Asian Chemical Connections

Produce too little energy over the next 35 years, says the International Energy Agency in this article from the Guardian Weekly, and there will be price hikes and a financial crash; produce too much and the increased rate of global warming will also result in economic disaster. The rest of the article leaves you with the feeling that we have just gone too far, that nothing will or can be done to reverse the environmental catastrophe we seem to be heading towards. To what extent will the chemical industry be blamed for this disaster?

Please read this excellent piece from my colleague Nigel Davis, who is editor of the Insight section of ICIS news.Some further thoughts: if 46% of existing and 45% of future ethylene production is taken offline by flooding, just think of the impact on food pricing and distribution and the resulting social and economic chaos due to the shortage of food--packaging material. These estimates maybe wrong, but if Lehman Brothers are only halfway right God help us, and I don't just mean the chemicals industry. On a more immediate bottomline level, how many banks, consultants and project proponents are factoring in the increased risks of flooding into feasibility studies? Or does anyone really care enough to look beyond their next promotion or their imminent retirement? If you won't be around in 10 years' time, why bother asking awkward and potentially career-threatening questions?

Rex Tillerson, chief executive of ExxonMobil, displayed a careful balance between supporting the oil industry and expressing concern over climate change in a recent speech.Does this indicate a shift in direction at Exxon post Lee Raymond, or merely a more cuddly and warm way of presenting unchanged policy?
The reason why we are still dependent on hydrocarbons is because insufficient investment has been made into alternatives. When the US Gulf Coast refineries and petrochemical plants are under six feet of water thanks to rising sea levels, it will be too late to make the investments.

I am involved in this running email debate with the only person I know who is as stubborn and as pig-headed as myself - my old schoolmate in the UK. He is convinced that global warming is indeed a load of hogwash and has evidence to support his theory in this series of articles from the UK's Daily Telegraph. Quite frankly, if either us were to be proved wrong we would never admit it.

Global leaders from the Group of Eight rich nations plus Brazil, China, India, Mexico and South Africa have agreed that developing countries will have to face targets for cutting emissions as well as developed countries.If these noble words are followed by action, prepare to be legislated against.
I wrote yesterday about Rex Tillerson and his belied that cutting hydrocarbons consumption could harm economies. Dr John Holdren, president of the American Association for the Advancement of Science, says "nonsense".

The petrochemicals industry generally gets a bad press, but producers are unlikely to ever be charged with depriving the public of food. In fact, plastic packaging could go a long way to solving problems such as India's - where 40% of food rots before it can be delivered.
Biofuels producers, however, although they have ostensibly stronger greener credentials, are locked in a row over food versus fuel. Visit Simon Robinson's biofuels blog for some thought-provoking comments on this and other challenges facing this big boom industry.

The famous "Skeptical" environmentalist (unfortunately, the American spelling and therefore the wrong spelling), Bjorn Lomborg argues against the Kyoto Protocol in this article from the special green edition of our magazine, ICIS Chemical Business.He says, in short, that all the fuss about Kyoto is a waste of time and effort. Even if it is fully implemented, Lomborg agues that the rate of global warming will be set back by a mere five years.
And so he contends we should instead spend the huge cost of Kyoto - $150bn a year - on tackling HIV, malaria and other nasty diseases.
He is also in favour of an R&D tax equivalent to 0.5% of each country's GDP to develop renewable chemical, fuel and other technologies. Read more about Mr Lomborg's iconoclastic theories.
His approach would bring the sceptics and the greenies together, as the sceptics cannot deny that in terms of Peak Oil and energy security alone, dependence on the filthy black stuff has to be broken.

A huge amount of petrochemical capacity - some $12bn worth - is being built in Thailand, way in excess of the quantity added before the Asian financial crisis.
This is all predicated on Thailand becoming a manufacturing hub for Southeast Asia with, for example, huge ambitions to grow auto production.
But can Thailand attract the FDI it needs for this industrial growth, given lack of confidence in the government? If it fails to attract this FDI, then most of its new petrochemical capacity could end up flooding overseas markets, just as in 1997-98.
The latest blow to the credibility of the government is the potential collapse of a Thai-Japan Free Trade Agreement due to pressure from environmentalists.

An interesting debate is emerging over the growth of the recycled polymer market in China. Sinodata, the Beijing-based consultancy, estimates that 5.8m tonnes of all types of recycled polymers were imported into China last year, an 800,000 tonnes increase over 2006. Five years ago, recycled imports totalled less than 500,000 tonnes.
With domestic recycling also estimated at 7-8m tonnes/year by Sinodata, this is creating a big dent in virgin resin demand. Demand growth for polyolefins is expected to be as low as 5% this year as against more than 10% in 2002-04.
If your glass is half full you can interpret the rise in recycling as a reflection of high virgin resin prices, meaning that once resin prices fall so will recycling.
But what about China's perrenial push for resource efficiency, given further official backing by Premier Wen Jiabao in a speech this week?What about the margin pressure on the downstreamers?
And, if you've found a cheaper way of doing things, why go back to more expensive raw material?

