By John Richardson
DINOSAURS became extinct, scientists think, because of an event beyond their control – either an asteroid colliding with the earth, volcanic activity, an ice age, disease or gradual climate change.
With all due respect to the former inhabitants of our planet, they were not the brightest of species. Thus, even if they had known about what was set to cause their demise, we doubt that they would have been able to do anything about it.
We hope and trust that European Union (EU) politicians are, at the very least, a great deal brighter than the Stegosaurus, which had a brain the size of a walnut – only 3 centimetres long and weighing 75 grams.
And we also hope and trust that the EU’s legislators would be able to easily outsmart the Plateosaurus, which, based on body-to brain-size, was probably even more dim-witted.
But the European chemicals industry could end up going the way of the dinosaurs unless there is a change in EU policy direction, warned Jim Ratcliffe, chairman of the European-headquartered global chemicals giant, INEOS. The same might well equally apply to the rest of the European economy.
Ratcliffe issued his warning in an open letter to European Commission president, Jose Manuel Barroso.
In an excellent Insight article on the letter, my colleague Nigel Davis, writes of how the INEOS boss highlighted the risk of a flood of imports from “gas-rich North America, the cost competitive Middle East and a driven China”.
The recent shale gas revolution in the US has, of course, been incredibly well-documented – and the story of the Middle East gas advantage feels almost as old as the hills, if not quite as old as the dinosaurs.
But what we think is less understood is the “driven China” that Ratcliffe refers to.
This is a China that has to create enough jobs every year to keep its people happy, even if its overall working population is declining because of demographics. China faces a particular challenge around creating enough work for the some seven million young people that are graduating every year.
So, even if subsidised exports don’t always arrive in Europe in the form of chemicals, they will arrive, in ever-increasing volumes, in the shape of finished goods and services. This will, of course, also undermine the European chemicals industry by taking away its end-use customers.
And we believe that as China tries to compensate for a fall in investment as a source of GDP growth, a long-term devaluation of the Yuan is possible in order to boost exports. Exports are providing a negative contribution to growth and so such a devaluation seems essential.
We agree with Nigel when he argues:
- Europe is suffering principally because energy and feedstock costs are the main drivers of chemical industry profitability. The EU has costs in abundance but not much else.
- Here is an industry in Europe on a par with automobiles that, on the face of it, is given little political or public attention. Economically and strategically, chemicals are a jewel, the INEOS chairman suggests. They should not be abandoned.
- Ratcliffe is right to ask “who cares?” Increasingly frustrated, chemical producers are spending their hard-won capital elsewhere. When the world’s largest chemical company, BASF, indicates that it will cut back its capital spending in Germany and spend proportionally more elsewhere, then politicians need to sit up and take notice. Other companies such as Belgium’s Solvay are set on a similar strategic path.
- The big questions about energy costs, about education and technical capabilities, and ultimately about imports and jobs, need proper considered debate – but the EU does seem to be flying blind.
Let’s deal with education and technical capabilities first. Europe can only rescue itself economically if it comes to terms with demographics. This requires retooling manufacturing and services to meet the needs of ageing populations. The right investments need to take place in R&D and product development to achieve this economic revival. You obviously also need the right education policies in order to ensure that the workforce of the future has the correct qualifications and skills.
As for energy and reviving chemicals and other industries, Europe has plenty of shale gas, but the “not in my backyard” lobby is blocking its effective exploitation. Instead, strange policies, such as Germany’s Energiewende policy, are being pursued. Shale gas is one solution that should be much more seriously pursued.
We could well be accused of contradicting ourselves here, given that the dinosaurs may have been wiped-out by gradual climate change.
Insuring against the possibility that climate change is man-made is, we believe, a good idea. Most of us wouldn’t go on a foreign trip without insurance.
But solutions need to be global, need to be realistic, and you can argue that switching to gas is part of the solution – even, though, it is still, obviously, a “wicked old” hydrocarbon.
Condemning Europe to economic failure because of green-energy policies that will never work unless they make sense and are applied globally is hardly the right approach.
To those who say, “let’s make green policies work globally, then, by forging a global Energiewende- type agreement,” we say only one thing: Good luck with that.
We hope and trust that the EU’s legislators will focus their considerable grey matter on finding the solutions before it is too late.