Asian Chemical Connections

The good news on the radio as I came into work this morning was that Hurricane Gustav had weakened in intensity with forecasts that it might make landfall in the US with wind speeds of less than had been earlier feared.

But this is not the point. The point, as Jeffrey Rubin of CIBC World Capital Markets makes in his report - Supply Crunch - is that just as the US has come to rely more on US Gulf oil and gas production, the frequency of high grade storms (class 3 to 5) in the region has increased.

"With both crude and total oil production inventories running significantly lower than they were when either Katrina or Rital sidelined Gulf oil production, both oil and gasoline prices are more exposed to potential storm-related disruptions than they were three years ago," he writes.

This blog isn't about the short term. But the the short term tension in crude and crude-product markets created by this latest hurricane scare is the result of tightly balanced supply and demand that has long-term implications for the global economy and for our hydrocarbon-dependent way of life.

The Gulf region - now so much more important to US supply because of production problems elsewhere - has itself suffered from delays to new capacity coming on stream. The BP Thunder Horse project, for example, is behind schedule - meaning that new production has grown at a fraction of earlier predictions for the Gulf. This has compounded the crisis caused by depletion of offshore fields as existing oil wells run dry. For example "some one-and-a-quarter million barrels per day from Mexico is likely to vanish (over the next five years) as its giant Cantarell field continues to deplete at a 30% annual rate", Rubin adds in his report.

Without getting into the argument over whether the increased frequency of severe storms in the Gulf is the result of global warming (or whether a long-term pattern of more dangerous weather has established itself - a view dismissed by some in the three years since Katrina and Rita because the region has so far escaped major hurricanes), there seems to me no dispute that supply is very stretched in the Gulf and globally.

Talk of demand destruction in the US benefiting crude pricing over the long term was earlier dismissed by Rubin. He estimated that by 2010 there will be 12 million less motorists on the road in the US. The problem is that ten new motorists in countries such as Brazil and India are buying cars for the first time for every one that leaves the roads in the States, he said.

High oil prices might slow down the pace at which people in emerging markets switch from push bikes to motorcycles and from mortorcycles to cars.

But without a global recession of a severity we have never seen before, it's hard to see how the slowdown will be enough to result in a net reduction in global oil consumption sufficient to end the crude crisis.

Chemical prices have gone through the roof this year on higher feedstock costs, causing greater recycling, greater conservation and a slowdown in the rate of substitution of petroleum-based products for natural materials in emerging markets.

If Gustav causes severe damage to oil and gas production and any further severe hurricanes hit the region this year (Tropical Storm Hana is brewing off the coast of the US as I write this post), the chemicals industry could lose even more ground.

I am afraid I do when it comes to climate change and, as a result, don't always switch off lights when I leave rooms, don't always say no to unnecesssary plastic bags when I buy anything and will happily (and this could be the worst damage of all) jet anywhere in the world either for business or pleasure.

I am feeling guilty today for accepting a 20 minute speaking engagement in Hong Kong which won't generate any direct revenue for our training business.

Of course it might create that intangible benefit of goodwill plus I can also do some other meetings while I am there.

But is this the kind of marginal trip that businesses should cut back on and if this happens, what will be the effect on bottom lines as building goodwill is so important?

Equally important in Asia are all those face-to-face meetings. Relationships can have more value than sometimes even the quality of the product you provide.

How do you decide as a company, therefore, what is essential and what is unncessary travel?

And as an individual, what about those flights at the weekend for short breaks? I've often jetted off to Phuket in Thailand because I've been tired from travelling too much for work!

I was glad to discover I am not alone about my sense of the enormity of it all, for feeling that turning the odd light bulb off is not going to make a jot of difference in the great scheme of things - and for feeling trapped by the corporate machine that so voraciously consumes carbon.

This was thanks to yet another excellent article in the New Scientist on a meeting of the American Psychological Association which took place in Boston, Massachusetts, last month.

"It's easy to feel overwhelmed and think: 'What can little me do?' ", said David Uzzel at the University of Surrey in the UK during the meeting.

Paul Stern of the US National Research Council said a key deterrent was a lack of guidance on which actions would have the greatest impact, and feeling paralysed by the size of the task.

His research paper on this subject provides more detail - and to my great relief tells me that switching light bulbs off when you leave the room doesn't do that much good.

Some impractical suggestions he quotes from the Live Earth Global Warming Handbook include composting household waste, building a bat house or if all else fails, buying a camel.

I can just imagine the reaction of my neighbours, and I am sure the authorities, if I attempted these measures in Singapore. And anyway, my balcony isn't quite big enough to accommodate a camel - although my 20-month-old son would enjoy the rides around the condo.

Enough of the fatalism. I am going to get off my backside and do something practical.

The long-contemplated attempt to build integrated petchem hubs in India, complete with shared utilities and strong investment incentives - aka China and Singapore - now seems even more of a hopeless pipe dream.

