21 April 2008 17:52 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS news)--Chlor-alkali production in Europe has been under severe environmental pressure for years but it is the future economics of the business that now give greatest cause for concern.
Producers need electrons - electricity - and a great many of them to strip sodium from chlorine. But electricity prices look as though they might rise sharply, particularly given ?xml:namespace>
It would not take much to tip the balance for the sector which is not so much energy- as electricity-expensive. Electricity generators are expected to have to pay a great deal more for the carbon they produce under the post-2012 ETS. Those costs will be passed on to consumers,
To make one tonne of chlorine and 1.1 tonnes of caustic soda producers need to consume around 3 MWh (megawatt hours) of electricity. Electricity constitutes between 39% and 44% of the total costs of production and up to 60% of cash costs.
At the top of the cycle, producers currently can make money and re-invest with electricity prices around €45/MWh - the price put forward by Steel in an interview with ICIS news.
But the EuroChlor chief fears electricity prices rising to closer to €75/MWh as the post-2012 phase of the ETS takes hold and carbon costs rise as projected.
Without doubt, the costs associated with carbon reduction will be passed on to consumers. Energy-intensive industries (EIIs), particularly, will be hard hit.
The European Commission (EC) says it has a plan to assist EIIs to meet international competition and players not subjected to such stringent carbon-control induced costs. But the sectors to be covered by these yet-to-be-introduced measures have not been named.
Steel, quite rightly, wants the chlor-alkali business designated as an EII and given careful attention.
Chlor-alkali players continue to invest to move away from mercury production and to the more environmentally-friendly membrane electrolysis alternative, but this is costing them some €3bn ($4.8bn).
They would find it hard to bear significant increases in operating costs at a time when they need still to concentrate on upgrading productive assets.
“Margins will be slashed to the point where producers at the bottom end of the cycle end up losing money,” Steel says. Even at the top end, investment decisions would become very difficult, he suggests.
Steel was talking following a largely technical chlor-alkali conference held last week in
This week, polyvinyl chloride (PVC) makers gather in the
Saddling a vitally important industrial segment with damagingly high costs hardly makes sense and, to give it its due, the EC understands this.
It is working with industries, including chemicals, to try to come up with a workable formula that helps them manage high carbon-related costs. The backdrop to this is further international agreement on measures to control climate change.
The chemicals sector is addressing its own ETS issues through targeted political lobbying and discussion on-going within the high-level group (HLG) on chemicals.
For the time being, however, producers have to deal with an uncertainty that is hardly conducive to the further significant investment needed to maintain their asset intensive business in
($1 = €0.63)
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.
|ICIS news FREE TRIAL|
|Get access to breaking chemical news as it happens.|
|ICIS Global Petrochemical Index (IPEX)|
|ICIS Global Petrochemical Index (IPEX). Download the free tabular data and a chart of the historical index|
Asian Chemical Connections