Arco pushes deeper into petrochemicals Oil companies, burned by their lavish chemical expansion in the 1960's and now needing every dollar they can find for oil exploration, are unlikely to go off on another binge of building chemi cal plants. So goes a common line of reasoning supporting the thesis of re strained capacity expansion in chemi cals during the 1970's. But Atlantic Richfield, at least, is shaping up as one exception to this reasoning—and a big one. At a security analysts meeting in New York City this month, the company (whose total 1973 sales of $4.5 billion included chemical sales of $303 million) unveiled plans for a massive push in petrochemicals over the next five years tagged to cost $1 billion, with two thirds of it already committed. This new investment is about three times the entire $345 mil lion of capital employed by Arco Chemical (Atlantic Richfield's chemi cal division) at the end of 1973. Major projects in Arco Chemical's campaign already have been an nounced. Foremost are two large ole fins units due on stream in 1976 and 1977 at Channelview, Tex., to produce a total of 2.6 billion lb per year of eth ylene. Output from this complex will be greater than Arco Chemical's entire current volume. Backing up the new olefins center will be a refinery expan sion of 95,000 bbl per day at Houston, all of it committed to petrochemicals. Other major new petrochemical proj ects are a propylene oxide-styrene ex pansion and an ethylene glycol plant by Oxirane (a joint venture half owned with Halcon International) also at Channelview. By Arco Chemical's rule of thumb of a dollar of annual sales per dollar of in vestment, the petrochemical expansion is expected to add $1 billion to the company's annual chemical sales by 1979. Arco Chemical's sales already are soaring, with this year's total expected to be close to $800 million. For the first nine months of the year, Arco Chemi cal netted about $95 million, before taxes and unallocated corporate ex penses, on sales of $533 million. Arco Chemical started from a miniscule base as late as 1966, when Atlan tic Refining merged with Richfield Oil. Its big petrochemical push actually didn't get under way until 1969, when Atlantic Richfield acquired Sinclair Oil and started its successful joint venture with Halcon. Atlantic Richfield traditionally has been strong in oil refining and market ing but lacking in crude oil reserves. Now, president Thornton F. Bradshaw says, the company's first priority is "to increase our production of secure pro prietary crude oil, particularly through early development of [Alaska's] North Slope reserves." Second priority is to bring capacity for refining and market ing more in line with these reserves by 8
C&ENOct. 28, 1974
such measures as aggressive weeding out of unprofitable gasoline stations. Third priority is "to increase our share of the attractive and future-oriented petrochemicals market." Bradshaw's reason for putting petro chemicals high on his expansion plans is simple. "Even assuming that oil will no longer be used for stationary power generation, there is really no substitute looming on the horizon now to replace petroleum-based energy to power cars
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and trucks, to heat houses, and, of course, as the basic raw material for the infinite number of products derived from petrochemicals." But Atlantic Richfield is not interested in a broad petrochemical buildup. Arco Chemical will stick closely to those bulk petrochemicals that fit its five guiding strategies. First, according to Arco Chemical president R. D. Bent, "the production of the basic petrochemical building blocks and intermediates will require the backup of dependable domestic hydrocarbon resources." Second, Bent says, "we must have a sound basis for believing we can make an important contribution and become a major factor in any given market place. By this, I mean that we must be able to demonstrate superiority in some or all of the following areas— namely, raw material supply, superior products, superior technology, lower cost, and logistic considerations." Arco Chemical also wants to focus on
products where it can gain technological advantage; where it can achieve large-scale, low-cost production; and where return on investment is high. In line with these strategies, it has narrowed its petrochemical position to the basic commodities and has sold operations such as fertilizer in which it had no particular advantage. Arco Chemicals puts much stock in the advantage to chemical producers of secure hydrocarbon sources. P. A. McKim, president of Arco Polymers (Atlantic Richfield's plastics operation), argues that "maximum profitability of a refining and petrochemical operation will only be reached if a company has a secure source of crude oil and flexibility in refining and marketing which permits it to use the liquid fractions interchangeably in gasoline, heating oil, other fuel products, and chemical manufacture." Environmental protection costs will limit chemical expansion, McKim believes. He thinks that demand for environmental protection "will drive the manufacturer of petrochemicals into large-capacity integrated complexes. Only in such complexes will it be possible to make the necessary expenditures for environmental control while maintaining product prices at a level that can bring the required return on capital employed and permit long-term market growth." Whether such future complexes could survive competition from prospective petrochemical operations in foreign oil-rich countries depends on the product, according to McKim. "Our studies show that resource-rich nations would be able to sell some hydrocarbon-based materials in the U.S. at prices cheaper than domestic producers can afford. Although the high transportation cost associated with the movement of ethylene to the U.S. would make it difficult for foreign producers to compete effectively, they could be significant potential competition in the case of liquid and solid products and products where natural gas itself is the preferred raw material." Although oil-rich foreign countries theoretically could supply much of the additional ethylene the world will need by 1980, in practice there are many limitations. These include consumers' reluctance to increase their dependence on petrochemicals made abroad, transportation costs, and a shortage of engineering manpower to build plants. The upshot, as McKim sees it, is that resource-rich countries probably will not become dominant factors in petrochemicals for 10 years or more. These countries' markets more likely will be in Japan and Europe than in the U.S. And they are most likely to export products such as ammoniabased fertilizer materials or such chemical intermediates as aromatics and oxygenated hydrocarbons, which can be sold as bulk commodities.