This follows the decision by Tata Motors to halt work on its Nano car plant in West Bengal following protests over land ownership.

Late last week Mukesh Ambani and other business leaders rallied to Tata's support as they realised that the protests threatened other investments.

At stake are Reliance's retail ambitions - and here goes, the government's plans for petroleum, chemicals and petrochemicals investment regions (PCPIRs). How Asians love their acronyms.

I remember back in 2000 I had a meeting at the first APIC conference in Yokohama, Japan, with representatives from the Indian government who were very keen on establishing these hubs.

There has been almost no progress since and the land dispute at West Bengal is further evidence of just how difficult life can be in a thriving and open democracy where there are more vested interests than servings of yellow dahl.

China occasionally lifts the lid off the proverbial pot to release a little pressure - for example, the government's decision earlier this year to give into protests over plans for a paraxylene plant at Xiamen in Fujian province.

But if protests seriously threatened China's economic growth model, individual business interests with sufficiently good connections or China's international image, the perpetrators would be marched straight off to re-education camps. You only have to look at the Olympics as an example.

So it looks likely to remain a do-it-yourself game in India when it comes to maximising integration and site-efficiency with Reliance the dominant practitioners.

From a national perspective also, maybe no PCPIRs in India would be a good thing.

"I spoke to the Indian government about these suggested sites at length," said an industry source a few months ago.

"They at first talked about supplying the local market but when I produced numbers to point out that the scale of what was being planned was far too big for India, they conceded that a lot of the volume would be for export. Where's the competitive advantage given India's comparatively high logistics and feedstock costs?"

Click here for some positive thinking - Energy%20Carta%20Conference%20Executive%20Summary_general%20150808.pdf

The Asian Energy Youth Summit - organised by the non-profit organisation Energy Carta - is an example of doing something about the climate-change challenge.

Speakers at the event which takes place in Singapore on 30-31 October (please click the link at the top of this post for the full PDF) include Shai Agassi of Project Better Place and Stefan Mueller, Asia Pacific managing director of Conergy.

What's heartening is that a chemicals engineering undergraduate at the National University of Singapore is one of the founders of Energy Carta. The chemicals industry is part of the problem and can hugely reshape its image for the better by being part of the solution.

....You might have to be to be able to afford this lot in a few years time (at least in some inflation-battered and collapsed local currency)

Thanks to Mark Berggren of MMSA for pointing out this wonderful quote: "Foreign aid might be defined as a transfer of money from poor people in rich countries to rich people in poor countries"
Douglas Casey, Classmate of Bill Clinton at Georgetown University

The tremendous economic boom of 2000-2007 in emerging markets might have also left millions more behind than had been previously thought as increased wealth from local prosperity - rather than from stealing foreign aid - has ended up in the hands of the middle classes.

Two new studies - one by the Asian Development Bank and the other by the World Bank - have raised the bar on definitions of poverty, largely as a result of rising food costs.

For example, the ADB believes that there are 20.1% more people in poverty in Indonesia and 15.9% more poor people in the Phillipines than it had previously thought.

The great petrochemical hope in the sky has been India, but how can a country with terrible infrastructure, poor irrigation and very low literacy rates ever give the majority of its people the joyous pleasure of buying plastic bags? The World Bank estimates that 455 million people have to get by in India on $1.35 or less a day.

The point here is that inflation will eat into all the rosy forecasts for petrochemical demand growth that were around as recently as the first quarter of this year.

How long-lasting will the damage be to growth? The answer could be how long oil prices remain elevated which comes back to your view on supply and demand.

Surging oil prices on the well-documented supply problems are big factor behind rising food costs. This is either directly through higher transportation and fertiliser bills or indirectly through the nonsense of first-generation biofuels industry in the West taking away land from food production. Plus you have the problem of all those newly middle class people in countries such as India eating more meat.

I don't think the recent fall in crude prices changes anything. This is just a temporary correction based on weaker demand growth. When there's an economic recovery, the supply shortage could quickly result in another downturn - hence, constant volatility above a high price floor.

I wish had bought shares in agrochemical companies a few years ago.

In what could be the world's first fat tax, the State Employees' Insurance Board of Alabama is to charge extra insurance premiums for employees with a body mass index over 35 from 2010.

The southern state enjoys the dubious status of being the most obese in the whole of the US, just pipping Mississippi for the top prize.

Now before you make any jokes about fat Americans, there is a serious point here.

We are consuming too much, whether its pizza with extra cheese injected into the crust - that great invention of the Americans, gasoline or plastic bags.

The world's metaphoric waistline is expanding beyond its means and maybe this type of tax is the way forward to make us consume less.

But, of course, being overweight can be genetic and is very often nothing at all to do with overeating.

The giant portions in American restaurants don't help, however. Americans must throw more food away than Africa eats each day.

Perhaps the fast-food companies should be ones penalised.

Anybody who has had the misfortune to have to listen to me ranting on about Peak Oil of late might have heard - if they managed to stay awake long enough - that I predicted crude could not fall below $100 a barrel because of the fundamentals.

