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The Star Online (Malaysia): Shell positions for future demand

Shell Malaysia

(Dick Benschop and Liang Kok Siang)

Monday October 2, 2006

By GOH EE KOON

IN the race to find newer forms of alternative fuel and related byproducts, one of the companies in the Shell Malaysia group is establishing itself as a pioneer in a high-value niche product market.

Shell MDS (M) Sdn Bhd, a part of the gas and power sector of Shell companies in Malaysia, manufactures specialty products at its Bintulu, Sarawak facility by using gas-to-liquids (GTL) technology.  

While the majority of Shell’s activities in Malaysia are centred on exploration, the group still takes notice of this division due to its high potential for development and expansion in the future.

“The GTL business is taking off, not just for Shell but other companies as well,” Shell MDS (M) vice-president and managing director Dick Benschop told StarBiz in an interview.

However, most GTL operations are slightly behind in the race – Shell’s Bintulu facility was established 10 years ago after testing and opening a pilot plant in the Netherlands back in the early 1990s. In comparison, other gas-toliquids companies are said to be still in the pilot plant stage.

The GTL plant, the first in the world, was built to the tune of a US$750mil investment in 1993, though stopped five years after for reconstruction following an explosion. After being recommissioned, it started operations again in 2000, only to undergo a de-bottlenecking process costing US$50mil in 2003.

By 2004, Benschop said, it was turning in a profit – though this is a feat generally attributed to his predecessor Idris Jala, now managing director of Malaysia Airlines.
 
Today, Shell MDS Malaysia produces linear paraffin and different types of waxes out of synthesis gas, natural gas and oil residues. It also produces distillates like naphtha, kerosene and gas oil as well as a base oil precursor.

These have a variety of uses from coating paper cartons for milk to lubricants.

In a visit to the Bintulu facility, StarBiz was told by manufacturing general manager Lars Carlsson that its products were odourless, colourless, biodegradable and environmentally friendly. They have also passed standards for food safety, so a new area that the company can look at applying them in could be cosmetics.

The big appeal about such products also lies in its niche market position, allowing Shell MDS to enjoy the benefits of premium pricing.

“The amounts manufactured are small, and we ship out in amounts of about 500 tonnes only,” said Shell MDS director and general manager of marketing Liang Kok Siang. Annual production of all products is about 500,000 tonnes a year, but that is set to improve as well. Last year, sales of GTL products touched RM1.1bil, and Benschop and Liang believe that due to new applications in its manufacturing process, the number will continue to grow.

Benschop said last year’s net profit was “under RM500mil”, and it meant a margin of slightly less than 50%.

He said the company had already beaten its sales target four months short of its November deadline. GTL products are shipped to clients in Malaysia as well as some 38 other countries, the majority of which are in Asia-Pacific. Liang said that China and India, due to its rapidly expanding economies, had been targeted as main drivers for revenue growth in the future.

Shell MDS prides itself on stringent safety standards that have been successfully maintained by its 400-strong crew.

It does face challenges. Benschop said that it could be difficult to retain expertise and acquire new talented professionals due to attempts at poaching from companies operating similar facilities in the Middle East.

Other areas to work on are developing its name as a supplier for the specialties market, keeping the pace of introducing new products and intensifying marketing efforts.

As a member of Sarawak’s corporate community, Shell MDS sponsors and organises environmental awareness campaigns, holds special projects for schools in the state as well as provides scholarships.

In the future, GTL plants are set to be bigger in size than the one in Bintulu but, due to economies of scale, may not find it feasible to manufacture specialty products. In this sense, while larger plants bank on bulk, they may lose out on being able to produce a variety of products.

In October 2003, Qatar Shell GTL Ltd and Qatar Petroleum signed an agreement to construct the world’s largest GTL plant in Ras Lafan.

This will be Shell’s second GTL plant, about 10 times the size of Bintulu’s, and is gauged to have a production capacity of 140,000 barrels per day. Most of its products will be used for transportation fuel and high-value commodities, and the plant itself will be completed in 2009 or 2010.

Back in Malaysia, Benschop said, Shell would continue to explore more possibilities for its GTL business within Malaysia and may consider opening another GTL facility if the opportunities and conditions were right, even as the group sought similar opportunities in Russia and Algeria.

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