# Scale, capacity and feedstock: which chemical plants get built: Integration, uncertainty, safety and sustainability: what decides what gets built

Source page: https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p5/

[Understanding Chemicals](https://www.materialinsights.org/learn/chemicals/) / [Module 7: Scale, capacity and feedstock: which chemical plants get built](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/) Part 5 of 5

## Integration, uncertainty, safety and sustainability: what decides what gets built

A plant with good scale, technology and feedstock can still fail if it stands alone, ignores risk, or cannot meet safety and environmental demands. This part looks at why chemical plants cluster, how companies test investments against uncertainty, how safety rules and accident costs shape design, and how green chemistry metrics and carbon costs are entering the cost sheet.

### 5.1 Integration and clusters cut capital, storage, freight and risk

Brennan distinguishes horizontal integration, which joins similar operations such as several ethylene plants, from vertical integration, which moves a company upstream to its raw materials or downstream to its markets: an ethylene producer buying a vinyl chloride plant, for example (pdf p. 253).

The bigger gains come from putting linked plants on one site, so the product of plant A goes by pipe to plant B. Less storage of intermediates saves fixed and working capital. Transport costs fall. Surplus energy and waste streams can be swapped, and skilled staff shared. Safety improves too: intermediates stay inside the site instead of travelling by road or rail, and fewer containers are filled and emptied (pdf pp. 253-255). In Australian sites Brennan found storage of about 15% of annual production for stand-alone plants against 2% for integrated ones. The costs are tighter reliability demands, since one outage stops the neighbours, and the risk of domino effects in an accident.

Integration at large scale produces clusters. BASF's Ludwigshafen site has some 39,000 employees and about 200 production units on 10 km2; Kwinana near Perth had output of A$15 billion a year in 2008 (pdf pp. 255-257). Plants locate near raw materials or markets, rarely both; Japan, with few raw materials, competes through a large local market, technology and well-organised bulk buying (pdf p. 256).

The IEA sees the same logic with refineries: refinery naphtha feeds crackers, and cracker hydrogen feeds refinery desulphurisation. More than three-quarters of China's HVC capacity sits next to refineries and about 40% of European naphtha cracking is integrated, but under 20% of US naphtha cracking, where cheap ethane favours stand-alone crackers (pdf pp. 38-42).

Value chain An integrated petrochemical chain (SABIC at an earlier stage)

- **Hydrocarbon feedstock**

  - **Ethylene**

    - **Ethylene oxide**

      - **Monoethylene glycol**

        - **PET resin**

      - **Ethanolamines**

    - **High-density polyethylene**
    - **Polyethylene (LDPE, LLDPE)**
    - **Ethylene dichloride** with Chlorine from salt; Caustic soda co-product

      - **Vinyl chloride monomer**

        - **PVC**

    - **Styrene**

      - **Polystyrene and EPS**

  - **Methanol**

    - **Acetic acid**

      - **Vinyl acetate**

    - **Formaldehyde**

      - **Urea and melamine resins**

    - **MTBE**

  - **Butadiene**

    - **Polybutadiene rubber**

 Source: Brennan (2020), Fig. 9.1 (after Wagialla, 1988), pdf p. 254  In the data

#### What 15% versus 2% storage means

Take an intermediate made at 500,000 t/year. On Brennan's Australian figures, a stand-alone producer and its distant customer would hold about 15% of annual output, 75,000 t, in storage; an integrated pair on one site about 2%, or 10,000 t (pdf p. 255). The difference is tankage not built, stock not financed, and 65,000 t less of a possibly hazardous material in tanks. Integration saves capital and is an inherent safety measure at once.

- Brennan (2020), Ch 9 Industry planning and structure · pdf pp. 253-257
- IEA (2018), Ch 2 · pdf pp. 38-42

### 5.2 Uncertainty is handled with sensitivity tests, scenarios, staged options and portfolios

Every plant decision rests on forecasts that will be wrong. Brennan's first tool is sensitivity analysis: vary each input by 10% and see what happens. In his illustrative project, a 10% lower selling price cuts the return from 22.1% to 16.2%, 10% lower sales volume to 18.5%, and 10% higher capital to 19.6%, while 10% higher operating costs matter much less (pdf p. 156). This dominance of market factors is common in chemical investment. 'What if' tests then explore events such as a six-month delay, lost market share or an exchange rate swing.

