Market outlook: Green gains momentum

What progress is being made in Europe’s bio-based industry and how are hurdles being overcome? Leading executives discussed the burgeoning sector at a recent high-level roundtable

Against a background of resource scarcity, price volatility, and intensifying competition, the development of a bio-based alternative to conventional chemicals continues to climb up the agenda.

Recent studies have highlighted the opportunities for Europe’s bio-based industry and suggest its development is gathering pace. Yet for all the potential, many remain hesitant to jump on the green bandwagon.

While failure to take that leap could eventually see Europe trailing in the wake of other rapidly-developing regions such as Asia and the US, producers are being urged to invest and collaborate to ensure the region plays a leading role in future development.

That Europe must play to its strengths and gain an edge formed the basis of the ICIS/Groningen Seaports & NOM Roundtable, held in Amsterdam in March, which discussed the potential of the bio-based market and how best to seize these opportunities to create a greener future.

The event considered the practicalities of establishing a bio-based chemical industry to complement the existing chemical cluster in the northern Netherlands and highlighted the findings of a recent Dutch government-sponsored report prepared by the University of Wageningen (see page 40).

Groningen Seaports, responsible for attracting industrial investment to the Delfzijl chemical cluster in northern Netherlands, and NOM, the Northern Netherlands investment and development agency, suggested that the region could well become a yardstick to demonstrate the potential for a European chemical industry based on agricultural feedstocks such as sugar beet.

Participants discussed the risks and rewards of cultivating a bio-based industry and agreed that for all the benefits, there were still plenty of obstacles to overcome.

Neil Checker, partner at Roland Berger Strategy Consultants said that European producers had been looking for a breakthrough for the past 30 years but there was no silver bullet for what needed to change.

“We need a much more consistent policy – not country by country but across Europe. The bio-based economy currently accounts for just 1-2% of the [chemical] market. The question is how you make it to a size that’s more like 10%? This is a long-term investment.”

“You need to calculate the cost of doing nothing, which can be huge – that’s your new baseline. By doing nothing you can create bigger problems,” noted Rob Kirschbaum, innovation & strategy consultant, SakuragiConsult.

Europe certainly has plenty of potential, added Ton Runneboom, chairman of Creatieve Energie, referring to a recent fermentation study published by Deloitte. The report showed that once Europe has adjusted its common agricultural policy so that farmers can grow crops based on the quality of the land and the climate, Western Europe could be a huge producer of agricultural products for the chemical industry.

According to Deloitte, the cost to produce sugar – a major bio-based feedstock – in northwest Europe is among the lowest in the world, given increasing crop and sugar yields and improving efficiencies. Low transportation costs, large-scale facilities and year-round availability make it even more appealing.

“The estimate is that we will produce about 30% more than without the current policy. We’ve come to the conclusion that northwest Europe is very suitable to grow sugar beets and can be competitive with cane sugar in Brazil, corn in the Midwest and tapioca in Thailand. For the first time, it’s documented that Europe has an indigenous raw materials base for fermentation-based products. This means that 95% of all products today can be bio-based.”

BIG OPPORTUNITY
Servet Gören, international trade manager at the European Chemical Industry Council (Cefic), acknowledged that the development of the bioeconomy remained a big opportunity for the region.

“That being said, current use of renewables of carbon-containing feedstock in Europe is only about 9%. We believe there is scope to increase this percentage considerably.”

In order to achieve this, she added, Europe needs to have free and fair access to the raw materials and needs to eliminate the discrimination it faces between the fossils feedstock coming into Europe duty free versus the renewable feedstock with high import duties.

“We need to have a stable and coherent policy framework to encourage investment,” said Gören. “We would like to have the import duties suspended, for bioethanol to start with. There are about 60% of import duties on bioethanol coming from US or Brazil. What we are trying for is a partial tariff suspension on bioethanol to be used for chemical purposes.

“About 53% of bioplastics production is in Asia while the demand is in Europe. This will become about 80% according to predictions in 2018. We don’t have any, or very limited, import duties on those materials coming in – we need to address the fact that there are high duties on raw materials but none, or very limited, on the actual products. That is something that is not sufficiently addressed in Brussels.”

Richard Preece, technical adviser, Omzest pointed to other concerns including the use of land and products that would otherwise be used for food. The impact on food prices is an important economic factor, he said, which can be felt over a very large geographical range. Similarly, subsidies introduced to stimulate investment were a concern.

