By Nigel Davis
LONDON (ICIS)--Hurricanes, drought, earthquakes, floods - natural disasters are neither easily predicted nor easily overcome. The impact on human life may be devastating, the impact on infrastructure and business severe.
The chemical industry is exposed in many ways, extreme weather events and natural disasters potentially having both direct and indirect impacts on production, distribution and cash flow. A one-day outage at a steam cracker in the US, for instance, would translate into lost revenues of $3.5m using fourth quarter 2013 data, consultants Accenture estimated in a study published at the end of February.
“Regarding petrochemicals, ethylene crackers are typically situated in coastal areas, which happen to be among the most susceptible geographies to weather-related disasters, the study’s author Paul Bjacek and David Rossi said, said.
Having a clear response plan to natural disasters is essential for chemical manufacturers. Increasingly, they are challenged to have a workable response to weather-related incidents. Some may be exposed on the coast but all need to be aware of the potential impact on production and customer service that a major disruption to infrastructure and data support services might bring.
The Accenture note comes after a period of disruptive winter weather in the US caused by the so called ‘polar vortex’ sweeping cold winds south across North America. That weather pattern has been linked to unusually strong convection currents generated above the Indonesia/Australia region. The same current led to incessant rain in the UK and parts of northwest Europe and damaging floods.
Such extreme weather events are expected to occur with great frequency as the oceans and atmosphere warm. No matter where you stand on the issue of global warming, a great body of scientific evidence shows that carbon dioxide levels in the atmosphere are rising along with global temperatures.
A link between climate change and extreme weather continues to be widely debated but such events are occurring more frequently. The National Academy of Sciences (NAS) and the UK’s Royal Society jointly published a booklet on climate change evidence at the end of February.
“Based on what we do know about climate science, we would expect such extreme events to become more frequent on a global scale,” the Royal Society’s president Sir Paul Nurse said in an article in the UK’s Daily Telegraph newspaper on 17 March. “It’s a bit like smoking and lung cancer – we know that smoking increases the risk, but we cannot generally say that a particular person got their cancer through smoking.”
Being prepared for more frequent disruptions makes good business sense.
“Companies can no longer avoid or ignore the need for fit-for-purpose disaster planning and business continuity measures,” the Accenture authors said.
Their research has shown that the hurricanes Katrina and Rita in August and September 2005 affected between 20% and 30% of US aromatics capacity. The shipment of organic chemicals from producers in the US fell by 20%. Some 5% of US refinery capacity was shut down.
Hurricane Sandy force chemicals shutdowns in the US in 2012. The drought in the US in 2012 was the worst in 60 years. It hit corn production – yield and quality – and crops grown for ethanol production as well as the fertilizer and pesticide markets.
The devastating Tokohu earthquake and tsunami in March 2011 severely restricted Japan’s chemical industry. About 30% of the country’s petrochemicals production was closed.
Understanding the potential magnitude of possibly extreme events can help companies prepare robust disaster recovery plans. These would need to deal with conditions at the time of the disaster or extreme weather as well as those that might persist.
The potential for improving logistics around the plant, pipeline, road and rail, as well as developing possible swap arrangements with other producers regionally might militate against the impact of certain disasters, Accenture said.
North American producers might take the opportunity provided by cheap gas liquids feedstock costs and lower energy prices to fortify assets or create more flexible supply chains. Producers should employ cloud computing solutions to manage their global portfolios but centralised business operations that might be especially exposed, it added
By 2013, the number of natural disasters, mostly driven by severe weather, was 2.25 times greater than in 1980, the Accenture research showed.