I must admit my first reaction when I heard on the radio this morning that Brent crude had slipped to $99.30 a barrel was "damn".

A calmer, more measured and sensible reaction came later - that this might be good news for my battered, bruised and badly depleted shares, most of which are on Asian markets.

Weaker crude might also help us all keep our jobs. Falling oil prices are occurring as reports of project delays, or even cancellations, in the Middle East and China keep emerging - meaning that the chemicals industry might get some relief from the twin squeeze of higher feedstock costs and oversupply. I'll be dealing with these reports on this blog in the next few days.

"Here's some news for you - you're often wrong and so get used to the idea," said my wife. She's very direct, being Scottish.

But still - and here goes the rant again - I still feel that the long-term fundamentals are of a tight market as we accelerate towards Peak Oil, possibly by as early as the middle of the next decade.

Maybe a persistent bout of lower oil prices would be bad news as this would make us conserve less and lower investment in renewables (which, admittedly, are only ever likely to provide a small percentage of our total energy needs. Hence, we need to conserve!)

A very interesting report by McKinsey (you can sign up free for their online newsletter which only takes a minute) expands on the theme of reverse globalisation which I talked about last week.

The cost of shipping a standard 40-foot container has tripled since 2000 and labour cost increases have risen by average of 19% per year in China compared with just 3% in the US.

The consultancy makes the point that you have to do very thorough input-by-input calculations for each product and grade of product before making any decisions. And, of course, you need some reliable forecasts of where the economics of offshoring versus onshoring are heading - including predictions on crude-oil prices. Predicting crude, as I discussed earlier on today, is where I fall short.

You also need to take a view on the direction of environmental legislation - i.e. will there by carbon taxes and/or cap and trade systems introduced globally that penalise producers for extended global supply chains?

If history is anything to go by, McKinsey has worked out that manufacturing a "midrange" product in Asia will cost you an extra $16 today compared with the US when all landed costs are included. In 2003, Asia had a $46 advantage.

Add to this the likelihood that more petrochemical feedstock will become available in the US thanks to declining gasoline demand and perhaps, as again I talked about last week, the industry in the states might be set for a revival. It has been comparatively higher feedstock costs and the drift of downstrean customers overseas that has caused so much damage to the US industry.

For anyone who subscribes to ICIS news, you might find this artice of interest. Allen Kirkley of Shell discusses some of the new emerging feedstock options and converging economics between the West and the Middle East.

A drowning man will grab hold of any floating debris - even a plastic bag made from standard-grade Chinese polyethylene (PE).

Hence, last Friday a statement by Wang Tianpu led to a few days of excited speculation about the cancellation of several Chinese cracker projects.

The president of Sinopec Corp, the Hong Kong-listed arm of the Chinese refining and petrochemical giant, was quoted in press reports as saying that projects that had already been postponed would be suspended indefinitely (taken as a face-saving euphemism for cancellations). He also reportedly said that the pace of other projects would be adjusted.

"Fantastic. At last we are seeing some commonsense," said a Singapore-based executive with a Western polylefins producer.

Sadly, though, only a few days later, Tianpu amplified his statement by saying that 2008 petrochemical expenditure would be cut by only $675m - amounting to much less than the cost of one cracker.

The excitement that greeted his first statement was the result of concerns over just how bad conditions could become over the next few years.

The hope was that a much bigger budget cut might take place - affecting the timing, or even the continued existence, of projects slated for commissioning in 2009 and beyond.

ICIS Plants & Projects estimates that 21 per cent of global ethylene capacity additions in 2008-12 will be accounted for by China.

The Middle East will be responsible for a further 36%, resulting in worldwide C2 capacity increasing to 156.3m tonne/year from 135.5m tonne/year.

China has every strategic reason to push ahead with more petrochemical capacity, even if growth looks precarious on the back of the likely frequent boom-and-bust cycles created by tight crude markets.

And we all know about the Middle East advantage, even if it might be eroding a little on tighter feedstock supply and higher capital costs.

"The knowledge society will strike back - eventually. Energy efficiency and renewable energy will be rewarding projects," says Norbert Walker, Chief Economist at Deutsche Bank in his Asia Trip Report 2008.

So if you are not in the Middle East and not in China, are not moving up the innovation curve or don't have good refinery-petrochemical integration (ideally, you will have a combination of all the above) you are in big trouble.

You're only option is to sell your business to some gullible fool during the next up cycle -but you'll have to be quick as the recovery is unlikely to last for long!

Apparently it's a fallacy - ostriches don't stick their heads in the sand.

Investment bankers frequently do, though, especially all the greedy ones who only cared about their end-of-year bonuses when they knew perfectly well that the credit crisis was on its way.

I am sitting here sipping a beer and thinking "Oh my goodness, this really could be as bad as the Great Depression" now that Lehman Bros has been forced to file for bankruptcy.