An interesting question, and one that Def Poet Tommy Buttons, the rap artist with a difference (he has a brain) might want to address.
Click on this highly amusing link and listen to how he compares the life of a drugs dealer with that of a Nasdeq trader. Substitute Nasdeq trader for a petrochemicals trader and again the skills measure up and so, perhaps, we could tap into a new stream of talent which could benefit petchems and also improve our image. We could be seen as caring and sharing, helping to alleviate the ills of society, rather than just those nasty people who poison babies by pumping out pollution. Makes you feel good, doesn't it?

No point obviously. As this report from Deutsche Bank Download file notes, the global skills shortage is not just in the west.
In the engineering sector, and perhaps this applies to petrochemicals, Deutsche Bank claims that the huge outpouring of Indian and Chinese graduates is grossly exaggerated; and it adds that the quality of graduates from both India and China can be pretty poor, meaning a great opportunity for western Europe - particularly Germany.
It's other conclusion, that the service industry boom cannot be sustained in India because of the skills shortage, is interesting. The route that India must therefore take, it says, is lots more manufacturing.
This is potentially tremendous news for petrochemical demand, again provided there are enough workers to run the plants.
But if India does embark on a huge build-up in manufacturing capacity, God help the environment.
I am already advising my 11-week-old son to buy a house on high ground. Soon I might need to suggest the Himalayas.

The United Nations report on climate change, released last Friday, warned of 50 million made homeless as a result of global warming by as early as 2010.
Reports such as this will serve to pile even more pressure on the big polluters including, of course, China - the mothership of chemical demand growth.
Any investor who doesn't have a Plan B, factoring in a much harsher regulatory climate in China, is burying their heads in the sand.
China's government will have to introduce new legislation, and more effectively implement existing rules, because of rising international pressure.
This LA Times article provides a neat summary of the scale of the problem.

The International Energy Agency has further brought forward its forecast on when China will become the world's biggest polluter to 2007 from 2010. Only three years ago, they were predicting not before 2025!
Coal-fired power stations are big cause of rising greenhouse gas emissions in China, says the IEA.
Will this result in a harder approvals process for not only coal-fired power stations, but also coal to chemicals?
And what about the international response to China's growing greenhouse gas threat? Will it become harder to invest in China?
Or do you care? Maybe not now, but you might in a few years' time when you either cannot build more ethylene and C2 derivatives to serve the China market, or have to find some new, cleaner ways of making C2s from renewables.

Quite possibly, yes, despite my instinctiive pessimism. Perhaps emerging markets such as China and India have reached such a critical mass that no matter how much capacity is brought on stream, it will be easily absorbed.
Or maybe some disaster lies just around the corner.
Who cares if you've made your money in the most extraordinary bull run in history and have already cashed in your chips.

You maybe relieved, on the day the Chinese government introduces measures to cool stock markets resulting in sharp fall in the Shanghai Exchange, that I am going on leave for a couple of weeks.
Perhaps I'll feel the sun on my back (unlikely as I'll be visiting Scotland), come back with renewed optimism and not worry about the impact of the pork shortage on the Chinese economy. Could this be the new SARS?
Oh, and my wife has just punched me for constantly talking down our investments.
Au Revoir.

"Hello, my name is John Richardson.
I had an accident, and I woke up in 1973.
Am I mad, in a coma, or back in time?
Whatever’s happened, it’s like I’ve landed on a different planet."
Before you think I've been at the methanol again, please follow this link to the fantastic BBC TV series, Life On Mars, where a UK police officer living in 2006 is in a road accident and is transported back in time to 1973. This is definitely not a waste of polycarbonate - buy the DVD.
Like Sam Tyler of the series, it felt like I was back in time this morning when reading of the IEA report on an oil-supply crunch in five years.
It was back in 1973, if you remember, that an oil crisis triggered the US recession of 1973-75.
William Poole, president of the Reserve Bank of St Loius, argues that high oil prices this time around haven't triggered a recession because of factors such as low inflation. This is largely the result of China and the rest of the developing world driving down costs.
But how long will this continue if the IEA is right? And how will the developing world reconcile itself to not having enough raw materials to sustain the huge boom in demand for the things made, ultimately, from oil? What will be the social, political and economic implications of the looming supply crunch on ever-more wealthy populations demanding the same mass-consumption lifestyles that westerners enjoy?

