Process system innovation by design: Towards a sustainable petrochemical industry

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Process System Innovation by Design

Towards a Sustainable Petrochemical Industry

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Process System Innovation by Design

Towards a Sustainable Petrochemical Industry

Proefschrift

ter verkrijging van de graad van doctor aan de Technische Universiteit Delft,

op gezag van de Rector Magnificus prof. dr .ir. J.T. Fokkema, voorzitter van het College voor Promoties,

in het openbaar te verdedigen op maandag 13 september 2004 om 13:00 uur

door

Gerhard Pieter Jan DIJKEMA

ingenieur in de chemische technologie geboren te Norg

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Dit proefschrift is goedgekeurd door de promotoren: Prof. dr. ir. M.P.C. Weijnen

Prof. ir. J. Grievink

Samenstelling promotiecommissie:

Rector Magnificus, voorzitter

Prof. ir. J. Grievink, Technische Universiteit Delft, promotor

Prof. dr. ir. M.P.C. Weijnen, Technische Universiteit Delft, promotor

Prof. dr. M.A. Reuter, Technische Universiteit Delft, Universiteit Stellenbosch, SA Prof. dr. ir. A.A.H. Drinkenburg, Technische Universiteit Eindhoven

Prof. A.W. Westerberg PhD, Carnegie-Mellon University, US Prof. D. Bogle PhD, University College, London, UK

dr. ir. S.A. Lemkowitz, Technische Universiteit Delft

Published and distributed by:

G.P.J. Dijkema

p/a Delft University of Technology P.O. Box 5015

2601 GA Delft The Netherlands

e-mail: g.p.j.dijkema@alumnus.utwente.nl Library of Congress Catalogue Data: ISBN 90-5638-127-X

Keywords: fuel cells, functional modelling, innovation, olefins, petrochemical industry, process systems engineering, sustainable development

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission in writing of the proprietor.

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Preface

This dissertation is a synthesis of research that was completed in the better part of a decade. The origins of some of the concepts and case studies date back to my stay with Interduct. Most of the research presented was conducted in the multidisciplinary, system-oriented academic environment of the faculty of Technology, Policy and Management.

I would like to thank Margot Weijnen for offering me the opportunity to change career-path, for her patience in awaiting the forthcoming of this thesis and for the stimulating discussions and suggestions that set the stage for this work. I am most grateful to Johan Grievink for his encouraging in-depth reviews and his suggestions on formalisation of the work and its embedding in process systems engineering. To me, a brew of green tea will for always be associated with a discussion in Johan's office.

I would like to thank all my committee members for their positive feedback and constructive criticisms. I owe special thanks to Art Westerberg for his painstaking review of the content, my English and punctuation. Markus Reuter I thank for many intriguing discussions and for his moral support.

Many people have helped me to shape and sharpen the concepts presented. This thesis is a tribute to Han Jonk of SIPM, Odd Asbjørnsen of NTNU, Aad Montfoort of TU Delft and Pieter-Jan Jongman of the Port of Rotterdam.

My colleagues at Interduct, the E&I section and the faculty I thank for creating a stimulating, pleasant and supportive working environment. Rob Stikkelman involved me in the project on fuel cell vehicles and in many creative sessions. Kas Hemmes I thank for sharing his knowledge on fuel cells and his encouragement to complete this work. In the office we shared, Paulien Herder put up with me and my sometimes messy filing. I appreciated the in-depth discussions on life, research and education with Zofia Verwater-Lukszo. I would like to hear Petra Heijnen sing more often and to learn more Indian wisdom from Harish Goel. I expect to have more discussions on electricity with Laurens de Vries. I am grateful for the swift help of Ivo and Mirjam Bouwmans with the wording and translation of my propositions. I acknowledge the indispensable support of Connie van Dop, Angelique Nauta and Rachel Kievits of our secretariat.

My parents I thank for their love and for creating the conditions for my personal development.

Finally, I treasure Elly's support and Roeland and Jenske's appreciation.

Gerard Dijkema Voorburg, July 2004

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1 Introduction

1.1 Overview: what, why and how?

What is this petrochemical industry that is the subject of this thesis? What are its

economic and ecological characteristics? To elucidate these questions, this introductory chapter gives an overview of the petrochemical industry by presenting it as a system in its surroundings. It is a layered networked system embedded in and linked to the global material cycles. The system image is presented by addressing system definition, boundary selection, system content and surroundings (§1.3).

Why do the historic development of the petrochemical industry, its current status

and resource horizon merit a reconsideration of its technologies, process systems and petrochemical networks for sustainability? Why must we contemplate 'process system innovations', which “… are defined as changes in the system structure or system design of the petrochemical industry, its industrial complexes, or individual plants (…) enabled by technological inventions or vice versa”

(Dijkema et al. 2003)? To address these questions, the meaning and implication of sustainability for industry is discussed. The development of the chemical industry is analysed with respect to drivers of and barriers to change, the process of change, R&D and the scope for innovation (§1.4).

How can innovation for sustainability be fostered in the largely mature petrochemical

industry that consists of technologically advanced systems? The dilemma of lack of economic incentive for much needed innovation for sustainability has given cause to our central research theme - how to specify process system innovation1

content for a sustainable petrochemical industry (§1.5).

The meta-model of the research (§1.6) summarizes how the above questions have been addressed and converted into the present thesis.

1.2 Reader's guide

The system image of the petrochemical industry (§1.3) is included to introduce the object of the research and to serve as basis for those unfamiliar with this important sector of the industrial economy. Readers with a chemistry or chemical engineering background may find the system representation to be a useful refresher.

In 'industry development, innovation processes and sustainability' (§1.4) insights from technology management, innovation theory and economics are combined and linked to the petrochemical industry system image and scientific and chemical engineering development.

'The need for process system innovation' (§1.5) is the core section of this chapter. The dilemma's and problems associated with change and innovation for sustainability are identified, which leads to the research theme, research questions and hypothesis.

1_{Where in process system engineering (PSE) the focus is on single plant process systems, the} definition of 'Process system innovation' is based on the notion of layered networked process systems, which structure and content can be modified at each level.

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1.3 A system image of the petrochemical industry 1.3.1 SYSTEM CONTENT, INTERFACES AND SURROUNDINGS

Since the beginning of the 20th_{century, petrochemical facilities have been} continuously improved and major breakthroughs have been realized by the invention and application of novel catalysts, reactor concepts, separation technology and process system concepts. In many cases, the interplay of technological development, economies-of-scale and market-growth made older, smaller and less efficient plants obsolete. In many locations petrochemical complexes have developed consisting of multiple interconnected and interdependent plants.

Today, petrochemicals are produced in bulk quantities in large-scale out-door facilities that have become the blueprint image of the chemical industry in the industrialised countries. Whilst these are complex installations in appearance, they can all be represented as a system wherein a number of physical inputs is transformed into a number of outputs, e.g. a steam cracker transforms naphtha to olefins and aromatics (e.g. Rudd et al. 1973; Smith 1995).

