Asian Chemical Connections

The failure, and quite possibly the death, of the Doha round of trade negotiations earlier this week could create a very confusing and erratic regulatory landscape for the chemicals industry.

This excellent entry in the New Scientist environment blog by Fred Pearce, senior environment correspondent, makes the point that if the world cannot agree on further trade liberalisation, what hope for global climate-change legislation?

As Fred points out, John McCain, if elected, has made it clear that he won't accepted emissions caps if China and India do not follow suit.

Obama. however, is prepared to let the US take the lead ahead of the Asian giants. He warns, though, that if they don't agree to fall in line at some point, import tariffs could be imposed equivalent to the energy content of finished goods.

The European Union is also understood to be considering the same safeguards as it looks to extend its cap-and-trade system. Industry, including at least one of the oil-to-chemicals majors, is lobbying hard for safeguard provisions of taxes on imports if no global agreement is reached.

Chemicals and other producers would obviously shut up shop in the EU and move to countries where there was no price set on emissions or if there was no effective import-tax system or some other kind of economic disincentive.

Despite the few remaining climate-change scepticis - quite rightly derided in the same New Scientist blog - climate change as a result of human acitvity is accepted by most scientists and governments as a reality.

A global agreement on a price mechanism for carbon - whether its a cap-and-trade system and/or a tax - would be the best outcome for the chemicals industry. It would enable producers everywhere to accurately assess the cost of investment in better processes and new technologies.

They could also make reliable and predictable income through trading credits globally and from operating and licensing new technologies.

Piecemeal legislation wouldn't provide the same degree of clarity, leading to equally piecemeal strategies from company to company and region to region.

The lawyers might also make a lot of money out of disputes over carbon import taxes.

And, of course, companies might still look to move their investments elsewhere by searching for loopholes in US and EU carbon import-tariff rules.

Just look at the money being made out of "splash and dash" in the US as an example of how rules can be exploited.

As the effects of climate change accelerate, you could also see knee-jerk nonsensical regulations introduced by governments out of sheer panic. This could make life very difficult, if not impossible, for chemical producers in certain countries.

So let's hope the Doha round can be rescued - and that it serves as a confidence builder towards the much bigger job of a new global agreement on emissions.

In my previous post, I talked about the collapse of the Doha round of trade negotiations and how this didn't auger well for a new global agreement for setting greenhouse gas-emission limits and a worldwide price on carbon.

The chemicals industry needs clarity. A global price for carbon would enable companies to plan R&D investments over the long term.

I also discussed how it seems more than likely that if no global agreement on carbon prices was reached, countries and regions with pricing mechanisms already in place would have to impose import tariffs based on carbon content. The tariffs would be levied on intermediate and finished goods from places where there were no carbon-pricing mechanisms.

But in this thoroughly globalised world, who should bear the blame for CO2 and other emissions?

Christopher L Weber from the Carnegie Mellon University in Pittsburg, Pennsylvania and his colleagues have concluded that one-third of China's CO2 emissions are the result of exports. This is up from only 12% in 1987 and 21% in 2002.

Could proof of collective blame for emissions made through the WTO or other international bodies result in icarbon mport tariffs becoming unworkable?

You could spend fruitless years and millions of dollars in lawyers' fees trying to determine what percentage of tariffs to levy on companies at different points of production and logistics chains.

Shouldn't anyone who exports to China - whether for re-export or domestic use - carry the can for the country's emissions?

Might unworkable import tariffs force the EU to scrap or limit its cap-and-trade system out of fear of an investment drift?

The next US president could also be deterred from introducing a price on carbon, especially if the economic crisis drags on. Protectionist sentiment has risen since the slump began.

Continuing my environmental theme, I've been musing over building a new training course around helping companies help their employees to think outside the box. This is a tough task in certain companies and cultures.

As Benjamin Franklin so wisely said, "insanity is doing the same things over and over, and expecting a different result."

So employees at every level in every chemicals company need to keep up-to-date with
the rapidly shifting environmental agenda from product development to legislation.

A starting point might be reading Doris de Guzman's excellent blog, Green Chemicals. This focuses on all the renewable, or maybe less unrenewable, products out there.

But navigating the mountain of information - and of course sorting the truth from the fiction - requires a special set of skills.

You then need to put this knowledge into practice by proactively redefining your job role to take advantage of the green revolution.

Whether you are a chemicals engineer, a sales and marketing, an IT or an admin expert- whatever - every aspect of every business will be reshaped by the environmental crisis. There is career-progression to be achieved by making yourself more useful.

And if you are a CEO you need to manage this knowledge effectively - e.g. by making sure it doesn't fly to the door when your top staff get headhunted.

