Chemical brothers bond for strength

Ineos expects Chinese joint-venture projects to cushion losses from Europe

Switzerland-based chemicals major Ineos Group Ltd is banking on its upcoming projects in China to drive growth in the rapidly changing global energy market.

China's huge petrochemicals market and steady demand are key factors propelling growth in the global markets, says Jim Ratcliffe, the 61-year-old founder and chairman of Ineos, the fourth largest chemicals company in the world in terms of revenue, after BASF, Dow Chemical and LyondellBasell. It is also the largest privately owned company in the United Kingdom

Ratcliffe says the eurozone crisis has made Europe's energy market uncompetitive, while the development of shale gas has opened up new investment opportunities in the US. China, on the other hand, is becoming increasingly self-sufficient in petrochemicals, he says.

Ineos, which started operations 15 years ago, has 51 sites in 11 countries and employs 15,000 workers globally. The company reported revenue of $43 billion (31 billion euros) in 2012.

Over the past few years, Ineos' profits have halved in Europe and tripled in America, largely due to the company's investment in new shale gas assets in the US. According to Ratcliffe, more than two-thirds of the company's assets are still in Europe and the falling yields there is a cause for concern.

Investments in China, however, have provided enough room for optimism, he says. Ratcliffe says the company is setting up two chemical plants in China next year, involving investments of more than $1 billion, to cater to the growing domestic chemical market.

The first project is a joint venture with Tianjin Bohai Chemical Industry Group Corporation to produce acrylonitrile in Tianjin, while the second is a joint venture with Sinopec Yangzi Petrochemical Company to produce phenol in Nanjing.

Both acrylonitrile and phenol are important ingredients that could fuel China's industrial boom, and Ratcliffe believes Ineos can be a key player in the technology transfer process.

"Our principal contribution is technology. We've been the world leaders in phenol and acrynitrile production with 15 years of accumulated technology expertise," Ratcliffe says.

Although both plants are still awaiting final approval from the Chinese government, Ratcliffe says this will happen soon and he expects work to commence next year and production to begin in 2016.

The phenol plant is designed to produce 400,000 tons of phenol and 250,000 tones of acetone every year. Ineos claims that the plant will be the largest of its kind in China.

However, phenol is also a harmful substance that can irritate eyes and skin, and if absorbed in large amounts can damage the liver and kidneys. It has also raised environmental pollution concerns in China in recent years.

In 2012, water supplies in the Yangtze River became polluted after phenol leaked from a South Korean ship that was docked in Zhenjiang, in East China's Jiangsu province.

Radcliffe, however, says Ineos places huge emphasis on the safe production of phenol, and will use the same quality standards it uses in the West in its Chinese facilities.

Ineos also has huge expectations from Petroineos, the refining and trading joint venture set up in 2011 with PetroChina. Petroineos has two refineries, one in Lavera, France, and one in Grangemouth, Scotland. The Chinese energy company has invested $1 billion equity in these two refineries.

"We were looking for partners for these two refineries, especially companies that had a wider reach in the oil world. We looked at PetroChina five or six years ago. They were the best fit, and it has been a good relationship since then," Ratcliffe says.

PetroChina has brought capital, huge experience in refining and its access to crude oil from Asian markets to the joint venture. Ineos' access to crude oil is focused more on Europe, he says.

The wider access to crude has helped the refineries reduce raw material costs, and improve profitability, Ratcliffe says.

"I think it's more of a two way relationship. We learn a lot from PetroChina, and they learn something from us. I think they respect our manufacturing capability and they want someone locally to manage the refineries."

Despite the promising prospects of the partnership, the joint venture has faced challenging times in recent years after the eurozone crisis made Europe's energy market inefficient and uncompetitive, Ratcliffe says.

In particular, the Grangemouth petrochemical plant and refinery has experienced escalating costs because its feedstock from North Sea gas is declining.

To address this problem, Ratcliffe decided to bring feedstock from the US to the refinery, which is cheaper due to the shale gas boom. But to adapt the Grangemouth facility to refine US feedstock required an investment of 300 million pounds ($490 million).

To make the investment profitable, Ineos proposed a wage freeze for three years, which proved unpopular. The workers' union Unite battled with Ineos, with tension escalating in October and Ratcliffe intending to close the petrochemical facility.

In the end, Unite gave in to Ineos' terms, and Ratcliffe confirmed that the investment to upgrade Grangemouth's petrochemical plant would proceed.

Reflecting on the past few months, Ratcliffe says the fight with Unite has strengthened the relationship between Ineos and PetroChina. "They could not have been better in that dispute," Ratcliffe says.

Ratcliffe's own experiences have been an inspiration to many young entrepreneurs, despite the low profile he has maintained.

Born in Failsworth, a northern suburb of Britain's industrial hub Manchester, Ratcliffe graduated in chemical engineering from Birmingham University in 1974 and began his career with oil giant Esso. After 15 years in manufacturing he moved to venture capital in 1988 at the US firm Advent International.

In 1992, Ratcliffe put his skills in both industry and private equity sectors to good use, by leading the buy-out of a BP specialty chemicals business.

The new company was called Inspec, and as its managing director, Ratcliffe initiated a number of acquisitions that saw it grow significantly.

"By the time I reached 40, I had a reasonable education, experience in large corporations and experience in the financial world. That equipped me to buy a chemical business and run it."

But he says another important factor in his life story is the ability to take risks, although he admits he does not know why he chose such a path. "When I did my first deal, I had put everything I had made in my life at risk," he says.

In 1992, Inspec was acquired for 39 million pounds, and two years later in 1994 it floated on the London Stock Exchange for 134 million pounds.

In 1998, Ratcliffe left Inspec to lead another buy-out opportunity, which created the new company known as Ineos.

Over the past 15 years, Ineos has created a miracle by becoming one of the largest petrochemical companies through aggressive acquisitions, buying up subsidiaries of global oil and chemical companies such as BP, ICI and BASF.

The biggest acquisition was the 2005 deal to buy Innovene, BP's chemicals operation, for $9 billion. Grangemouth's refinery and petrochemicals plant were part of that deal.

Despite Ineos' success, the company remained low-key until 2008 when staff at the Grangemouth factory went on strike over plans to close the final salary pension scheme to new starters.

Ratcliffe says he never intended to create an appearance of secrecy for the business, but the fact that Ineos is not a consumer facing company has prompted his team to invest little in marketing. Ineos' speed of growth also put a restraint on Ratcliffe's time to interact with the media.

But now that Ineos is experiencing consolidation in its growth, Ratcliffe is focusing more on marketing, hoping to attract the best talents in the industry to work for the company.

Looking into the future, Ratcliffe says he is keen to discover more opportunities in the US and China, while keeping an open mind to the rapid changes in the world's energy sector.

Contact the writers through cecily.liu@chinadaily.com.cn

Jim Ratcliffe says Ineos will use the same quality standards it uses in the West in its Chinese facilities. Zhang Chunyan / China Daily

(China Daily European Weekly 12/20/2013 page19)