Products New or improved Services New Resources Improved Extraction Novel Deposits RPMT-Combination

Captive or end-user market? Market growth or decline Sustainability awareness? Timely process innovation? More use of proven technology? Reserves and Renewables? Timely and economic exploration? Carrying Capacity? Resource Product Earth Technology Systems Market

Figure 1-1: The Pmt-R concept.

Any such system is part of a Product-Market-Technology combination (Pmt) (Dijkema and Stikkelman 1999). The existence of any Pmt, however, depends on the availability of resources (Figure 1-1). The steam cracker, for example, requires the

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availability of crude oil for the production of naphtha. Since system structure and technology may change because of changing market demand and because of changing resource availability, we prefer the label Pmt-R to emphasize the relationship between product markets, technology and resource use for the system. In the petrochemical industry, many Pmt-R's are linked, as it is a complex system of interconnected processes and process routes. The entire petrochemical industry, however, can be modelled as a black box that is part of and contributes to our industrial society via the inputs it requires and the outputs it generates (Figure 1-2). Inputs are required for day-to-day system operation, for the erection of new facilities and for rejuvenation or end-of-life system abatement (Grievink 1994). Physical inputs comprise feedstock and utilities, construction material and equipment. Other inputs are market information, skilled labour, technological know-how, system design, project organisation and management skills, investments and working capital. Physical

outputs include products, by-products, waste and emissions as well as industrial plants

and complexes. Other outputs are know-how and services rendered, salaries, fees, taxes and dividends paid.

Interface System: The Petrochemical Industry

Feedstock Products R evenue Emissions Utilities Waste Ski

lled Labour _Know

-h ow In vest m ent O pe rat ing Cost Sal ar ies E xperience (D is )c omfort Surroundings Non-Physical Surroundings Non-Physical Surroundings Regulat ions

Figure 1-2: System image of the petrochemical industry.

Together, inputs and outputs represent the interface between the petrochemical industry and its surroundings over the system boundary. Development of system content is driven by market demand, feedstock availability, production cost, and legislation. These are the non-physical -economic, societal, managerial, scientific, regulatory- system 'surroundings' (e.g. Stobaugh 1988; Kuipers 1999; Dijkema and Kuipers 2001). Feedstock cost, product revenue, capital flow, direct labour and

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services affect system economics (e.g. Peters and Timmerhaus 1991). Inputs from and outputs to the physical surroundings result in adverse ecological effects, such as resource depletion, toxic waste and harmful emissions. These have resulted in societal concern, economic effects, environmental regulation, scientific interest, technology development and shifting design criteria and changing design space (e.g. Carson and Darling 1962; World Commission on Economic Development 1987; Smith 1995; van Breda and Dijkema 1998; Wood 2001).

The industry's present ecologic impact is largely determined by its system content and characteristics, which results from past decisions on product and technology development, process system design, management, economics and regulation. In competitive markets, the economic health of individual companies depends on information and knowledge on how and when to properly bring novel products and innovative production systems into being (e.g. Wei et al. 1979; Pisano 1997; Linse 2002; van Klaveren 2003). Company prosperity requires effective use of current assets -technology, systems, skills and organisation- and strategic capabilities to anticipate market dynamics, shifting societal concerns and changing regulation to ensure sustainability. The system image of the petrochemical industry therefore includes a summary of present developments in its surroundings.

1.3.2 A DEFINITION OF 'PETROCHEMICAL INDUSTRY' AND 'PETROCHEMICAL'

Obviously, the petrochemical industry is part of the chemical industry. The prefix 'petro' serves to further limit the system to those establishments that use petroleum-derived feedstock. Typically, the petrochemical industry employs large-scale, continuous process plants. Relatively small facilities that produce dyes, resins, insecticides or pharmaceuticals from petroleum-derived feedstock are ‘chemical industry’ but not petrochemical industry because of their limited scale of operation. The large-scale manufacture of fertilizer and detergents respectively are chemical industry because these industries predominantly use non-petroleum-derived feedstock.

A common characteristic of ‘the (petro)chemical industry’ is that chemical reactions are effectuated in a commercial fashion in specifically designed chemical reactors that are the heart of any chemical process plant (see Figure 1-4, p.13). Using this description, however, many industrial operations would be classified as ‘petrochemical industry’ that generally are not perceived as such. One can think of, for example, steel mills and aluminium smelters that use petroleum coke. The Standard Industrial Classification (SIC) by the US bureau of the Budget circumvents this problem by defining SIC 28 as “the major group that includes establishments producing basic chemicals, and establishments manufacturing products by predominantly chemical processes (Wei et al. 1979: 25).” Thus, one has developed a classification code that is both product-oriented and process-oriented. In the professional community, the petrochemical industry is synonym for the large-scale chemical industry that uses petroleum products as feedstock or materials that are primarily obtained from petroleum products, e.g. olefins and aromatics from the steam cracker and refinery operations.

Using the systems view presented in Figure 1-2, and using the above definitions we define the petrochemical industry as 'the subsystem of industry where large-scale

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chemical processes are employed to convert petroleum-derived feedstock into base chemicals'. A petrochemical then is a base chemical that is predominantly produced by the petrochemical industry.

1.3.3 MARKETS AND SOCIETY

The outputs of the petrochemical industry are used in important industrial sectors such as agriculture, building and construction, electric power, automobiles and fuels, electronics, food and health care, textiles, consumer durables and packaging. (Wei et al. 1979; Weissermel and Arpe 1994; Mol 1995). Thus, this industry plays an essential part in the fulfilment of all categories of human needs in the hierarchy of Maslow: food, clothing, shelter, transport, entertainment and the need for self-expression (Maslow 1954)2_.

Consumers purchase a myriad of industrial products and services from a variety of industrial sectors to fulfil their needs (Figure 1-3). Hardly any consumer knowingly buys petrochemicals, however, and to the general public this industry is mainly known because of its perceived safety hazards, toxic waste and harmful emissions. Its role as a major enabler and contributor to our current standard-of-living remains largely unknown and unappreciated. Many of its products do reach consumers, however, via various industries that incorporate synthetic polymers in their products (Figure 1-3). Generally known as plastics, these materials and their building blocks have enabled successful introduction of a myriad of innovative products. Presently, polymerisation is used to produce thermoplastics, thermoset resins, resins and coatings, rubbers, foams and industrial fibres. All these polymer categories comprise chemically stable products. With the exception of some special resins for adhesive and coatings applications, the products sold are characterised by non-existent or very low chemical reactivity.