You, of course, also need to have the right leadership qualities to make sure strategy is both developed and implemented. Victor Newman - the knowledge activist - gives some interesting ideas on these themes.

Ultimately - and I really feel there is no turning back - it might be a case of innovate or lose your job. The old ways of doing things won't keep companies in business for much longer.

Anybody in their late 40s or older might not need to worry as retirement, or a nice fat redundancy pay-off, could arrive before the unmentionable finally hits the revolving air-cooling device.

But for those who are younger, dramatic changes in legislation - and in the way the climate is behaving - seem inevitable during their working lives.

There is also the problem of depleting oil and gas reserves and rapidly rising and competiing sources of demand. An article from Joe Kamalick highlights these issues when he examines shale gas in the US.

Watch this space for more discussion on this new training programme - and on what companies are already doing to fill the environmnental knowledge and expertise void.

It is very easy assume that Asia ex-Japan will eventually catch up with the West and become as good at "solution" chemicals as the West. I am excluding Japan because it has long been a major speciality player.

All the money that China, for example, is pouring into its state-run research institutes would seem to suggest that eventually, the country will produce a BASF - or at least a collection of companies that come close to matching the German giant's innovation.

But this report from Deutsche Bank - in a theme I will be touching on a lot over the next few weeks - points out that despite the great drift east, Europe has has held its own.World_chemicals_market_Asia_gaining_ground.pdf">

I've created a new category "Analysts' Reports" which you will hopefully find useful.

The Deutsche Bank report concludes that the West has a great opportunity - and has already made an excellent start - in the green chemistry race.

"In 2007, Europe accounted for 31% of global chemicals turnover; in 1997 the share was 32%." write its authors.

Here's another important statistic from the study: BASF's turnover in 2007 was Euro60bn - the same as the entire Indian chemicals industry.

Knowledge retention, which I talked about yesterday, will be crucial for the West if it is to maintain this lead.

Constant innovation through a willingness to fail many times before succeeding might also be important. As Winston Churchill said: "Sucess is the ability to go from failure to failure without losing your enthusiasm."

It's going to be fascinating to see how the new Dow and Rohm & Haas entity raises its game to meet the challenge of responding to the need for clever new products that must also be sustainable.

Finally, here are a couple of examples of Western innovation, the credibility of which I cannot vouch for.

Ford claims to have developed a way of sequestering VOCs from paints for conversion into fuel for fuel cells.

The clever Germans say they have found a way of producing self-healing nanotech anti-corrosion coatings as an alternative to the toxic chromium.

These serve to illustrate one of the other points I made yesterday - the need to navigate all the information out there to keep up-to-speed with a rapidly changing chemicals world.

I'm bewildered. I don't know about you

Now this is old but not widely publicised - Jurgen Hambrecht's comments during the BASF Segment Day Chemicals event which took place in London on 8 July.

Navigate down, click on the webcast, and listen to the Q&A session after Dr Hambrecht's presentation.

You can listen yourself, of course, but here is a summary:

The first question is about BASF's search for alternative basic chemical production.

"We are not only looking at crackers but also syngas leading to olefins," he says. This would give BASF the flexibility to use oil, gas, coal and natural products - i.e. biomass - as raw materials.

The chairman and CEO talks about how the Engelhard acquisition was partly driven by how an increase in catalyst capabilities would give BASF more options on basic chemicals production.

"Catalysts are crucial for the future of the industry," says Hambrecht, adding that they will reduce energy barriers that have hithertoo blocked alternative routes to making olefins and other upstream chemicals.

And in a remarkably strong statement, he states: "This will be very substantial, it will be decisive."

A lot can happen between R&D and commercialisation, but should we read into this that BASF is set to make a breakthrough that will be challenge the dominance of the Middle East in feedstocks?

What's the timescale? "Certainly five years out," says Hambrecht.

A blink of an eye in the great scheme of this things.

But what will happen if the oil price collapses to this research project and others like it?

I couldn't let today pass without including a picture of the Olympic Stadium in Beijing where the opening ceremony is about to take place.

The purpose of this redefined blog is not to look at the short term, though. For expert commentaey on the effects of the Olympics and other macroeconomic factors on the world's chemicals industry over the next 12-18 months, see Paul Hodges' Chemicals & The Economy blog.

Instead I am going to be looking at what chemical companies have to worry about beyond the next 18 months.

In the case of China, the debate is whether the country can remain the main driver of the world economy and the chemicals industry.

The government is clearly dedicated to rebalancing the economy away from export-led growth towards higher domestic consumption.

The China Economic Quarterly believes the government will be successful - leading to lower but more sustainable GDP growth of 9% per year over the long term.

They accept inflation will be higher than in the past, but argue that it can be contained at around 5% per year.