The next step attaches probabilities. Weighting each outcome's NPV by its probability gives an expected value; an investment can be laid out as a decision tree of choices and uncertain events; and a Monte Carlo simulation draws many random combinations of inputs to give a distribution of NPV (pdf pp. 156-157). Few companies use these methods, and people committed to a project tend to be optimistic.

Three further defences matter. Staging, as in Example 6.6, keeps the option to defer or shrink later capacity. Competitive analysis checks that a project's cash cost would sit in the lowest 25% of world producers, so it survives a downturn (pdf p. 158). And a portfolio spreads risk across projects (pdf p. 157). Sunk costs should be ignored; each new decision is judged on its own incremental cash flows.

The IEA stresses that its scenarios are not forecasts (pdf p. 69). Brennan's list of why projects fail is a useful checklist: weak markets, excessive competition, feedstock shortfalls, technology limits, weak teams, rushed planning and delays (pdf pp. 241-242).

Data Sensitivity of project return to a 10% change in each input

| Case | DCF rate of return (%) | Change from base (points) |
|---|---|---|
| Base case | 22.1 | 0 |
| Product selling price 10% lower | 16.2 | -4.9 |
| Product sales volume 10% lower | 18.5 | -3.6 |
| Capital investment 10% higher | 19.6 | -2.5 |
| Variable operating costs 10% higher | 20.3 | -1.8 |
| Fixed operating costs 10% higher | 20.4 | -1.7 |

 Source: Brennan (2020), Table 5.11, pdf p. 156  Case

#### Three LNG plants at once

Three LNG export projects at Gladstone, Queensland, relying on coal seam gas, were built together rather than in phases. Projected eastern Australian LNG exports went from zero in 2013 to 1,600 PJ in 2018, equivalent to 22% a year growth in gas production. Once running, they tightened domestic supply, and local users saw gas prices rise from $4/GJ to $9/GJ and beyond (Brennan, pdf pp. 237-239). A chemical maker's feedstock advantage can vanish when someone builds a large outlet for the same resource.

- Brennan (2020), Ch 5 Evaluation of project profitability, 5.9-5.11 · pdf pp. 156-158
- Brennan (2020), Ch 8, 8.8.4 and 8.9 · pdf pp. 237-242
- IEA (2018), Ch 4 Box 4.1 · pdf p. 69

### 5.3 Safety rules and accident costs shape plant size, inventory and siting

Kent's safety chapter starts from one observation: loss of containment, through mechanical failure or wrong operation, is the leading cause of property loss in the hydrocarbon and chemical industries (pdf p. 62). Process safety management, which treats safety as something managed like any other part of the business, took hold after Bhopal and became US law in 1992.

The most reliable protection is inherent safety, Trevor Kletz's idea of avoiding hazards rather than controlling them. Its principles include intensification (hold less hazardous material), substitution (use safer materials), attenuation (milder conditions), limiting effects through layout, and simplification (pdf p. 71). These choices are cheapest at the laboratory and concept stage; later they become expensive retrofits.

Major accidents drove the rules. Flixborough in 1974 released about 30 t of cyclohexane and killed 28; its lesson was to treat limiting inventory as a design objective (Brennan, pdf p. 200; Kent, pdf p. 114). Seveso (1976), Bhopal (1984) and Piper Alpha (1988) followed, and Longford in 1998, which cut Victoria's gas for two weeks, led to major hazard facility law in Australia (Brennan, pdf pp. 199-201).

The economics run both ways. Accidents bring compensation, lost business, rebuilding and higher insurance: Buncefield in 2005 led to an estimated £900 million in claims plus £70 million for rebuilding (pdf p. 199). Prevention costs money too, in safety studies, controls, layout and materials, but smaller inventories also cut capital, working capital and insurance (pdf p. 219). Brennan treats safety standards as a precondition of a project, not an extra, and notes that bigger plants hold bigger inventories (pdf pp. 192, 220).