Since the World War II the demand for synthetic polymeric materials has grown dramatically. As a consequence, today the majority of products of the petrochemical industry are polymer building blocks. Ethylene and propylene, for example, are used to manufacture polyethylene and polypropylene for a variety of packaging applications, toys, synthetic carpets, cutlery and automobile parts. Copolymers of styrene, acrylonitrile and butadiene are produced in high-grade semi-bulk for the electronics and automobile industry. These industries also use a myriad of specialty polymers or engineering plastics that are produced in small volumes, for example for mobile phone exteriors, switchboards and car parts. Apart from polymers, petrochemicals are used as precursors for fine chemicals and pharmaceuticals, electronics, fertilizer as well as automotive fuels and de-icers. Thus, the petrochemical industry has become an essential supplier of our modern industrial society. It can be labelled the industry’s industry (Brennan 1998).

1.3.4 PRODUCTS

The chemical industry produces intermediates that are used in many industrial sectors to cater for consumer demand (Figure 1-3). Most chemical products are not sold to consumers, however, and the product spectrum of the industry remains relatively unknown to the general public.

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The products of the chemical industry can be categorised as undifferentiated vs. differentiated (Wei et al. 1979; Stobaugh 1988; Brennan 1998:14-16) and as large,-volume versus small and very small large,-volumes produced (Table 1.1).

Differentiated products are also known as performance products. These possess at least one unique characteristic. The largevolume segment mainly consists of bulk -polymers (e.g. PE, PP, PS, PVC). These pseudo-commodity plastics are produced in many different grades for specific applications. The small-volume segment by definition includes thousands of specialty chemical products, resins and specialty plastics and active ingredients of crop protection chemicals, veterinary medicines and pharmaceuticals.

Table 1.1: Classification of petrochemical industry products (after Brennan 1998)

Product classification

Production volume Undifferentiated Differentiated

Large _{Commodity Pseudo-Commodity}

Small _{Fine Chemical} _{Specialty Chemical}

Very Small _{Pharmaceutical}

An undifferentiated product has a specific chemical formula, and a standard particular specification, regardless of its producer. The commodities category includes products that are traded internationally under stringent AA-quality specifications such as ammonia, sulphuric acid, ethylene, styrene and standard grade plastics such as HDPE, LLDPE and PP. 'Fine chemicals' includes agrochemicals, food additives and 'commoditized' medicines such as aspirin. Most petrochemicals are undifferentiated commodity products. Worldwide, annual production capacity for some 60-100 petrochemicals exceeds a million metric tons each (Appendix A. 1).

1.3.5 FEEDSTOCK AND ENERGY USE

The carbon-hydrogen skeleton of petrochemicals originates from crude oil. Oxygen from the air is incorporated in petrochemicals via partial oxidation. The chlorine in PVC is produced electrochemically from common rock salt (NaCl).

Once, coal used to be the chemical industry's most important feedstock. Presently, however, coal use is largely restricted to electric power generation and coke production for steel works. In coke ovens limited quantities of aromatics are produced from the coal tar by-product (Franck and Stadelhofer 1988). The exception is Sasol in South Africa, where it is still economic to convert coal to logistic fuels (gasoline, diesel, fuel oil) via partial oxidation to syngas and subsequent Fischer-Tropsch synthesis.

The primary carbon and hydrogen sources for the petrochemical industry today comprise oil products, natural gas liquids and natural gas. Since crude oil cannot be converted directly into petrochemicals economically, the industry's feedstock is obtained primarily from oil refineries. These separate crude oil into a range of so-called petroleum ‘cuts’, of which naphtha and gas oil are suitable and economic feedstock for steam crackers that produce ethylene and propylene, other olefins and aromatics (Figure 1-3 and Ch. 4).

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Ch emic al I nd ust ry Ag ri c u lt u re P o ly m e r I ndu st ry In dust ry Sec tor s Pe tr o c hem ica l i ndu st ry Ref ini ng Indu st ry F ood T ran spor t / E ner gy O ther Fa rm in g B uildi ng Mat erials Oi l Ref iner ies Wi nn in g Ste am-Cr ac ke r Co m pl ex e s P ro duc tion net wo rk Po ly m. Po ly m. Po ly m. M onomer s A rom at ic s Olef ins N apht ha Gas o il Moul ding Sh ap in g Pr oce ss Pa cka gi ng El ectron ic s A ut omobi les W inni ng M e th anol & Deri vat ives P rodu ct ion net wor k Pr oce ss Po ly m. Ferti liser I n d u stry P ro duc tion net wo rk Na tu ra l Gas Cons ume rs / Hous ehol ds Mac hinery Bi tu m e n F uels Lubric ant s Pha rma Fi ne C h emi cal s P ro duc tion Ne tw or k Tex til e P aper

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Many oil fields co-produce associated gas or 'condensate' -ethane, propane and butanes-. Natural gas wells often co-produce natural gas liquids (NGL) -butanes to heptanes-. Both condensate and NGL are premium feedstock for steam crackers. The butanes are the preferred feedstock for MTBE.

Natural gas3_{is important as a carbon and hydrogen source for industry, as it is the} dominant feedstock for methanol via the production of synthesis gas (Figure 1-3). In the Netherlands the large-scale process industry - petroleum refining, petrochemical industry, polymer industry, fertilizer production and base metal production - together account for over 30% of the end-use of fossil energy resources (Dijkema et al. 1995). Combined, these sectors represent no less than 67% of annual Dutch industrial energy end-use, which includes feedstock use and net energy use for production. Worldwide some 10-15% of annual fossil resource use is consumed by these industries. These data indicate that the Dutch economy is characterised by a relatively large process industry sector, which accounts for some 1020 PJ4_end-use on a total Dutch energy account of some 2700 PJ in 1990 (3100 PJ in 2001) (CBS 1992; 2002)56_.

With the exception of natural gas, some offshore oil production and a limited share of renewables, the Netherlands is completely dependent on imported crude oil and coal for its internal energy use and the associated industrial production.

1.3.6 UNWANTED BY-PRODUCTS: WASTE AND EMISSIONS

Apart from desirable outputs, petrochemical operations also result in by-products, emissions and waste that can be detrimental to our environment. Smokestacks of industrial (boiler) furnaces have been the trademark of industry since the early days of the industrial revolution. It was after World War II, however, that smokestacks taller than 100 metres where erected to combat local pollution. In the 1960-70's, a period of rapid economic growth, the petrochemical industry obtained the label ‘Dirty, Damaging, and Dangerous’. This was largely due to the rapid expansion of petrochemical production, associated increasing waste volumes and Rachel Carson's 'wake-up call' that even very small quantities of chemicals can have a devastating effect on the environment (Carson and Darling 1962).

3_{Hydrogen and nitrogen are converted to ammonia (NH}₃_{) in the Haber-Bosch process (Anonymous} 1991; Jennings 1991). This is the industrial route for nitrogen fixation from air, and the basis of the world nitrogen fertiliser industry. The primary source for hydrogen is natural gas (CH4).