Jurgen Hambrecht, chairman and chief executive officer of BASF, also believes in the long term strength of China - but also a major location for export-based manufacturing.

In the same BASF Segment Day Chemicals event I wrote about yesterday, he was asked whether China would remain a location for export-based low-cost manufacturing. The question related to rising transport, labour and oil costs.

Hambrecht said that increased transportation costs were a global problem and that the effect of recent cuts in subsidies to oil-product prices had yet to become entirely clear. But he pointed out that as car ownership was low in China, the cuts might not be that big a deal. A great deal of the country's energy needs are also met by coal.

Manufacturing investment was already drifting to the west, he added, and he cited Sichuan as a "great location".

Labour costs in the west are a great deal lower, but logistics costs could be an awful lot higher to get goods to western markets.

And the bigger issue that Hambrecht and the CEQ did not address is that China might not have enough natural resources to sustain growth anywhere close to levels we have become used to.

Take the water crisis as an example and this link through to the economatters blog.

I could have included thousands of similar links, but here's one more - to good or bad old Wikepedia, depending on your view.

Back in the 1980s, before Japan's "Lost Decade" of stagnant growth, management gurus lined up to praise the country's collective spirit as the basis of a sustainable economic miracle.

Since then, of course, the West has been consistently espoused as the best.

And even the Japanese wish they could break free of their consensus shackles, according to this week's issue of The Economist -- hence, the huge popularity of management hero Kosaku Shima of conglomerate Hatsubishi Goya Holdings.

He thinks outside the box, acts decisely, is not scared of telling people what he thinks and has been successful even though he has always sat outside political factions within his company.

And in June, Shima (see picture above) truly broke the mould when he was promoted to shacho (president) of his company at the tender age of just 60 - very young by Japanese standards.

There is one slight problem: he is a manga or cartoon character.

"Shima is influential - business people want to be like him but can't," says Yuko Kawamoto, management professor at Waseda Uniiversity in Tokyo.

"Maybe there is hope for Japanese society. We want to change, but do not have the courage."

The grim reality for the average salaryman, according to The Economist, remains a life of drudgery and of stifled opinions because of the dreaded fear of causing a superior to lose face. As a result, bad decisions go unchallenged and become ingrained policy.

Japan's chemical companies have often broken the mould through innovative technologies - and were talkiing about and acting on energy efficiency long before the current oil and environmental crises.

Sumitomo Chemical is also about to start-up a huge petrochemical complex in Saudi Arabia - along with Saudi Aramco - and is talking about a major second wave of investment at the same site. This also involves breaking the mould as it's the first occasion that a Japanese chemicals company has invested on its own in a big overseas cracker project.

But the perception remains, fair or otherwise, that the chemicals industry could and should have undergone more restructuring.

Fair or unfair?

A consultant once told me a wonderful story - so wonderful I don't even care whether it's true or not - about how the monthly European benzene price in the 1950s was calculated based on the US price once the latest issue of Chemical Market Reporter had arrived in Rotterdam by boat.

Are we now wasting time and money on dealing with market volatility that's the result of how we gather and process information?

Nicholas Carr of The Atlantic.com argues that the Google age is making us think and behave differently.

The furious linking between one site and the next, the feeling of never knowing enough, of never being entirely up-to-date, might have turned us into what the playwright Richard Foreman calls "pancake people". In other words we have a broad range of knowledge thanks to all that surfing - but have an inability to read more than a couple of pages of text at any one time and to take a break from information-trawling long enough to consider what we have read. We have, as a result, lost our intellectual depth.

As our attention spans ever-shorten with the volume of information and information-solutions out there, are we making energy and chemical markets more volatile?

Are we no longer able to take a deep breath and stand back and contemplate what is really going on?

The financial players and the physical traders contribute to erratic price movements because they have an interest in volatility, but to what extent?

Could it be that the way we gather and process information plays a bigger role in erratic price movements than the speculators?

Fundamentals still play the biggest role. For example, oil supply is so stretched that the slightest disruption to production - or even only rumours of a disruption - can have a big effect on pricing.

But the speed with which information is flashed around the globe and how we react to that information might be increasing volatility in tight markets such as crude.

Quantifying the impact of the way the Internet is shaping the way pricing markets behave could be a job for the nueroeconomists who I wrote about earlier this month.

Perhaps the good old days were better, when CMR arrived by boat and a few wise old men with leather patches on their jackets puffed on their pipes and came up with a benzene price that was more stable and less damaging to both buyers and sellers. Or is this just rose-tinted and ill-informed nonsense?

James Burke (see picture above) has so far been proved wrong about the information technology revolution giving us the ability to be free, to create our own realities and to not be dictated to by governments, companies or other institutions.

In this clip from his wonderful series, Connections, he envisages such an era because knowledge will be freely available.

