08 February 2013 09:57 [Source: ICB]
Europe's chemical sites are hoping for a return of confidence in investment over the next few years, but are focusing strongly on innovation and R&D to attract overseas investors in the longer term
European chemical sites have become more bullish in recent months about attracting further investment over the next year or so. This is despite forecasts of at best only a small rise in chemicals output in the region in 2013 and sluggish demand from customer sectors.
R&D is viewed as a long-term strength for Europe's chemical sites
Now that the euro crisis appears to be receding, economists are reporting the first signs of a return of investment money to parts of Europe, which had seen capital flowing out of their areas over the last 2-3 years.
The chemicals sector is hoping that this rising financial confidence will give an impetus to more investment in the industry, particularly in its main production locations. In addition, with a more stable economy, Europe should be able to lure investors from outside the region, particularly those in Asia.
"Chinese executives are now talking much more seriously about acquiring chemical companies in Europe," says one Europe-based chemicals consultant just back from a trip to China. "They are more confident about making acquisitions in Europe than they were a few years ago. They think it's an opportune time at the moment for investing in European technology, innovation capacity, management expertise and skills."
Unlike other Asian countries like India, the prime objective of expanding Chinese companies is not a presence in the European market but access to European technology and R&D capabilities in order to make their own operations in China more competitive. And they expect to find plenty of what they want in Europe's chemical sites.
A large proportion of chemical production in Europe, particularly western Europe, is located in 70-80 sites, around 30 of which are major ones with well integrated supply chains, strongly supported by utilities, services, technical backup and maintenance facilities. These are the ones with high levels of value added per square metre of production area
Some of the larger sites such as Rotterdam (Netherlands), Antwerp (Belgium) and Teesside (UK) already have a relatively high number of companies with non-European owners. They also tend to have geographical advantages with coastal locations adjacent to ports and linked to regional or national transport networks.
A growing number of sites are no longer exclusively "chemical" but embrace other disciplines such as biotechnology, engineering and downstream manufacturing. Also, many are parts of clusters, often collections of sites of different sizes and specialties, which provide more opportunities for multidisciplinary collaborations and shared practices.
Some of these clusters have in recent years been setting up cooperation and trading ties with similar clusters outside Europe, particularly in Asia and Latin America.
One weakness of European chemical sites, especially the well-established ones, is that historically their core activities have been predominantly that of bulk chemicals production, particularly of petrochemicals. Over many years the European petrochemicals segment, with over 40 ethylene crackers, most of them forming the core production unit of a chemical site, has become vulnerable to competition from the Middle East's rapidly growing petrochemical sector based on low-cost ethane feedstocks.
Now it is facing another source of competition, from the US this time, where petrochemical producers are wanting to exploit in European and other export markets the cost advantages of feedstocks derived from shale gas. INEOS, one of Europe's leading petrochemical producers, has already concluded a deal to import ethane into Europe derived from low-cost US shale gas.
With US gas prices 25-33% lower than those in Europe, "a wave of competitive products will be heading in the direction of Europe," warns Paul Booth, chairman of SABIC UK Petrochemicals based on the Wilton site at Teesside.
A strategy being adopted by many sites, particularly those with a large share of petrochemicals capacity, is to develop the capability of producing a bigger proportion of specialties and high-value chemicals. At the same time they are aiming to become less reliant on energy and feedstocks based on crude oil. This could mean making greater use of raw materials derived from local resources such as biomass from agricultural or other waste or feedstocks like hydrogen coming from other renewables. A lot of sites, particularly in northern Europe, have, as a result, adopted low-carbon policies which has put them at the front of moves to green chemistry.
The need for more value-added products and new energy and feedstock sources is a major reason why chemical sites have been setting up their own R&D facilities to take advantage of a pool of highly qualified personnel and the knowledge available from local universities and research institutes.
At a time when central and regional governments have been trying to avoid deep austerity cuts in R&D budgets, sites with R&D operations are in a better position than others to attract funds for innovation projects. There are, or likely to be, even less curbs on EU-funded schemes under the EU's Seventh Framework Programme (FP7) and imminent Horizon 2020 programmes.
Some regional governments have been anxious to maintain R&D expenditure to preserve or even increase employment in high-value sectors like chemicals. As a result, R&D-orientated sites have become locations for research schemes bringing together government agencies, academia and industry. This encourages an open innovation approach with ideas for innovation coming from a variety of sources.
It has also been an incentive for sites which were previously run by one company and restricted to its operations to invite other companies to move into the location.
The presence of well-resourced and broadly based R&D activities on a site can give it an additional appeal to outside investors, particularly those from outside Europe wanting to benefit from the region's global leadership in chemicals research.
The Chemelot site in south Netherlands, formerly owned and run by DSM, is emerging as a leader in Europe in the drive to make chemical sites strong R&D locations for regional economies When it began Chemelot Campus three years ago as a new phase in its development jointly operated by DSM, Limburg province and Maastricht University, the objective was to make it into an open innovation centre bringing experts from all sizes of companies together with scientists from academic institutes.
"Our region could really use a growth engine and we want to take on that role," says Bert Kip, managing director of Chemelot Campus. "With (our) current residents, we are creating new employment opportunities on campus. But we also offer space for people starting their own business. It's crucial that we work together to achieve this."
