Petrochemicals are the chemical derivatives derived from crude petroleum and natural gas. From chemical perspective, the primary molecular components of petrochemical are carbon atom(s) and hydrogen atom(s) attached via chemical bonds. Currently, crude oil and natural gas are the main primary feedstock sources for petrochemicals. The economics of their extraction found to be main reason for their universal use, as their production is least expensive, they are most readily available, and can be processed most easily into the valuable petrochemicals via known and proven technologies.
From social-economic perspective, the petrochemicals have had a dramatic impact on societal need ranging from employment, transportation, energy, clothing and even food (Ophardt, 2003). Over 200 countries have invited major petrochemical companies to negotiate for the right to explore and produce their lands or territorial waters, hoping that they will create local jobs and provide billions of dollars in national revenues (IHRDC, 2013).
The oil and gas satisfy 60 % of the energy need of the world and satisfy fundamental needs of modern life (IHRDC, 2013). Everyday people around the world use or encounter some product derived from petrochemicals. For example, the carpeting, the plastic soda bottles, the clothing, fertilizer, tires, paints, pharmaceuticals, cosmetics and the list goes on and on.
1.1 Petrochemical value chain
The petrochemical value chain is a sequential order of how natural gas and crude oil, the primary feed stokes are transformed into a series of derivative or products whose values increase in each succeeding step of the chain. The following figure shows the two value chains associated with crude oil and natural gas.
The first value chain is related to direct-use hydrocarbons. This step involves crude oil refining and gas separation. The crude oil refining process (e.g. hydrocrackers) breaks the crude oil into numbers of direct use products such as Gasoline, diesel, residual fuel oil, Jet fuel and heavy oil.
Figure 1: Petrochemical value chain
Adapted from petroleum online, 2012
The petrochemical value chain can be categorized in terms of products and their uses in petrochemical industry (Enogex, 2013).
1. Upstream building Blocks: At upstream building block (also known as bulk chemicals), the produced petrochemicals can be classified based on their hydrocarbon feed:
Gas based petrochemicals: These petrochemical are mainly produced form natural gas and constitutes of ethane, propane, normal, butane, Iso-butane.
Olefins: These petrochemical are produced from both the natural gas and crude oil. The upstream building blocks include products Ethylene, Propylene and Butadiene.
Aromatics: The aromatics include upstream building blocks such as benzene, toluene and xylenes. The benzene could be produced from combination of crude oil and natural gas, whereas the rest two i.e. toluene and xylenes are produced from crude oil.
2. Intermediate derivatives: The intermediate petrochemical block receive the feedstock from upstream blocks and convert them into downstream derivatives. The intermediate products are categorized according to their upstream feedstock, which are:
2.1 Alkane Intermediates: Alkane intermediates consist of products from methane. These are methanol, formaldehyde, ammonia, phosgene, etc.
2.2 Olefin Intermediates: Olefin intermediates consist of ethylene products such as ethylene dichloride, vinyl chloride monomer, ethylene oxide, and ethylene glycol, and propylene products such as Oxo alcohol and acrylonitrile.
2.3 Aromatic Intermediates: Aromatic intermediates consist of benzene products such as ethyl benzene, styrene monomer, cyclohexane, carprolactam, and Para xylene products, etc.
3. Downstream derivatives: The downstream derivatives of value chain provide the feedstock for conversion industries to be converted into consumer products. Plastics and resins are the main product of this phase. There exist multiple downstream petrochemical derivatives such as formaldehyde, polyester, Poly vinyl chloride (PVC), acrylic fibers etc.
1.2 Economic overview of petrochemical industry
The global petrochemical industry has grown rapidly since 1970. The global chemical production was valued at US $171 billion in 1970, and by 2010, it had grown to $4.12 trillion. Despite the global economy crisis in 2007-2008, which resulted in negative economic growth in many countries in North America and Europe, the industry grew over 2-fold from 2000 to 2010 (American chemistry council, 2013).
The growth is due in large part to the 9-fold growth in the Chinese chemical industry during this period ($104.8 billion in 2000 compared to $903.4 billion in 2010 (American chemistry council, 2013). The developed countries (OECD) as a group, still accounts for the bulk of world chemical production, but countries with economies in transition (Developing) are increasingly significant.