This is the great democratisation of knowledge written about by Chris Anderson in The Long Tail.

Sadly, the reverse has happened. We have become a slave to our machines - from our mobile phones, to our Blackberries to our PCs - and a slave to markets that we are nowhere close to predicting or controlling.

But give Mr Burke a break. His programme was broadcast in the 1970s, was way ahead of its time and perhaps so far ahead that one day his prophesies will come true.

For us lesser mortals further down the slippery career pole, it is easy to stare up with envy and contempt at the CEOs of our own companies and other companies.

Many us at times feel (myself included) that we could do a great deal better than our bosses.

I plan to develop a CEO board game with online and "hard copy" versions complete with chance cards such as "You get caught price-fixing at a major industry event. Do not pass Go and do not collect $2,000. Go straight to jail". The reference to Monopoly wasn't meant to be a dreadful pun.

We could then put our supposed superior skills into practice and prove whether we are really cut out for life at the top. And maybe if the game was accurate enough, it could be used to help assess real applicants for the top jobs. Watch this space for a prototype.

In the meantime, management consultants, as you well know, make a fortune from offering all kinds of advice to companies and their CEOs about how to make it big.

This is not always money well spent, according to Victor Newman - former chief learning officer at Pfizer - who is now what he calls an independent Knowledge Activist.

In his excellent video, 4 Faces of CEO, he talks of how one particular consultancy charged several million dollars for 3-4 months work, only to produce findings that he says could have been reached in a couple of hours through internal discussion.

I digress. This is not meant to be a dig at management consultants whose work I admire and whose salaries I envy almost as much as my CEO's.

It must be lonely and tough at the top, although a massive salary and the guarantee of a huge pay-off even if you turn out to be a load of rubbish are considerable compensations.

Newman's video is the opening to a CEO workshop where he tries to tackle the loneliness attached to making big decisions.

He highlights something we can all relate to no matter what our rank: the feeling of powerlessness to achieve what we want to achieve because we lack the necessary skills, resources or simply the time to get to the "ideal world" (in my case, a CEO board game developed within the next six months which becomes a huge commercial success enabling me to retire, save the world and ban caravans from the roads).

He has developed a diagnostic approach where business leaders identify where they want to get to and measure this against how far away they are from their objectives. Results of these evaluations are then shared in what he admits can be a painful exercise, followed with discussion on how each of the CEOs can get closer to their ideals.

Sounds great stuf not only for CEOs but for anybody who cares about progressing in their job.

And what's fascinating is the reason for the 4 Faces of a CEO title of his video.

These four faces are:

*Creators who don't care about money because they are "intrinsically motivated". In other words there is no point in just waving the big salary cheque, the luxury new car and country club membership at these people. The buzz they get is from new ideas and only new ideas. They find implementing ideas boring because they want to move on to the next thing

*Stabilisers who are loathed by the creators. These are the nerdy spreadsheet and process people who love setting up systems and would rather not take risks than risk failure

*Implementers. They can dress in jeans and bizzarely designed T-shirts - just like the creators - and share with these space cases thoughts about the intellectual beauty and complexity of this world. They are just as comfortable mixing with the stabilisers as they can be equally passionate about the latest delivery of paper clips.

*Newton says that only recently he identified a fourth category of business leader - navigators. These are the people who ask all the right questions of the three types of CEO listed above, can pull these types together, are great communicators both internally and externally and can see the big picture.

Other than having no interest in bizarre T-shirts (my sales manager more than compensates for me in this crucial aspect of innovation) I am too much of a creator. I hate loathe, detest and despise process (but begrudgingly now admit it's occassionally useful), which has got me into a lot of trouble over the years.

The ideal CEO might well be the navigator - the person with the great people skills, the zest for entrepeneurship, the huge capacity for detail and the ability to make processes work for people rather than the other way round.

And so - using these above categorie -, let's all indulge in the spectator sport of assessing how chemical CEOS fit in with Newman's categories.

Watch this space!

I was driving to work this morning when I heard, for the first time, the re-broadcast of a BBC World Service from April. Reporter Mukul Devichand interviewed environmental activists in Beijing who quite understandably claimed not to understand his questions when he uttered the dreaded "D" word (democracy).

You can click on this link and read the full transcript, but unfortunately the Podcast seems to have been removed.

What struck me most of all about this programme, though, were some closing comments from the famous enviironmental campaigner, Ma Jun.

He says:

"You know when you sit there in a Western country blaming China every
day - you know the Chinese Government, Chinese court - blaming them every
day for this and that, the result will be very very limited. Legal responsibility
is on our side but it's also in the meantime, you know people in the Western
countries enjoy cheaper clothing products from China. Why? Probably you
know the cost is on our rivers. You know the rivers have been turning to you
know black, yellow and all kinds of colours sometimes several times a day. I
think you know we got to recognise you know the cheaper products have its
own impact. We recognise there are gaps in our governance, in our
enforcement structure and we try to improve that. But in the meantime, do we all want to allow this multinational companies to take advantage of the loophole?

