The country’s chemical industry is highly integrated and competitive, but its position will be challenged by US shale gas and capacity expansions there and in China, plus the Middle East
The advent of shale gas in the Netherlands remains a long way off. Although the Dutch government has been more open to the idea of shale exploration than many of its European counterparts, further test drilling has been postponed for 18 months from September.
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“Some possible locations for test drilling for shale gas have been identified by companies applying for a licence. But I want to be able to evaluate all sites in the Netherlands where drilling is possible,” Kamp said.
“Attention can then be focused on those locations that are known to be promising, and how their environmental risks can best be managed,” he added.
The survey puts any progress for shale exploration in the Netherlands on ice for the time being. No applications for drilling licenses are to be processed before the survey is concluded, and companies with licences already granted are prohibited from further exploration until the same deadline.
SHALE GAS FREEZE
The freeze leaves the Netherlands’ shale gas industry effectively unable to develop before March 2015.
With the most optimistic estimates of the development of a shale gas industry in the UK – which has been far more rapacious in its pursuit of cheaper gas supplies – envisaging an eight-year timeframe, it means that the earliest the Netherlands could see commercial-scale shale extraction is likely to be years after that.
According to Colette Alma, director general of Dutch trade body Vereniging van de Nederlandse Chemische Industrie (VNCI), the delay is necessary to allow time to make the case for the development of a shale gas industry in the country.
“We need the commitment or approval of the general public. I think that the postponement was necessary to ensure we have the right stakeholder discussions... but we haven’t given up [on shale exploration],” she said.
In the meantime, however, the competitiveness of the Dutch chemicals sector – which produces 14% of the world’s benzene – is under threat, according to the group.
US SHALE’S GLOBAL EFFECT
The Netherlands-based association sees the development of US shale as significant enough that it has commissioned analysts at Deloitte to produce an addendum to its long-term outlook and vision for the sector, published in 2012.
Entitled “The shale gas revolution and its impact on the chemical industry in the Netherlands”, the report focuses on one of the four possible future scenarios examined in the original document: abundant energy. The abundant energy scenario assumes a world with access to plentiful energy reserves, with a focus on natural gas, solar and geothermal energy.
The advent of commercial-scale shale gas extraction bolsters the assumption of readily-available cheap energy, VNCI says, but the global benefits of this are likely to be unevenly spread. The surge of capacity expansions and new facilities under development in the US are likely to exacerbate the Dutch chemical sector’s fall in competitiveness, according to VNCI.
“[Cheaper gas prices and capacity expansions in the US] negatively impacts the competitive position of the Netherlands and the European chemical industry [in] the short and long run,” the group said.
A coherent energy policy across the EU is as important to the survival of the chemical industry in the region as the development of a European shale gas industry, according to Alma.
“Shale gas exploration is one possible contribution, not a solution to the difficult situation the industry is in. But it is not the only possible way out, and it is not a silver bullet,” she said.
While US natural gas prices remain at historic lows – with wellhead spot prices remaining below $4/MMbtu (million British thermal units) – energy regulation also represents a significant proportion of the pressure on chemical industry margins, according to the VNCI.
“The root cause of our disadvantage is the energy and raw materials price, which is due to market conditions, and indeed the European platform [has the power] to deal with this,” Alma said.
“We need to get more clarity. ETS [the Emissions Trading Scheme], for instance, has been under discussion for 10 years. There are certain features in it which need to be updated, some repair that is needed,” said Werner Fuhrmann, chairman of VNCI and member of AkzoNobel’s executive committee with responsibility for specialty chemicals and supply chain.
“We need to get more cross-connectors across countries and see that we don’t burden the industry with too many taxes on energy, regardless of what form,” he added.
VNCI has also called for the Dutch government to use policy to help the industry maintain its competitiveness in the short term, with suggested policy measures including subsidies and additional tax write-offs for investments in cluster integration and bio-based plants.
THE REGION IS VULNERABLE
“We support a market economy. We don’t believe in the longer term that subsidy regimes work. But we are facing a very specific issue: a disparity triggered by shale gas and by activities in the Middle East, which put us into a more vulnerable position in Europe,” Fuhrmann said.
“There is little Europe can do at short notice when it comes to raw materials. But where Europe can act on short notice is on energy,” he added.
According to VNCI, the Netherlands petrochemicals industry will feel the impact of the US shale boom most keenly in the ethylene, ammonia, chlorine and caustic soda chains, representing nearly half of the revenue generated by the sector.
The country’s chemical industry remains competitive due to the clustering of manufacturing units in the Antwerp Rotterdam Ruhr Rhine Area (ARRRA), but the erosion of core production chains could have a ripple effect leading to the gradual disintegration of the sector’s vertical integration.
Investment to tighten the links of those clusters and run them more efficiently is crucial, according to Alma.
“We [need to] try to strengthen this cluster so that we can operate even more cost- and resource-efficiently. We see options in heat integration where we can make more use of waste heat” Alma said.
“There is a lot of integration already, but there is still some opportunity to connect various plants with each other to integrate the heat and energy structure, so there is less waste heat and water energy,” she added.
CRACKER CAPACITY RAMP UP
The trade body has also warned on the potential margin impact from the anticipated ramp-up of cracker capacity in the US, adding that European producer prices could stay firm in the event of “restrained” expansion in the Middle East and China. The future in the event of significant installed capacity growth in those regions is murkier, and could lead to further consolidation, VNCI conceded.
“The chemicals sector... is growing faster than GDP, so in principle it can absorb expansion of capacity globally, but it depends on the rate of the growth of the global economy as compared to growth of the rate of investment, and if indeed its capacity expansions are quicker than the global growth then we will see some big difficulties,” Alma said.
According to Fuhrmann: “Then we will see consolidation in the industry, and the higher cost units will have a difficult life or not survive.”
VNCI has also stressed the importance of encouraging international players with operations in the Netherlands to continue investing in facilities in the country and avoid the loss of competitiveness that could lead to cluster dissolution.
However, Fuhrmann adds, there remain compelling reasons for companies to stay active in Europe.
He said, “[International players] will be persuaded [to stay] as long as they see potential for making money. If this perspective vanishes then you see the consequences. The positive note [is that] it remains a huge market for chemicals because of the downstream manufacturing industry.”