b u s i n e s s BIB
BASF CHEMICALS FOLLOWS VERBUND German firm's North American chemicals business is practicing the integration strategy honed at the mother site in Ludwigshafen
Michael McCoy C&EN Northeast News Bureau
L udwigshafen, Germany, is the showcase site for BASF A.G.'s strategy of total integration, known as Verbund,
but continued investment is gradually transforming the company's operations on the North American Gulf Coast into something of a New World replica.
BASF Corp., the German firm's North American subsidiary, will invest about $4 billion over the next five years in expansions and new plants that capitalize on Verbund. About half of this sum will go to the chemicals division, mostly at its big, integrated sites in Freeport, Texas, and Geismar, La.
The company detailed how these investments will fit into the overall Verbund strategy on a recent press tour of BASF operations in Altamira, Mexico; Freeport; and Geismar.
BASF's single biggest North American investment is its 60% share in a $1 billion joint-venture ethylene cracker being built in partnership with Fina in Port Arthur, Texas. Although it won't be on a BASF site, the cracker will be connected by pipeline with Geismar and Freeport to supply existing plants and new projects.
About $1 billion worth of these projects will occur in Geismar. They include a new acetylene unit that will feed butanediol operations, nitrobenzene and aniline units to supply a new methylene diphenyl diisocyanate (MDI) facility being built by BASF's polymer division, co-generation and wastewater treatment upgrades, and about $250 million in investments yet to be announced.
Freeport, which has received the bulk of investment in recent years, will get the
Jennings: Verbund in mind
other $400 million, including a new oxo alcohol facility that started up earlier this year; a cogeneration facility; a 1,6-hex-anediol plant; and others under study.
Carl A. Jennings, president of BASF's North American chemicals division, ex
pects that these projects, internal growth, and acquisitions should combine to take chemical division sales from an expected $1.7 billion this year to $2.7 billion in 2001.
As sales and production grow, so do Ver-bund-based savings. BASF executives say integration at the huge Ludwigshafen site saves the company more than $600 million a year versus production at a nonintegrated location.
In the U.S., BASF has calculated that it will save about $50 million per year by integrating the new steam cracker with Fina's refinery in Port Arthur. Jennings says this is partly because low-value cracker products such as C4 raffinate can be sent to the refinery, w iile low-value refinery products such as\ naphtha feed the cracker.
A Verbund savings calculation hasn't been made for the Geismar and Freeport sites, but examples of integration economics abound.
At Freeport, the company is constructing a hex-anediol plant that will consume as feedstock an adipic
acid-rich stream that would otherwise require costly purification; the stream is produced during the oxidation of cyclohex-ane, a raw material used to make the nylon 6 intermediate caprolactam.
A second diol facility, for Neol brand neopentyl glycol (NPG), hasn't been finalized, but a project is under study to triple current NPG capacity to 60,000 metric tons per year.
The expanded NPG facility will consume isobutyraldehyde, a by-product of the oxo alcohol (1-butanol and 2-ethyl-hexanol) operations in Freeport. Today, most isobutyraldehyde is converted to isobutyl alcohol, a low-priced alcohol, but almost all of it will move into the much higher value NPG application if the expansion goes ahead.
In Geismar, Verbund is also practiced "cross fence," by integrating other area chemical companies into BASF operations such as isocyanates.
Air Products & Chemicals is constructing a $70 million dinitrotoluene facility that will supply BASF's toluene diisocyanate (TDI) plant with its key feedstock. In addition, Air Products is constructing a plant that will process off-gas from BASF's planned acetylene facility into a hydrogen-carbon monoxide feedstock used by its MDI, TDI, and butanediol operations.
Near the Air Products dinitrotoluene plant, on land acquired from BASF, Air Liquide is building cogeneration and air separation plants that will supply needed steam and oxygen.
And completing the integration of iso-cyanate operations, William J. Lizzi, head
BASF invests heavily in
Product
Acrylic acid Oxo alcohols Polystyrene Caprolactam Styrenics Acetylene Aniline Methylene diphenyl
diisocyanate Nitrobenzene Ethylene Propylene Hexanediol Neopentyl glycol Toluene diisocyanate Source: BASF Corp.
Expansion (thousands ο
metric tons per year)
150 150 110 40
130 50
120 140
160 860 860 25 40
140
North America
f
Site
Freeport, Texas Freeport, Texas Joliet, III. Freeport, Texas Altamira, Mexico Geismar, La. Geismar, La. Geismar, La.
Geismar, La. Port Arthur, Texas Port Arthur, Texas Freeport, Texas Freeport, Texas Geismar, La.
Completion
1997 Q2 1998 Q4 1998 Q2 1999 Q2 1999 Q4 1999 Q2 2000 Q2 2000
Q2 2000 Q4 2000 Q4 2000 2001 2001 2001
OCTOBER 12, 1998 C&EN 23
b u s i n e s s m
Sticking points on Mexican investment
BASF wants to develop its new Altamira, Mexico, site into a full-fledged Verbund (total integration) complex while expanding into other chemical businesses in Mexico. Before proceeding, however, it must first resolve certain issues with the state-owned oil company, Petroleos Mexicanos (Pemex).
BASF acquired the Altamira site on the Gulf of Mexico in 1988, after several years of searching for a Mexican production base. Infrastructure at the site was laid in 1991 and 1992, and it has been expanding ever since.