We've pushed for strengthening the enforcement, we push for the use of market incentives to deal with our problems, but in the meantime I think all the citizens who care about the environmental issues should also think about what we can do to deal with
this problem. Otherwise when China has strengthened its enforcement, these
companies when they sit across this table, they literally say we're going to
move to Vietnam if you keep doing this."

Note the paragraphs in bold. It's easy to criticise China from a Western standpoint, but how much are western shoppers - who are used to cheap, cheap and more cheap from China - to blame for the multi-coloured rivers, poisoned water supply and unbreathable air that are causing hundreds of thousands of premature deaths a year?

And how many chemicals companies, hands on their hearts, can really say that they check the environmental standards all the way down the line to the finished-goods manufacturers in any product chain?

You can make sure your chemical plant has state-of-the-art technologies and adheres fully to Responsible Care requirements, but you will still want to build that plant where the competitive advantage lies.

So if China has become too expensive because of higher environmental and labour costs, the choice might be Vietnam.

What hope is there for a new global climate change deal when corporate interests are allowed to override the bigger picture?

Enough of a rant. I am going home to play with my 19-month-old son and make sure he doesn't suck too hard on any of his plastic toys that are made in China. (likely nearly all of them!)

Only in America, surely.

If I had made this up you wouldn't have believed me. Rocky Twyman (see picture above), Founder of the Pray For The Pump Movement, and his pals have been touring the US asking the big guy in the sky to intervene and bring down the price of gasoline.

Watch Rocky and his fellow believers in action in Washington DC - where they apparently suceeded in reducing prices from $3.99/gallon to $3.91/gallon thanks to a rousing, if a little tuneless, rendition of "We shall overcome gas prices".

What's quite clearly needed is for some divine intervention, Old Testament Style, involving perhaps a little smiting of carbon molecules, to speed up the process of creating new and easily accessible crude oil reserves - by several hundred millions of years.

Maybe Mr Twyman is right and all that there is left for us to do is pray.

Either that or stop driving disgustingly huge gas-guzzling cars, cut back on the gargantuam-portioned meals that further waste precious hydrocarbon resources (and result in very large Americans who need those bigger cars and bigger clothes - again using yet more hydrocarbons).

Heaven forbid that Americans should change their lifestyles. It's far better, surely, to tell the developing that they can't have the things that America's got and continue believing that cheap and abundant gasoline in the States is a God-given right.

Grrrrrrrrrrrr..................

China and the environment might not be only about rivers changing colour several times a day and factories belching out air pollution that kills hundreds of thousands of people prematurely every year.

Elizabeth Economy outlined the extent of China's environmental problems in her book, The River Runs Black.

In what could turn out to be the ultimate irony of ironies, the very economic system which has caused the crisis in the first place could end up resulting in China becoming the world's leader in clean technologies.

Ample evidence already exists to this effect, according to the Climate Group - a London-based non-profit organisation, the members of which include BP and Dow Chemical.

The group's latest report - China's Clean Revolution - claims that China's transition to a low carbon economy is already well underway. This is the result of supportive government policies which are driving innovation in low carbon technologies and diverting billions of dollars into energy efficiency and renewable technologies.

The huge energy that was poured into industrialisation, once Deng Xiaoping declared that getting rich was glorious, seems to have now been turned to wind, solar and other forms of renewable energy - along with conservation.

China now ranks fifth behind Germany, the US, Spain and India with six gigawatts of wind turbine capacity, says the Climate Group. Some experts believe that this could climb to 100 gigawatts by 2020.

As was the case with industrialisation, State backing might overcome that nasty burden of capitalism - the need to return short-term profits, or even any kind of profits at all.

Lending from China's big banks is still largely directed by the government and the banking system is awash with liquidity - a drastic contrast with the Western credit blight.

Incentives are in place to boost wind power, but have yet to be introduced for solar energy. China. however, is second only to Japan in the global solar photovaltaic market.

Research is taking place in to carbon capture and storage and integrated gasification combined cycle technology.

China is also introducing fuel efficiency standards for cars which are 40 per cent higher than those in the US. Twenty one million electric bicycles and 1.64 million energy efficient compact cars were sold in 2007, the report adds. Clearly, the Chinese are doing a great deal more than just praying for lower gasoline prices.

This all sounds fantastic, but the old story about China is that what works at a central government level might not necessarily be implemented evenly across the country.

