The global petroleum industry
The first petroleum well was drilled in Pennsylvania, USA, in 1859. It produced 35 bbl/day which were sold for $20/bbl. Only six years later, the production rose to 100,000 bbl/day and the price dropped to $0.1/bbl. The desired product, then, was kerosine which replaced whale oil used for lamps, that was becoming scarce due to over-killing of whales. The first oil company, Standard Oil was started in 1870.
The use of petroleum grew fast and by 1970 there were estimates that it would run out by the end of the century. The 1973 oil crisis strengthened that view and encouraged plans to develop substitutes, mainly through synthesis gas from coal.
Current estimates are that at the current level oil and gas reserves will last almost to the end of the 21st century. The current use is about 3.9 billion tons a year and the oil reserves are estimated at 350 billion tons. 80% of these reserves are in the Middle East.
Over the years the oil companies became the first multinational companies, mainly through the discovery and development of new oil fields, which they controlled. In time, the local rulers demanded and obtain a larger part of the oil profits.
The number of oil companies proliferated but in recent years mergers and consolidations led to a smaller number of oil companies.
These mergers were accompanied by selling and buying of refineries and nets of gasoline stations. The 7 small independent oil companies in the US did not merge but participated in the reshuffling and increased their holdings from 12 refineries with a total capacity of 1.3 million bbl/day to 21 refineries with total capacity of 3.7 million bbl/day.
The Israeli oil companies Alon and Delek participated in the party and bought hundreds of gasoline stations in the USA.
In parallel, many small refineries were closed and only large capacity refineries were built. In 1987 there were 217 refineries in the US with a total capacity of 15.57 million bbl/day. In 2002 only 144 refineries remained, but with a total refining capacity of 16.79 million bbl/day, an average of 120,000 bbl/day, about half the capacity of the two refineries in Israel.
The sales and profits of the largest global oil companies are shown in Table 1.
| $million | |||||||
| 2001 | 2000 | 1998 | |||||
| Compny | Currency | Sales | Profits | Sales | Profits | Sales | Profits |
|---|---|---|---|---|---|---|---|
| Exxon/mobil | $ | 213488 | 15320 | 232748 | 17720 | 169642 | 8047 |
| Shell | $ | 135211 | 18852 | 149146 | 12719 | ||
| BP-Amoco | $ | 174218 | 6556 | 148062 | 10120 | 68305 | 2651 |
| Chevron-Texaco | $ | 104409 | 3288 | 117095 | 7727 | 72000 | 1900 |
| ENI | Euro | 48925 | 7751 | 47938 | 5771 | 28341 | 2328 |
| TotalFinaElf | $ | 94323 | 6774 | 102558 | 7193 | 69041 | 6907 |
| Connoco | $ | 39539 | 1589 | 39287 | 1902 | 22796 | 450 |
| Phillips | $ | 26868 | 1661 | 23082 | 1862 | 11545 | 237 |
| Marathon | $ | 33019 | 157 | 34427 | 411 | ||
| Imperial | $ | 17245 | 1244 | 18852 | 1420 | 11092 | 490 |
| Oxidental | $ | 13985 | 265 | 13574 | 1570 | 6805 | 369 |
| Valer | $ | 14988 | 564 | 14671 | 339 | ||
| UDS | $ | 17061 | 444 | 11113 | -78 | ||
| Sunoco | $ | 14063 | 398 | 14514 | 422 | 8482 | 280 |
| EnCan | $C | 16616 | 824 | ||||
| Lukoil | Rubel | 434392 | 87521 | 422591 | 96434 | ||
| Repsol-YPE | Euro | 43653 | 1025 | 45742 | 2429 | ||
| Ukos | Rubel | 295729 | 104664 | 329031 | 11303 | 160508 | 44439 |
| Petrochina | $ | 28850 | 5654 | ||||
| CNPC | HKS | 1477 | 457 | 1790 | 680 | 777 | 30 |
The sales of each of the three largest companies are greater than the GDP of Israel
The considerable increase in sales of the companies in recent years is mainly due to the rise of crude price. Data about the petroleum industry are not distinguished for their veracity, as the case of Enron showed. One exception is the Shell company which gives sales data including taxes and excluding taxes. It also reports all bribe cases that the management was aware of. Profits, however, dropped from 2001 to 2002. True figures for 2002 may show even lower values.