A draft analysis by OECD mention that while annual global chemical sales doubled over the period 2000 to 2009, OECD's share decreased from 77% to 63% and the share of the BRIC countries (Brazil, Russia, India and china) increased from 13% to 28% (OECD, 2011).
On higher level, the economic of petrochemical industry can be divided into two however interrelated classes' i.e. Investment economics and production economics. In other words, due to high capital investments and uncontrollability of prices, petrochemical industries should put most their efforts on reducing operating costs to achieve profitability. Dijkema et al (2005) further described the production economics as "…The economics of petrochemical operation dictate a continuous focus on production cost. To maintain an acceptable cost-level a focus on both specialization and generalization is required. In this context, specialization is viewed as the chemical industry's tendency to focus on their core business, whereas generalization is the practice of reviewing and possibly improving interactions with the outside world, be it mass and energy flows, labor, and so on. Such generalization can only lead to cost reduction if one successfully cooperates with external stakeholders …" (Dijkema et al, 2005).
To have a positive net present value (NPV) of investments, the production companies are focusing on generalization practice as defined by Dijkema et al. As a result, most of the investments are being done in cooperation with other stakeholders, such as national oil companies (NOC), other completive petrochemical companies, showing a shift from competition to coopetition.
1.3 Overview of Rotterdam petrochemical industry
Having the global overview of petrochemical industry in terms of its products and the economic value, this section of the report focus primarily on the Rotterdam petrochemical industry and will make an effort to position the Rotterdam petrochemical industry in global perspective.
The history of Rotterdam geographical region as a business activity goes back to 14th century as seaport. However, the port received its first oil shipment in 1862 and commissioning of first oil refinery in 1903 by Shell. Since then the port of Rotterdam was developed rapidly with expansion and construction of new facilities. The port experienced a tremendous growth after World War II and contributed significantly to the recovery of Dutch economy (Kalkman & Keller, 2012).
Presently, the Port of Rotterdam generates over 55% of the revenue, 40% of the added value, 20% of the total added value of Dutch industry, 13.000 jobs and another 60.000 indirect. The Petrochemical industry is a large part of this industrial cluster in the Port of Rotterdam. From the total throughput in 2009 of the port of Rotterdam 25% is crude oil and 19% are mineral oil products. These are directly related to the petrochemical industry (Port of Rotterdam, 2012). The following figure shows the spatial arrangement at port of Rotterdam.
period ($
Figure 2: Port of Rotterdam
Blue represents the oil and oil product firm and yellow represents chemical related facilities
The petrochemical cluster at port of Rotterdam host the petrochemical facilities of many multinational oil companies such as Shell, Exxon, BP, Kuwait petroleum and Esso. In addition, third party multiple storage terminals are capable of storing crude oil to all sort of petrochemical products. Most of the terminal are owned by companies such as Vopak, Euro tank, Odfjell and Rubis. In terms of feedstock, the following figure shows the input and output of crude oil from the port. Almost all of the incoming crude oil is consumed by oil and petrochemical refineries situated with the cluster.
Figure 3: Incoming outgoing flow of crude oil from port of Rotterdam
Source: port of Rotterdam
2. Port of Rotterdam as petrochemical Cluster
2.1 Why petrochemical industry in port of Rotterdam is a cluster?
Various definitions of industrial clusters as groups of related economic firms embrace one or more of the following dimensions defined by Feser & Bergman (Feser & Bergman, 2000).
Formal input-output or buyer-supplier linkages
Geographic co-location;
Shared business-related local institutions and
Evidence of informal co-operative competition
Furthermore following definition of industrial clusters could be found in literature
"Pronounced geographic concentration of production chains for one product or range of similar products, as well as linked institutions that influence the competitiveness of these concentrations" (Redman, 1994).