Data Major accidents, their costs and what changed

| Event | What happened | Lesson or consequence |
|---|---|---|
| Flixborough, UK, 1974 | 30 t cyclohexane vapour cloud explosion; 28 dead | Review plant changes; limit hazardous inventory |
| Seveso, Italy, 1976 | Reactor runaway released TCDD over district | Containment, communication, evacuation |
| Bhopal, India, 1984 | Methyl isocyanate release; about 2,000 or more dead | Inherent safety, inventory control, buffer zones |
| Pasadena, US, 1989 | Polyethylene plant explosion; 23 dead | Nearly $750 million property damage |
| Longford, Australia, 1998 | Gas plant explosion; 2 dead; state gas cut 2 weeks | Major hazard facility legislation; $32.5 million class payout |
| Buncefield, UK, 2005 | Fuel depot explosion and fire; 40 injured | About £900 million claims plus £70 million rebuild |

 Source: Brennan (2020), Table 7.6 and 7.9.2; Kent (2012) Ch 2, Brennan pdf pp. 199-201; Kent pdf pp. 114-115  Case

#### Chlorine in the city: inventory as a design choice

When Orica replaced its mercury-cell chlor-alkali plant at Botany in Sydney, the reasons included high maintenance and staffing costs, tightening mercury rules, and safety worries about large stocks of liquid chlorine close to a dense population. The new membrane-cell plants started in 2001, and at Botany chlorine liquefaction and liquid storage were eliminated, leaving only low-temperature storage at atmospheric pressure (Brennan, pdf pp. 234-235). The safest tonne of chlorine is the one never stored.

- Kent (2012), Ch 2 Safety Considerations in the Chemical Process Industries · pdf pp. 62, 71, 114-115
- Brennan (2020), Ch 7, 7.9.2; Ch 8, 8.5 and 8.8.1 · pdf pp. 192, 199-201, 219-220, 234-235

### 5.4 Green chemistry metrics and carbon costs are entering the cost sheet

Green chemistry, as Kent and Wittcoff describe it, is the design of products and processes that reduce or eliminate hazardous substances. Its twelve principles include preventing waste rather than treating it, maximising atom economy, using catalysts instead of reagents consumed in the reaction, safer solvents, energy efficiency and renewable feedstocks (Kent, pdf pp. 170-172; Wittcoff, pdf p. 628). Atom economy is the share of the atoms fed to a reaction that end up in the product. The E-factor is the mass of waste per unit mass of product (Kent, pdf p. 172).

The numbers vary hugely. Pollak puts fine chemicals typically at an E-factor of 5-50 (pdf p. 102). Methanol carbonylation to Acetic acid, CH3OH + CO → CH3COOH, puts every reactant atom into the product; Brennan's cost sheet uses 0.54 t of methanol and 0.52 t of carbon monoxide per tonne of acid, so only about 6% of input mass is lost (pdf p. 126). Acetylene from calcium carbide, by contrast, produced about 28 t of calcium hydroxide slurry per tonne (Wittcoff, pdf p. 628), and classical Caprolactam makes 5 kg of ammonium sulphate per kg, against 1.8 kg in DSM's process (Kent, pdf p. 908).

Brennan treats environmental performance as a cost-benefit trade-off. Extra conversion stages in a sulphuric acid plant cut SO2 emissions but add capital and energy, and because limits keep tightening, a design that just meets today's rule may need rework (pdf p. 218). Regulation can end technologies: European mercury cells fell from 60% of chlor-alkali production to near zero in 2001-17 (pdf p. 198). Carbon prices are the newest cost line; the UK set £16 per tonne of CO2 in 2013 (pdf p. 198), and the chemical sector emits about 1.5 Gt of CO2 a year (IEA, pdf p. 12).