Still, companies with turnover of over 15 $ billion do not have to blush much.
The Global petrochemical industry
If we define the petrochemical industry as the producer of chemicals by reactions of petroleum products separated from crude oil, from natural gas or from synthesis gas, then its yearly turnover is about one half of the total turnover of the whole chemical industry. The global chemical industry, excluding pharma, had sales of about $ 1.5 trillion in 2001. $400 million were
sold over the borders of the producing countries. About half of the international manufacture was in Europe, 30% in the USA, 10% in Japan and less than 10% in the rest of the world.
The petrochemical industry started (also in Israel) with the production of carbon black from petroleum fractions in 1910, and in the production of glycols, esters, amines and ketones by Union Carbide. All chemical companies, and later also the petroleum companies, followed.
Since chemical and petroleum companies do not fully report which part of their turnover is for petrochemicals, data for petrochemicals production are nor exact.
The USA was dominant in petrochemical production from 1945 till the seventies, when environmental pressures caused American companies to sell subsidiaries they had in other countries, or to sell plants or whole petrochemical businesses.
Some companies became dominant in market share of some products. New companies sprang up from splinters of old companies, particularly in the nineties.
The products of the petrochemical industries are sold as intermediates to the polymer, coatings, fibers, rubber and all producers of organic chemicals.
The Israeli petroleum and petrochemical industries
Israel has only 5 companies in this area + 5 sales only (gasoline stations and LPG) companies :Paz, Sonol, Delek,, Ten and Alon. The leading company is the Oil refineries Ltd. The oil refinery was split by the government, before privatization, into the Haifa and the Ashdod branches. The Ashdod refinery was sold to Paz and the Haifa refinery was sold to The Israel cprporation in 2006.
Oil refineries Ltd
The company was started in 1938 as Haifa Refineries by the Anglo-Persian oil company in in order to supply fuel for British shipsin the Mediterranean. The British Mandate leased a large area at the Haifa Bay to the company for 75 years (Till 2003). At the endof which the land and everything built on it was supposed to revert to the government A first straight distillation unit was built in ayear with a capacity of 2 million tons of crude oil a year, which was extended in 1944 with a second unit for a total capacity of 4million tons of crude oil a year.
The raw material came by pipeline from Iraq till the Israeli war of independence in 1948, when tankers brought crude oil to Haifa.
In the fifties, the main oil supply was from Iran, by boats to Eilat and from there by two pipelines to Haifa, and later also to Ashdod.
In the eighties an important source was Sinai oil under long term contracts with Egypt. Currently, most crude is bought in the free market and brought by tankers to Haifa or to Eilat.
In 1958 The Anglo-Persian company, which had changed into British Petroleum, sold the refineries to the state of Israel. In 1971 the government sold 26% of its shares to the public Israel corporation, which was later bought by Eisenberg, and later by the Offer brothers. In 1972 the company changed its name from Haifa Refineries to Oil Refineries. In 1969 to 1973 a second refinery was built at Ashdod, and its overall capacity rose to 10 million tons of crude a year. The current capacity is 13 million tons a year of crude, but in practice only about 11 million tons a year of crude are used.
The Oil refineries company participated in the setting up of Petrochemical Enterprises, Gadot Aromatics (Now Gadiv), Lubricating oil Inc, and with special foresight – Haifa Chemicals, all on Oil refineries land, and in Pama, which was started at the Rotem plain in order to develop uses for the local oil shale.