But the danger is that we'll all forget about the even bigger threat to the global economy which is yes, you've guessed it, Peak Oil and climate change.

We'll all be so grateful when the credit crisis is over that we'll rush out and buy more garbage we don't need, jet around the world once again, talk excitedly about emerging-market growth, and bang - the price of crude will be close to or above $150 a barrel again (not that current levels in the historical context are anything to cheer about).

Read the last chapter of David Strahan's The Last Oil Shock to put the credit crisis in perspective (read the whole book, but the last chapter provides some practical ideas).

The survivors of the energy crisis over the next 20 years will be those who are the most energy efficient. So start growing your own vegetables, invest in energy saving in your home and for goodness sake, sell your SUV you self-indulgent idiot.

The value of your home, your shares and your pension might rebound once the credit crisis is over but in the long run, any investment in the conventional hydrocarbon-based economy seems to be fundamentally flawed.

Back in the heady days of 2006, I asked a group of five like-minded nerds what their favourite business book was.

They unanimously voted for The World Is Flat: A Brief History of the 21st Century by Thomas Friedman.

I rushed out and bought a copy. It has sold by the truck load and was quoted by Mohamed Al-Mady of SABIC during his speech at the Asia Petrochemical Industry Conference in Thailand in 2006.

Back then everybody was talking about a new paradigm of growth, driven by the relentless rise of emerging market consumption. Nobody mentioned that other book, The Limits To Growth, published in 1972 by the Club of Rome, during those heady days of the economic boom.

I ploughed my way through most of The World Is Flat (it is overwritten - all the points worth making could have been made in considerably less than 488 pages) and was profoundly irritated by Friedman's relentless enthusiasm for globalisation.

At that time I must confess I hadn't heard of the Club of Rome book, nor did I give any consideration to the idea that Friedman might be dead wrong for any reason other than a gut reaction to his seemingly boundless optimism.

Now he has woken up to the fact, 36 years after The Limits To Growth was published, that indeed this might be the case with his new book Hot, Flat And Crowded.

In a review in the Financial Times, Rahul Jacob makes the point that we should have all seen the weaknesses behind Friedman's flat earth theory.

Friedman was entranced in his earlier tome by the rise of India, particularly the booming IT hub of Bangalore.

"I have lost count of the times friends or relatives in India have forwarded by email Mr Friedman's comment that, while his parents told him to finish his dinner because there were people starving in India and China, he told his daughters to finish their homework because there were people there eager and willing to take their jobs," writes Jacob in his review.

As Jacob points out, the very roads that Friedman travelled along to get to the headquarters of the IT giants point to the limits to India's particular form of middle class, elitist growth; they are pockmarked and hugely congested with ancient patched-up vehicles pumping all sorts of foul fumes into the air.

India suffers from a self-inflicted limit to how far it can grow without creating unsustainable social and environment pressures - because of a political system that has created virtual development paralysis.

How can a country with terrible infrastructure, poor irrigation and very low literacy rates ever hope to create sustainable economic growth?

According to the CIA Factbook, India's female literacy rate was only 47.8% in 2001. This compares with 86.5% in China, based on the country's 2000 census, adds the Factbook.

The speed limit on Indian and, of course, also global growth is resources - so presciently highlighted by the Club of Rome back in the 1970s.

I've only just woken up to this reality. Back in the dim and distant 2006, all I cared about was riding the global property and share boom while consuming immense amounts of carbon in pursuit of my career. This involved writing my own much-shorter tomes that encouraged others to do likewise.

Many of us became so enamoured by globalisation that we ignored the fact that there are simply not enough resources available to allow all of us to consume as much as the typical Texan, or more latterly a middle class Indian in Mumbai.

Friedman gets excited in his new book, according to Jacob, about China's potential to lead the way in solving the environment crisis.

I agree that China has potential, but some huge challenges lie ahead.

Idealistic enthusiasm (the ungenerous might use the phrase "gormless enthusiasm", which has applied to many of us over the last few years) might have its place in generating the individual energy to make a difference: Each of us need to find new ways of individual and corporate behaviour if we are to prosper in a world threatened by Peak Oil and catastrophic climate change.

This type of enthusiasm needs to result in more than just further consumption of trees through higher book sales (and when do we have the time to read books like The World is Flat? When we're flying, that well-known environmentally friendly form of travel).

We need to radically change the way we lead our lives.

It is September 2025 and the financial system has imploded due to the collapse in value of collaterised green obligations (CGOs).

So how did we end up in this sorry state? Here is a guide to how the crisis developed:

Governments (often sovereign wealth funds that had made a fortune from selling oil and gas), investment bankers, pension-fund managers and hedge funds began transferring cash from traditional hydrocarbon-based investments when Peak Oil arrived in 2015.

A further motive for the enormous capital transfer - amounting to trillions of dollars - was the gradual evolution of the global carbon tax and cap-and-trade system.

Companies that had failed to innovate (including many in the chemicals sector) went under - as did even some of the stock exchanges that had failed to evolve.