"A network of companies, their customers and suppliers of all the relevant factors, including materials and components, equipment, training, finance, and so on" (Carrie, 2000)
"A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities." (Porter, 2000)
The above definitions point towards the few key conditions for a grouping of industries to be called as cluster; "Geographical proximity or concentration", "physical and economical inter-linkage between the firms", "value creation via cooperation between firms" and "Presence of formal and informal institutions that guide the behavior of firms". It could be inferred from above-mentioned definitions and conditions that if a network of industries fails to satisfy these conditions, it cannot be a cluster. Therefore, it seems worthwhile and logical to check the petrochemical cluster at port of Rotterdam against these conditions.
Geographical proximity of similar firms: The petrochemical industry at port of Rotterdam occupies 60% of the available space in the Port of Rotterdam. Many prestigious and major petrochemical companies have their facilities in the port and many others exclusively focus on this area for their shipping needs. Today, the port counts six oil refineries, which include ExxonMobil, Royal Dutch Shell and Kuwait Petroleum. The port is also host thirty-two chemical manufacturers, twenty-six tank storage terminals and twelve industrial gas and steam power companies. The cluster contains various specialized companies that are directly contributing to the petrochemical processes and activities. The Figure below shoes the list of major companies, which has their operations at port of Rotterdam. The comprehensive list of similar firms provides an evidence that port of Rotterdam does comply with first condition of being an industrial cluster.
Figure 4: List of oil and petrochemical companies at port of Rotterdam.
Physical and economical inter-linkage between the firms: The physical interlink-age between the firms imply towards the value chain of petrochemical industry. In figure 4, the basic existing value chain in the petrochemical industry at port of Rotterdam is depicted.
Ships bring the crude oil; refineries refine it to mostly naphtha. This is than the basic ingredient for the bulk chemicals such as ethylene, propylene, benzene; further chemical companies use the bulk chemicals to produce plastics, resins, rubbers and other chemical derivatives use the bulk materials. In addition, these products are then transported to the hinterlands for production for all kind of goods. Besides the products in the supply chain, there are also means to transport these products to the different companies in the Port of Rotterdam.
According to the port of Rotterdam, the main part of the cluster is a complex pipe network of over 1500 kilometers (Port of Rotterdam, 2012). The port of Rotterdam will connect every company that requests a connection to this pipeline network.
Figure 5: value chain at Rotterdam cluster
(Adapted from Port of Rotterdam, 2012)
Figure 6: main pipeline Multi-core and expansion (Port of Rotterdam, 2012)
Value creation via cooperation between firms: Because of the homogeneous nature of many of the petrochemical products, integrating product streams between supply and demand is a very effective way in lowering transaction costs and locking customers in. Porter (1998) also describes these advantages. He also adds that firms not only cluster on cost minimization, but on other factors like those that the ones mentioned before and on creating value via complementary. Seeing the enormous diversity of products produced by the port of Rotterdam's petrochemical cluster, Porter's advantages of clusters are evident here.
The integration with neighboring firms could also lower costs is than perhaps just an extra benefit. The diversification also shows that pure economies of scales are not applicable to most of companies, but mostly like porter described external scale effects, where the average costs at a factory declines as local industry production increases (Porter, 2000). This makes sense in Rotterdam as well, because many industries use each other's products and if others produce more you are likely to get the products cheaper, just as basic supply and demand in the classical economic theories describe.
Presence of formal and informal institutions: The institutional arrangements around Rotterdam petrochemical cluster can be understood via Willianson's four layer institutional model (Koppenjan and Groeneweg, 2005) described in following figure:
Level 1: Individual actors
Petrochemical plants, traders, port of Rotterdam authority
Level 2: Institutional arrangements
Bilateral contracts, Spot market, Joint ventures
Level 3: Regulatory environment
Sustainable growth, employment concerns, National interests
Level 4: Informal institutions
Sustainable growth, employment concerns, National interests
At level 4 the informal institutions exist that guides the societal behavior of actors. The sustainability along with growth guide the behavior of multi-actor network involved in petrochemical cluster at port of Rotterdam. This is evident by the projections provided by major firms and port of Rotterdam (Port of Rotterdam, 2012). At level 3, the regulatory institutional framework consists of formal rules, laws and regulations that guide the interactions among the actors. Many regulations applicable on the petrochemical industry are in principle derived from European regulations. The European commission also has directives for the Registration, Evaluation, Authorization and Restriction of chemicals. This regulation goal is to safeguard the safety of people and securing the competition of the industry. All chemicals must be examined on their possible effect on the environment and organisms. If chemicals have not been tested, they are not authorized. The authorization of chemicals is done by the ECHA and is part of the European Commission. At level 2, the institutional arrangement such as bilateral contracts, joint ventures facilitates the interactions among the actors.