Data Waste per unit of product in some processes

| Process | Waste or co-product per unit of product | Source |
|---|---|---|
| Methanol carbonylation to acetic acid | All reactant atoms in product; about 6% input mass lost in practice | Brennan cost sheet |
| Caprolactam, DSM process | 1.8 kg ammonium sulphate per kg | Kent |
| Caprolactam, classical process | 5 kg ammonium sulphate per kg | Kent |
| Fine chemicals, typical E-factor | 5-50 kg waste per kg | Pollak |
| Acetylene from calcium carbide | About 28 t calcium hydroxide slurry per t | Wittcoff |
| Pharmaceutical API, GSK target | 100 kg (2005) to 30 kg (2015) waste per kg | Pollak |

 Source: Brennan (2020) Table 4.7; Kent (2012) Ch 22; Pollak (2011) Ch 6-7; Wittcoff (2004) Ch 17, Brennan pdf p. 126; Kent pdf p. 908; Pollak pdf pp. 92, 102; Wittcoff pdf p. 628  Worked example

#### What carbon capture does to a power price

Brennan reports a study of power from Queensland black coal. The minimum viable price at a 7% cost of capital (US$ 2008) was $80/MWh for a supercritical boiler, $101/MWh for coal gasification combined cycle (IGCC) and $145/MWh for IGCC with carbon capture. IGCC with capture cut CO2 per MWh by 73% against the supercritical boiler, but cost $44/MWh more than IGCC without capture. IGCC also used 2.5 t/MWh more fresh water and scored 168 on the Dow fire and explosion index against 107 (pdf p. 237). Cleaner on one measure can be costlier and riskier on others.

- Kent (2012), Ch 5 Green Engineering · pdf pp. 170-172
- Wittcoff (2004), Ch 17 Sustainability and Green Chemistry · pdf pp. 627-628
- Pollak (2011), Ch 6 Research and development; Ch 7 Cost calculation · pdf pp. 92, 102
- Brennan (2020), Ch 7 and Ch 8 · pdf pp. 198, 218, 237
- IEA (2018), Executive summary · pdf p. 12

### See it in the table
[H₂O Water](https://www.materialinsights.org/commodities/water/)[Hg Mercury](https://www.materialinsights.org/commodities/mercury/)[H2SO4 Sulphuric acid](https://www.materialinsights.org/chemicals/sulphuric_acid/)[Cl2 Chlorine](https://www.materialinsights.org/chemicals/chlorine/)[H2 Hydrogen](https://www.materialinsights.org/chemicals/hydrogen/)[AS Ammonium sulphate](https://www.materialinsights.org/chemicals/ammonium_sulphate/)[C2H4 Ethylene](https://www.materialinsights.org/chemicals/ethylene/)[MeOH Methanol](https://www.materialinsights.org/chemicals/methanol/)[AcOH Acetic acid](https://www.materialinsights.org/chemicals/acetic_acid/)[CPL Caprolactam](https://www.materialinsights.org/chemicals/caprolactam/)

### Check your understanding

Brennan found storage of about 15% of annual production for stand-alone plants. What did he find for integrated sites?
 Integrated sites held about 2% of annual production in storage, which saves capital and working capital and reduces hazardous inventory.

In Brennan's sensitivity example, which 10% adverse change hurts the return most?
 A 10% lower selling price cuts the return by 4.9 points, more than lower volume (3.6) or higher capital (2.5). Market factors usually dominate chemical project risk.

What is the core idea of inherently safer design?
 Kletz's principle is to avoid hazards rather than control them, through intensification, substitution, milder conditions, limiting effects and simplification.

[← Part 4: Technology, learning and feedstock: where the cost floor is set](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p4/)[Mark read · Wrap-up →](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/review/)

## Other sections

- [Module overview](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/index.md)
- [Economies of scale: why big plants make cheap tonnes](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p1/index.md)
- [How plant sizes grew, and what stops them growing](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p2/index.md)
- [Capacity planning, utilisation and the chemical cycle](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p3/index.md)
- [Technology, learning and feedstock: where the cost floor is set](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/p4/index.md)
- [Key terms, quiz and sources](https://www.materialinsights.org/learn/chemicals/scale-capacity-feedstock/review/index.md)