Maastricht University and the nearby German RWTH University are currently setting up the Aachen Maastricht Institute for Biobased Materials (AMIBM), as a cross-border research organisation at Chemelot to focus on making polymers from plant-based feedstocks.
Chempark, in Leverkusen, is testing microreactors and other new energy technologies Copyright: Currenta
DSM is expanding its research activities at the site with the building of a new facility for engineering plastics research accommodating 450 staff. At the same time the site is attracting a growing number of biotech startups. "We are making a major step in the development of a bio-based cluster of a European scale in our region," says Govert Veldhuijzen, Limburg's executive member for economic affairs.
Chempark, in Leverkusen, is testing microreactors and other new energy technologies
Across the Dutch-German border in North Rhine Westphalia, Chempark, the biggest chemical park in Germany embracing the three sites of Leverkusen, Dormagen and Krefeld-Uerdingen, has become a location for the development of new modular chemical processes. The €30m ($41m) EU-funded F3 Factory scheme involving 25 companies and research institutes has been developing the concept of modular production of chemicals with microreactors at Leverkusen. Now the technologies are being taken on the site to the demonstration stage at the INVITE centre, jointly operated by Bayer and Dortmund Technical University, by a group including Bayer, BASF, AstraZeneca, Evonik and Arkema.
Leverkusen is also the testing ground for a breakthrough process for reacting CO2 extracted from power station emissions with hydrogen made by electrolysis with energy from wind power. A demonstration unit for making hydrocarbons, including formic acid, from the reactions, is being constructed at the site.
NOVEL TECHNOLOGIES TESTED
The electrolysis technology is the major objective of an €18m project of 13 partners headed by Bayer and mostly funded by the German government. Bayer, which together with LANXESS, the commodity and speciality chemicals company spun off by Bayer nine years ago, runs Chempark, has a pilot plant at Leverkusen for the catalytic conversion of CO2 into polyols. The CO2 is separated from flue gas from a power station of RWE at nearby Niederaussem.
Teesside on the northeast coast of England has also become a centre for the development of low-carbon technologies, some by foreign companies wanting to exploit the area's long history of chemical engineering expertise built up under the former ICI. Air Products of the US is building what is expected to be the world's largest renewable energy plant at one of the sites within the Teesside cluster. It will process 350,000 tonnes/year of non-recyclable waste from landfill to produce up to 50MW of electricity, as well as hydrogen, chemicals and fuel.
The facility will use an advanced gasification technology developed by Westinghouse. Air Products has already announced it is planning to build a second, similar unit on the same site.
A Teesside consortium is planning to use carbon capture and storage technology to enable a mothballed local power station to start operating, with its CO2 emissions and those of local energy-intensive chemical plants being diverted into offshore saline aquifers and oil/gas fields.
At Wilton, the large site at the core of the Teesside cluster, the state-funded Centre for Process Innovation (CPI) has its main research centre where state-of-the-art equipment is provided to enable chemical, biotech and other companies to test new technologies. In December the UK government allocated £38m ($60m,€44m) for the CPI to set up a National Biologics Industrial Innovation Centre.
Leuna, a 90-year-old chemical site in eastern Germany, is an example of a location which has recently decided to extend its operations into R&D. The Fraunhofer Institute opened last year a research centre for chemical-biotechnology processes, while ThyssenKrupp Uhde, the engineering company, has been building in alliance with the US biochemical producer Myriant a pilot plant on the site for the testing of a succinic acid technology.
"We want to attract R&D projects to the site because they can be a source of new investment ideas and could offer opportunities for not only the expansion of the site but also the region's economy," explains Martin Naundorf, Leuna's business development manager.
The site has its own long-term research project with industrial and academic partners developing technologies based on turning local lignite into chemical feedstocks. But what was originally to be a €1bn has recently been downgraded to one of less than €500m because of economic and environmental problems.
Nonetheless, Leuna typifies a prevailing trend among European chemical sites of wanting greater self-sufficiency in energy and feedstock supplies while also becoming centres of knowledge based on expertise both within their sites and localities.
SAVING MONEY WITH ALTERNATIVE ENERGIES
Many chemical sites in Europe want to see not just improving economic conditions but also initiatives to tackle longer-term issues like energy and feedstock costs.
"What's happening in the US where shale gas is pushing down energy and feedstocks prices underlines the need for lower energy and feedstocks costs in Europe," says Patrick Pogue, assistant vice president, business development at Sembcorp UK, owners and operators of Wilton, the UK's largest chemicals site.
"The problem of energy costs makes it harder for sites to attract investment, particularly from outside Europe," adds Pogue, who is also president of the European Chemical Site Promotion Platform (ECSPP), which represents most of the leading chemical production locations in Europe. "There is still a lot of interest in investing in Europe but high energy prices are a disadvantage."
Like other European chemical sites, Wilton, which is at the core of the Teesside process industries cluster, is diversifying its energy sources through projects using biomass and is looking at waste processing schemes for producing electricity, as well as feedstocks and materials as by-products.
In a joint venture with SITA UK, a subsidiary of Suez Environnement of France, Sembcorp UK is bidding to build a plant at Wilton which would convert 400,000 tonnes/year of municipal waste from Merseyside, northwest England, into 35MW of electricity.
PYReco, a start-up based at Wilton, is planning an £85m ($134m, €99m) facility on the site to use pyrolysis to recycle waste tyres, normally sent to landfill or incinerated in cement plants, into commercial grade carbon black, as well as into oil and gas.
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