The Pama company died when the Electrical Corp, the major ownership partner, lost its interest. Half of the shares of Lubricating Oil were sold to a private investor. The government sold the Haifa Chemicals shares (cheaply) to a private investor.
In 1994 the Oil Refineries bought control of Gadot Aromatics, reached 100% ownership and changed Gadot into a wholly owned subsidiary under the name of Gadiv.
Carmel Olefins, another Oil Refineries subsidiary will be detailed later.
Currently, the Oil Refineries at Haifa has units for straight and secondary distillation, many units for sulfur recovery, a Viscosity breaker unit, two catalytic crackers, catalytic reformers, and units for lubricants, greases and asphalts.
The oil refinery at Ashdod has primary and secondary distillation units. A viscosity breaker, a catalytic cracker, and a MTBE unit for use as Octane number improver, which has replaced the tetra ethyl lead fuel additive.
The distribution of the main products is approximately 23% heavy fuel oil, 28% light fuel oil and Diesel, 9% jet fuel, 4.5% LPG and 25% gasoline.
The main problems of the Oil Refineries have always been due to the government ownership in political appointments to the board, in business decisions, in setting the prices of the products, and the problem of the 2003 end of the original contract.
In 1994 the treasury appointed Professors Itzhak Swary and Professor Ephraim Kehat to make an estimate of the value of the plants.
The value estimate was too high for the Haifa Refineries to raise, and the Treasury agreed to spread the payments over a long period.
However, changes of governments have frozen the decision and the company was plunged into a period of uncertainties, where large investment decisions cannot be made. Poor decisions of the Treasury to pay the Offer brothers huge sums for their zero value of the shares were highly criticized.
Due the changeover of electricity production from heavy fuel oil to coal and from light fuel oil to natural gas, the mix of products of the refineries has to change in the direction of mostly light products, which require huge investment in more crackers, and result in the closure of outdated units.
Other poor decisions by the government:
1. To separate the Ashdod refinery into a separate company that will compete with the Haifa refinery, though both locations were designed and operate as an integral unit.
2. The refinery has built a new desulfurization unit for Diesel oil to bring it to the European standard. The government did not permit a price raise of about 1 cent per liter to cover the extra cost of operation of the unit, and the unit was not operated for a long time.
Petrochemical Enterprises and Carmel Olefins
Petrochemical Enterprises was set up by a group of foreign investors led by Joel Ostrovitz, and by the Oil Refineries, which holds 12.6% of the shares of Petrochemical Enterprises (though it had invested much more than this share), in order to produce carbon black for the rubber industry and polyethylene from ethylene (from direct distillation and a small cracker of naphtha). The carbon black plant operated only a few years. Larger cracking plants were built by the Refineries and large plants for polyethylene and polypropylene were built. Eventually all cracking units and polymer units were transferred to a new company, Carmel Olefins in which the Refineries owned 50% of the shares. In 2000 the 87.4% of the shares of Petroleum Enterprises were bought by a private investor, who planned to use the cash reserves of Carmel Olefins, accumulated for a new production unit, to cover the loans he took from the banks.
Gadiv
The company was started in 1974 as Gadpt Petrochemicals by the Yohananoff brothers who owned a tanker fleet that was used to import chemicals to Israel but had no loads for the return trip.
The company buys naphtha from the refineries, separates the aromatics by extraction, separates the C6-C8 aromatics by distillation and by more sophisticated processes and uses some of the aromatics for the production of aromatic derivatives:
Phthalic anhydride, fumaric and succinic acids. The Refineries and Gadot had many fights over the transfer price of naphtha. After the Yohananoff brothers fell out they sold 52% of their shares to Delek and Klal. In 1998 the refineries bought all the shares it did not own, and made Gadot Petrochemicals into a wholly owned subsidiary with the name of Gadiv. In 2010 Gadiv was fully merged with the Haifa refineries.