2.2 Life cycle analysis
Belussi and Sedita (2009) studied life cycle and path-dependency in industrial clusters and defined the cluster life cycle as "Life cycle theory suggests a simplified path of "embryonic stage, development maturity and consolidation. Industrial clusters do indeed often follow an evolutionary path from infancy to a growth phase, followed in turn by maturity and subsequent stages of stagnation and decline or revitalization. If we count the number of local firms and the level of employment generated, we can have a clear picture of a sequential growth which approaches a ceiling" (Belussi & Sedita, 2009). The life cycle of an industrial cluster can be following figure.
Figure 7: Life cycle of an industrial cluster
The four different phases of an industrial cluster's life cycle constitutes of 1) Origin 2) Development 3) Maturity 4) Decline. Looking at the history of petrochemical cluster, since its first refinery installation in 1903 by shell, and the data presented by port of Rotterdam, it can be concluded that the cluster has passed its origin phase. To assess the cluster on development and maturity phase Belussi and Sedita (2009) defined the main trigging factors at various stages in the following figure:
Figure 8: Triggering factors in the lifecycle of an industrial cluster
(Belussi & Sedita, 2009)
Looking at the factors in development phase i.e. technological innovation, cost leadership, demand growth, local institutions and internationalization, it can be said the petrochemical cluster at port of Rotterdam. The technological revolution in petrochemical industry resulted into many new and advanced petrochemicals and almost 500 different petrochemicals are produced at port of Rotterdam (Port of Rotterdam, 2012). The cost leadership of this cluster could be debated on the basis of new pterochemical industry in east, however there has been continious efforts to reduce the cost via cooperation of different firms. The local institutions are well established and functioning since decades. In terms of internationalization the cluster has achived significant acievement and serve the firms around the globe by deliveringthe prtrochemical products and recive the feed stock from all over the world.
The factors at maturity phase do resemble the characterstics of petrochemical cluster at port of Rotterdam. As, the petrochemical cluster is facing global competition from petrochemical cluster at port of Antwerp and diversifying the existing main activities into sutainable practices such as use of waste streams, carbon capture and storage projects and many more technological advance researchers. In addition, the cluster is colloborating with resaerch univerities such as Delft univerisity of technology and strategic research institutrions like Erasmus univerity rotterdam to increase its competitive advantage over its global competitors and adopt sustainable practices.
3. Analysis of petrochemical cluster
3.1 Porterian analysis
The porter's "diamond model' has been studied by many researchers to investigate the success of industrial clusters. Davies and Ellis (2000) studied the Porter's view on competitive advantage of nations and provided a judgment for strengths and weaknesses of this approach. As per them, the porter's model does provide a relevant and pragmatic analysis of industrial clusters. The figure below shows the Porter's "diamond model for cluster analysis" and following paragraphs discuss the analysis of petrochemical cluster at Rotterdam on porter's model.
Figure 9 Porter's diamond model
Adapted from Porter, 1990
Factor conditions
Factor conditions refer to the availability of tangible and non-tangible resources in a nation that are necessary to compete at national and international level. The most obvious and important factor leading to the petrochemical's cluster's success is the deep harbor and the access it provides to Europe. Furthermore, the organizational structure of the port authority i.e. the ownership stakes; added an advantage for firms to get support from capable government agencies. The extensive highway and railway system around the Rotterdam is strongly funded by the government and provide the port with the necessary capability to connect the port with in-land customers and suppliers.
The port and its petrochemical cluster have ample access to skilled labor and capital, a result of the large and educated population in the Netherlands and the public commitment to technical and research education. Another essential factor to the port's success is the massive internal pipeline facilitated by port Authority. The port covers a massive amount of land and short-range shipping logistics can become exceedingly complex. As a solution, there are over 1500 km of internal pipeline within the port, drastically increasing production capacity and reducing costs.