Arthur Kroeber of the China Economic Quarterly, however, believes that this old tale about China is total nonsense when the central government decides to take something seriously. The environment is one problem that Beijing is taking exceptionally seriously as it tries to build a more "harmonious society", he says.

But the task remains huge. According to The New Scientist magazine, if China's emissions continue to increase at 8 per cent per year, its per capita CO2 emissions will be double those of the European Union by 2020. While China's emissions keep on rising, EU member countries are making big reductions. For example, Germany reduced its greenhouse gas output by more than 19% between 1990 and 2003.

The problem for China is that it still has to create lots of new jobs of a rapidly urbanising society, whereas many of the rich people in the EU are desperate to return to the rural life.

But, of course, the Europeans are hardly likely to return serfdom. Instead it's all about four-wheel drive gas guzzlers, centrally-heated converted barns, and conveniently located supermarkets stocked with food and booze from the four corners of the Earth.

What planet are we all really on? We rich-world people are all desperately trying to get rid of that tiresome leftover venison as we insist on Afghan melon, to quote the Big Yin.

When I looked in the fridge the other day, my wife had bought Sicilian lemon juice. For pity's sake...

Another great article in The New Scientist talks about a new system for mapping much more precisely the impact of climate change on eco-systems.

Designed by The Nature Conservancy, the system - linked with Google Maps - will enable conservationists to work out expected changes in precipitation and sea levels in areas as small as four kilometres across. Previous technology only provided forecasts for areas ranging in size from 350-600 kilometres.

Why this breakthrough could be essential is that scientists believe that the impact of global warming will create millions of micro climates. Some of these climates will be arid and others subject to heavy rainfall. Areas very close together might also either be flooded or safe from the effects of rising sea levels.

The new technology is designed to protect endangered species such as the Bangladeshi Tiger.

But as the effects of global warming become obvious - even to the most short-sighted and goldish-brained members of the chemicals community - this or similar technologies might become essential when seeking finance for a new project.

Legislators will surely also demand that a planned coastal cracker in Guangdong won't end up as a cracker off the coast and under water, thereby creating an environmental disaster.

Lehman Brothers had a first stab at assessing how much ethylene capacity might be at risk from flooding brought about by climate change in a report published early last year.

It estimated that 46% of existing and 45% of planned ethylene capacity globally was at high risk from such flooding. The bank said that the world have 173m tonne/year of ethylene capacity by 2012.

As climate change accelerates, it might even be necessary to use these technologies to identify safe land where plants can be relocated.

A report by the Hay Group on world pay, surprise surprise, concludes that the Middle East tops the world in terms of disposable income because of the region's economic boom and the absence of income tax.

This has serious implications for the chemicals industry in it's desperate battle for talent in a very tight recruitment market.

For every dollar of guaranteed cash that a senior manager earns in the United Arab Emirates, his counterparts in Singapore and Malaysia earn only 74 and 34 cents respectively In Indonesia, the manager will earn only 17 cents for the same job!

Chemical industry employees have obviously followed the feedstock advantage. But what's going to happen if gas supply for petrochemicals remains constrained in the UAE? Could we see a reversal of the brain drain?

And if the likes of BASF and Dow Chemical are successful in their search for alternative methods of making basic petrochemicals, could we see a realignment of pay rates?

High energy costs and global or regional prices on carbon emissions could also change the renumeration landscape.

Retailers in the West have already started to source more goods from local suppliers because of high transportation costs.

If you can make olefins from the Fischer Tropsch process (and there's a price on carbon) the obvious extension of this is that you could build new chemicals plants in, say, Germany to supply downstream industries benefiting from reverse-gear globalisation.

But you would also have to take into account Europe's ridiculously high tax rates (one of the reasons I quit Britain!)

Believing what you want to believe (or pretending to believe in something because it's in your commercial interests) has always been a problem.

But the stakes have never been higher than in the case of climate change. To yet again refer to the excellent New Scientist magazine, their editorial from the 13 August issue says that predictions are for a modest cooling of the atmosphere over the next ten years because of natural oceanic oscillations.

Robert Watson, former head of the Intergovernmental Panel on Climate Change, observed earlier this year: "Let's say there wasn't much of a warming for the next ten years. How will the public and politicians play this out?"

Watson has warned that - regardless of what happens over the next decade - the earth could heat up by 4% before the century is over, with disastrous consequences.

He was right to worry that evidence of cooling would lead to a backlash against global warming. I did a quick Google news search today and found this link.

I am not a scientist but from what I've read and studied (and, of course, I might be believing what I want to believe!) I think global warming is a reality.

Regardless of who is right or wrong it would do no harm for the chemicals industry to plan for a future shaped by either the reality of significant man-made climate change or the perception that it will happen.