By 1995, it was producing acrylic and styrene-butadiene dispersions in a 27,000-metric-ton-per-year plant; textile, leather, and paper auxiliaries in a 10,000-metric-ton plant; and expandable polystyrene in a 35,000-metric ton plant that is a joint venture with Mexico's Alfa Group.
Production was stepped up further in Jury 1997 with the start of a 143,000-met-ric-ton general-purpose polystyrene plant. By early 1999, when BASF completes a new 130,000-metric-ton styrenic copolymers facility, the company will have invested $360 million at Altamira.
At that point, Altamira will be by far the biggest piece of BASF in Mexico. Other units include BASF Pinturas, a paints subsidiary; a glycols/surfactants facility in Lerma that is part of the Polioles venture; and Quimica Knoll, a bulk pharmaceutical plant in Mexico City. All told, BASF Mexican sales last year were $448 million, making BASF the third largest chemical company in Mexico after Pemex and
Hoechst, according to Dietz Kaminski, executive director of BASF Mexicana. Kaminski expects sales in 2000, when the styrenics plant is fully onstream, to reach $850 million.
Recent Mexican investment has been in polymers, but BASF has plans for other divisions as well For example, Altamira is the intended home for global production of one of several new herbicides BASF is developing.
However, to further invest in core BASF chemicals such as acrylics, oxo alcohols, ethylene glycol, and butanediol, a change is needed in Mexico's laws governing petrochemical feedstocks. Written into Mexico's Constitution is that oil- and gas-based petrochemical feedstocks such as ethane, propane, and naphtha can be produced only by Pemex.
Mexico has significant reserves of both oil and gas, but because Pemex profits tend to be directed to social programs, rather than reinvested, the country's exploration and refining sectors are woefully underdeveloped, and foreign companies are generally skittish about building plants that would rely on them.
Also, despite a surplus, Kaminski says Pemex gas is not priced competitively with product from other gas-rich regions such as Canada and Saudi Arabia.
Foreign companies like BASF have other problems when it comes to investing in existing Pemex petrochemical assets. For example, on Sept 14, the country revisited plans to privatize its petrochemical sector by putting Petroquimica Morelos, its most
modern and perhaps only desirable facility, up for sale. The plant's main products are ethylene, ethylene oxide, ethylene glycol, polyethylene, and polypropylene.
The catch to privatization is that investors can acquire only 49% of the new companies; the rest stays with the government. Furthermore, non-Mexican firms can participate only in less than 50% of that 49%. In other words, a company like BASF could acquire less than 24.5% of Petroquimica Morelos.
BASF's Kaminski says this kind of participation is not of great interest to foreign companies, especially since they would still be dependent on Pemex for feedstocks.
Still, Morelos' products would all be welcome additions to BASF in Mexico. For example, the Polioles venture with Alfa urgently needs more ethylene oxide for surfactants production, and Alfa needs ethylene glycol for its polyester business.
Kaminski says BASF's options on Morelos are to sit out the auction and see if it fails, as some observers have said it will, or bid with a partner like Alfa and work for a change in the laws governing foreign ownership and feedstocks. Potential bidders must express interest by Oct 26; bids are due and will be opened on Feb. 19,1999.
Whatever happens, Kaminski and other BASF executives in Mexico, while bullish on their own company's prospects, lament the lack of development of the Mexican petrochemical industry. They look at the progress of less well-endowed South American countries like Venezuela and Argentina and consider what might have been.
of BASF's North American polymers division, says the company has plans on the drawing board to replace the existing, aging TDI plant with a new facility that would be about 20% larger.
As with its expansions, BASF Corp.'s acquisitions are made with Verbund in mind, Jennings notes. For example, the surfactants businesses purchased from PPG Industries and Olin Corp. late last year will consume ethylene oxide produced at the Geismar site.
Likewise, the superabsorbent polymers business recently acquired from Clariant will consume glacial acrylic acid produced by BASF in Freeport. Managers there say the company is considering installing a fifth unit to upgrade ester-grade acrylic acid to the glacial grade used by the absorbent polymers business.
BASF Corp. considers its core chemical businesses to be acrylic monomers, ethylene oxide and derivatives, diols and
derivatives, and oxo alcohols. But Jennings says it is exploring further participation in other businesses—specialty amines and plasticizers—that could eventually become core by taking advantage of Verbund opportunities.
BASF has expanded steadily in amines since entering the business in 1989, to the point that it is now the number three North American player, with a 15% market share. Among other projects, Jennings says BASF is deciding whether to add U.S. production of the detergent fuel additive polyisobutylamine, currently made at its Antwerp site.
In plasticizers, BASF Corp. is number two after the industry giant, Exxon Chemical, but participation is solely through a marketing agreement with producer Sterling Chemicals, and Jennings says the company is considering deeper involvement.
Indeed, BASF needs new business, in chemicals and other divisions, to maintain
its heady expansion rate. BASF Corp. sales have grown more than 10% annually since 1985, from $2.4 billion to $6.9 billion last year. About $3 billion of this was through internal growth, and $2.5 billion was by acquisition (less $700 million in divestitures).
In general, BASF's preference is to grow internally, but Jennings says the firm is well placed to take advantage of the trend among traditional chemical companies to reposition themselves away from chemicals and toward the life sciences.
The BASF Verbund strategy goes against this trend, finding connections not only within the company's big chemical plants, but also in technologies, infrastructure, and services that can cut across all its divisions. "We see great opportunities based on our Verbund approach, not only for the chemicals division," Jennings says, "but for BASF Corp. as a whole."^
24 OCTOBER 12, 1998 C&EN
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