The industry we work either for or with is about as popular as George Bush Junior at I was about to say a wedding party in the Gaza Strip; but actually probably about as popular as George Bush at just about any wedding party in the world, even in some parts of Texas these days.
The point is we need some imaginative rebranding and advertising. A great example is this highly amusing ad from the agency BBH http://www.bartleboglehegarty.com/ for Smirnoff Raw Tea http://www.youtube.com/watch?v=PTU2He2BIc0
This is one of my familiar old themes, but if we can use this level of imagination in our marketing and job-recruitment efforts, we might start attracting more young people into the industry. We want the YouTube and My Space generation who might even - and let's be optimistic here as it's early in the morning my time - begin their careers wanting to make the world a better place through chemicals, Of course, they will inevitably end up bitter and twisted thanks to the corporate machine.
But still, we might end up with enough recruits to run the chemical plants and businesses of the future. We could also win the general public over, thereby reducing pressure for more nonsensical legislation like Reach.
Interested? Let's hold a "Marketing The Chemicals Industry" conference.

I think it's about time that the developing world stopped saying "you did it, so why can't we?" when the West raises concerns over rising pollution levels in China, India etc.
In the "good" old days my home country, the UK, had lots of dark, gritty and satanic mills, which were almost as ugly as our corporate headquarters. We used to make children work as chimney cleaners and down coal mines and generally life was pretty miserable.
But the point is that we, fortunately, didn't have the technologies to kill people in as greater a number as the Chinese have, and also we didn't have anywhere near as many people. Chemical and other plants are playing a large part in China's environmental tragedy - and it is no exaggeration to call this a a tragedy.
Expect more legislation from China's government, as a result of disturbing reports on China's environment such as this one by the OECD.
The legislation will make it harder and more expensive to build chemical and other plants. At the same time there are huge opportunities for those selling safer processes and for the water-treatment industry.
But will the legislation work? Probably not because it cannot be allowed to work as so much of China's growth is tied up in low quality, very cheap industrial capacity.
The end result is that China will choke a large number of its people, and its economy, to death.

Petrochemical markets are being badly ruffled by two recent Chinese government decisions.
In late June, there was the decision to change the VAT export rebate system for yuan-priced product.
And then this week there was a widening of the deposit rules governing import duty and VAT rebates on petchem imports priced in US dollars.
But beyond the immediate disruptions to imports and domestic sales, the long term implications could require a major strategic shift by chemical companies.
See below for detailed anaylsis. But in short here, as China phases out its low-quality manufacturing through these and quite possibly other further measures, chemical suppliers will have to move up the value chain with their customers.

I am at logistics conference at the moment where the major theme is a chronically tight global container shipping market because of booming exports from China. Ports are congested, waiting times are increasing, freight rates have in some cases doubled in the last two months(for example, the Middle East-Asia route) and there is no immediate sign of new container freight capacity easing the crisis.
And across the globe there is an imbalance between rapidly growing economies such as China and exports back out of some receiving countries in the same container vessels.
This result is lots of re-positioning or backhaul i.e containers moving out of the receiving countries empty. Countries such as Russia, for example, have small manufacturing industries and therefore need to import far more than they are able to export.
So if you are a polymer producer, there are savings to be made by scouring the globe for supplies of these empty containers.
What you do is you move your polymers to the country where the empty containers are sitting and fill those containers to move back to China, India etc. The shippers are delighted because they earn guaranteed extra revenue and the exporters in China are are dead chuffed because they don't have to haggle with the shippers over re-positioning fees (compensation for moving the containers empty back to China).
Now I cannot name the company I was speaking to fear of losing a good contact, but a polyolefins producer said to me over lunch over how he could be moving his product from his plant in central Asia to St Peterburg in Russia, via rail.
And then from St Petersburg, the polyolefins might move by sea all the way to China!
This is being repeated across the industry because supply chain effiiciency is so important for overall competitiveness.
The point of my headline is this - what will happen if the regulators start clamping down on this in a bid to tackle a producer's overall emissions, from the efficiency of his plant to final delivery to the customer?
Producers may not necessarily have to stop the use of convoluted shippings. If the economics still add up, they might buy carbon credits or find other ways of offsetting their responsibility for these extra emissions.
The producer I was speaking to believes it is possible that legislation to this effect will be introduced over the next two years.

Paul Hodges, in his excellent chemicals and the economy blog, talks about the recent Shenhua Energy listing on the Shanghai stock exchange and how it shares jumped by 93% following the IPO.
Now it has ample cash to pursue its ambitions.
Shenhau is just one of numerous companies involved in coal-to-liquids projects in China which will provide transportation fuels and also methanol-to-olefins production through to polymers. Cash will not be an objective for a sector which is expected to see Yuan60bn worth of investment in 2006-10
The US is also looking at making much more use of its coal reserves to boost energy security and reduce carbon dioxide emissions.
But just how environmentally friendly are coal-to-liquids technologies? According to the non-profit organisation, the Natural Resources Defense Council, it makes more CO2 sense to refine oil - Download file
However, in the end will the solutions we seek to the peak oil crisis be driven more by energy security issues than environmental concerns?
And when the Greenland ice sheet has collapsed into the ocean, Shanghai has been submerged and hundreds of millions of people have been displaced by the global rise in sea levels, how secure will we feel?