4_{Pèta Joule = 10}15 _{Joule; One PJ is the energy content of 24 Thousand Tons Oil Equivalent (TOE).} Thus the net end-use of fossil resources in the Dutch process industry equates to some 24 Million TOE; Total Dutch fossil resource use equates to some 74 Million TOE.

5_{Since for many products of the process industry, fewer than three companies operate facilities in the} Netherlands, the Dutch Statistics Office CBS cannot disclose a detailed break-down between feedstock, energy-use and production. The industry associations (VNCI, FediChem, FOI) do report total sector energy use, but these figures exclude feedstock consumption. Based on the case studies done in 'de grondstoffenstudie' (Dijkema et al. 1994a; 1995) we estimate the total amount of fossil resources that does not end up in petrochemical products in the Dutch petrochemical industry at 350-400PJ.

6_{Other use of fossil fuels in the Netherlands concerns energy conversion for electric power} generation (some 480-500PJ for 300-320 PJe), mobility (380-400PJ), space-heating (400-420PJ) and miscellaneous industry and services (600 PJ).

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The environmental catastrophes thus exposed and a number of serious incidents in the 1970's gave cause to general public concern on safety, health and environmental risks of chemicals and the chemical industry. At the time, for example, untreated effluents polluted watersheds and toxic waste was dumped in uncontrolled, unprotected landfills. Without change, the industry was at peril of loosing its 'license-to-operate' in the 1970-1980's.

The pre-1960 environmental ‘disasters’ exposed the chemical industry. Not only did these result in growing public concern during the 60's, 70's and 80's, also governments responded by environmental policy development that led to extensive and more stringent regulation on environmental pollution (e.g. VROM 1972). The chemical industry focused on improving its environmental performance with respect to harmful emissions to air, water and soil. Initially, this focus on environmental pollution caused by the industries’ inadvertent outputs led to better operating procedures and so-called end-of-pipe solutions such as flue-gas cleaning and chemical waste incineration. Later improved designs for novel and existing plants emerged that include process-integrated solutions for emission-control and waste-abatement. In addition, a framework for environmental management was developed and adopted.

With respect to environmental management the chemical industry appears to positively distinguish itself from a number of other sectors. In a recent survey the European Environmental Agency concluded that the status of our environment is not improving anymore. Amongst others, the agency attributes this to the many sectors of the European Economy that to date have only implemented end-of-pipe solutions (Anonymous 2003b). In the chemical industry, nowadays environmental management is usually amongst the responsibility of senior management (Mol 1995), and for many a company in the petrochemical industry “the environment” has become a strategic issue. Major refining and chemical corporations have included Responsible Care for the environment in their mission statement. As a result, the chemical industry has ensured its continued license-to-operate (Mayer and Dijkema 1999).

In the petrochemical industry waste quantities per unit product are generally low, as any significant amount of hydrocarbons can be (re)utilised as feedstock or converted into power or heat. Weber (1909) distinguished between “Verlustrohstoffe” and “Reinrohstoffe” (Weber 1909). The former type of resource carries a high amount of useless material. Upon processing, inevitably a significant amount of waste material must be discarded. By contrast, a Reinrohstoff constitutes primarily usable components.

Crude oil changed from a Verlustrohstoff to a Reinrohstoff as a consequence of the late 19th_{century developments in crude oil refining, transportation and the chemical} industry. In accordance with Weberian location theory, this not only affected the location pattern of refineries worldwide, but also implied that the absolute amount of waste generated in the refining and petrochemical industry is limited.

In many industrial regions where petrochemical industries are concentrated, these have jointly realised facilities for final treatment of hazardous waste, for example AVR in Rotterdam, Indaver in Antwerp. In the refining industry, however, waste potentially may become a problem when heavy residues and asphalt cannot be fully

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marketed anymore for heavy transportation fuel (ships) or road construction. In the future, it can be expected that additional conversion technology is required to further upgrade these streams, and capture sulphur, heavy metals, and ashes in an environmentally acceptable way. In other large-scale processes, notably base metal, low-value or waste by-product generation remains the rule, as well as in coal processing.

Today, in response to global treaties some classes of harmful products, such as chlorinated hydrocarbons and CFC's, have largely been phased out. Inadvertent emission losses of volatile organics (VOC) have been reduced. Design and performance of fired-equipment has been improved to reduce VOC, NOx, CO and soot emissions. Thus, in the petrochemical industry, the environmental “sanitation” of the production systems is considered to be on track, and harmful emissions are continuously monitored, whilst process performance is continuously improved. As in waste management, three decades of development and corporate experience with environmental management systems should enable the industry to respond appropriately to whatever environmental demand or regulation on harmful emissions. The reduction of global human CO₂ emissions, however, presents a relatively new and formidable challenge. Production and combustion of oil products, natural gas, petrochemicals or polymers inevitably yields CO2. Thus its formation is linked to the industry's feedstock and energy supply and to the use and final degradation of its products. Hence, allowed CO2 emission can become an active constraint, and CO₂ emission control a key to the industry's license to grow.

1.3.7 ECONOMICS

The traditional and major chemical economies are the US, the EU and Japan. In general, OECD countries “have rather similar chemical industries with only minor variations between these industrialized nations” (Mol 1995: 127). Today, growth regions are the Middle East, South-East Asia and to a lesser extent Eastern Europe. Around the globe, the petrochemical industry is characterised by

- the use of large-scale to very large-scale continuously operated facilities - large sunk costs - a huge amount of capital invested

- links with both cyclical and largely non-cyclical markets - oligopolistic market structure

- a high level of internalisation, both in trade and production sites. - a dependence on abundant, low-priced resources

- being capital intensive, labour extensive and knowledge intensive

- a relatively low return on investment (ROI) or return on asset capital employed (ROACE) (Linse 2002)

(e.g. Wei et al. 1979; Stobaugh 1988; Brennan 1998; Whitehead 2000).

The volumes of many undifferentiated commodities merit continuously operated facilities over batch wise operation because of achievable process efficiencies, asset utilisation and investment per unit product. Investment for new continuous chemical plants generally is given by I = I0 * (C/C0)p, where I is total plant Investment, C is plant capacity, and suffix 0 denotes some known investment I0 at a known capacity

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C₀. Since p has a value of around 0.6, a chemical plant of twice a nominal capacity will cost only 50% more (Chauvel 1981). Generally it will require the same number of operating personnel, and have similar overhead costs.

Whilst in (pseudo)-commodities, investments are huge (100-1500 million US$ per facility), the profit margin or value added per unit product over feedstock cost is relatively low (e.g. Wei et al. 1979). This margin, however, must be sufficient to allow recovery of all operating costs and the investment-related costs, i.e. average costs. Since petrochemical plants often exhibit a long technical lifespan -30-50 years- would-be competitors in an established petrochemical market do face ‘marginal competition’. Established manufacturers ('incumbents') compete on the basis of the marginal cost of their facilities only because the original investment is a 'sunk cost' that either has been recovered or written off in previous operating years. Investments in new facilities, however, are justified only when sufficient return over total cost can be realised. As a consequence, incumbents may operate economically at efficiencies considerably below state-of-the-art.

