Special report: Green gathers momentum

23 June 2014 00:00  [Source: ICB]

Green chemicals may be viewed as the panacea to reduce the waste and emissions generated by the production of traditional chemicals, but many challenges remain. While green shoots do exist within green chemicals, they are due to the boldness of a few powerful chemical majors or the strong support of subsidies.

Moreover, the shale gas boom in the US – with many countries planning to follow suit – has made fossil-based chemicals a cheap, reliable option, which ultimately seems to have delayed the development of greener sources for production. Together with the implementation of coal-to-liquids technology in China, the chance to develop substitutes for either gas or coal now looks rather unlikely, at least in the short term.

Whether consumers and companies will focus on green chemicals when they have cheap, easily accessible feedstocks available from shale gas remains to be seen. The more optimistic insist that biochemicals will still find their place.

Natureworks plant Natureworks LLC

Natureworks LLC

Natureworks has grown both its footprint and turnover

“This [supply of cheap feedstocks] is especially true for C2 and C3 building blocks, where price competition from fossil feedstocks ought to be most pronounced. However, bio-based polymers will find their niches, most likely in textile, automotive, construction or packaging applications where the consumer demands it and is willing to pay a premium price for the product,” says Oliver Schwarz, chemical analyst from Hamburg-based equity analysis firm Warburg Research.

An important aspect for the development of green chemicals is the regulation to which traditional chemicals are subjected, especially in the EU. In fact, a recurrent complaint by chemical executives in Europe is that increased regulation makes their companies far less competitive compared with those based in the US or China, where legislation is more benevolent towards chemical producers. The eternal debate about immediate profit or long-term thinking remains.

As an example of how regulation could benefit green chemicals, Schwarz cites existing mandatory blending rates for bioethanol or biodiesel in some countries, although he thinks biopolymers would be mostly made from C4 building blocks (or higher), like butanediol or succinic acid, as the availability of these building blocks from fossil fuels would potentially be reduced due to the change to lighter feed in the US and elsewhere.

“Thus, C4 and higher building blocks from renewable sources might find it easier to compete on the price with their counterparts made by the ‘traditional’ route of synthesis,” concludes Schwarz.

However, the need for green chemicals is latent. In 2010, drinks manufacturer Coca-Cola announced its intention to use only biopolyethylene terephthalate (bioPET) bottles by 2020 – an idea that sceptics ridiculed, arguing there would not be enough bioPET in the world to make it possible.

They were quite right. By 2010 green chemicals were more an idea than a solid business plan. The few companies that had ventured into the sector were scarce and their experience had suffered on the back of the 2008 financial crisis, which put prices and cost cutting at the forefront of most companies’ strategies.

The situation is now quite different, however. Major chemical players, such as Germany’s BASF or Netherlands-headquartered DSM, have started up or formed joint ventures to produce green chemicals. Most aim to use feedstock coming from crops like sugar, maize or wheat, as well as from food waste, or biomass.

There are cases of successful bio-based manufacturers. One such example cited by analysts is US-based NatureWorks, which uses dextrose (sugar) derived from field corn to make polylactic acid (PLA) and hence PLA-based polymers. A subsidiary of chemical major Cargill, NatureWorks was founded in 2003 and despite a difficult beginning – too much leverage for too little demand – the company has improved its turnover and expanded its site several times.

With an initial production line with a 70,000 tonnes/year capacity, some 70,000 tonnes/year were added in 2009, with another expansion taking place in 2013. This resulted in a total capacity of 250,000 tonnes/year, explains NatureWorks’ spokesman Steve Davies.

FOOD VERSUS BIOFUELS

Biofuels and chemicals produced with food derivatives face criticism as they could affect food prices and ultimately the diets of millions around the globe. Green chemical producers say the conflict between crop for chemicals or food is misplaced.

Davies plays down those “misconceptions” about green chemicals and assures most of the produced cornstarch used, for instance, belongs to corn produced for industrial purposes, which have no effect on the food chain.