As I have said before further legislation on emissions, recycling etc seems inevitable whether its country-by-country, through big multilateral agreements or a combination of both.

In the history of the planet, ten years of cooling would be an immeasuraby small fraction of a second.

And in the history of oil, the last few weeks amount to almost as small a passage of time. Still, this hasn't stopped a groundswell of opinion developing that recent price falls have also exposed another bogus theory - that the fundamentals of oil supply and demand point to tight markets for at least the next five years.

I'll be blogging on this in more detail over the next few days (as I write, prices have actually rebounded to above $119 a barrel on the East-West crisis), but the comparision with global warming is worth making here: companies might stop making the necessary investments to secure their long-term future.

In the case of oil, this might result in less interest in accessing harder-to-get-at reserves and in renewable energy.

....said the joker to the thief..

I much prefer the Hendrix version. As I get older, Dylan's voice just gets more and more grating - although a wonderful song writer.

Ben Bernanke has brought cheer to the world by claiming that inflationary pressures are easing as a result of the fall oil and other commodity prices.

I suppose any good news in the current climate is better than another kick in the teeth, but the big questions are: how far can crude fall and what's the long-term price of oil that can be afforded chemical producers with no access to advantaged feedstock?

Some of the froth has been taken out of the speculation in commodities as a result of the stronger dollar and a fall in demand for the filthy black stuff in the West. For example, Goldman Sachs estimates that developed countries will use 500,000 fewer barrels a day this year than in 2007.

But emerging market demand will grow by 1.3m barrels a day in 2008 with a 5% increase in consumption in China, the same bank adds. This has led Goldman Sachs to conclude that crude prices will rebound to $149/bbl by the end of the year.

Demand destruction in the West might be occurring. For example, the US could have as many as 12 million fewer motorists by 2015 as those earning $25,000 a year or less get by on one rather than two cars per family.

But for every American that is forced to make do with only one set of wheels there will be hundreds of people in developing countries earning enough to buy their first car.

On a global basis it's therefore more accurate to talk about demand relocation rather than demand destruction.

During the heady days of 2006 everybody in the chemicals industry was making money, even those who are seriously feedstock-impaired. Profitability remained strong for the better-integrated liquids-based producers up until Q4 of last year.

The last couple of quarters have been so dismal that it's understandable that the recent fall in crude has raised expectations the worst might be over.

But you will be hard-pressed to find many energy experts willing to take a punt on prices returning to their levels of a couple of years.

The fundamentals of tight supply haven't changed over the last few weeks as oil prices have retreated - just as much of developing world demand growth will more than compensate for less consumptiion in West.

Rising capital costs mean a lack of sufficient investment in new supply.

Whether or not you believe that Peak Oil is upon is almost irrelevant for the next few years because the lack of investment - also the result of increased resource nationalism - means that the reserves that do exist are not being adequately tapped.

And the irony of the slightly lower oil prices of the last few weeks is that exploiting tar sands and other marginal oil reserves, which require very high capital costs and great technical skills, will seem less attractive. Perhaps this is what the Middle East wants.....

If you don't an advantaged feedstock, either through a position in the Middle East and/or being very smart at refinery/petrochemical integration, you've got big problems.

Maybe there is no way out of here....

Great stuff from the big boss of Dow Chemical in this article from USA Today.

Gems from the interview include "corn-based ethanol, one of the dumbest ideas of all time" and "the whole hydrogen (fuel cell) approach is dumb."

He adds: "Frankly, when free markets prevail, we have to shut down factories and replace overseas in places like Saudi Arabia, Kuwait, Russia, Brazil, Thailand, China and Oman, where governments lock in energy availability, guarantee prices and de-risk our investment."

These are all countries in which Dow has already or plans to invest with the proposed PIC deal the biggest breakthrough for tackling its feedstock disadvantages. Whereas the jury might still be out on whether the US major will win in specialities, it does seem as if it has gone a long way to avoiding being one of the companies I wrote about yesterday.

Liveris makes the much wider point that without an energy policy which makes sense, the US faces a pretty bleak economic future. He quite rightly points out that unless there are some major breakthroughs in renewables, hydrocarbons have to be a major part of a workable policy.

But I don't agree with Liveris when he says "We aren't occupying Iraq for the resources".

I've just started reading David Strahan's The Last Oil Shock, which makes a pretty convincing argument over the real thinking behind the hugely bundled invasion.

Then again, though, perhaps what Liveris means is that the intention of the occupation might have been for resources, but that's not what the occupation is about now because of the hopeless failure of politicans such as Rumsfeld, Cheney etc.

Next stop Iran? At least Bush is on the way out, but the energy stakes are so high perhaps any administration will need to dress up further military action as something else to secure America's economic future.

