INSIGHT: Global warming can knock out crackers

12 February 2007 16:58  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Hurricanes Rita and Katrina wrought the sort of damage on the US Gulf Coast states that could become commonplace if worst case scenarios of global warming take hold.

But will the envisaged rise in sea levels brought on by rising global temperatures put as much as 45% of the world’s ethylene capacity at risk?

It was not so much the storms themselves that hit Gulf Coast business rather flooding and the impact on local infrastructure.

Remember: some chemical plants were out of action for weeks. For the most integrated businesses it made sense to start up much needed refineries first and think about chemicals later.

Fast forward thirty or more years, the average lifetime of a major cracker, and what might chemical makers expect if key facilities are still located in vulnerable coastal areas?

The questions have already been asked about the US Gulf Coast petrochemicals hub. But what about older sites in the Netherlands and newer facilities in the Middle East, India, China and Singapore?

Of course it makes sense to site crackers on the coast or on waterways to give ready access to cooling water and to facilitate the movement of feedstocks and products. But does the disruptive potential of global warming change all that?

A first stab at this comes from Lehman Brothers which says that 46% of existing and 45% of planned ethylene capacity globally is at high risk from such flooding. The bank says the world will have 173m tonnes of ethylene capacity by 2012 in an extensive report on the business of climate change.

Ethylene plants can be moved inland, of course, but at significant cost. If the foundations of the sector’s critical assets have to move then so does its cost base.

Petrochemical producers will have to wrestle with the practical aspects of climate change adapting technologies to cope with warmer seawater perhaps used for cooling.

Lehman notes that in the base case climatologists broadly agree that sea levels will rise by up to 1m by 2100 with rises of between 4m and 7m ultimately possible should half of the Greenland and the West Antarctic Ice Sheet melt. Storms would be more frequent and more violent. Climate change in the base case could displace as much as 10% of the world's populations. 

In the chemicals sector, campaigns to reduce process emissions have been on the agenda for years.

The bank notes, however, that the commercial risk of tighter restrictions in future introduced specifically to tackle global warming depends on whether abatement measures are imposed globally or selectively by region.

Looking out over the short term it says because demand for chemicals generally is price inelastic the industry can be expected to pass on higher regulatory costs provided those costs are imposed globally.

The playing field might be tilted, however, if some countries but not others impose tighter controls.

It is relatively easy to balance out the risk posed by global warming and outlined in two recent landmark reports – the Stern Review of climate change published in the UK and the International Report on Climate Change (IRCC) released at the beginning of this month.

Stern put a value on the cost of carbon and opened up the vitally important governmental debate on the cost of emissions reduction and containment. The IRCC suggested global temperatures would rise by 1.8-4°C (3.2-7.2°F) by the end of the century.

Companies might capitalise on their co-generation expertise in the search for power from low-carbon sources, for instance. New materials, carbon capture and biotechnology ultimately would become more important in the chemical industry mix.

The traditional large-scale ethylene plant located on the coast or on a major waterway, however, could be under serious threat.

Ethylene plants are designed to have a long operating life – and to operate at high throughput rates for most of the time.

The impact of major storms, floods and warmer cooling water even in the short term will be negative and inescapable.

By: Nigel Davis
+44 20 8652 3214

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