09.07.16
INEOS, a global manufacturer of commodity and intermediate chemicals with 2015 revenues of $40 billion, is poised to strengthen its position as a global chemical industry giant once it realizes the benefits of two major investments. These initiatives include imports of U.S. natural gas liquids (NGLs) and investment in UK shale gas, says new analysis from IHS Markit, a world leader in critical information, analytics and solutions.
The two investments are intended to improve the cost competitiveness of the privately held company’s UK-based ethylene business, according to the IHS Markit report entitled the IHS Chemical INEOS Competitive Company Analysis.
In an industry where several competitors boast of histories dating back at least a century or two, INEOS is a relative newcomer, having started in Europe in 1998. Expanding rapidly since then, primarily through acquisition, INEOS has become one of the top-10 largest chemical producers worldwide. Key acquisitions have included BP’s Innovene olefins and refining business, and ICI’s commodity chemical business.
“INEOS has experienced tremendous growth in a very short period of time, going from a virtual unknown to a leading chemical producer with 65 manufacturing sites in 16 countries,” said Dave Witte, senior vice president at IHS Markit and general manager of its chemical division. “In its first 10 years, INEOS acquired more than 20 targets, and that rapid growth and a focus on efficiency has enabled the company to become a serious, vertically integrated, large-scale producer that benefits from economies of scale and a strong competitive position across the chemical intermediates and commodity markets.”
In addition, Witte said, INEOS is a private company, which means that the firm also benefits from a lean and flat hierarchical structure, which assists in its overall efficiency and in avoiding bureaucracy. “The company’s decentralized organizational structure allows for a focused and flexible approach, and has evolved to accommodate new acquisitions,” Witte said. “INEOS’s joint ventures that are being converted to wholly owned subsidiaries create an agile business capable of sustaining the ever-changing business environment. However, the company is not without challenges, inorganic growth and strong internal derivatization has driven discontinuities in product integration, which in turn, has led to a net-deficit position for INEOS in ethylene, propylene, benzene and chlorine.”
The IHS Markit report noted that, later in 2016, INEOS expects to become the sole owner of Inovyn, following the acquisition of Solvay’s 50 percent share for nearly $382 million. The company also purchased BASF’s 50 percent stake in Styrolution in 2014, to assume full ownership of the asset and strengthen its market share in the PVC films and compounds segments.
And while many of its competitors are restructuring to better leverage higher margins found in niche or specialty products, INEOS has established itself as a technology leader, offering a broad derivative slate of products with a market-leading position in its chlor-vinyls and styrenics businesses, IHS Markit said.
To strengthen its competitiveness and profitability in its chemicals business and mitigate high energy-feedstock costs for its UK assets, INEOS is taking steps in both the UK and the U.S. The company plans to enter the upstream business in the UK, pledging to invest $1 billion to explore and appraise shale gas, which is a longer-term investment due to both the uncertainty of shale gas development and its unique set of business and regulatory challenges.
At present, the company has already launched a dedicated fleet of Dragon class ships that are now importing a steady supply of NGLs from the U.S., which helps feed two of its four steam crackers in Europe. In addition, because these ships offer additional spare capacity, they also provide merchant opportunities for INEOS.
“The import of U.S. NGLs to the UK Grangemouth plant will shift the plant’s position to that of an advantaged European petrochemical plant,” said Steve Lewandowski, senior director of global olefins for the chemical division at IHS Markit. “The Dragon class ships create a virtual pipeline across the Atlantic and ensures the Grangemouth plant runs at a full utilization rate. As a result, a favorable impact on the plant’s cash-cost position is predicted during the coming years, and since all of the INEOS European crackers have the ability to use different feedstocks in response to price conditions, INEOS has a significant advantage over other regional crackers and some of its naphtha-based competitors.”
High-demand growth in Asia and credit availability may present opportunities for INEOS to participate in additional joint ventures within the region and optimize market growth, IHS Markit said, while the UK’s recent Brexit vote brings uncertainty and volatility to the UK’s business environment, the report noted.
In the current volatile energy price environment, INEOS’ partial upstream integration and its narrow geographical concentration of assets make weathering volatility more of a challenge, IHS Markit said. The company has developed several innovative solutions, such as PERT (polyethylene resistant to temperature), which is piping that is increasingly used in domestic hot-water systems, and the company is developing high-rigidity packaging that can be molded using up to 20 percent less energy.
