Clustering to boost chemicals innovation in Europe

Mega clusters

09 August 2010 00:00  [Source: ICB]

Europe's future competitiveness in chemicals will require strong innovation and improved logistics. Cluster development is expected to play a central role

Rex features

The clustering of chemicals sites in Europe has helped companies improve operating efficiencies and boost innovation. But further integration is needed to enable players to compete with low-cost producers in the Middle East and Asia. Combining several clusters to form mega clusters could provide a solution, suggests Fred du Plessis, president of the European Chemical Site Promotion Platform.

Benefits of clustering include shared infrastructure, services and facilities. Mega clusters go a step further, increasing integration between clusters and helping to optimize existing assets. This would help avoid duplication and strengthen inter-dependence, for example by building a pipeline network, says du Plessis.

"Improving the efficiency of Europe's chemical sites, chemical clusters, networks and mega clusters is paramount for the survival of the European chemical industry and for making it more attractive for further and future investment," he remarks.

To boost innovation, the European chemical industry "needs to think more creatively about integration, optimization and consolidation. I think the mega cluster helps to do that," he continues. "Around clustering you have the critical mass, the brain-power pool, the market and the need to become more efficient."

Clustering can enhance cooperation in research and development, as well as in training activities, says Mike Clements, director for transaction services at PricewaterhouseCoopers (PwC). Clustering can also help firms forge relationships with local universities, he adds.

A potential European mega-cluster is the Antwerp-Rotterdam-Rhine-Ruhr (ARRR) network of four sub-clusters: the Port of Antwerp in Belgium; the Port of Rotterdam in the Netherlands; and the Ruhr and Rhine areas in Germany. The Rhine area covers the ChemiePark Hoechst site and the BASF site in Ludwigshafen, while the Ruhr area includes the clusters ChemSite and ChemCologne. "There is a huge exchange of products and inter-dependence between those four sub-clusters," observes du Plessis.

The Port of Antwerp and the Port of Rotterdam are both well defined chemical clusters. Each has benefited in their clustering development from strong leadership by the respective port authorities, leading to a strong municipal interest in their operations, says du Plessis. "In both cases, although the port takes the lead and recommends strategy, there is a strong stakeholder model," he explains. "The industry players, energy network players, logistics players, unions and local community play a role in determining the long-term strategic vision for those clusters."

While the two ports consider themselves as rivals, they approach chemical industry investment and their business models in a complementary way, attracting different value chains and different positions in the value chain, says du Plessis. Rotterdam has more refining and Antwerp has more cracking, with a naphtha interconnection between the two, so Rotterdam attracts more bulk chemicals and Antwerp attracts more intermediates and downstream chemicals, he adds.

The ChemSite and ChemCologne sub-­clusters are public-private partnerships. ChemSite covers six sites, including Marl, Gelsenkirchen and Dortmund, and is fed by BP's two refineries in Gelsenkirchen. Others at the site include SABIC, Evonik and Sasol.

ChemCologne covers an area including Leverkusen, Dormagen and Krefeld-Uerdingen, and is fed by the INEOS and Shell refineries and crackers, says du Plessis. Other major players include Bayer MaterialScience and LANXESS.

Mega clusters are also emerging outside Europe, for example in Nanjing, China, and Jubail, Saudi Arabia. Players in Asia and the Middle East have seen the benefits of Europe's clustering models, which have largely evolved as a result of large firms such as ICI, Bayer and Hoechst breaking up their sites, says Clements.

But Europe still leads the world "in terms of chemicals clustering, integration, networking and the 'Verbund' concept", remarks du Plessis. A lack of space and feedstocks, high energy and labour costs and sophisticated downstream markets have helped shape Europe's development of chemicals clusters, he adds.

ECONOMIES OF SCALE
Small standalone sites will find it difficult to compete in future, he says, although large single-company sites such as BASF's integrated Verbund complexes benefit from economies of scale. A Verbund site can be defined as an integrated site with a number of value chains, with downstream integration in those value chains.

"I don't see people building another Ludwigshafen in Europe. But people might build complexes near other clusters or stand-alone sites to improve integration," says du Plessis.

While the BASF Verbund model will continue to make sense, the trend is for sites to become multi-company, as has occurred with the former Hoechst site in Frankfurt and the former Huls site in Marl, du Plessis says.

While it is unlikely that BASF will move in that direction, Dow Chemical's strategy to focus on certain assets could lead to the US producer selling other assets or creating joint ventures with other companies, he notes. "Under Dow's new strategy you'll see Dow probably splitting up some of its sites."

Where chemical production sites are geographically spread out and linked via pipeline, a network of sites might be a more appropriate model. One example is CeChemNet in Germany, which was formally established in 2006/2007 and includes sites in ­Schwarzheide, Piesteritz, Schkopau, Bitterfeld, Leuna and Berlin. The sites are strongly inter-dependent, with linked networks for hydrogen and oxygen, as well as raw material pipelines, says du Plessis.

"We will see additional networks such as CeChemNet emerging where you can't form a mega cluster because it's a regional play," he remarks.

The benefits of clustering are clear. According to PwC, the major cost benefit when building a new chemicals plant is a reduced capital expenditure, as the services are already in place. PwC compared two similar-sized production plants, both producing the same specialty chemical product using the same process, one a stand-alone site in the middle of Europe and the other located in the middle of a large chemicals complex. The capex was about 30% less for the plant built in the cluster, says Clements. The operating costs, on the other hand, were only slightly lower for the plant located in the cluster - as a result of some shared facilities, he adds.

To facilitate the establishment of chemical clusters, the European Chemical Regions Network (ECRN) has launched an initiative aimed at improving the effectiveness of regional development policies in the areas of innovation and cluster models. Developing chemical clusters as knowledge sites is a key focus area for the initiative, named ChemClust.

Europe has an established network of chemicals production sites, and needs to retain that tradition, asserts Thomas Steinmetz, a local German government official working on the ChemClust initiative. The industry is realising the benefits of co-operating more widely, and across administrative borders, says Steinmetz, who is deputy head of the inter-regional economic and development cooperation unit in the Ministry of Economy and Labour of Saxony-Anhalt. The CeChemNet network, for example, covers four Germans states, he adds.

"The strong competition is making ­companies understand that they have to co-operate," Steinmetz states. "Clusters are ­definitely the future. But they need to be further developed and we have to cooperate through ­innovation."

By: Anna Jagger
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