Nevertheless, chemical analysts are not convinced and repeatedly air concerns about how green chemicals production could clash with the production of food products.

“Another issue is green chemicals might use sugar, or sugar derivatives, and you will have to use some form of crop, which obviously would mean a situation where you are competing with people who need to be fed,” says Geoff Haire, head of chemicals equity research for Europe, Middle East and Africa (EMEA) and Americas at UK bank HSBC.

“The top argument against first-generation biofuel is that it reduces availability of eatable crops and therefore drives prices higher – in the US, for example, almost 40% of the corn produced in 2013 was earmarked for bioethanol production,” adds Warburg Research’s Schwarz.

“[This is] not a crucial problem in the developed world where people spent only a minor fraction of their available income on food, but it can become a life-threatening issue for people living in less developed countries,” notes Schwarz.

Addressing these concerns, policymakers are supporting second-generation biofuels, coming from biomass out of waste. HSBC’s Haire adds that biomass would be an easier way to produce green feedstocks and would be cheaper than naphtha.

Biomass can be converted through a refining process that produces bio-based chemicals, as well as biofuels. Through desiccation, reduction and torrefaction (which reduces the moisture of wood products to make it a char-type material), the biomass is fed into a gasification plant, is converted into raw synthesis gas (syngas) and then into biomethanol.

One of the biggest projects to create a biomass-based facility in Europe has been made possible thanks to heavy subsidies under the NER300 programme, which in 2012 awarded €1.2bn ($1.6bn) to 23 renewable energy projects across the EU. The European Commission expects the programme to be completed with over €2bn from the private sector.

HEAVILY SUBSIDISED

With funding from as little as €8.2m to as much as €199m, the programme pays special attention to bioenergy, with its largest grant given to WoodSpirit, a Netherlands-based joint venture that intends to construct a biomass refinery fed by wood and forestry residues. Companies like BioMCN, Linde or Siemens participate in WoodSpirit, with the facility expected to be operational in 2016.

“The EU is supporting the development of second- and third-generation biofuels through the NER300 programme, which provides funding for innovative low-carbon demonstration projects,” says a spokesperson for the directorate general for climate action at the Commission, without giving further details.

Warburg Research analyst Schwarz says policymakers have started promoting second-generation biofuels to “get rid of the problems” carried by products like biodiesel, whose production may not actually be that environmentally friendly.

“Politicians have favoured second generation biofuels made from plant waste, like straw. However, second-generation biofuels from cellulose are not yet commercially available as technical problems proved to be greater than originally anticipated, reducing the profitability of this route,” he says.

Chemical analysts are certain biochemicals will have a place within the industry, but they are also realistic, thinking that the market will remain niche. The few customers willing to pay a premium and the production capacities are much smaller than the traditional chemical production sites.

A key issue with green chemicals is whether customers will pay a premium for more environmentally friendly products containing biochemicals. Haire thinks it will depend on the markets, but cites the case of some German manufacturers that have implemented emission standards or technologies early than legally required in their cars as a main feature, with consumers responding positively to the move. Slogans like “You can make a difference towards the environment” have been well received among environmentally-­friendly customers.

The green chemicals sector finds itself at a crossroads. Without heavy subsidies, it would struggle to take off in many regions. Although key chemical companies are seeking new, greener ways to create chemicals, the financial balance sheets still decrease or increase on the back of fossil-based fuels and their performance in the markets. The green projects some of them have started are promising, but it is hard not to consider them just experimental projects that could pay off in the future.

Biofuels can already make a lot of sense in some regions, however. For example, the surplus production created by agriculture markets in the US and the EU, as well as parts of South America, could be directed towards green fuels.

Many are placing their hopes in second-generation biofuels, which might become a bigger market once technical production issues can be overcome. If successful, the outcome would be an industrial sector polluting less that is far more tolerable to the public.

It remains a challenge, but the chemical industry is well-used to challenges.


By: Jonathan Lopez
+44 208 652 3214



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