I am having a go at the US here (see article below) - a pretty big target - but don't worry, Asia is the next in line on this blog: the opportunistic, shallow and downright unpleasant palm oil-based biodiesel industry deserves similar treatment.

As for ethanol, Rex Tillerson has a point. The CEO of ExxonMobil was quoted in a recent Forbes article as saying "we can't add anything to moonshine technology" - indicating the company's indifference to investing in the biofuel.

Now I never thought I would find myself agreeing with ExxonMobil on anything.

Hopefully, completely empty if you happen to live in China and can only afford to drink tap water.

However, it's not the environment that this is this week being viewed as the biggest threat to the economy, but rather inflation as this article from ICIS news explains.

Please read this - http://www.nytimes.com/2007/09/28/world/asia/28water.html?_r=1&pagewanted=all&oref=slogin

Don't worry, just keep concentrating on the short term - after all, all you have to do is keep your boss happy and make it through to retirement with loads of money in the bank.

Or let's assume you are worried. What can the chemicals industry do to address this crisis other than promoting PE100 pipes to move ever-tighter water resources around?

Do we have a responsibility to inhibit rather than push the growth of chemicals and how on earth would this ever fit in with any corporate strategy or individual career objective?

And from a purely selfish dollars and cents objective, as the groundswell of public opinion goes could you face more incidents like this? - http://www.youtube.com/watch?v=tyLHwz52wsk

What kind of world is my 10-month-old son going to inherit?

Click on the link here for a virtual way of boosting your green credentials without having to recycle one actual plastic bag, being knocked into the gutter by a gargantuam-bellied white van driver while cycling to work or cancelling one flight to the other side of the world to broaden your dinner party conversation - http://www.willyoujoinus.com/energyville/index.aspx?playagain=true

I discovered that on Simon Robinson's Big Biofuels Blog - visit http://feeds.feedburner.com/TheBigBiofuelsBlog

After all the optimism, all the hype and a lot of investors' money, the industry has shot itself in the foot by failing to build demand ahead of supply.

Plus the negativity caused by food versus fuel and environmental counter-arguments to supporting this current generation of technologies is making some Asian governments hesitate on providing the support needed to bolster demand......

Asian industry leaders are playing lip service to the environmental crisis the world confronts .
George Monbiot, the excellent author and journalist, argues that what the West needs is a recession to give the planet a breather.Asia also needs a substantial economic slowdown to give policymakers and technology developers more time.

At least the US is on board, but the pact to reduce emissions by 25-40 per cent by 2020 might well not be sufficient to prevent the 1.5 centigrade rise in global temperatures that will be disastrous for the planet.

In another excellent article from George Monbiot of The Guardian, he argues that we need to "decarbonise our society" in order to achieve reductions of 95.9 percent in the UK and 98.3 per cent in the US by 2050.

Impossible? Maybe, but as the effects of climate change become more evident, pressure on the chemicals industry will mount. A great deal more investment in new technologies to reduce emissions will surely be necessary - to put more substance behind some of the right noises industry leaders are making.

The two big gaps in the US major's Asian presence (and gaping gaps they indeed are) are cracker complexes in India and China.

China could be fixed through the alliance with PIC - meaning, Dow has leverage to get a license to build a naphtha cracker complex by offering crude supply through its new jv.

Atlernatively, it could achieve te same objective by completing its methanol-to-olefins project.

But India remains blocked by Bhopal. One wonders why a company with the wisdom of Down cannot work its way through the ever-in-flux Indian system, but maybe no foreigner can without the support of a strong local partner.

This is not meant to make light of the lingering misery of one of the world's worst chemical disasters, but the motives of some of those petitioning for more money are perhaps a shade dubious.

What's certain is that the issues cannot be as simple as portrayed in this Voice of America article.

In the good or maybe the bad old days depending on your standpoint, methanol was a fairly straightforward product.

You had chemicals demand and that was more or less it. But as the extended analysis below explains, chemical producers who use methanol as feedstock have to factor in direct blending of gasoline into methanol, DME, biofuels and fuel cells as shapers of demand.

Direct blending of gasoline into methanol and the use of DME as a transportation fuel are the biggest of these two new sources of demand in China. Expect a big increase in consumption from these two applications over the next few years.

Whereas the US has opted for ethanol in order to increase energy security (and for bogus environmental reasons), China has chosen the methanol route based on its big coal reserves.

The $64,0000 question is what this wil mean for the affordability and pricing of methanol for chemical consumers.