Additionally, there has been a development of a Multi-Core pipeline. Multi-Core is a bundle of pipelines consist of different pipe sizes and specifications that will allow many different products to be shipped in the same pipeline at the same time. A final important aspect of the factors leading to the cluster's success is the extensive pipeline connection capabilities outside of the port, leading to all of Europe. European pipelines connect the port's internal pipes to Germany, France, Belgium, and most other European countries. Furthermore, a double track freight railway that directly connects Rotterdam to Germany, this line has a capacity of 10 trains per hour and provides the port with even more access to the continent.
Demand Conditions
In this analysis, there are two different sources of demand for the petrochemical clusters are considered internal demand and external demand. The different petrochemical facilities within the port provide significant amount of supply and demand for other industries at lower value chain. This demand is so significant that it provides most of its products to few companies. Furthermore, the facilities directly supply the Port at Antwerp with many essential bulk liquids, and other customers around the Europe. The clients within port and outside port require efficient ways of receiving their raw materials in order to improve cost, thus providing the port with motivation to constantly improve their processes.
Related and Supporting Industries
Related and Supporting Industries refer to the existence of supporting firms within the cluster. Sharing knowledge and innovative breakthroughs in research and development between related industries can provide significant competitive advantages. In the present case, the collaboration with container cluster within the port can be seen as an example, which facilitates constantly innovating ways to ship goods as efficiently as possible. Another, example of the related and supporting industries within the port can be seen in the production of MDI (polyurethane). MDI is used for high resiliency flexible foam seating and rigid foam insulation panels. Huntsman, a global manufacturer and marketer of chemicals products, produces MDI in bulk quantities with the support of other facilities in the Port of Rotterdam. The main feedstock of MDI is propylene, which is supplied by two major producers, Dow Chemical and Shell. The process for producing MDI involves cleaning the propylene, using water, steam, and/or electricity to ionize the waste materials.
After cleaning the propylene, further chemicals are required to finish the MDI process, such as caustic chloride, nitrogen, formaldehyde, propylene oxide, carbon oxide, and hydrogen. Huntsman acquires these products from waste streams of companies such as Akzo Nobel provide caustic chlorine in their electrolysis process, Linde produces nitrogen in their cryogenic air separation process, and Hexion provides formaldehyde in their methanol catalytic oxidation process. Therefore, with the waste steams of those facilities, Huntsman has a steady supply of inputs at a significantly lower cost than the open market.
Firm Strategy, structure, and rivalry
Firm Strategy, structure, and rivalry refer to the context that promotes continuous investment, innovation, and upgrading in presence of competition between the local firms. Besides the industry-based competition between petrochemical companies, the need for being in the port of Rotterdam with its limited space available raises the level of competition as well as cooperation. Initially, companies had to invest heavily in terms of their facility in order to establish their presence. After which the petrochemical companies constantly look for possibilities to upgrade their business via ongoing investments and innovations. Along with the Authorities and municipal agencies and competitors, the petrochemical companies have achieved a highly sophisticated port and distribution structure. Due to the scarcity of space, internal competition between firms has an extra level of intensity. The firms are making strategic choices with a long-term vision in order to prepare themselves for future changes in the business environment. Their vision and strategies has been addressed by Port Authority. As per port authority in their fact sheet 2007, they mention their priorities, as "The Port of Rotterdam is responsible for developing and managing the port infrastructure to meet the needs of existing and prospective operators and for helping to ensure an optimal business climate in the port.
4. Environmental and ecological analysis
4.1 Environmental concerns of petrochemical cluster
The global perception of oil and its derivatives is becoming increasingly negative due to its negative impacts on environment and local ecological system. The port of Rotterdam processed 11.9 million metric ton of crude oil and produced 32.2 million metric tons of plastics in 2007. Chemicals and plastics can affect all aspects of natural environment: atmosphere, aqua fauna, soil, and biodiversity. Many of the chemicals produced at the port of Rotterdam have well known environmental contaminants. The present section briefly summarizes the impacts of petrochemical industry at specific ecosystem resources from chemical contamination in the environment.