But surely, this must be less politically acceptable than tackling all the greenies who are blocking offshore drilling and coal gasification and the farmers making a packet out of ethanol?

Maybe not if it's about distribution of votes in those key marginal States - meaning more fat subsidies one of the dumbest ideas of all time.

This article, by David Strahan, author of The Last Oil Shock, says that it would take three million coconuts to power one flight from London to Amsterdam on 100% biofuels.

Some of the comments posted at the end of this excellent article, first published in the New Scientists, agree with Strahan that we have reached "Peak Aviation" - no matter what the developments in second-generation biofuels.

The first generation nonsense of corn-based ethanol (as Andrew Liveris pointed in my post yesterday) and palm-based biodiesel have been thoroughly discredited.

But what the Strahan research also contends is that even the much-touted next wave of technologies will never realistically be able to 100% replace hydrocarbon-based fuels for aviation, transportation and power generation. The argument can also easily be extended to the chemicals industry, which, of course, is so tied into the production of transportation fuels.

Strahan supports this view with another startling calculation: an area bigger than China (10 million kilometres squared) would be needed to provide enough biomass to completely replace the world's current demand for fossil fuels for all forms of transportation.

Then you need to contemplate the likelihood that we have reached, or are very close to reaching, Peak Oil. The huge growth in crude demand from developing countries is pushing us much closer to Peak Oil, if it hasn't already arrived.

In The Last Oil Shock, Strahan quotes Dick Cheney in 2001 as characterising Republican energy policy thus: "Conservation may be a sign of personal virtue, but it cannot be the basis of sound energy policy."

But just a few years later, shortly after hurricanes Rita and Katrina had exposed the fine balance between crude supply, refinery capacity and demand, President Bush said: "We can all pitch in by being better conservers of energy."

Winston Churchill saved Britain, and the world, from the Nazis. He was, though, widely viewed as mad - even by many prominent Americans such as Joseph Kennedy - for sticking it out during the dark days of the Blitz.

The parellel here is that we need politicians and business leaders with the courage not just to react to temporary crises, as Bush did by telling people to conserve after the 2005 hurricanes.

We need the next president of the US to persuade the public to accept one-car ownership, greater use of public transport and recycling. A visionary leader has to emerge who will, in the long term, be willing to dismantle the whole structure of our current consumer economy through persuasion backed up by tough legislation.

The short election cycles in the US - when as soon as you are elected, virtually, you need to start worrying about the mid-terms and then your own re-election bid - might prevent any such leader emerging.

Equally, oil and chemical company CEOs don't last that long. Even the current generation of leaders might be well into comfortable retirement by the time our modern way of life collapses as energy runs out.

There's a marvellous line in Ian McEwan's great novel, Saturday, where the main character enjoys a shower after a game of squash and reflects that his could be last generation to enjoy luxuries such as limitless hot water.

Our supposed betters, the politicians and the business leaders, need to have the courage to tell us, to make us, consume less - and American has to take the lead (as it eventually did, albeit a little belatedly, in the Second World War). Only if America takes the lead on conversion, and on climate change, will the result of the world follow.

We need the CEO of a plastics company to, for example, to come out and say "please use less of our products, for the good of humanity". You can just imagine the reaction of his or her fellow Board members, however,

In this era of short attention spans fed by soundbites, spin, Google and YouTube - leading to erratic voters and equally erratic and fickle investors - visionaries of this nature are unlikely to emerge.

We are living on borrowed time

A full list of all those whose deaths were reported prematurely is included here in this A-Z of journalistic blunders from Wikipedia.

The same could be said of the US commodity chemicals industry. Until very recently, just about everyone was predicting that the States would fairly soon shift from a net export to a net import position due to higher gas prices, the build-up of very competitive capacity elsewhere and the constant drift of manufacturing overseas. The country's chemicals industry has lost 120,000 jobs with 3 million jobs lost in manufacturing over the last five years.

But what's changed over the last few months is gas prices which have become relatively cheap compared with crude and the weak dollar. This has created what consultants predict will be the "last hurrah" for the US styrene industry ahead of the big slew of new Middle East capacity due on stream soon.

Further consolidation is expected once the Middle East wipes out the advantage US styrene producers currently enjoy over competitors supplied by naphtha-based C2s.

From a carbon footprint point of view, it does seem ridiculous that oil is shipped from the Middle East to make benzene in South Korea and the C8s are then shipped to the US. The US combines the benzene with its competitive gas-based ethylene to make styrene which is then shipped to Europe - already a net importer of commodity chemicals.

But the carbon footprint argument, along with rising freight costs, could offer a lifeline to the US chemicals industry in general. There has been much talk of "reverse globalisation" recently. This might lead to the economic justification for building new commodity chemicals capacity in the US and elsewhere in the West.