Recent comments by An Qiyuan, chairman of the Chinese People's Political Consultative Committee for Shaanxi, warned of the environment and social catastrophe facing the northwestern province of China because of a shortage of water.
He was referring to the diversion of water from Shaanxi to Beijing ahead of the Olympics and hydroelectricity plants which he believes should be closed down.
Water is a particularly scare resource in western China - where most of the country's coal gasification projects are located. The technology is arguably a wasteful, heavy consumer of water.
And this raises an interesting dilemma for Dow Chemical - potentially a joint investor with Shenhua Energy in a coal-to-chemicals project in Shaanxi.How do you balance economics with the environment?
Coal gasification could represent the promised land - provided you can solve the logistics problems and provided the long-running doubts over the viability of methanol-to-olefins technologies are unfounded.

Economists refer to externalities as those factors that can influence growth but that are beyond the influence of humans to determine. As ar result, the members of this esteemed profession tend to ignore externalities.

If we've left it too late on the environment, then the environment is clearly such an externality that could limit demand growth in the future.

How will China provide enough water to ensure that growth spreads from east to west?

What happens if the environment has reached a dangerous tipping point where the damage we've inflicted leads to an out-of-control acceleration into catastrophe?

Take, for example, corn-based ethanol.

William Laurance of the Smithsonian Tropical Research Institute in Panama writes in the 12 April issue of the New Scientist that the huge increase in corn planting in the US to feed ethanol has led to less soya being planted.

The resultant rise in soya prices has led to forest destruction in the Amazon as Brazilian farmers clear trees to plant soya. "

The Amazonian forests help to generate their own rainfall, because the dense vegetation quickly recycles moisture and returns it to the atmosphere. As deforestation proceeds, however, less water vapour is recycled, so clouds and rainfall decrease. No one knows how far the Amazon can be pushed before it collapses in rage of droughts and forest fires."

Blimey, if deforestation already accounts - as we are told - for 20% of global emissions, what would this mean for the habitability of our planet?

Never mind - I don't care. I am off to read some wonderful analysis about the endless demand-growth prospects presented by China. Who cares as long as I can get my bonusby building this analysis into a report I can present to my boss?

An overused word - tragedy - but the events of the last week justify the description.

But what a relief that the Chinese government has reacted so promptly and so efficiently, in complete contrast the callous incompetence of the thugs who run Myanmar.

Worth clicking through to ICIS connect - our chemicals industry community forum - for discussion about the disaster and what the chemicals industry can do to help.

Click here also for the latest from ICIS news on the earthquake.

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.

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.

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.

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.

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.

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.

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.

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.

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've just returned from a wonderful few days in Perth, Western Australia, where the motorists don't as a rule try to kill you (unlike in most of Asia) and if you are a tourist at least, you can come away with the false impression that the cork-hatted people have got the balance between work and other things that matter more sorted out.

Anyway, to the point after that ridiculously long sentence. I failed the Koala Bear test in the gift shop in Yanchep National Park .

On sale was a stuffed Koala Bear toy made in Australia at $11.80 in Australian dollars. You could also opt for an "Inspired in Australia" version (I tried to establish what this meant with the shopkeeper, but she hadn't a clue. What Koala Bear is not inspired by the Antipodese, for goodness sake?) at $5.50.

Or you could for the Chinese version at a staggeringly cheap - and no doubt nasty in some horribly chemically polluting and toxic way - $2.50.

We all might want to save the planet by lessening our carbon footprint (blah, blah, blah) but in these straitened times with my investments plummeting in value, I went for the Chinese version on the grounds that my 21-month-old son would very quicky lose the thing anyway (sorry, another long sentence).

Ten minutes out of the shop Mr Koala Bear ended up face down in a puddle.

This was the wisest investment decision I've made for the last two years.

Unbelievable, incredible - what prehistoric planet do these people live on?

Please see below for a rant from a-soon-to-be-extinct species of business leader - the US chemicals executive against Barack Obama.

I have my doubts about Obama, but at least he has a brain bigger than a shrivelled pea (unlike certain other holders of the most important job in the world) - and he gets it.

The point is it's not business as usual, it's not regulation (Democrat) versus anti-regulation (Republican).

The world has changed forever, and this happened long before the financial crisis.

I don't know about you, but I want to be able to tell my son that I did something in the battle to save the world from the energy and environmental crises - even if it's just the odd small thing like recycling my plastic bags annd vicariously (I can't vote in the US election, of course) supporting politicians such as Obama who get it.

03 November 2008 21:04 [Source: ICIS news]

WASHINGTON (ICIS news)--The US appears poised to elect what one chemical industry leader on Monday termed "the most anti-business federal government" in recent history and one that is likely to raise tax and regulatory burdens.

On the eve of the US national elections being held on Tuesday, a wide range of public opinion polls give the Democratic presidential candidate, Senator Barack Obama of Illinois, a perhaps decisive edge over his Republican opponent, Senator John McCain of Arizona.

Perhaps more significantly, according to industry and business observers, the outcome of Tuesday's congressional elections is likely to give Democrats even greater majority control in both the US House of Representatives and the Senate.

Democrats are expected to gain as many as 30 seats in the House, which would boost their grip on that chamber to a 60% majority with 263 Democrats against 172 Republicans in the 435-member body.