But because of woefully bad funding of and interest in science teaching (far too many undergraduates were still taking degrees in media studies), there was a widespread inability to separate the good from the bad new-technology prospects.

The global shortage of science and engineering graduates, which stretches back to the early years of this century, has therefore continued.

Ignorance about good science extended from senior government levels down to the public who poured their money into the new "green" bourses.

Charlatans made fortunes from government funding and ridiculously overpriced initial public offerings by making spurious claims about the commercial viability of their inventions.

But there were some tremendous successes, notably big breakthroughs in carbon capture and storage and a second-generation biofuel made from animal and human nose hairs.

Then, as we all know, the "Green Equities Bubble" went pop in 2018. Wall Street's Renewable Energy Index lost 1,000 points on December 3 of that year alone when investors realised that many of the new-tech companies would fail.

The Federal Reserve, desperate to prevent a recession, aggressively cut interest rates.

This forced lenders to seek higher returns through developing ever-more complex financial instruments, including the now widely discredited CGOs.

But the good news was that homeowners and companies had made a packet in 2015-2018 from trading carbon credits earned by adopting proven energy-saving measures that had been around for decades.

Energy bills were also substantially reduced and most importantly of all, we had capped atmospheric greenhouse gases at 450 parts per million.

The surge in the value of "green homes" continued post-2018 - thanks to the money left in the economy from these carbon-credit earnings and low interest rates.

A new breed of mortgage brokers emerged after the green equities bull-run ended. They made huge commissions from selling mortgages with incredibly low "teaser" interest rates to lenders who initially had to show proof of a strong carbon-credit history.

But by 2021, the greedy brokers were only asking for carbon credit self-certification.

Homeowners who had made false claims on their forms were able to afford to service their mortgages and still have spare cash to spend in the shopping malls. This was because low interest rates and surging green property values more than compensated for high energy bills and the cost of buying carbon credits.

Easy lending conditions gave them even more money to spend as they were able to refinance their homes on rising notional property values.

Mortgages lent to these unsound customers were repackaged with good lending into the now discredited CGOs.

The ratings agencies had no idea of how to value these secondary debt-instruments and so - erring on the side of their customers - gave them all triple As.

As we all know, August 2024 marked the end of the free lunch as the US property market collapsed and the inter-bank lending market gummed up on the realisation that nobody knew the real value of the CGOs.

The price of oil also rose to more than $350/bbl last December - the result of the failure to carry out proper carbon due diligence when mortgages were issued.

Energy profligate homeowners in the US, and more recently in the UK, are being hit by falling property values, higher interest rates introduced to tackle runaway inflation and tougher carbon disclosure and trading regulations.

The boom in emerging market growth has also helped to drive up the price of oil. A lot of this growth was based on exports of supposedly green products to the West.

But in the rush to cash-in on the consumer boom, lax life cycle analysis has led to many of these products being carbon inefficient.

The huge profits earned from the Western consumer bull-run has more than compensated for the need to buy carbon credits to accommodate for wasteful product-chain practices.

There have also been allegations of government officials being bribed to turn a blind eye to carbon efficiency abuses, thereby enabling companies to avoid having to buy extra credits.

Growth has also boomed in the emerging market economies themselves, where energy efficiency standards have also suffered.

Greenhouse gas emissions are on the rise again and last year hit 600 parts per million, according the majority of independent scientific research.

However, the drive to reinforce legislation is being blunted by the work of some scientific institutions. They claim that emissions are in fact falling, but a scandal erupted last year when it was discovered that many of the institutions are funded by companies with questionable carbon practices.

The economic crisis has now become global with developing nations under threat from collapsing stock markets, a lack of credit as financial institutions fail and runaway inflation. The decoupling theory has been thoroughly discredited.

Sound familiar? History repeats itself repeatedly.

But to be more accurate - and to quote the guy who first coined the phrase before I paraphrased it - Clarence Darrow (pictured above), a Defence Attorney in the US between 1857-1938, is credited as saying: "History repeats itself. That's one of the things wrong with history."

I just hope I can get in and get out at the right time and make my family's future financially secure.

The smarty pants at BASF seem to have got it right again with their $6.1bn bid for Ciba Specialty Chemicals and rumours that they might also be after Clariant.

Talking about counter-cyclical investment is one thing, but doing it is quite another. You need to have built up the cash reserves to execute the obvious - and, of course, need the right product portfolio already in place to earn the money in the first instance.

BASF has made and continues to make a packet from its oil and gas business. It's oft-repeated focus on integration and on getting out of the more cyclical commodities is also paying dividends. It was walking the talk about reducing exposure to such commodities long before a certain US-headquartered company jumped on the bandwagon.

Talking about stating the obvious of buying low and selling high, McKinsey does this - but with some useful numbers - in its report, M&A Strategies In A Down Market. Again this is from the consultancy's excellent monthly newsletter, which is free once you have signed up.

