes, will be Montell--Shell's 50-50 polymers joint venture with Italy's ^tontedison. "It will have its own ^b, and future patents will belong to the venture. Current relationships with the parent companies already are on an arm's length basis, and this will contin ue. There will be no competing addi tives business in either of the parents." Lubrizol will probably remain the number one petroleum additives sup plier, he notes, "but we won't be too much behind." In all the company's businesses, an increasing emphasis is internationaliza tion. "We want to become a global company. To become a global compa ny, however," he adds, "you don't need a plant in each country--you need it in a logical location, serving customers best. You operate wherever it makes sense. We have no geographic bias at all." The company is working to build what he sees as "truly global product business teams. We have 12 of these," for each of the basic product areas that compose Shell Chemical. These product areas lie in the three main chemical divisions that Royal ^Bjxh/Shell has traditionally drawn its financial reporting: base chemi cals, industrial products, and polymers. Base chemicals, by the company's definition, include the lower olefins ethylene, propylene, and butadiene/ butylenes; aromatics; styrene and co product propylene oxide; and methyl ferf-butyl ether. They accounted for some 19%, or S2.77 billion, of Shell's net chemical sales in 1995. Industrial chemicals, which contrib uted $4.17 billion or 29% of 1995 net chemical sales, include hydrocarbon and oxo-solvents; higher olefins, such as the C6-C20 range produced by the company's Shell Higher Olefins Pro cess; detergent intermediates and surfactants; and ethylene oxide and " derivatives. Shell's polymers businesses made up a full half of the company's net chemical sales, or 57.33 billion, in 1995. This segment includes such com pounds as polyvinyl chloride, poly styrene, thermoplastic elastomers, and new specialty polymers such as Carilon polyketone. The remaining share of Shell's net chemical sales, 5309 million, came from a miscellany of operations, including catalysts and the oil additives that are being put into the joint venture with Exxon. Fine chemicals are also part of this small portion, a collection of inter mediates that sit uncomfortably with the company's core ethylene-based businesses and that Shell would proba bly not mind selling or putting into a joint venture. The teams responsible for these areas are made up of representatives from the various geographic units--for ex ample, for Europe, North America, and other regions. The teams also include representatives from key manufactur ing sites and from research and tech nology. These semiformal units, Henkes says, "are mandated to maxi mize the group's global shareholder value. It is still in the early days, and we're going up the learning curve with this. These teams will advise the busi ness committee on all strategic issues on that product." The teams are one way to cope with the disadvantages of decentralization. "One strength we think we have had in the past is decentralization, and we I want to keep that," he says. "The oper| ating units remain self-standing, but with a stronger sense of alignment" across geographical boundaries than before. As the company has moved to ward this global emphasis, he adds, even the historically prickly relation ship with Shell in Houston has become much closer. "It behooves us all to have that sense of alignment. "We are reintroducing the concept, the word into our vocabulary, of growth. We are not just looking at costs. In creasing profitability and growth will lead to increased shareholder value. Our goal has been: For sustainable higher level of profitability, you must have growth." That growth will be underpinned by an ambitious capital spending plan through the end of this decade. The company has announced it will spend some $7.5 billion through 2000 on chem ical projects. Included are various petro chemical projects in Singapore, the Shell/BASF venture in Moerdijk, addi tional PET capacity in the U.S. and Mex ico, and ethylene expansion in the L:.S. In addition. Shell has been negotiat ing over the course of nine years for a $6 billion refinery and petrochemi cal project in southern China. Says Henkes, "It is as important for China as it is for us to make sure we all get it right." However, the impression is left that pragmatism may finally over whelm patience. He adds: "I would ex pect we would make a decision with [Chinese officials] one way or the other by the end of the year. There are op portunities we can't let go by to get our fair share of the growth in Asia because of delays in China." Q CMA 175146