Market outlook: Speedy growth for chemicals by 2050

11 October 2013 10:09  [Source: ICB]

During the next decades the world is poised to witness a period with the longest positive transformation in human history. With more than 9bn to 10bn people and an economy with an estimated GDP of $280 trillion (€207 trillion) the world will have the potential to host one of the largest, wealthiest, wisest and healthiest societies in human history.

World GDP is expected to quadruple from 2010. China and India will not only become the world’s largest economies, but also the largest chemical and pharmaceutical markets. Average life expectancy will increase from 67 years in 2010 to 75 by 2050, with millions of people having the potential to live to 100 to 120 years.

Rex Features

Rex Features

There is huge potential for chemical industry growth during this century

Large improvements in GDP per capita and science will also enable the creation of new megacities, and urbanisation in the BRIC economies will double in the next decades. The need to address climate change and resource scarcity will also create massive business opportunities as well as formidable challenges.

Information technology and computational progress will also accelerate. The speed of change will be massive and the effects pervasive; and the chemical industry will be again at the forefront of the third industrial revolution, the sustainable one, and the period of largest wealth creation in human history.

AN INDUSTRY IN “GROWING MODE”

During the next decades and under the adjusted “BAU” scenario the chemical industry is expected to grow from $3.1 trillion to $14.9 trillion. World annual per capita consumption of chemicals is expected to grow from $456 in 2010 to $1,631 by 2050; a figure that is equivalent to the chemical per capita demand in the US in 2010. Under this scenario, chemical demand will grow strongly in all regions but especially in the BRIC and REST economies.

During this transformation China and India not only would become the largest chemical markets in the world with $4,048bn and $2,903bn in chemical sales annually, but also the fastest growing markets in the world. This massive growth, especially in the BRIC and REST economies, will trigger a large amount of organic and inorganic mergers and acquisitions growth.

CHANGE IN LEADERSHIP

In 2010 and among the top 10 chemical companies in the world, eight were from the advanced economies; only one was from the BRIC (Sinopec) and one from the REST (SABIC). Considering that by 2050, the BRIC alone will host 51% of the world chemical market, we should expect this to reverse.

In a world market three to four times bigger than in 2010, it is likely that large multinational chemical companies will become formidable in size. In 2007, among the top 100 largest economies in the world, 47 were large corporations. Due to globalisation, multinationals have tended to grow much faster than countries, even the fastest ones. Keeping this in mind, it is completely plausible that of the large chemical companies like BASF or Dow Chemical could report annual sales upwards of $150bn-250bn.

TERMINOLOGY

  • ADVANCED: US, Canada, EU 27 and Japan
  • BRIC: Brazil, Russia, India and China
  • REST: all other countries
  • BAU Scenario: Business As Usual Scenario (non-sustainable)
  • SUSTAINABLE Scenario: a world living below 4,000 grams of CO2 per capita a day and able to cope with all upcoming challenges and climate change
In a world with much higher governmental presence, higher levels of transparency and public scrutiny due to social networks and the clear need to address resource scarcity and climate change, the chemical industry will be “called into action” mode.

In this global context such megacompanies will have to find new and better ways to relate to their different stakeholders, governments, international organizations, NGOs and society, as their role will not only be critical for its industry and other industries, but also for society and the world in general.

Global petrochemical and polymer demand is expected to see massive growth in the next decades. It is currently one of the most significant industry segments, making up 37% of the chemical industry (including pharmaceuticals) in 2010. Under the BAU scenario, world ethylene demand could grow by a whopping 300% from the current 140m tonnes to 500m tonnes by 2050. The 2010 discrepancies in per capita ethylene demand – 3kg in India and 10kg in China compared to 44kg in Europe and 60kg in the US – present a tremendous growth opportunity for global demand.

According to this scenario, the chemical industry is expected to add more than new 500 world-class steam crackers by 2050 in all regions except Japan. In moments of economic crisis and desperation, even EU 27 is expected to add more than 10 crackers by 2050.

In this transition, China could become the largest ethylene market during the next decades, 2020-2030, while India could surpass Europe by 2030-2040 and US by 2040-2050.

CLIMATE CHANGE CHALLENGE

In light of climate change, the world must learn to live with an average of 4,000 grams of CO2 per capita a day, as opposed to the current 13,283 grams and the projected 28,215 grams by 2050. This brings significant technological challenges and a massive business opportunity. To put this target figure in perspective, 4,000 grams of CO2 per capita a day is equivalent to a 20-40 km car ride, with 100-200 grams of CO2 being used per kilometer – or the current level of per capita and day emissions in India in 2010. Can we imagine what our society and industries will need to overcome in order to comply?

The global perspective on all these issues – energy, resources and emissions – is about to change very soon. As soon as the world economy starts improving, governments around the world will start enacting more stringent legislation to address these topics. The world is just at the beginning of that very long journey of ever-increasingly stringent and global legislation and regulations, and the leaders on these area would be the leaders of the 3rd industrial revolution.

However the industry will also face severe changes in its major feedstocks. The recent discoveries of vast and cheap reserves of shale gas has changed the world’s energy balance, doubling natural gas reserves globally.

The petrochemical industry in US has started to blossom again on the back these advantageous energy prices, creating thousands of jobs, while it is expecting to add more than 10m tonnes of ethylene by 2020. Meanwhile China (with the largest shale gas reserved in the world) and Europe, also with large reserves and a strong need for energy in general and clean energy specifically, will follow very soon.

The current extraction technologies (hydraulic fracking) might present some issues but the clear need for clean and cheap energy will accelerate development of safe technologies.

The petrochemical industry will certainly benefit from cheaper energy and feedstock but also from the fact that ethane can reduce the overall cracker CO2 emissions by up to 30% versus naphtha and gas oil. Since January 2013, the European Emissions Trading Scheme has incorporated the petrochemical industry, so the use of shale gas will bring an additional advantage to the industry, especially if emissions trading schemes not only will become more stringent but also more global. The need of the chemical industry to reduce its own CO2 emissions will open the door to new feedstocks like biomass, sugar cane, or even CO2 itself.

THE THIRD INDUSTRIAL REVOLUTION

During the last centuries, the chemical industry has solved some of the major challenges presented to humans, enabling the first and second industrial revolutions, the highest period of growth and the current levels of wealth.

Due to the massive economic and population growth over the past four decades, the chemical industry focused on operational efficiencies rather than traditional innovation. Most significant innovation happened in the first half of the last century. Now, with resource and energy scarcity, emissions reductions and climate change is upon us, industry must go back to its roots: innovation and technology.

The fact that one single technology, company or industry might not be able to solve or even tackle some of the upcoming challenges highlights the necessity of vertical and horizontal collaboration as well as technological convergence. Industry collaboration and technology convergence will represent the ultimate parading of innovation and the bases of the third industrial revolution: the sustainable revolution.

Collaboration and technological convergence would not be easy, as multiple and serious hurdles will need to be overcome. Technological and business collaboration and convergence require different mindsets, different kind of employees, different business and political leaders.

The world will be able to solve the upcoming challenges if we act together immediately. Innovation, collaboration and convergence will be the catalyst for the third industrial revolution. The chemical industry, as always, will be at the forefront of the solution.


Author: Rafael Cayuela



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