Commentary: a climate for chemicals

The Paris COP21 climate change negotiations may seem a little detached from the everyday machinations of global chemicals markets, but we need to take notice of them because they embody several long-term drivers of industry trends.

The 195 countries taking part in the talks aim to put in place a new global agreement on greenhouse gas that would start in 2020, the year the current deal runs out. Whether or not legally binding targets are agreed, the fact that an unprecedented 150 world leaders are gathered together to discuss climate change suggests that a worldwide consensus has emerged about the need to act quickly (though cynics suggest enough hot air will be produced at the meeting to raise the temperature a degree or two).

For the chemicals industry there are huge opportunities in the development of “clean” and “low carbon” technologies. For years now industry leaders have trumpeted the chemicals sector as part of the solution to climate change rather than part of the problem. Seeing the Paris talks in action and climate change at the top of the political agenda gives industry R&D leaders the perfect opportunity to argue for greater investment in new materials that will enable these new technologies.

Key chemical end-use markets such as transport and construction, as well as fast-growing sectors such as renewable power generation, are crying out for products that are less resource-intensive. The financial problems of Spain’s renewable energy giant Abengoa (see page 9) and the struggles of others in the same sector demonstrate that investing heavily in this area can be risky. But a prudent, step-by-step approach should allow forward-thinking chemical groups to drive growth by tapping into demand for these products.

However, some in the industry are more cautious about the positive effects of tougher targets. Europe’s trade association, Cefic, for example, insists that targets will further damage the industry, at least in Europe, unless they are imposed equally around the world.

Cefic’s executive director, Petrochemicals Europe, Dorothee Arns said: “COP21 needs to deliver a globally binding agreement, which would push reform in other continents and put the European industry on a level playing field with its competitors. Otherwise, topping up the EU’s climate and energy targets would only mean more legislative burden and cost for the operations of Europe´s chemical industry.”

She agrees though, that demand for chemicals and innovative materials is fuelled by the need for more climate-friendly solutions such as solar panels, windmill blades, energy-efficient applications and insulation systems. But, she warns, “the current unilateral and inconsistent application of surcharges and environmental taxes hamper the European chemical industry. As energy users and transformers, the chemical industry suffers from the negative effect of this kind of policy support costs, applied by the European member states and mainly driven by high subsidies granted to renewable energies.”

LESS DEMAND FOR FOSSIL FUELS

As the world moves away from fossil fuels, there will be a drag on demand growth for oil, according to commentators such as International eChem chairman Paul Hodges. He points out that the International Energy Agency estimates that current national commitments mean that global oil demand will be only 9% higher than today by 2030: “This makes today’s lower prices far more sustainable than currently realised, which is very good news for oil-based petrochemical producers.”

As the oil price has declined, naphtha-reliant regions such as Europe and Asia have seen their position improve as the global ethylene production cost curve has flattened. Until a year ago, rocketing feedstock and energy costs were slowly killing the industry in these regions as they could no longer compete globally. The rise of US shale gas and continued growth in low-cost ethane-based Middle East production were putting Europe and Asia at a great disadvantage. The position has not yet reversed, but the playing field is, at least, more level.

Sustained lower oil prices could be bad news for the current US wave of investment, which was based on oil prices of $80-100/bbl or more. They could also prove challenging to the biochemical and biofuels sector, which has relied on high feedstock costs for petchems and fuels.

Climate change tops the global political agenda

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