More critical, say business sources, is the real prospect that Democrats could secure 60 seats in the 100-member US Senate where they have held only a slim 51-seat majority since the 2006 mid-term elections.

If the Democrats hold a 60-seat majority in the Senate, they would be able to override minority attempts to block legislation and even force some bills into law despite a presidential veto.

"I think we are looking at what will be the most anti-business federal government in many years," said Chris Jahn, president of the National Association of Chemical Distributors (NACD).

Jahn, who served as a senior staff advisor in the US Senate before returning to the private sector, said his gloomy view of the elections likely outcome is not partisan.

"Whether Obama or McCain wins the White House, I think federal policies over the next several years will be very anti-business," he said, "because there will be a much larger, anti-business majority in Congress and no one at 1600 Pennsylvania Avenue [the White House] to act as a check on the pent-up ambitions in Congress."

Jahn expects that a stronger Democratic majority in Congress beginning next year will mean passage of more stringent anti-terrorism chemical security legislation that will include a federal mandate for inherently safer technology (IST) as a security requirement.

In environmental matters, he worries that the new Congress will take the opportunity to reshape the 30-year-old US chemicals regulatory law, the Toxic Substances Control Act (TSCA), as a US version of Reach, the EU's programme for registration, evaluation and authorisation of chemicals.

"Certainly there will be far more regulations coming across the board," Jahn said of what is expected to be a more Democrat-controlled Congress.

In addition, he expects higher taxes on businesses and greater energy costs if, as seems likely, Congress and the new president move to implement a cap-and-trade climate control law.

"If you want to paint a picture of gloom," Jahn said, "put increased regulations and higher taxes on top of an economy that is already struggling."

In anticipation of a new Congress more willing to impose regulations and taxes on business, Jahn said NACD is going to beef-up its advocacy team and work to raise more grass-roots involvement in federal policymaking by the association's member companies.

To discuss issues facing the chemical industry go to ICIS connect

By: Joe Kamalick
+1 713 525 2653

The dinosaurs are back......

The new "green team" appointed by president-elect Barack Obama might, after all, turn out to be a dream team for the US chemicals industry. This is despite what some of the old disonaurs within the industry seem to think.

A US energy policy needs to place a genuine long-term cost on gasoline, thereby encouraging, belatedly, the kind of innovation that might just save the domestic auto industry and provide a huge boost to chemicals. Higher gasoline taxes need not be political suicide if they are accompanied by explanations of potential tax cuts, or even credits, for energy-positive steps such as, for example, installing solar panels.

Greater conservation - one that's not just driven by the economic crisis - might reduce a huge defence bill that's created global political instability, increased terrorism and created an untold number of deaths and misery for millions. A lower defence bill would mean huge tax savings.

It would be good if some of those in the oil and gas industry could move away from their long-term obsession with drilling. The obsession reached it's trivial low-point with Sarah Palin's campaign slogan, "Drill bay,drill".

Drilling alone will do little to reduce the US dependence on imported oil unless it goes along with greater conservation.

And anyway, you can make a strong argument that wrecking the Alaskan Wildlife Refuge will make very little long term difference to US energy vulnerablity, while creating a legacy of the loss of yet another beautiful wilderness for future generations.

There also needs to be a gradual movement away from conventional hydrocarbons to unconventional ones (provided the environnmental impact can be neutralised through heavy investment in carbon capture and storage, which will probably need big initial government backing to get the economics off the ground ) and to renewables.

Trendwatching.com, an Amsterdam-based consumer trends analysing service, has included something called Econcierge in its outlook for 2009.

This involves a new breed of less conspicuous consumers, straitened by the credit crisis or maybe feeling guilty for the wallops of cash that they made during the boom, who will now be searching for value - and for a conscience-salve in everything that they buy.

What will this mean for chemicals next year? People taking a closer look on the claims on the proverbial tin, expecting whatever they buy to last longer, to be cheaper, and to be made from recycled material - or from chemicals that are proven to be les harmful to the environment, perhaps.

This might be more of a phenomena in the developed rather than the developing world, where wealth affords the luxury of greater concern about the future.

How on earth do you measure this in losses per tonne of sales of good-old bulk commodity chemicals - assuming that these trendspotters are correct?

Do you have a plan, assuming you think you need one?

To quote Woody Allen, "More than any time in history mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray that we have the wisdom to choose correctly."

It's refreshing that this was written by an American, given the widely held perception that most of the nation's citizens lack a sense of irony.

As we enter the New Year, gallows humour seems very appropriate as the bad news multiplies from the cancellation of the K-Dow deal to the possibility of LyondellBasell filing for Chapter 11.

My good friend and colleague Paul Hodges makes the following comment on his blog, Chemicals & the Economy: "Petrochemicals has always been a highly cyclical industry. A typical seven-year cycle involves two years of stunning profitability as demand recovers after a downturn, three years of average returns as supply and demand rebalance and two years of horrendous losses."