The gap between marginal revenue and average revenue often can only be closed by combining innovative process technology and economies-of-scale. Existing facilities are expanded and modernized or phased out; in newly built plants state-of-the-art technology is used and capacity is at the technically feasible design limit. Thus, knowledge intensity, scale-of-operation and investments continuously increase to bring down cost per kilogram of product.

The typically low margins of petrochemical operations must be sufficient to realise return-on-investment targets. These target levels are relatively low in the petrochemical industry - around 10% -. The financial risk, however, is substantial due to the cyclical nature of markets, the risk of overcapacity and the technically and economically limited flexibility of petrochemical plants in capacity-utilisation (Kuipers 1999).

A typical petrochemical plant has a physical turndown ratio of some 50%, whilst the average economic turndown ratio of a new plant may be as small as only 10%. Thus, usually utilisation-factors at or below 80% indicate that the owner is not recovering average cost. In the early 1990's, for example, many companies invested in plants for PET - the plastic used for sodas sport drinks bottles, 'single service disposable containers' - and its precursor, purified terephtalic acid because of expected high market-growth. A few years later, however, the resulting capacity build-up grossly exceeded real market growth. As a consequence, PET/TPA producers suffered from low capacity utilisation and depressed market prices around the turn of the century.

The PET/TPA market is an example of cyclicality, where the supply-demand balance can only be restored by continued market growth or by phase-out of existing capacity. At times of limited market growth -or decline- closure of facilities may only be expected when their marginal cost cannot be recovered anymore and revamping cannot be justified. Since capacity build-up was realised in a few years, most capacity is in modern plants with similar performance. The inevitable result is price erosion from which all players suffer.

In order to reduce risk, over time many major petrochemical companies have stated they prefer to be number one or two in their respective markets or else exit.

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Thereby, these companies apparently prefer to be active in oligopolistic markets - markets with only a few major players. It is well known that in such markets individual companies possess market power and have flexibility to set prices to recover cost and realise target ROI or ROACE (Lipsey and Steiner 1991). The oligopolistic market structure and the characteristics of petrochemical production represent formidable ‘entry-barriers’ for new players. These must have sufficient capital, access to resources and markets or create their own outlets. A competitive edge must be established with respect to established producers (Wei et al. 1979), which implies a company must have the technical and organisational skills to build, finance and operate modern large-scale facilities and to market and sell its products. Vertical integration is another strategy to achieve economy-of-scale and create entry barriers. Vertically integrated companies control significant parts of supply chains or production networks wherein many petrochemical plants produce for captive use. At the company boundaries, feedstock supply, utilities and product sales generally are arranged under long-term contracts with reliable local suppliers, which results in only small volumes to be obtained via global sourcing or to be sold on the free-market respectively.

Whilst the petrochemical industry is a truly global business with exchange of technology and operating practices through multinational corporations, the actual volume of petrochemicals traded between the geographic regions mentioned above remains relatively small compared to internal trade (e.g. Anonymous 2001b)). Apart from vertical integration, apparently the global exchange of market information and adaptation of prices leads to a situation where transport at volumes at or above the level of a single plant of typical world-scale is not competitive. Thus, a sufficient local market for low-priced commodity chemicals is important and has led to the formation of huge petrochemical complexes in for example Antwerp, Singapore, Houston and Rotterdam. These enable operating companies to reduce transport costs and risks.

The Rotterdam Chemical Cluster, for example represents a vested investment of some 10 billion euros, only 13.000 direct jobs and some 60.000 indirect jobs, and is largely based on low-priced international oil-supply (Kuipers 1999). Once established, these agglomerations represent huge advantages because of the very availability of product outlet and feedstock, hard- and soft infrastructure - pipelines and utilities; knowledge and service providers and professional authorities. As a consequence, the establishment of new “grass-root” complexes in the developed countries is hardly to be expected because of the economic cluster advantages rather than because of the fear of “NIMBY” sentiments.

The very existence of petrochemical complexes contributes to the industry's inflexibility, which is caused by sunk cost, capital intensity, ROI/ROACE targets, technical lifespan of facilities and their interdependence if not vertical integration.

1.3.8 TECHNOLOGY AND PROCESS SYSTEMS

Specialty chemicals often are produced in batch-wise multi-purpose production facilities. As these are often located within a building, they are generally unnoticed, except for odorous smells or cases of pollution. Commodities and pseudo-commodities, however, are produced in bulk quantities in large-scale out-door

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continuous operations that have become the blueprint image of the petrochemical industry in the industrialised countries.

Such large-scale continuous plants are complex installations in appearance. Indeed at a detailed technical level, they consist of a variety of interconnected apparatus, instruments, pipes, and construction. As stated, however, any petrochemical plant can be represented as a system where a number of physical inputs are transformed into a number of outputs. As far as the representation of system content or design is concerned, each petrochemical plant can be completely characterised by a single configuration of a limited number of process sections or functional units, such as feed-preparation, reaction, separation, final product purification, process flows, process recycle flows and utilities (Montfoort et al. 1989; Dijkema et al. 1998). In Figure 1-4 this is illustrated by a simple general implementation of a chemical process. The core of the process is some reaction subsystem, which often consists of multiple reactors. Since most chemical reactions do not give 100% yield of the desired product only, a separation subsystem is required to achieve product specification. As a matter of course, intermediate separation in multi-reactor systems is a possibility.

A particular characteristic of continuous processing is the recycle structure, which in its simplest form is the recycling of unconverted feedstock back to the reactor. In multi-reactor / multi- separation systems, the recycle structure is an important degree-of-freedom in system design.

Puri-fication Recycle Flow Separation Reaction Feed Product Purge Feed preparation T Fuel

Figure 1-4: General representation of a petrochemical process system.

Since in refining and the petrochemical industry distillation is the dominant choice for product separation, the image of this industry is formed by the well-known arrays of distillation towers. Especially at night petrochemical plants offer a spectacular sight when the pipes, distillation tower, reactors, vessels and a whole range of other equipment are illuminated. Second in dimension to the distillation towers are the huge cracking reactors in the refining industry, the largest being the Exxon Flexicoker and Shell Hycon reaction systems, followed by continuous cat crackers

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and hydro crackers. In the petrochemical industry, industrial furnaces together with their chimneys have developed into installations of enormous physical dimensions. These also are the prime exception to the relatively small physical size of reactors in the petrochemical industry: steam cracker furnaces and reformer furnaces are fired reactors for the production of crude ethylene and synthesis gas respectively. In contrast, a plant for the production of styrene, the reactor only is of limited size.

The Petrochemical Industry Inputs Outputs Chemical plant Outputs Inputs Exchange >> System Element System Boundary Flow Category Info Surroundings Chemical plant Chemical plant Chemical plant Chemical plant Chemical plant Chemical plant

Figure 1-5: System model of the petrochemical industry.