The following figure shows the CO2 emissions from oil consumption from year 1980 to 2010. The graph shows that there has been steep increase in the amount of CO2 emissions over the last three decades. The Netherlands ranked 25th in terms of overall CO2 emissions and released almost 1% of the global CO2 emissions.
Figure 10: CO2 emissions in Netherlands
Source - EIA, 2012
No specific information could be found about the specific emissions from petrochemical cluster at port of Rotterdam. However, being the centre of oil related activities, it could be assumed that the cluster had significant role in producing these emissions. Besides the direct CO2 emissions, other harmful gases such as NOx and SOx are also released in the environment, and cause the adverse affect such as ozone depletion and acid rains.
The byproducts from petrochemical plants can contaminate water resources through direct discharges to bodies of water, and via deposition of released air contaminants to water. The harmful chemicals are also often released to water bodies through normal use of some consumer products. Disposal of chemicals or products that contain them can lead to direct water contamination through leaching from landfills. Burning of products containing chemicals can lead to indirect water pollution through deposition from the air.
Chemical contamination of water resources affects aquatic ecosystems. Some chemicals damage populations of aquatic microorganisms and small invertebrates. Damage to these organisms at levels of the food chain can misbalance the predator-prey relationships, setting off a cascade of adverse effects across the food chain. Under the EU harmonized classifications, 237 hundred chemicals are classified with regard to aquatic toxicity, According to which, 644 chemicals are classified as very toxic to aquatic life, 560 are classified as very toxic to aquatic life with long lasting effects.
4.2 Industrial ecological analysis
Industrial Ecology is defined by Graedel et. al as multidisciplinary, "system-oriented concept suggests that industrial design and manufacturing processes are not performed in isolation from their surroundings" (Graedel, Allenby, & Linhart, 1993). By equivalence with natural ecosystems, an industrial ecology system, in addition to minimizing waste production in processes, also would maximize the economical use of waste materials and of products at the ends of their lives as inputs to other processes and industries (Frosch, 1992). The relational analogy between ecological system and petrochemical cluster can be described by following paragraph
The refineries and facilities that produce power and oxygen are similar to role of primary producers such as herbs in the ecosystem. Herbs use the materials in soil, water and air and use energy of sun or minerals to produce suitable food for other creatures in the ecosystems. Similarly, refineries and power producers use oil and gas in order to produce suitable feedstock for industries in Rotterdam petrochemical cluster. The role of the group of all upstream, intermediate and downstream petrochemical producers in port of Rotterdam is similar to role of herbivores in ecosystem. In nature, herbivores eat primary producers like herbs to live and to produce meat for carnivores. Similarly, the chain of petrochemical plants uses products of refineries as feedstock and produce suitable products for conversion factories. The role of conversion factories in petrochemical industry is the same as role of carnivores in nature. In nature, carnivores eat meat as food that has highest value. Similarly, in petrochemical industry, conversion factories use the product of petrochemical plants, which have highest value in petrochemical industrial system. Similar to nature where decomposers either convert the waste of primary producers, herbivores and carnivores into primary resources or deliver them to environment of the system, waste management in petrochemical industry attempts to produce valuable primary products from waste of all plants or get rid of them in proper way.
4.3 Move towards eco-industry
Lambert and Boons (2002) classified incentives of eco-industrial park into Greenfield and Brownfield projects. Greenfield projects refer to the establishment of a new industrial park and the formulation of requirements at beforehand. Brownfield usually refers to the restructuring of existing industrial parks. In addition, Lambert and boons identified to solutions for industrial complexes: symbiosis and process integration. Here, only the idea of 'Symbiosis' will be elaborated on as 'Process Integration' needs more detailed data about processes in each petrochemical complex. However, Industrial Symbiosis here defines as the existence of physical exchange aimed at mutual advantage.