If you take the start of the upswing as 2003 therefore, the Lyondell and Basell merger in December 2007 was a big risk. Perhaps those who negotiated the $20bn deal believed that cyclicality was dead.

What has, of course, made highly leveraged companies very vulnerable in this downturn is the severity of the credit crisis.

The way forward? Bring in the restructuring consultants, cut, cut and make more cuts and focus on making chemicals as cheaply as possible. The difficulty will be balancing this need with retaining sufficient R&D investment to cope with the inevitable increase in environmental legislation.

It's easy to take pot shots at the boss, and everyone of course feels they have been underpromoted and could do the job better themselves. Andrew Liveris is just the latest in a long line of CEOs to experience both envy - and at the moment perhaps a little pleasure at their failures. The gloating reaches extroardinary heights in the comments posted on this Wall Street Journal blog entry.

Sure, he should have seen the crisis coming and not agreed to pay such a high price for Rohm & Haas.

And sure, a man being paid such massive sums of money perhaps should have had sources inside Kuwait who would have forewarned him that the commodities merger was going to collapse.

Perhaps we should also expect him to secure world peace, reverse global warming and prevent Manchester Utd from ever winning a Premiership championship again.

One of the new skills being learnt in this current crisis is how to run plants efficiently at low operating rates.

"It's funny that for years now, we've worried about how to scale up profitably. Now industry is faced with just the opposite, how to scale down profitably," says Mark Matzopoulos, chief operating officer at UK-based Process Systems Enterprise in this article in ICIS Chemical Business.

A friend of mine has just graduated from university with a very good degree in chemicals engineering and has managed to land a job with an engineering company. His fellow graduates have not been as lucky in their search for jobs with chemical companies.

At least somebody is making money out of this crisis

Source of Picture: The Earth Institute at Columbia University

I was speaking to a Singapore-based trader this morning over the reasons behind the polyolefin price rally.

PPPEPrices2006-Aug09.ppt

Here are his views:

"A maor factor has been a lack of availability of recycled material. This is because people in the West are buying less durable consumer good, for example electronics, which arrive wrapped in plastic.

"Last year was also very good for selling fillers to make virgin polymer go further. For example, I was able to sell lots of calcium carbonate at $900-1,300/tonne. This year I haven't sold a single tonne."

Very interesting stuff - especially when you consider that in the last few years imports of scrap plastic have taken around 4-5 percentage points of China's polyolefin demand growth.

"Reports of my death are greatly exaggerated," Mark Twain once famously said after his obituary was published before he had died.

Similarly, the US polypropylene (PP) industry had been virtually written off late last year after a calamitous collapse in pricing resulted in inventory losses totalling a staggering $700m in November alone.

But the day of reckoning has been postponed by numerous project delays and a big recovery in Chinese demand.

US PP exports to China more than tripled in the first five months of this year compared with January-May 2008, according to the US Department of Commerce.

Of the extra 2.77m tonnes/year of Middle East capacity due on stream by now, only around 1m tonnes/year has hit the market.

"What also happened from mid-November was that buyers globally, and particularly in China, recognised that prices had hit rock bottom," says Joe Congdon, a consultant with Townsend Solutions.

"And then you had the Chinese stimulus package boosting confidence with the recovery in oil prices from around February, adding extra momentum."

Other export markets were far weaker, however, for US producers - their shipments to Mexico were down by 20% and to Canada by 25%.

Not surprisingly, sales to Brazil tumbled by 43% as a result of a 350,000 tonne/year plant that started up there last year.

Total US PP exports in January-May of this year were 4% lower, and, as the accompanying chart from the American Chemistry Council (ACC) shows, production was substantially down during the whole of the first half of 2009.

View image

But without the surge in shipments to China, which perhaps bought more time for some tough decisions, the overall picture might have been a lot worse.

Nobody had the luxury of time late last year when announcements were made about closing 500,000 tonnes/year of capacity in the first half of 2009. Some of the plants being shut down are part of integrated complexes that are not necessarily entirely loss-making.

Oversupply is still big. Consumption totalled just above 7.4m tonnes in 2008, which was 8% lower than the previous year, with capacity still at 9.4m tonnes.

No further announcements about capacity closures have been made so far this year.

"What needs to happen to bring supply more in line with demand is further closure announcements. Another 500,000 tonnes/year of shutdowns would bring capacity utilisation to 85%, Congdon added.

Townsend Solutions is currently forecasting North American rates at less than 80% for the next five years.

"We are predicting global growth of 3.7%/year in 2008-13 compared with last year's forecast of 4.9% for 2007-12. The future of PP has changed dramatically in just one year," Congdon added.

The US domestic market looks likely to be difficult. Exports will also be hit much harder as a result of the new capacity.

And as for the more immediate prospects, current exports were characterised as "lousy" by a US industry source - the result of the high cost of feedstock.