“If a government subsidy is in place to make the economics more attractive, how long is that going to be there? We’ve seen before, for example with biodiesel, where many investments became marginal when the subsidies were withdrawn. A prudent inward investor will be looking for a sound business case made more attractive by subsidies, rather than relying on subsidy to deliver a return.”

IMPROVING COMPETITION
Bram Fetter, plant manager, Suiker Unie Vierverlaten, agreed that there are a lot of downsides with subsidies: “It would be much better to have some kind of revolving fund to help companies and would mean there are fewer rules to comply with.”

Consumers are clearly open to the concept of bio-based products and deserve the choice, added Jean-Luc Dubois, scientific director at Arkema, but they tend not to be willing to pay a premium unless there is improved functionality. Efforts must therefore be raised to help ensure Europe is far more competitive and can keep down the cost of biomass, he said.

“A key challenge is that we need to optimise the whole chain – it needs to be operating in a coherent way,” noted Marco Waas, director, RD&I & Technology, AkzoNobel Industrial Chemicals. “We need to be smarter,” he said. “Let’s ferment first then separate; an intermediate is easier to separate. One of the challenges right now is to find the business cases and get bigger plants.”

Gert Jan Euverink, professor, RUG, suggested that although there has been plenty of research carried out, proven projects at scale were necessary to demonstrate the potential and spur on producers. “We spend so much time writing reports and proposals, but action is lacking. To show what we are capable of doing, we really need examples.”

Investor confidence is key, agreed Adrian Higson, lead consultant, bio-based products at NNFCC, and demonstrable projects would certainly help the development of the sector.

“I think DSM is a good example of putting a stake in the ground so that the market can see actual production. I think a lot of investors really want to see something operating for a period of time, which will then give them confidence to invest in more projects. That’s how you see an expansion of the market.”

Participants pointed to Matrica – the 50:50 joint venture between Italy’s Novamont and Versalis – which was highlighted as an example of a successful model in Europe. The landmark project has seen the transformation of an ailing chemical site in Porto Torres on the island of Sardinia into one of the largest and most-innovative green chemistry projects in the world.

JUSTIFYING INVESTMENT

Europe’s bio-based economy requires close collaboration, greater investment and more consistent policies Copyright: Rex Features

“Bio by itself is not a driver – it is the environment and of course performance and price,” said Stefano Facco, business development manager, Novamont. “Just looking at the building block, it’s difficult to justify investment. You really have to go downstream to the end user and consumer, and look at the market and environmental issues.”

“For me, [Matrica] is a real success story for the chemical industry because this is the understanding of applications and the functionality we can bring into play. I think this is the strength of our industry,” noted Peter Nieuwenhuizen, BA RD&I director specialty chemicals, AkzoNobel.

One of the problems that Europe needs to understand, said Higson, is that it’s not just the cost of raw materials. “It’s the fact that it’s not a level playing field around the world. Different countries have different structures to encourage investment. I don’t think we’ve really got that right yet.”

Nieuwenhuizen agreed that regionality and the ability to source local, cost effective feedstock, was indeed an important factor.

“Bio-based is not an easy feedstock; there’s a lot of regionality,” he noted. “You really have to look at the bio-based economy almost as a mosaic. You have to look at what there is in terms of feedstocks, what kind of chemical infrastructure is there, and what kind of partners there are. This is such a different game from the chemical industry.”

“We need to recognise that one size doesn’t fit all,” acknowledged Tim Cesarek, senior vice president, Enerkem. When you look at renewable resources whether they’re bio-based, or based on waste or CO2, to get past the mentality of whether it moves the needle or not, there needs to be a convergence of these feedstocks to make up for the scale differential.

“There are benefits for the conversion of CO2, whether of sugars through fermentation or municipal solid waste through thermo- chemical conversion. They all can co-exist to create scale. As a society we’ve been spoilt by oil and natural gas and the fungibility of it, whereas the fungibility of these renewable resources is still developing.

“We may need to be a little more agnostic as to what the tools are for this conversion but look at the economics across that value chain and then look at what are the most efficient tools to get that scale. Needless to say, some conversion technologies will then emerge because they are clearly more competitive.”

Rob Reiniers, project director, Corbion, pointed towards polylactic acid (PLA) as a product that has huge potential but to compete head on with the other plastics, requires not only technology but favourable raw material prices for both first and second generation sugars.

