OUTLOOK '08: Chems plans to combat energy costs

04 January 2008 09:32  [Source: ICIS news]

By Lucy Craymer


Higher Europe energy costs hit petchemsLONDON (ICIS news)--Increased European energy costs have been partially blamed for rising petrochemical prices and EU legislation and aging infrastructure look likely to cause further hikes in 2008.


UK electricity prices in 2007 are 220% higher than they were in 2002 while those in Germany, France and Belgium are around 150% higher.


Alan Eastwood, head of competitiveness and utilities at the UK's Chemical Industries Association, said the problem was not really the high price of energy UK chemical companies were having to pay but that relatively it is much higher than elsewhere.


Much of the increased cost of energy relates to moves by the EU to do more to prevent carbon emissions. A new phase of Europe’s emissions trading scheme (ETS) will come into effect on 1 January and the cost of carbon will be factored into the cost of Europe’s electricity.


Joe Krueger of the European Chemical Industry Council (Cefic) said this introduction was the biggest energy issue facing the petrochemical industry.


It would impact margins dramatically because the chemical industry can’t increase prices to counter the costs because it competes on an international market, he said.


Cefic would like to see the European Commission  (EC) give out carbon credits for the major chemical production processes to try and counter this.


Eastwood said a long-term higher price of electricity in the UK could encourage chemical companies to look elsewhere.


“If it is perpetually higher and more volatile, it’s going to discourage people from investing,” he said.


“We have even seen some plants [in the past] stop production because it is uneconomic to keep running because of prices,” he said.


A report from the EC's high-level competitiveness, energy and the environment group from its November conference said changes were needed to keep the energy industry competitive, particularly for energy-intensive industries.


“Those industries often compete internationally and many cannot pass on increases in energy costs occurring uniquely in the EU to their customers with risking significant reductions in their market share,” Günter Verheugen, vice-president of the European Commission and EU Commissioner for Enterprise and Industry, said in the report.


He added 700 GW of new capacity was needed to secure electricity capacity supply to 2030 as more than half of the present capacity would have to be replaced by then.


Nuclear power, a carbon-free source of electricity, is being looked at as a solution to volatile and costly energy in Europe.


The CIA is firmly behind nuclear power plants in the UK, Eastwood said, arguing that it would prevent a reliance on both the natural elements and supply from other countries.


Public consultation finished in the UK in November over whether a new generation of nuclear power stations should be built, with Prime Minister Gordon Brown to make an announcement in the new year on the future of nuclear power in the country.


In France, a conglomerate of high energy users including larger petrochemical companies are talking about forming a venture to build their own power station to stave off escalating costs.


The liberalisation of the energy market was expected to lower prices as competitors move into new markets and gain new market share.


However, a competition inquiry by the EC in January 2007 found the electricity market was still characterised by national and regional monopolies while the gas sector was controlled by incumbents.


“Despite the significant progress already achieved, the current situation in the electricity and gas markets is not yet satisfactory,” the high impact group reported.


“Current levels of competition both within member states and across borders are insufficient to ensure competitive prices,” it added.


The Commission has now adopted plans that will subject European energy markets to greater competition and force the main players to separate power generation from transmission.


Several European producers have already upped the price of chemicals in line with rising energy costs but long-term they are looking at different strategies to secure competitive electricity supply.


By: Lucy Craymer
+44 20 8652 3214

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