The report's authors have also written a book, The Granularity of Growth. It includes a database of 200 global companies that decomposes the most important sources of growth (market momentum, mergers and share gains). Sectors that suffered big upturns or downturns were then analysed in order to rank the importance of these growth sources - with the study also extending to individual companies strategies.

"Two sets of results stuck out," write the authors.

"First, (I wish consultants would learn to write shorter sentences - my comments in italics) of the potential strategic moves companies can take to grow in a downturn - divest acquire, invest to gain a share - an effective acquisition strategy (defined as growth through M&A at a rate higher than 75 percent of a company's pears) created significant value for shareholders (you can pause for breath now).

"During an upturn, on the other hand (surprise, surpirse), divestments created slightly more value that acquisitions did (this presupposes you can find some mug to buy your business at some ridiculously inflated price on the belief that the economic boom will last forever).

"Second, companies often behave in counterproductive ways. Fewer than half as many companies in the segments we studied made acquisitions in downturns rather than in periods of economic growth. Significantly more divested businesses in those market segments in downturns than in upturns."

The global credit crisis and volatility in stock markets "could temporarily disrupt M&A activity and add risk to existing deals," said Scott Anderson, senior economist at Wells Fargo - the US financial services company. He was speaking at the ICIS Chemical Purchasing Summit, which is taking place in Boston, Massachussets.

He added, however, that conditions were right for further consolidation in the chemicals industry as manufacturing customers become larger.

The Middle East has the cash, of course - as do the Chinese if they can be bothered. Sovereign wealth funds could be the vehicles, as well as the petrochemical companies themselves, for a wholesale shake-up of industry ownership.

And as I've already said, those clever people at BASF look likely to be involved. Being right and having senior executives with brains the size of a small planets is very annoying for those of less able (especially if they are also nice to children and animals, actively care about the environment, give a large proportion of their incomes to charity and are good at football when World Cups come round).

As oil prices keep on falling, it might be tempting to forget the big picture. I had another frustrating conversation yesterday with a contact who believes that there's nothing to worry about on crude (it was all downs to speculators, he said) and so we could carry on as normal once the economic crisis is over.

Nonsense. If his views are prevalent in his company, his company will eventually be out of business.

Just as an example of how the nature of demand could change, see this article from the Economist about green buildings.

Formaldehyde demand could fall as could demand for the chemicals used in sealants ad adhesives.

But opportunities for increased sales of plastics could exist in "vacuum" windows.

A sustained spell of low oil prices might damage the push towards a sensible energy future.

The crisis will also make it harder to find the money for research and development of new products to provide for this future.

I can just picture the scene in the Paulson household, poor old Hank's wife having to get up early to prepare his "snap tin" so he could off to work shifts at the weekend.

He would then take his lunch, walk out of his door, "through the mansions of fate and the mansions of pain" and walk "through those factory gates in the rain". Might seem corny to some or not "trendy" enough, but Springsteen is always passionate, sincere and the antithesis of the materialistic empty heads who make up a sizeable percentage of the music and showbiz communities.

The US Treasury Secretary and the rest of that other materalistic "community" (what an ironic word to use given the circumstances) - the financial one - bear a huge responsibilty for the almighty mess the world finds itself in.

The good news (and we knew this already, didn't we?) is that the supposed bastian of capitalism is not pure capitalist at all (is there such a country and would we ever want such a country?) - but an economy that's occasionally managed, but mainly only as a knee-jerk reaction to the failures of capitalism.

Long term market-distorting management does occur in some area when there are votes at stake - for example, the corn-based ethanol, auto and airline industries, resulting in very little if any benefit for the common national and global good.

Wouldn't it be better to have a properly regulated economy to avoid catastrophes like this in the first place? Or this impossible because of the US political system which is so heavily shaped by the lobbyists?

The old-style Labour Party in Britain used to believe in the Marxist doctrine of "nationalising the commanding heights of the economy", which in those days meant the mining (see the picture above - UK miners with their "snap" or lunch tins), utility and steel industries.

In America's case it's the banks and the housing markets that represent the commanding heights of its economy, and so what's the difference? Risk has been well and truly socialised and the potential for huge moral hazard created so the greedy can get away with it.

And the main point - hence my sarcasm at the beginning - is that Paulson and his like will be financially fine regardless of what happens. The people who will suffer are the rest of us who stand to lose our jobs, or worse could be pushed into severe poverty in many parts of the world if his rescue plan fails.

For the first time, quite probably, since the Chinese economy opened some producers are predicting that polyolefin demand growth could be flat or even negative this year. In the case of PE, reports are emerging of sales declines above 20% over the last two months.

This compares with 8 per cent growth for PP and 5-6% growth for PE in 2007.

This blog focuses on the long term and there is a long term danger here.

The depth of the economic problems in the West is the main cause of the fall in polyolefin volumes due to the the collapse of the re-export of finished goods.

