Commentary: Trade pact salvation?

11 October 2013 10:05  [Source: ICB]

Europe’s energy and feedstock disadvantage to the US is already having a tangible impact on the region’s chemical industry, with a flurry of announcements of capacity closures in recent months.

As you would expect, the issue was a key topic at last week’s European Petrochemical Association (EPCA) meeting in Berlin. Companies with a global footprint are in a particularly strong position to optimise production by shifting investment to other, more cost-advantaged regions.

Rex Features

Rex Features

Trade deal could boost chemicals in the US and EU

SABIC vice chairman and CEO, Mohamed Al-Mady highlighted the challenge, saying that US polymer, methanol and fertilizer exports will start hitting Europe from 2016.

He revealed the company is moving ahead with its US cracker plan and will make a final decision by the end of 2014 (see page 9). It is also reducing its European footprint, shutting down assets in the Netherlands and Germany as part of a restructuring programme that will see 1,050 jobs cut.

Meanwhile LyondellBasell’s Bob Patel – the head of Europe, Asia and international olefins and polyolefins – said the company will crack more propane and butane in Europe as it aims to optimise the flexibility and reliability of its operations.

The company has closed 1m tonnes of polyolefins capacity in Europe since 2009 and is aiming to close its Berre refinery by the end of the year.

Upstream closures are another issue affecting European chemical producers which are integrated with refineries or crackers.

French specialty group Arkema is being forced to adjust as fellow French company Total plans to close its cracker at Carling, according to Arkema executive vice president, Marc Schuller. Total is Arkema’s main supplier of propylene.

ICIS Consulting and Analytics forecasts that some 27m tonnes of naphtha supply will be lost in Europe between 2005 and 2015 as refineries shut equivalent to 9m tonnes of ethylene.

TRADE DEAL A GAME-CHANGER?

It would be good to have some relief from the constant flow of bad news about the challenges facing the industry in Europe.

Trade group Cefic provided this during EPCA by highlighting what it sees as the opportunity for Europe provided by the impending EU/US free trade pact.

This was unveiled by US President Barack Obama and EU Commission president Jose Manuel Barroso in March 2013, with completion scheduled for the end of 2014, if the US government shutdown does not delay 
it further.

If – as Cefic hopes – the trade agreement includes an energy chapter, there could be a surge of exports of shale-derived liquefied natural gas (LNG) and liquefied petroleum gas (LPG) from the US to Europe, putting downward pressure on prices in Europe, and raising US prices as a more globalised market emerges.

LPG is rich in propane and butane, which are already used in chemical production in Europe.

It would also be possible, though expensive, to ship more ethane across the Atlantic, as INEOS plans to do. European chemicals would benefit from lower energy costs, too.

According to Cefic director general, Hubert Mandery, “US business is pro–free trade. There are some businesses which want to protect their gas supplies, but this is not the position of the American Chemistry Council. The concept of free trade is an option for remedying the situation.”

Another benefit for the European chemicals industry from a deal could be a liberalising of current restrictions on shale gas exploration, though this would prove highly controversial.

Reducing tariffs (currently 0-6.5% for chemicals) to zero would save the industry €1.4bn-1.5bn but the real benefit would be in the reduction of non-tariff barriers through the harmonization of regulations.

According to Mandery, presidents Obama and Barroso would both like to conclude the deal before the end of their tenures.

Progress on this trade pact has been slow, but it will be well worth monitoring what could provide an important boost for European and US chemicals.

  • Additional reporting by Franco Capaldo and Nigel Davis

By: Will Beacham
+44 20 8652 3214



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