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  October 18, 2004
Volume 82, Number 42
pp. 18-19


Although safety is paramount, large Shanghai project will be completed in good time
PRESSING ON Construction of the BP-Sinopec petrochemical venture in Shanghai will be completed surprisingly quickly.


Jack Brinly, one of two construction directors of the Secco petrochemical complex in Shanghai, likes to tell the story of the man he saw painting a wall at the site. The Chinese worker had anchored himself to a staircase with a rope even though he was working at ground level. Asked why he felt a need to be so prudent, the worker pointed to a nearby ditch and explained that he could conceivably fall in it and hurt himself. "This shows that our message is getting through to them," Brinly concludes.



Gordon Souter, the BP executive who took over from John Morgan as general manager of the Secco venture 18 months ago, claims that partner China Petroleum & Chemical Corp. (Sinopec) has never been involved before in a project where safety is as well managed. Many of the contractors working on the site are Sinopec subsidiaries. Secco's priorities during construction are safety, quality, cost, and schedule, in that order, he says. "The safety performance of our contractors is tied to their rewards scheme."

Despite the emphasis on safety, Souter says Secco will likely complete construction of the complex this year, the earliest date that managers had initially thought feasible. Stable commercial production will likely be achieved in May. Souter notes that, internally, BP executives had considered the construction schedule to be too optimistic by at least three months. "In the U.S. or Europe, it would have taken us one year longer to complete the job," he says. Unforeseen events could slow things down, but he does not expect the delays to last more than a few weeks.

The unusual practices of Chinese engineering firms are largely to thank for the rapid progress. According to Brinly, most global petrochemical construction contractors start building when they have in hand detailed engineering plans that are at least 70% complete. Chinese contractors are content to get moving when detailed engineering plans are just 20% done. The availability of skilled labor on short notice is another reason why work is proceeding so smoothly. At one point, Souter says, Secco sought to hire 100 extra welders to speed up work on parts of the project that were falling behind. Sinopec engineering firms were able to supply the welders almost immediately, he says. "You cannot do that very easily in the U.K. system," he notes.

THE BRISK PACE at which the project is now moving contrasts with the amount of time that it took to get it under way. BP, Sinopec, and Sinopec's local subsidiary Shanghai Petrochemical initially signed a letter of intent for a $2.5 billion investment in 1996. At the time, the partners envisioned a cracker with ethylene capacity of 650,000 metric tons per year. They also planned an acrylonitrile unit to go on-line about one year ahead of the rest of the project.

In 1998 and 1999, during the Asian financial crisis and at a time of oversupply in the global petrochemical industry, project negotiations slowed down, almost to a standstill. Talks eventually built up steam again in 2000 and 2001, and the Secco joint venture was formally set up in October 2001. What's being built has capacity for 900,000 metric tons. BP had expected back in 1996 that it would complete construction of the project in 2005, so the two years of delay have been more than made up for.

According to Souter, because the global petrochemical industry is enjoying a rare period of high margins, starting production a few months ahead of schedule will have a significant impact on the profitability of the venture. "The project might have been expected to pay off in 10 years, but instead it could be in seven to eight years," he says.

Moreover, an unexpected bonus is that BP's projections had underestimated the appetite for petrochemicals in China, which imports about 50% of the polymer it uses. "The growth in Chinese demand is such that you'd need one project like Secco to come on-line every year just to maintain Chinese imports of polymers at the current level," Souter says. Because their production capacities were estimated conservatively, the Secco plants will most likely produce 10 to 15% more than they're billed for.

Full name: Shanghai Secco Petrochemical Co.
Partners: BP, 50%; Sinopec, 30%; Shanghai Petrochemical Co. (Sinopec subsidiary), 20%
Milestones: Announced in 1996, construction started in March 2002
Total investment: $2.7 billion
Main products, capacity in metric tons per year: Ethylene, 900,000; polyethylene, 600,000; styrene, 500,000; aromatics, 500,000; polystyrene, 300,000; acrylonitrile, 260,000; polypropylene, 250,000; butadiene, 90,000
Website: http://www.secco.com.cn

ALTHOUGH SECCO is set to become a crown jewel in BP's chemical portfolio, Souter acknowledges that BP will likely sell off its stake in the venture. The British firm announced in April that it plans to spin off its global olefins and derivatives business.

As the head of a joint venture, Souter says he cannot comment on what one of the parent companies is planning to do. But having worked at BP for 30 years, he has his opinions. Souter earlier headed BP's operations in Japan, and before that, he ran the company's olefins business in Europe. His last assignment before Shanghai was in London, where he was organizing the sale of unwanted assets that BP inherited with its acquisition of Castrol's lubricants business in 2000.

Over the past 10 years or so, BP's global ethylene and derivatives business has not earned the 15% return on capital employed that BP expects from its operations, Souter explains. If the business were to stay within BP, the company would starve it of cash in favor of more profitable operations. "If we simply put the chemicals and derivatives business into one [separate] business unit, we get rid of the constraints of the BP system," he says.

Despite the compelling logic, BP will shed more than just a petrochemical venture by getting rid of Secco. Unlike the BASF-Sinopec and CNOOC-Shell Chinese ethylene cracker ventures, BP and Sinopec have not contracted out to engineering management companies like Fluor or Bechtel the responsibility for managing their construction site. "The advantage of using our own integrated project management team is that we enjoy the benefit of working together with our joint-venture partners earlier--from the construction stage--so that we get to know each other better," Souter says. "It is also more cost-effective that way." Souter says BP managers on the site are taking copious notes about what they learn by working with Chinese engineering firms. He insists that BP will make use of these lessons when it builds plants in other parts of the world. But it remains to be seen whether BP will fully benefit from the insights it acquires after it gets rid of the business that yielded them.

  Chemical & Engineering News
ISSN 0009-2347
Copyright © 2004

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