Let's hope this only a temporary problem and the global recovery arrives fairly quickly. But it seems likely that we haven't even reached the bottom of the current crisis and there is a danger of a deep global recession, or even depression, lasting several years.

The fact that Chinese growth has taken such an historic blow from the collapse of finished-goods exports exposes the corporate flannel about tremendous domestic market growth as being exactly that - corporate flannel of the worst kind designed to hoodwink dumb investors and lazy journalists.

In the short term, as described, the re-export sector remains hugely important for the Chinese economy.

There is also a shift by the government away from an export and fixed asset investment-led growth model. This means a lot less growth from the re-export sector over the long term for anyone shipping basic commmodity chemicals to China.

Volatility in crude is a problem that might last for a while, given the fundamentals of tight supply and the potential for the re-emergence of strong demand growth.

In the case of polyolefins, this is leading to sudden surges in resin buying when converters think crude will continue to rise and running down of inventories when the reverse occurs.

This might, to some extent, have masked the depth of fundamental weaknesses in the market up until mid-June. If you recall, oil was on a bull run until then.

The last few days have, of course, seen crude enter one of its most volatile periods in history - making it even harder to read the direction of oil and therefore naphtha, olefins and polyolefins pricing.

Who'd want to be a purchasing manager for a plastic processing company in this current climate?

The reach of the credit crisis is such that liquidity is even becoming hard to come by in the hugely wealthy Middle East, according to this report.

With so few petrochemical projects officially announced for the region post-2012 (although I am hearing rumours of numerous plans kept from public view, but feedstock is the issue for all of them in the GCC), could we see a big slowdown in the growth of the region's industry?

The irony, of course, is that many of the Middle East and emerging market countries have huge government surpluses and high individual savings rates.

When I was trying to cheer up a downbeat member of staff today, I said that the financial rescue package being proposed by the deadly duo of Paulson and Bernanke might get overseas support from these solvent administrations.

"It's in everyone's interests to keep the US afloat because it is so crucial to the global economy. If this had been 10 or 15 years from now, the Chinese might have done the economic equvalent of flipping the states fhe finger because by then they will be the biggest economy. But the US has got off the hook because of the timing of this crisis."

I sounded so optimistic I almost believed this flannel myself.

More evidence is also emerging of project delay, including the Aramco/Dow Ras Tanura mega-investment. The sheer scale of the thing seems to be the issue here.

The old saying "there's no such thing as a free lunch" has at last been proved true with the virtual collapse of the global financial system - and with it, quite possibly, the world's economy.

But for the last decade or more, the chemicals industry, like every other industry, gorged itself on an easy credit-fuelled property boom that's swept the globe.

In Singapore until very recently, real estate was red hot. Surprise, surprise, oversupply beckons, the market is flat and a pricing collapse cannot be ruled out.

Property bubbles come and go and so cyclical downturns were inevitable in Singapore, Thailand, India, China and Australia.

But perhaps the long-term fallout of the crisis - a much more prudently managed banking sector - might have negative implications for chemical demand-growth multiples over GDP.

As the problem rests mainly with US lenders, though, it's hard to say whether credit will also become much harder to obtain for good in Asia and other emerging markets.

But the appetite to lend money to average and below-average earners at high multiples of annual incomes - and with incredibly low "teaser" interest rates - will at the very least take a few years to recover.

Mohamed El-Erian, co-CEO and co-chief investment officer for Pimco, analyses the implications of this tighter credit climate in today's Financial Times.

It is worth asking your friendly neighbourhood consultant or in-house researcher whether any of their growth scenarios take into account the possibility of much tighter lending conditions for many years to come.

As the American Chemistry Council points out, $16,000 of chemicals are consumed when an average home is built in the states.

On a global basis, this alone means an awful lot of demand without counting consumption by real estate in other countries.

As delegates gather for this year's European Petrochemical Association meeting in the unreal world of Monaco (unreal for the 99.9 per cent recurring of us who don't own Ferraris), I thought it was worth summarising some of the issues discussed on this blog over the last few months.

We've dealt with:

*Oil-price volatility and the likelihood that high and volatile crude is here to stay. Crude at or around $100 a barrel seems to be a new long-term level with the strong possibility that geopolitical shocks could send costs much higher. Supply and demand balances remain tight and as soon as global economic growth recovers we will see much higher prices - meaning that the recovery could be nipped in the bud. Are we heading for a new economic climate where recoveries are constantly set back by rising energy costs? For every one barrel we are discovering, we are consuming three.

*The new credit environment that might well emerge from tougher banking regulations. No longer will it be possible for a truck driver from Iowa earning $20,000 a year to borrow at ridiculous multiples of his salary and at "teaser" interest rates. How these regulations will effect emerging markets his harder to read as Asian governments and consumers are in far better financial shape than those in the West. Many of the banks in Asia have been more prudent. But the events in the US will surely lower the appetite for risk globally - and there is no guarantee that the financial-rescue package will work. Ask your consultants or inhouse researchers you use whether their demand-growth predictions factor in the possiblility of lower growth because consumers no longer have access to as much credit.