Checker questioned whether the issue was more about risk. There is a level of risk with fossil fuels, he said, but it is far greater when working with bio-based products. How do we de-risk this industry, from a government and policy level, so we have a stable policy for the coming years? Collaborations could help, he said, with companies coming together from different parts of the value chain.

FOCUS ON MARKET NEEDS
“Everybody talks about financial risk. Mitigating risk makes it a little bit easier to go into an investment,” said David Ross, technical director EAME, Huntsman. “A de-risk of technology and development plans can be defined by certain legal frameworks at the downstream end user level. Upstream, the market is too big and interconnected – but locally regionally, you can look at specific applications at the end of the chain.

“You need to build a case around the market needs – such as mitigation of the security of supply. Instead of building dedicated plants to do one thing/product/process is to build a multipurpose plant capable of manufacturing a range of products/processes – then you could get buy in from a number of different investors – that also helps spread your risk because you’re not targeting just one market.”

The Netherlands has seen significant investment in recent years in bio-based chemicals. The opportunities and strengths in the Netherlands are quite unique globally; there are nine clusters in the region and the infrastructure is in place, said Johan Sanders, professor at Wageningen University. “We have to invest and collaborate to use our biomass in a right and efficient way; that should be the European model.”

“If you look at the strengths of the Netherlands, we have the agriculture, we’re very efficient, we have the knowledge infrastructure and we have the logistics,” added Marco Giuseppin, chief technology officer of Dutch starch manufacturer AVEBE.

“In Holland we’ve made big steps, not only that we’ve realised the farmers’ potential but we’ve also got a cooperative which is willing to take the supply risk,” noted Runneboom. “We have created an investment climate in the Netherlands: we have the raw materials, a farming community and reliable long term supply.

“Everybody talks about the value chain and supply chains but basically in bio-based you’ve got the capital chain. There’s an expectation for return on investment that’s very different. If you’re a farmer your expectation of return on investment is 1-2%, if you’re a sugar factory maybe 6-8%, if it’s ethanol then it’s 15% and a chemical producer is 25%. So you have multiple chains that need to be satisfied and you’ve got to find the optimum in order to be successful in the bio-based economy.”

MOVING FORWARD

Leading industry figures discussed the enormous potential of the bio-based sector in Europe

Participants emphasised that a bio-based economy should not attempt to mimic the current chemical chain. Commented Nieuwenhuizen: “It’s a bit of a Catch-22 because it’s the right principle but to develop a new chemical with a particular functionality and development time a specific investment is required and very often this is too high a barrier. It is not revolution, this is evolution.

“Ultimately to move forward you have to provide a return on investment. We do see more opportunities in the C4s-C8s, because the prices are already a little higher and there’s more functionality. As long as you do “drop-ins”, it’s marvellous – but introducing new molecules into the chemical industry is very difficult.”

“I would concur,” said Higson. “There are three key points: it’s about the cost or the price the material will sell for, the scale of the market and economics of scale, and it’s about the technology and ability to actually produce it. So you do end up looking at the C4-C8s and those oxygenated materials.”

But is the technology available? Higson thought so: “I think the technology is there. Succinic acid is a good example. It is a natural metabolite so you’re modifying what’s already there in nature so it’s a good place to start from. It’s also a C4 and it’s an oxygenate. And there is a niche speciality market for players to go into and grow in. You can build from there and that’s important. You’re offering a lot to the market that already exists but it offers new functionality potential, improved processes and brand differentiation.”

“Biomass is already available in Europe,” said Runneboom, “but we’ve calculated that for Holland, it is better for the economy to feed sugar beets into the coal-fired power plants. That’s not sustainable. It’s absurd to bring massive amounts of wood into Europe and put it in these plants and then say we are generating green energy. It’s part of the European political system. In my view, politicians do the right thing after they’ve tried everything else.”

“I think this is a big issue,” agreed Nieuwenhuizen. “Subsidies for burning wood in coal plants are a bigger issue than the tariffs on bringing in ethanol. That actually prevents us from building those base industries because we can’t compete on a level playing field.”

Sanders reiterated the advances being made in Europe and the wealth of opportunities that exist. He pointed out, however, that the traditional chemical industry had seen huge amounts of investment for over a century – a marked contrast to the relatively nascent bio market. Patience, Sanders said, was needed.

Only through continued efforts from industry, academe and governments alike to innovate and collaborate, will the potential of bio-based chemicals be fully achieved.