Modern continuous chemical plant designs often exhibit complex structures to optimise the internal process structure for plant performance. Multiple reaction and separation subsystems may be present, as well as multiple recycles. Feed preparation and product polishing may be integrated with reaction and separation, respectively. In advanced designs, reaction and separation may be integrated. Since operating conditions can be selected to meet a range of objectives, the design of any commercial petrochemical plant is only one out of a large set of feasible configurations (Montfoort 1992). A number of alternative process systems for the production of, for example, propylene oxide and methanol therefore are currently in use.

Over time, in the industry many petrochemical processes have been developed to upgrade novel feedstock, waste and by-products. The result is a petrochemical network that is characterised by interconnectivity and interdependence.

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Cadre 1-1: System analysis and Input /Output modelling

Both in thermodynamic analysis and in system analysis, any process may be divided into the system and the surroundings by drawing a hypothetical envelope or system boundary around the operating units or system elements studied. The surroundings are everything that is not in the system (Seader 1982), i.e. the complement set to the system set. Inputs and outputs may cross the system boundary. A trivial system model of the petrochemical industry, for example, consists of individual chemical plants that exchange intermediate products (Figure 1-5, Table 1.2). A net amount of feedstock and utilities cross the system boundary, as well as a net amount of industry products and waste material.

Irrespective of what happens inside a system's boundary, a production system's performance can be characterised completely by its inputs and outputs. An analysis based on this notion is commonly labelled a 'black-box' approach (e.g. Blair and Whitston 1971). In economics, this has become known as input-output analysis, or I/O analysis, and the associated type of modelling is Input-Output modelling. Upon opening the box, any system consist of a structured collection of system elements or sub-systems, which itself forms a new black-box or system (Asbjørnsen 1992). Not only the system can be fully described by its inputs and outputs, the same holds true for a system element or network node, in our case an individual chemical plant. When the system boundary is expanded, a hierarchy of systems appears, where at each level a system may become an element of a higher-level system. The 'Surroundings' and 'System Elements' labels then change from 'Petrochemical Industry' and 'Chemical Plant' respectively (see Figure 1-5). Each system aggregation level thus has its unique labels, as given in Table 1.2. Only a limited number of labels are required for all aggregate system levels to describe inputs and outputs, interconnecting flows and the exchange with the system' surroundings The entire petrochemical industry, any of its petrochemical complexes or any of its individual process plants or parts thereof can be characterised by their ingoing and outgoing streams only. It may thus be seen that I/O modelling provides a sound basis to provide a quantitative image of the petrochemical industry and to assess the performance of its constituting elements to the level of detail required. Does resource utilisation improvement in propylene oxide production, for example, require a focus on improvement of existing industrial technologies, a focus on the development of alternative production routes, on the expansion of the existing networked systems with additional conversion steps or maybe a focus on the development of alternative polyurethane precursors? I/O modelling allows one both to select a suitable aggregate level and to change level to help evaluating resource utilisation from a variety of perspectives.

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A petrochemical plant, complex and the entire industry can be represented as a structured configuration of individual system elements that are connected by some kind of flow (Figure 1-5, Table 1.2, p. 16). These convert oil products, other fossil resources and intermediates to suitable feedstock for the polymer industry and other sectors (Figure 1-3).

Table 1.2: Overview of aggregation levels in and around the petrochemical industry7

System

Boundary Chemical Plant Petrochemical Industry (Inter)National Industry

Surroundings

(dominant) Petrochemical Industry National Industry World Cycles Material

System element Unit Operation Chemical Plant Industry Sectors

Flows: Materials, Energy, (Exergy)

Inputs, Outputs: Resources, Products, Waste, Emissions Exchange Flows: Intermediate Products, By-Products, Energy Intensive properties of Flows: Composition, Pressure, Temperature

As with the designs employed for methanol or propylene oxide production, the present configuration is only one instance of a very large set of possible system structures (Table 1.3). Where single plants are characterised by a combination of 'once through' interconnectivity and intra-connectivity via recycling between reaction and separation, the petrochemical complexes and the industry predominantly exhibit 'once-through' intra-connectivity from feedstock to product. The majority of chains originate from the steam cracker and re-unite somewhere in the polymer industry, e.g. where polyurethanes are produced and moulded into car seat-cushions (Ch.4). In the petrochemical industry, the major chemical activities are the chemical rearrangement and partial oxidation of hydrocarbons. Thus it has become an extremely fast element of the world's fast carbon cycle8_{that is driven primarily by} life-on-earth. Biomass grows and decays, which maintains a balance of carbon as CO2 in the atmosphere. A limited amount of biomass is temporarily extracted from the cycle by fossilisation. Fossil resource extraction for use in power generation, industry, transportation and households has resulted in a rapid reintroduction of carbon fossilized over millions of years and which has induced a steep increase in atmospheric CO₂ content (IPCC 2001).

7 _{Currently, a great many (petro-)chemical plants are part of an industrial cluster. Thus, the} petrochemical industry' system element may also be defined as a petrochemical complex, with the possibility in some cases the element or 'complex' only comprises of a single petrochemical plant. 8_{The slow carbon cycle concerns geochemical processes where over millions of years erosion releases} carbon. In this slow cycle invertebrae sequester carbon by the formation of shells composed of lime (CaCO3). The calcination of lime for cement production thus has become part of this slow carbon-cycle.

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Table 1.3: System levels in the petrochemical industry

System System

elements Intra -Connectivity Degree-of-freedom

Petrochemical

Industry Complexes / Plants Mass flow, infrastructures Selection & configuration of elements; Feedstock/product state and composition Complex Chemical

Plants Mass & energy flows; utility infrastructure

Selection & configuration of elements; Feedstock/product state and composition

Chemical

Plant Unit Operations Mass & energy flows; utility network

Selection & configuration of elements; Conditions & flow composition

Unit

Operation Apparatus Direct transfer of mass, heat, power, impulse;

Selection & configuration of elements; Principle & design

Apparatus “Internals“ Mechanical,

Electrical, Chemical Selection & configuration of elements; Operating conditions

Industrial development has created novel interconnectivity between material cycles. The fast carbon cycle is linked with other material cycles via fertiliser production and through the contaminants present in coal and crude oil that range from heavy metals to sulphur, phosphorus and nitrogen. The production of iron, for example, requires carbon, aluminium and zinc plants use carbon electrodes, and many non-hydrocarbon components are added to commercial plastics (TiO2, ZnO, Chlorine),. Since the majority of fossil fuels are burnt, and only a fraction of the plastics produced is subject to back-to-feedstock recycling, the majority of fossilized carbon is dissipated into the atmosphere as CO2.