*Innovation will be the key as the environment becomes a bigger and bigger issue for the chemicals industry. You need right technologies and the right kind of staff. As there is a possibility of a global carbon tax or carbon cap-and-trade system, do estimates of what this might cost need to be factored into feasibility studies? How feasible will it therefore be - given both high energy costs and the possibility of a price on emissions - to continue building plants long distances from major consumption markets?

*One of the big areas of innovation will be attempts to break the link between the refinery and petrochemical industries. BASF is claiming it could be as little as five years away from breakthroughs in catalyst technology that could change the industry forever, enabling highly competitive petchems to be produced from biogass, natural gas or coal.

And finally, other theme I haven't blogged on yet but will do are plant and energy efficiency. Some very interesting research projects are taking place at the National University of Singapore chemical engineering department into monitoring the exact output of plants in differennt climate conditions and a model that might enable producers to much more accurately predict changes in yields from switching feedstocks. Much more later...

Meanwhile, have a great meeting - and let's hope the economic conditions improve.

As if the problems confronting China's polyolefin markets were not enough, sales have apparently been further hit by the tainted food scares which began with baby's milk.

A wide range of products are now affected with Cadbury becoming the latest global confectionary brand to withdraw some of its products.

The China market was already facing the potential for negative or even flat polyethylene and polypropylene growth in 2008 because of the collapse in export trade to the West due to the global financial crisis.

The problem now, according to a leading Western PE producer, is that just about every exported Chinese food product is being subject to closer scrutiny by regulatory authorities - along with the negative impact on sales of all the product withdrawals. This is making China's converters even less willing to buy resin.

Long term, lower growth in China means it will of course take longer to absorb the new capacities.

The Chinese government also faces the task of rebuilding confidence in its food industries - not only for the sake of export trade but to also tackle local anger. Civil unrest over health concerns surrounding air and water pollution is already a major threat to social stability.

But for those focusing on immediate prospects, the good news is that there are strong rumours of substantial delays to the start-up of two major PE plant sin the Middle East.

The longer that late equipment delivery and technical (or maybe market?) issues push back start-up, the more likely it is that the global economic downturn will at least have reached the bottom of the trough before the big flood of volumes hits supply.

The industry has been very lucky. First came the Iranian delays, which in effect mount to the cancellation of 3-4 crackers all due on stream in 2010-12.

Then we have seen up to three crackers in Qatar delayed to beyond 2012.

And for those projects where building work is almost complete, continued technical and equipment delivery issues have left buyers with the same feeling that Manchester Utd fans had during the 1980s and early 1990s, which was: "Maybe we'll win the championship next year." Sadly, or rather tragically, things changed.

This year was supposed to mark the big ramp-up in PP production, but it hasn't happened.

I grew up in a small town called Bingley in West Yorkshire in the UK, where there are two major employers - the head offices of a building society (or what was once a building society, but became a failed bank - see picture above) and a clothing business.

My late parents worked most of their working lives for the B&B and I worked there during the summer when I was student, to pay off debts built up through excessive drinking (I was an arts student, thank goodness - none of this obsessive "grow old too young" nonsense of MBAs and other business degrees that are serving very little purpose at the moment. You'd be better staying at home and writing poetry).

In the financial maelstrom, you might have noticed that the B&B has been partially nationalised by the British government.

This used to be a dull but worthy lender that became more aggressive and, like most of the rest of us, didn't believe that there was a down as well an upside when we were all caught up in the economic supercycle.

Before the nationalisation occurred 370 jobs were axed last week - which will greatly affect Bingley's economy, from the direct job losses, of course, to the shops and the restaurants. More jobs are at risk among the remaining 3,000 employees.

My dad worked down a coal mine, fought in the Second World War in North Africa and Italy in an artillery regiment, returned from the war to work on the railways and then spent the rest of his working life as a caretaker (or a janitor as the Americans have it) at the building society. If he had been still around, he could have been out of work - but exactly what portion of the blame for the crisis would you have apportioned to him, Mr Paulson?

Multiply the impact of job losses around the world as other banks and businesses fail and this means much less chemicals demand - from the plastic packaging used in restaurants to cancelled bigger ticket purchases such as automobiles and TVs. Again, we need to be looking hard at demand-growth numbers in an attempt to contemplate what this will mean for all our businesses - whether we work directly in the chemicals industry or as service providers.

But the bigger tragedy is that real people, not those with fantastic salaries and parachute payments who are responsible for this financial mess, will suffer greatly.

These are real people who deserve protecting because they had no idea, and had no chance of gaining any kind of idea, of the potential scale of the crisis we are now confronting.

I am taking a well-earned break in Perth, Western Australia until early next week so this blog will be quiet until then.

And no, I am unlikely to find out anything interesting on feedstock issues surrounding the Australian cracker as I'll be too busy, hopefully, lying on the beach.