Figure 11: Industrial symbiosis opportunities with an industrial cluster
(Adapter from Lambert & Boons, 2002)
The figure 11 above shows the opportunities for firms with in industrial cluster such as petrochemical cluster at port of Rotterdam. The first opportunity points towards the collective setting of utility production that could improve possibility of establishing an eco-industrial park. No single firm produce its utility by itself, but a collective production such be promoted. The second stream points towards the collective treatment of waste produced by facilities. The carbon capture project at port of Rotterdam do suggest towards such an initiative. The third opportunity is the mutual exchange of materials and utilities, which does exist at port of Rotterdam, as lots of firm does exchange their output streams with other companies.
The opportunity four and five indicate towards the cooperation with firm outside the cluster, yet as cluster as one (collective collaboration). The arrow four points towards the use of external residual product and five represent the supply of residual products to external firms. The Petrochemical cluster at port of Rotterdam does provide significant opportunities in four and five. The access to port facilities could be used for receiving and supply of the residual products.
5. Final discussion and conclusion
From discussion is section 2.2, the life cycle analysis of Rotterdam petrochemical cluster it was concluded that the petrochemical cluster is in mature state and experiencing excessive competition from petrochemical clusters in Middle East and Asia. Since 1980, the role of western country has declined; the following figure shows the global breakdown of primary petrochemical production. The china and Middle East has been the main growth center in petrochemical production due to low cost feedstock and labor. The main contribution of growth shift has been the high prices of oil and the east countries are able to leverage on the oil prices to compete against western countries.
Figure 12: Global petrochemical production share
Source: Roland Berger strategy consultants
The above facts are also true in case of petrochemical consumption, with Asis being the largest consumer of polyolefin with consumption 47 Mt against 25 Mt consumption in Europe. This shows that not only the production but also demand is moving east. Given this scenario there are considerable challenges in front of petrochemical cluster at port of Rotterdam to keep its competitive position and stay as main player on world petrochemical industry.
5.2 Strategic challenges
Space constrains: The limited availability of space at port of Rotterdam will be a considerable challenge for petrochemical industry. The port authority recently reclaimed 2000 hectare of land from sea and developing this area at "Maasvlakte 2". The new reclaimed land will have its space from petrochemical cluster as a "syngas infrastructure" is being planned. However, keeping looking at the rate of growth in Middle East and Asia, this seems to be a temporary solution. The firms and port authority must come up with a long term strategic solution to the space constrains at port of Rotterdam.
Global competition: Since the 1980, the petrochemicals market is becoming increasingly globalized in terms of technology transfer, feedstock sourcing and market access and sensitive to the oil prices. The firms at port of Rotterdam are experiencing excessive pressure on their margins due to expensive feedstock, high cost energy and tough regulations. The petrochemical cluster has to increase the cooperation among the firms and with the government agencies to combat against the low cost petrochemical industry in the eastern region.
Aging assets: The petrochemical assets in port of Rotterdam will age sooner and have low production capacity than the newly developed assets in eastern regions. On European level, According to recent estimates, 14 out of 43 crackers in Europe will become uneconomic by 2015 leading to a capacity reduction of 26% (Kalkman & Keller, 2012). To close this gap by investing into new plants or upgrading the existing plants should be a point of consideration among the firms. However, given the amount of investment required to close this gap, it seems to be a costly option.
Environmental concerns: The firms within the petrochemical cluster must ensure that they meet stringent environmental standards set by European Union and Netherlands government. Each individual Firm has the responsibility to carefully manage their outputs and waste, yet it becomes the port's loss if environmental damage is done due to negligence. In order to maintain the strong ecology in the vicinity of the port and the strong image of the petrochemical cluster, the Port of Rotterdam must work in close cooperation with local governmental and independent environmental groups to ensure that they demand the accepted and appropriate level of preparation against hazardous waste.
5.3 Leveraging on strengths
Though it is true that the competition from eastern region has and close by petrochemical clusters such as Antwerp petrochemical cluster has increased in the past, yet, the Netherlands and petrochemical cluster has been seen as technological powerhouse of the Europe. Petrochemicals firms in port of Rotterdam have developed substantial technology and expertise that they can leverage to access price competitive feedstock and growth markets outside Europe. With the strategic tie up of port with research institutions such as Delft University of technology and Erasmus University, the petrochemical companies can leverage on their technical and social competencies to stay competitive and innovative in the world petrochemical market.