1.4 Industry development, innovation and sustainability 1.4.1 DEVELOPMENT OF THE CHEMICAL INDUSTRY

The Dutch petrochemical industry has developed to its present state over some 350 years. In his overview Mol (1995) distinguishes four periods of development in the chemical industry. In the subsequent overview a subdivision of the period after World War II results in five characteristic periods of development.

The 17th_{and 18}th_{century. In the 17}th_{century the Netherlands held a prominent position} in the international chemical and metallurgical industry of the time; activities included the production of mercury compounds, madder dyes, such as lead white, blue, soap work, litmus and volatile oils. During the 18th_{century the industry's} importance decreased, with the exception of madder dyes, the candle industry, lead-white and soap.

The 19th_{century until World War I. In the 19}th_{century, major developments in inorganic} chemistry took place, e.g. development of alkali, sulphuric and phosphate processes. Large breakthroughs were realized internationally through the work of renowned chemists. The industry prospered and grew, albeit not in the Netherlands, which Mol largely attributes to the role of universities, where teaching in chemistry was largely absent. Notably, in other historical studies, the importance of scientific research and education is also labelled as an important factor (Homburg et al. 1998).

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Input s 'Ext ract ed' Sinks Sinks Sources Sources C omp le xe s >> Pl an ts N ati on s > > In du st rial C om pl ex es E ur ope > > Nat ional E conom ies W or ld > > E conom ic S ys tem P lant s > > P roc es s Unit s Syst em L eve ls Syst em Bo un da ry Space O ccupi e d Nat ur al Phy si ca l, Che m ic al, B iologic al and G eoc h em ic al Pro ce sse s S o la r R ad ia tio n Nat ur al Phy si ca l, Chem ic al, B iolo gic al and G eoc hem ic al Pro ce sse s In te rconn ect ed M at eri al C ycl es O u tputs 'Em it te d or Wast ed '

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In addition, economic growth stagnated, and Dutch industry was still focused on the maritime industry and trade. By some it was considered ‘backward’ in comparison with the rest of Europe, notably Germany, France and Great Britain. Gas production from coal, and the work-up of the coal-tar by-products were important activities, with around 180 factories in operation around 1900. The products, coal tars and its aromatic distillates, were largely exported because vested interests of natural dye producers prevented the set up of a Dutch synthetics dye industry. The only surviving coal-tar refinery today, Cindu in Uithoorn was established in 1922.

The 20th_{century - interbellum. The development towards the petrochemical industry}

known today started after World War I, when a transformation from agriculture-based products to ‘chemical-agriculture-based products’ started. In the Netherlands chemical operations of well-known companies such as DSM, Akzo, and Shell Chemicals were started. Before World War II, the Netherlands remained a net importer of chemical intermediates.

World War II - second oil crisis. After the war, industry successfully developed because

of the Marshall plan, the national industrial policy adopted to rebuild the Netherlands and the forced reduction of competing German coal tar refineries. In order to understand the present structure of what is known today as the petrochemical industry, the post World War II period is most important.

The war initiated a large number of product innovations demanded by the military. As a consequence, both production facilities and new products became available for the civil sector. A second major development was the rapid-transformation from coal-based to crude-oil based operations.

According to Chauvel and Lefebvre, the transition from coal to crude oil was mainly initiated by the continuously growing demand for ethylene, the precursor of three important plastics, viz. polyethylene, polyvinyl chloride and polystyrene (cf. Ch. 4). Initially, ethylene was produced from coal, mainly via the processing of coke-oven gas, a by-product of large-scale steel production (Chauvel and Lefebvre 1989a). Although the pyrolysis of light petroleum fractions9_{was developed in the U.S. for} the production of ethylene as early as 1920, coal-based supply for ethylene and other chemical products became rapidly insufficient after the World War II. In addition, economics were favourable at the time and large newly discovered oil reserves led to an abundant supply of cheap raw material. Industrial plants could be realised at lower investment costs for the installations whilst delivering better quality products. At the time, chemical science and engineering rapidly developed and provided novel chemical synthesis routes enabled by new or improved catalysts. Industrial process plant development benefited from advances in process technology that range from reactor technology to separation and rotating equipment. As a consequence, for most petrochemical products, by the end of the sixties this transition was complete. Since the Netherlands did not have a large coal-based chemical industry, the growing demand for petrochemical products opened an opportunity for competition with the German industry, which historically was largely based on coal, and continued to be based on coal-derived aromatic products for a long time (Molle and Wever 1984). In the sixties and early seventies, double-digit growth continued in the chemical

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industry, largely as a result of worldwide economic growth. The availability of fossil resources, both for feedstock and energy supply, despite yearly consumption continued to increase due to new discoveries.

During the sixties, an important stimulus for the Dutch industry was the discovery of large resources of natural gas, notably the Slochteren field. A number of industrial projects were launched to further the industrialisation of the Netherlands. In Delfzijl, for example the methanol-plant started operation in 1973, and the Aluminium-smelter of Aldel was built - later acquired by Hoogovens, and presently part of Corus. In Geleen and Sluiskil, large fertiliser complexes were constructed that used natural gas for the production of ammonia. The purpose of these investments was both to quickly reap the benefits of the natural gas and to create local jobs. The introduction and market growth of new products increased demand for fuels and chemicals, where sometimes a large amount of low-value by-products were generated. In the entire petrochemical industry the availability of such previously low-valued by-products provided an incentive to develop products and processes that allowed upgrading of these by-products. The existence of previously unexploited economies-of-scale, combined with a relatively low-cost of transportation for most chemicals led to the formation of petrochemical complexes and a continuous increase in plant capacities, a development that continues today.

After the second oil crisis. The second oil crisis of 1979 severely impacted the world

economy and is seen to be the prelude to the worldwide economic recession in the '80s (Woltjer 2002). In 1979, concerted OPEC actions resulted in a tripling of oil prices. Meanwhile, due to the monetary policy of the Reagan administration real interest rates steeply increased worldwide. This exposed the weak financial and competitive position of companies and countries. After three decades of continuous high growth, most petrochemical markets decelerated, and overcapacity in the early 80’s resulted from new plants coming on-stream for non-existent market demand. In the last two decades of the century, the industry went through a number of 'boom and bust' cycles: it had become a 'cyclical industry'. In times of saturated markets the risk of constructing overcapacity is very real. Thus, the establishment of a new facility in an existing product market is difficult to justify. Moreover, it is uncertain whether the cost of process innovations can be recovered (after Stobaugh 1988). The response of a number of large firms in the petrochemical industry has been to reassess their core competences and core business (Hamel and Pralahad 1994). Some have decided to move out of the (semi)-commodities market and to move increasingly into specialties, fine chemicals and the highly specialized production of pharmaceuticals that are perceived as attractive because of their high profit-margins (viz. Asselbergs 1998). These companies leave value-extraction from existing facilities thus to the new owners and management, who more often than not aspire for economy-of-scale through mergers and acquisitions (Dijkema 2000). The result is an oligopolistic structure of many chemical markets, i.e. markets dominated by only a few firms (Wei et al. 1979: 251).