For more information regarding the IHS Chemical INEOS Competitive Company Analysis, please contact stacy-ann.wilson@ihsmarkit.com. To speak with Dave Witte or Steve Lewandowski, please contact melissa.manning@ihsmarkit.com.
The two investments are intended to improve the cost competitiveness of the privately held company’s UK-based ethylene business, according to the IHS Markit report entitled the IHS Chemical INEOS Competitive Company Analysis.
In an industry where several competitors boast of histories dating back at least a century or two, INEOS is a relative newcomer, having started in Europe in 1998. Expanding rapidly since then, primarily through acquisition, INEOS has become one of the top-10 largest chemical producers worldwide. Key acquisitions have included BP’s Innovene olefins and refining business, and ICI’s commodity chemical business.
“INEOS has experienced tremendous growth in a very short period of time, going from a virtual unknown to a leading chemical producer with 65 manufacturing sites in 16 countries,” said Dave Witte, senior vice president at IHS Markit and general manager of its chemical division. “In its first 10 years, INEOS acquired more than 20 targets, and that rapid growth and a focus on efficiency has enabled the company to become a serious, vertically integrated, large-scale producer that benefits from economies of scale and a strong competitive position across the chemical intermediates and commodity markets.”
In addition, Witte said, INEOS is a private company, which means that the firm also benefits from a lean and flat hierarchical structure, which assists in its overall efficiency and in avoiding bureaucracy. “The company’s decentralized organizational structure allows for a focused and flexible approach, and has evolved to accommodate new acquisitions,” Witte said. “INEOS’s joint ventures that are being converted to wholly owned subsidiaries create an agile business capable of sustaining the ever-changing business environment. However, the company is not without challenges, inorganic growth and strong internal derivatization has driven discontinuities in product integration, which in turn, has led to a net-deficit position for INEOS in ethylene, propylene, benzene and chlorine.”
The IHS Markit report noted that, later in 2016, INEOS expects to become the sole owner of Inovyn, following the acquisition of Solvay’s 50 percent share for nearly $382 million. The company also purchased BASF’s 50 percent stake in Styrolution in 2014, to assume full ownership of the asset and strengthen its market share in the PVC films and compounds segments.
And while many of its competitors are restructuring to better leverage higher margins found in niche or specialty products, INEOS has established itself as a technology leader, offering a broad derivative slate of products with a market-leading position in its chlor-vinyls and styrenics businesses, IHS Markit said.
To strengthen its competitiveness and profitability in its chemicals business and mitigate high energy-feedstock costs for its UK assets, INEOS is taking steps in both the UK and the U.S. The company plans to enter the upstream business in the UK, pledging to invest $1 billion to explore and appraise shale gas, which is a longer-term investment due to both the uncertainty of shale gas development and its unique set of business and regulatory challenges.
At present, the company has already launched a dedicated fleet of Dragon class ships that are now importing a steady supply of NGLs from the U.S., which helps feed two of its four steam crackers in Europe. In addition, because these ships offer additional spare capacity, they also provide merchant opportunities for INEOS.
“The import of U.S. NGLs to the UK Grangemouth plant will shift the plant’s position to that of an advantaged European petrochemical plant,” said Steve Lewandowski, senior director of global olefins for the chemical division at IHS Markit. “The Dragon class ships create a virtual pipeline across the Atlantic and ensures the Grangemouth plant runs at a full utilization rate. As a result, a favorable impact on the plant’s cash-cost position is predicted during the coming years, and since all of the INEOS European crackers have the ability to use different feedstocks in response to price conditions, INEOS has a significant advantage over other regional crackers and some of its naphtha-based competitors.”
High-demand growth in Asia and credit availability may present opportunities for INEOS to participate in additional joint ventures within the region and optimize market growth, IHS Markit said, while the UK’s recent Brexit vote brings uncertainty and volatility to the UK’s business environment, the report noted.
In the current volatile energy price environment, INEOS’ partial upstream integration and its narrow geographical concentration of assets make weathering volatility more of a challenge, IHS Markit said. The company has developed several innovative solutions, such as PERT (polyethylene resistant to temperature), which is piping that is increasingly used in domestic hot-water systems, and the company is developing high-rigidity packaging that can be molded using up to 20 percent less energy.
For more information regarding the IHS Chemical INEOS Competitive Company Analysis, please contact stacy-ann.wilson@ihsmarkit.com. To speak with Dave Witte or Steve Lewandowski, please contact melissa.manning@ihsmarkit.com.