Monomer supply has been reduced by refinery operation rate cutbacks due to weak gasoline demand. Fluid catalytic crackers (FCCs) are running at around 85%.

But if PP export opportunities existed, enough propylene could be found, according to market sources.

"The market will pay maybe 47-48 cents/lb for bagged homopolymer free on board (FOB) exported from Houston," said a trader.

"But with a potential 4-cent spike in monomer contracts this month, PP producers are looking 53-54 cents/lb FOB Houston in a bag."

The US PP industry has become more heavily dependent on refineries for feedstock supply. Naphtha cracking has suffered as a result of the fall in natural gas prices relative to crude, and ethane cracking is now far more economic.

"Around 70% of C3s are being sourced from refineries and 30% from crackers. The split used to be 50/50," said a US PP producer.

Gasoline demand isn't expected to improve due to the weak US economy.

Another factor behind the weak PP export trade is a steep fall in buying interest in anticipation of the further new volumes.

These include the recent start-up of a 350,000 tonne/year line by PetroRabigh in Saudi Arabia, which is supplied by propylene from a deep catalytic cracker.

Output from Saudi Arabia's new propane dehydrogenation (PDH)-to-PP complexes is also expected to increase, with several start-ups set to take place in China during the second half of the year.

Mark Twain was twice feared dead before he finally passed away of a heart attack in 1910.

And, of course, the US PP industry isn't going to really expire. This is a huge market with very sophisticated distribution and marketing networks.

A lot of acquisition interest seems likely to emerge very soon.

David Barry contributed to this article.

The US back-to-school buying season

Source of Picture: theglobeandmail.com

As regular readers will remember, last Friday I linked through to this article from the New York Times on the likelihood of a disappointing back-to-school sales season in the US.

I had promised some more thoughts on this article and so here goes....

......This is a sign of the belt-tightening in the US and Europe resulting from the long-term shift in consumer behaviour - as discussed before on this blog - which will lead to:

*Greater dominance of low-priced retailers such as Wal-Mart, which has started selling a Toshiba laptop for just $348. More outsourcing to the developing world seems inevitable as cost pressures increase. The squeeze will work its way up to marginally cost-efficient chemical and polymer producers

*A rise in protectionism: Western manufacturers are likely to respond with more anti-dumping petitions - and perhaps an increase in ex-WTO measures such as complaints over labour and environmental standards. If a cap-and-trade bill is passed in the US we could also see carbon-import taxes for imports from those countries with no comparable systems. Such measures can be politically popular

And what does a 17-inch laptop for $348 mean for innovation in the chemicals industry? Are companies going to bother with expensive R&D?

But to cut back on R&D would show a lack of vision by any company that cannot compete in pure commodities.

More rather than less differentiation is likely to be the key for survival as chemicals and polymers with marginal "added value" will face tougher scrutiny from buyers.

....what do these environmental issues mean for Thailand as an investment destination?

The Map Ta Phut refinery-petrochemicals complex

Source of picture: Pattaya News

By Malini Hariharan (Malini is now joint blogger for Asian Chemical Connections)

Here's yet another unexpected project delay that could prop up markets in the fourth quarter.

The Thai Central Administrative Court decided to halt construction of 76 projects at Map Ta Phut on environmental grounds last week.

The long list of projects includes new crackers and derivative projects by PTT and Siam Cement/Dow Chemical.

PTT was due to have started commissioning a new 1m tonne/year cracker complex in the fourth quarter, while Siam Cement and Dow Chemical's 900,000 tonne/year cracker and downstream plants were scheduled to commence operations next year.

Both of the Thai companies have issued statements that the projects are likely to be delayed, and PTT has even decided to delay a maintenance shutdown at one of its crackers from October to January 2010.

Thailand is already a net exporter of PE and PP and the new projects would have increased the country's export burden.

One local newspaper report said that projects could be delayed by a year, although the two companies have not yet declared revised start-up dates for their projects.

PTT issued a statement that it was working closely with government authorities to resolve the crisis and that it had submitted a petition to a higher court. The prime minister has already asked the industry ministry to appeal against the ruling.

The Bangkok Post reported that the appeal would be made in two parts.

The first section would ask for court permission to allow industrial projects that have no impact on the environment to continue, while the second would seek a temporary halt to projects that had problems with environmental impact assessment (EIA) studies. 

The story did not identify projects that had EIA problems.

There is no doubt that the government will have to act fast. But it faces a tough task of balancing public opinion and expectations while protecting the interests of local and foreign investors.

Public opinion - seen in some of the comments that the Bangkok Post report has drawn - will be difficult to ignore.

It might be even harder to address growing concerns about Map Ta Phut as an investment destination in Southeast Asia.

This latest crisis in Thailand is also a fresh reminder of the growing power of the people in many parts of Asia to influence chemical-project activity.

Protests against construction of mega projects on environmental grounds are getting louder and louder.