Electrochemical Industries
The company was set up by Yehuda Araten and Morris Gerzon by the name of Frutarom, in a location opposite the refinery, in order to produce Vitamin C and other aromatic materials for the food and cosmetics industry. In 1952 they started a new plant for the production of caustic soda, chlorine and chlorine derivatives, south of Acco. Eventually, they built a plant to produce VCM and PVC, which became its major product, and stopped the chlorine derivatives production. The name of the company was changed to Electrical Industries (Frutarom) Ltd. In 1973 the company was bought by ICC, owned by John Farber. The two companies operated in two seasonal markets and the combined ownership tended to offset occasional loses of one of the companies.
In 1996 the company was split into two: Frutarom and Electrochemicals industries. Frutarom grew fast by more products and by buying plants abroad. Electrochemical Industries was hit badly by a sharp decline in PVC prices to the point that it had to be supported by a government loan in 2002 in order not to fail. In 2005 the company became bankrupt and the plant ceased operations.
Dor Chemicals
The company was set up by the Dankner family in 1971 in order to produce methanol and formaldehyde for Carmel chemicals, another family company, which produces phenol-formaldehyde resins and plastic products. In 1992 the company, which had excess production of methanol, built two MTBE plants. All the MTBE is bought by the refineries.
The Dankners have lost interest in the company except as as a guarantee of bank loans for their real estate and banking interests. Poor selection of plastic companies, which they bought, has left the company in a precarious position. The methanol plant was closed and the MTBE plants use imported methanol.
Financial performance
Table 2 shows (In millions IS) the sales and profits of the companies in the industry from 1998 to 2002. Since Gadiv is a wholly owned subsidiary, and since Dor is a privately held company, only partial data were found for these companies.
| $million | ||||||||
| 2001 | 2000 | 1999 | 1998 | |||||
| Compny | Sales | Profits | Sales | Profits | Sales | Profits | Sales | Profits |
|---|---|---|---|---|---|---|---|---|
| Refineries | 10071 | -22 | 12399 | 275 | 7839 | 279 | 6655 | 18 |
| subsidiaries | 11201 | -22 | 13640 | 275 | 8793 | 279 | ||
| Carmel olefins | 1159 | -5 | 1238 | 37 | 970 | 59 | ||
| Electrochem Ind | 446 | -54 | 673 | -23 | 481 | 3 | 475 | -28 |
| Dor | 188 | 0 | 129 | 0 | 94 | 8 | ||
| Gadiv | 178 | 136 | 107 | |||||
Sales and profits of the Petroleum and Petrochemical industries (in millions IS)
The refineries stands out in its turnover relative to the other companies.
Table 3 shows the turnover and exports of the industry from 1991 to 2000.
| $million | |||||
| Company | Refineries | Carmel | Gadiv | Electroch | |
|---|---|---|---|---|---|
| 1991 | SAS | 827 | 128 | 96 | 116 |
| 230 | 52 | 77 | 59 | ||
| 1993 | Sales | 1218 | 126 | 98 | |
| Exports | 420 | 50 | 82 | ||
| 1994 | Sales | 1708 | 218 | 92 | 172 |
| Exports | 524 | 72 | 82 | 69 | |
| 1995 | Sales | 1909 | 307 | 148 | 211 |
| Exports | 403 | 108 | 136 | 89 | |
| 1996 | Sales | 270 | |||
| Exports | 72 | ||||
| 1997 | Sales | 2106 | 300 | 107 | |
| Exports | 441 | 109 | 95 | ||
| 1998 | Sales | 1579 | 257 | 107 | |
| Exports | 365 | 124 | 97 | ||
| 1999 | Sales | 2088 | 230 | 136 | |
| Exports | 438 | 75 | 125 | ||
| 2000 | Sales | 3329 | 302 | 178 | |
| Exports | 807 | 110 | 164 | ||
There are no figures for Dor and only partial figures for Electrochemical Industries. The increase of exports is striking.