In the nineties, the companies in the petrochemicals business have restructured their organisations, often at the expense of corporate functions, administrative overhead, internal services and support, and R&D and engineering departments. These have been labelled 'cost-cutters (Whitehead 2000). In construction or expansion projects,

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there has been a strong focus on minimising investment and initial time-to-market, in order to obtain revenues as quickly as possible. Thus there has been a strong emphasis on efficient organisation of the project execution from conceptual design to start-up. Concepts used include, amongst others, 'concurrent engineering' to shorten project execution elapsed time, 'front-end-loading, which is a strategy to amass all crucial information and elucidate white-spots as early as possible and not to allow any changes after an early date in the project and 'value engineering', where project items are scrutinised for value-creation potential versus cost (Herder 1999).

1.4.2 THE PROCESS OF CHANGE

Between periods of dramatic change and 'outbursts' of innovation The mechanism of continuous change operates via the complex interplay of markets and competition, policy and regulation, strategic management, technology and system development, public image and scientific development at large (e.g. Twiss 1992). This complex interplay often is reduced to technology-push versus market-pull (e.g. Grunert et al. 1997), which reflects two diametrically opposed views on the origin of innovations. In developing an analysis framework, Grunert et al. combined technology-change fuelled by R&D and market orientation respectively (Figure 1-7).

Diffusion <customer acceptance> <societal acceptance> Invention Innovation <development> <commercialisation> R& D Public

Orientation <Business-to-Business >Market Orientation

Feedback Feedback Performance Market Orientation <Consumers> Feedback Feedforward

Figure 1-7: Framework for the innovation process in the petrochemical industry; adapted from (Grunert et al. 1997: 3).

Market orientation is a proactive attitude towards the detection of novel, as yet unfulfilled customer needs that can lead to successful innovations. The petrochemical industry, however, is a provider of intermediates to a myriad of industrial customers, i.e. it largely operates in a business-to-business market where innovation through market orientation gets the form of makership and

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co-development. Its products remain largely invisible and unknown to the general public.

Where consumers thus interact only indirectly with the industry, a variety of other stakeholders directly influence its change and innovation. Apart from shareholders, competitors and would-be competitors include the public at large, governments, non-governmental organisations, pressure groups and universities. Necessitating a 'Public orientation' (Figure 1-7), petrochemical companies have realised they must ensure their license-to-operate and respond to environmental, safety and sustainability concerns. Together with sustained value creation, these factors determine long-term competitiveness and continuity and thereby have become drivers for innovation by the industry and its knowledge and service-providers such as universities, technology licensors and engineering contractors.

The changes or innovations in the industry vary in level of detail, scope and time-scale. Production volume change, for example involves day-to-day utilisation adjustment, small plant changes, incremental capacity increase by revamping, and closure or erection of facilities, while for many products the market stimulates sustained capacity increases. Short-term competition drives day-to-day operation and organisation; long-term competition involves process innovation, which leads to phase-out of currently employed facilities. Increasing public awareness of impact of suspect chemicals combined with cumulating scientific knowledge and evidence may call for the phase-out of particular products, production processes or production routes. In other cases, product innovation leads to successful substitute competitive products, and total phase-out of current facilities.

1.4.3 INNOVATION AND THE PETROCHEMICAL INDUSTRY

“An innovation refers to any good, service, or idea that is perceived by someone as new. The idea may have long history, but it is an innovation to the person who sees it as new” (Kotler 1991)10_{, or in more general terms, the audience or the stakeholder} who perceives it as new. This implies, for example, that past process innovations by some chemical company that become publicised must be perceived as an innovation by for example public policy makers or competitors!

The process of change was emphasized and decomposed by Schumpeter into invention, innovation and diffusion (Schumpeter 1942; cited in Ferguson and Ferguson 1988). Invention, the generation of any new idea, must be followed by innovation, where amongst others technological development, manufacturing organisation and scale-up enable commercialisation to bring the invention to the market. The final stage is diffusion, acceptance by consumers (products) or employment by producers (processes). Considerable time may lapse between these phases. Inventors may protect their ideas from competitors, to prevent them from subsequent innovation and commercialisation. The scientific and patent literature may serve as a database of ideas awaiting innovation. Notably, Schumpeter argued that invention is not limited to developments that require scientific advance, i.e. inventions may originate from new ideas that combine existing technologies in new process system designs (Schumpeter 1942; cited in Ferguson and Ferguson 1988).

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Products (including services), production systems, and organisations can be innovated, and are typically referred to as product innovation, process innovation, organisation (private sector) and institutional (public domain) innovation , respectively. In addition, Schumpeter identified the development of new markets and sources of supply (feedstock!) as distinct categories of innovation. Product innovation, process innovation and organisational innovation are closely related. A new product or service often depends on an innovative production process or organisation, respectively. Many innovative services such as 'Air-Miles' have only emerged through ICT-enabled organisation; many new material products can only be produced because of new production processes.

The primary objective of a process innovation is to further manufacturing in a particular sector, whilst a new product can affect a multitude of sectors. Taking this perspective on 'type of use' to the extreme, an innovation that is used outside its sector of invention must be labelled a product innovation; only if it is used within a sector itself it is labelled a process innovation (Pavitt 1984). In the engineering sciences, however, a common understanding of a process innovation is 'any improvement of the process of production or the production system through the development or application of new technology.' For example mechanical engineers consider the application of gas turbines in electric power generation from 1963 and later a process innovation, whilst according to Pavitt’s definition it is a product innovation because the gas turbine is used outside the turbine machinery industry. For the purpose of this introduction we focus on process innovations, which we define as ‘any improvement of a manufacturing system, be it a sector, industrial complex, individual plant or unit operation'.

Cadre 1-2: Petrochemicals - a mature industry

Since the early nineties, the petrochemical industry's development is characterised by limited growth rates and maturation (see § 1.4.1 below). At a time of limited or non-existent market-growth, a new facility that comes on stream results in overcapacity. As a consequence, the market price for its products can be expected to deteriorate for all producers, who also will suffer from a decrease in average plant utilisation. Meanwhile, each individual plant has its own break-even utilisation, which is a function of historic investment, current margin between product and feedstock, energy-efficiency as a function of plant capacity, flexibility and fixed operating cost (operating personnel, insurance, maintenance, overhead). Only when there is no technically feasible utilisation where a net marginal profit results, an existing facility will be shut down completely. In all other cases, ownership of existing facility can be transferred to optimise return on asset capital employed by each individual company.

A mature industry is now characterised by the fact that possible innovations do not provide sufficient edge to make existing installations economically obsolete.

Process system innovation by design: Towards a sustainable petrochemical industry

Process System Innovation by Design

Towards a Sustainable Petrochemical Industry

Process System Innovation by Design

Towards a Sustainable Petrochemical Industry

Preface

Contents

1 Introduction