business but represent a substantial leveraging of scare industry resources," says McClellan. The institute's multidisciplinary approach, say those connected with it, distributes resources broadly, but not deeply. In the past few years, CUT overall staffing has dropped and some senior scientists have left, in some cases attracted by other job offers. CET has brought in outside consultants for a review of its research management processes and to improve its efficiency and effectiveness. McClellan would like to move forward in existing areas and delve into new technologies. "Science is moving at such a rap-
id pace that to really be active and turn out research of high quality, we are going to have to pay attention to both the breadth and depth of our skills," he says. "One of the most significant challenges in the next five or 10 years will be attracting and retaining high-quality individuals, and people are well attuned to the issue of stability." This month, and in coming months, CMA is expected to evaluate and delineate its plans for a long-term research program. And CHT hopes that ongoing support from the chemical industry will help it continue to move ahead. M
Equistar Dominates Petrochemicals
A
behemoth was born last month with the completion of the deal that adds 1 Occidental Petroleum's petrochemical facilities to those of Equistar, the joint venture between Lyondell Petrochemical and Millennium Chemicals (C&EN, May 25, page 25). With prices for many petrochemical products currently heading south, this cost-cutting deal may have arrived just in time to withstand the downturn. Equistar was already the largest U.S. ethylene and polyethylene producer— from the combination of Millennium's and Lyondell's petrochemical operations (C&EN, Aug. 4, 1997, page 9). Now, with OxyChem's plants, it is also the largest U.S. propylene producer. Its U.S. ethylene capacity, now at 11.4 billion lb per year, is almost twice that of its nearest competitor, Exxon Chemical, which has about 6.0 billion lb. In sheer size, Equistar clearly dominates the U.S. petrochemical spectrum. In addition to the size of its assets, Equistar is a well-integrated petrochemical player, particularly in the ethylene chain. The company claims that this integration will better prepare it for the coming downturn. Some of that help will come from the $275 million in cost savings it expects to gain by the end of 2000, through the synergies of the partners. It is a demanding goal, but one that can be realized, say many industry analysts. "The company has a lot of work to do to achieve some cost targets it has set out, but it is possible," says one analyst. "They are attempting to set the standard for low-cost integrated production." Equistar is the aggregation of 18 petrochemical plants; most are in the Gulf Coast region and many have long and 2 2 JUNE 8, 1998 C&EN
varied histories of ownership. The task of creating a cohesive and coordinated operation from this collection is on the shoulders of Dan F. Smith, 52, the company's chief executive officer. Smith recently attended a groundbreaking ceremony for a fourth polymer line at Equistar's Matagorda, Texas, plant, a highdensity polyethylene (HDPE) facility with a typical ownership background for this company. The first two polymer lines in Matagorda began production in 1983, when DuPont owned the facility, although construction began under Conoco in 1981. Occidental Petroleum was the owner when the third line started in 1990, following a brief period as part of Cain Chemical in the late 1980s. The plant was included in Lyondell's purchase of OxyChem's HDPE business in 1995. The name Equistar now is carved into the stone structure in front of the plant. Personally, Smith has been through a
few corporate name changes himself. He began his career at Atlantic Richfield Co., moved to Lyondell when Atlantic Richfield spun off its petrochemical business, and then he was involved in the creation of Equistar. He now holds the positions of CEO of both Equistar and Lyondell. Smith believes that the turmoil of multiple ownership for Equistar's plants can help to unite the firm. "Many of these plants have been through the same experiences, and we can be helped by the background of the people involved," he says. Specifically, he notes that the new Equistar employees from OxyChem, many of whom were also a part of Cain Chemical in the late 1980s, feel comfortable joining a group that was once with them at Cain. Of course, it takes more than good feelings to create a successful company. Equistar also has adopted the Lyondell reward system that Smith started in 1996. Employees are given annual bonuses based on the success and profitability of the company, not on their specific individual performance. The percentage of pay at risk varies with the employees' level within the company, but the bonus compensation has no upper limit. Also, the operating philosophy of the company is not typical for this industry, encouraging employees to take some risk in the business area. Smith says Equistar's motto is: "Take no safety risk, take no environmental risk, but do take business risk." He notes that because Lyondell has encouraged this thinking, creative input has come from unexpected places throughout the company. He expects similar success at Equistar. Equistar's product slate is heavily weight-
Equistar is the dominant light olefin producer in the U.S. Major product
Ethylene
Annual capacity (billions of ib)
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Equistar's merchant propylene supplier role is aided significantly by the company's extensive pipeline network. With OxyChem's addition, the company now has more than 1,400 miles of Gulf Coast pipeline available, either through ownership or lease, making it easier to reach its customer base. The pipelines also provide greaterflexibilityfor its ethylene derivative plants, with feedstock available from several production sites. Overall, the next few years will be difficult for the petrochemical industry, as
B A S F
Smith: mixed backgrounds can be overcome
ed toward ethylene. The company produces 20% of the U.S. supply, consuming twothirds of the total in its polymers and derivatives operations. Most of its remaining merchant supply will go to the vinyls business of OxyChem. This mix of derivative outlets can be beneficial to the company, according to Andrew Swanson, director of the petrochemical practice at consulting firm Chem Systems, Tarrytown, N.Y. "Ethylene glycol, for example, has been stronger in the last month and during 1997 than polyethylene was,:' Swanson says. "That is what you want—if the products can't be countercyclic, at least they can be a little different in terms of performance." While some analysts suggest that the ethylene oxide and glycol operations may be sold by the company, Smith counters that an acquisition by Equistar, rather than a divestiture, is a more probable event. The significant size of Equistar has led several companies to contact the company, says Smith, suggesting small acquisition opportunities that could be easily absorbed by the company. Propylene polymerization facilities look like an obvious acquisition target, say several consultants, considering Equistar's strong monomer capacity. Smith agrees and says the company is looking in that area. However, a merchant position in propylene may be very profitable in the next few years, says Swanson. "Chem Systems' view is that propylene prices over the next few years are likely to increase relative to ethylene. The propylene business will be, from that perspective, a slightly better one [than ethylene]."
it heads into a downturn, and a time when all producers need to be operating at their best (C&EN, March 23, page 17). One thing that is certain is that the timing for Equistar will help the parent companies involved. Equistar now carries the heavy capital cost of the petrochemical production facilities for each of these companies, releasing Millennium, Lyondell, and OxyChem from these burdens on their balance sheets at the lowcash-flow point in the industry cycle. Paige Morse
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