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BARCELONA (ICIS)–Signs of slight improvement in production and demand in early 2023 may not be proof that a real recovery is underway for the global chemicals industry. ICIS data shows mild pick up in pricing, production More optimism in chemical industry But no strong evidence of uptick in demand Persistent weakness in construction, automotive, electronics Rising production may simply be inventory building Global economy hit first by energy price shock, now inflation, rising interest rates Prospect of persistent downturn Tepid GDP forecasts for 2023 Flood of excess polypropylene (PP) threatens global market In this Think Tank podcast, Will Beacham interviews ICIS Insight Editor, Nigel Davis, ICIS Senior Consultant Asia, John Richardson, and Paul Hodges, chairman of New Normal Consulting. Editor’s note: This podcast is an opinion piece. The views expressed are those of the presenter and interviewees, and do not necessarily represent those of ICIS. ICIS is organising regular updates to help the industry understand current market trends. Register here. Read the latest issue of ICIS Chemical Business. Read Paul Hodges’ and John Richardson’s ICIS blogs.

LONDON (ICIS)–The Hydrogen Chemistry Company (HyCC) has contracted both Kraftanlagen Energies & Services and Nel as the engineering contractor and technology supplier respectively for its H2eron renewable hydrogen project in the Netherlands. The H2eron plant, which will have a capacity of 40MW and is slated to produce its first hydrogen in 2026, is located in Delfzijl in the northeast of the country near the German border. Kraftanlagen has been contracted by HyCC for the front-end engineering design (FEED) of the plant, as well as an order having been placed by HyCC to Nel for the supply of the electrolysis stacks. The stacks will be Nel’s atmospheric alkaline electrolysers and will produce renewable hydrogen from a combination of renewable power and water. The hydrogen that will be produced at the plant will be used by SkyNRG for the production of sustainable aviation fuel. A final investment decision (FID) is due on the project in 2024, with the environmental permit having already been received. The National Climate Agreement in The Netherland plans for 3-4GW of renewable hydrogen production capacity by 2030, with the country also seeking to forge international partnerships to import hydrogen and/or hydrogen carriers (such as ammonia) into its ports for easy distribution to several industrial clusters.

LONDON (ICIS)–The chemicals sector was described as “the alpha and the omega” of industry by an EU Commissioner last week who outlined some near-term targets as part of the the EU Chemical Industry Transition Pathway. Director General of DG Grow for the European Commission, Kerstin Jorna, said there is a strong case for policy making in the chemicals industry, because of its scale and the sustainability challenges surrounding it. “It is like the alpha and omega, because it is at the beginning of all the substances that are being used and it is at the end when it is being recycled, so there is a policy case for the chemicals industry,” said Jorna in an interview with Cefic Director General, Marco Mensink. “At the same time, it is important to see the business case because it is an industry that is totally connected into global value chains, so we need to find a process where the policy perspective and the business perspective can meet.” In a year’s time, Jorna hopes the pathway has enabled headway on renewable energy at the factory gate, that there is increased access and a decline in price, as well as an increase in hydrogen (both for use as a fuel and a feedstock in chemicals processes). If there is an identifiable trend in 12 months’ time, this will encourage investment decisions on the manufacturing side, as energy availability and security remain prescient concerns for European producers. Cefic has recently changed its statutes so that the industry body can carry out projects, not just research and advocacy for its members, to tackle the many challenges facing the sector, but more information is needed to enable progress. “The available information on electricity around Europe is where we need much more information, as some companies want to electrify but there is no copper wire,” Mensink cited as an example. Ultimately, the course of action boils down to going to Member States and asking what the national plan is for the chemicals industry, and then using the Transition Pathway document to work out the future with unions and other stakeholders. “That is the philosophy for going to the Member States. It is not that a technology is good or bad…we need to go from primes and models to countries and clusters, and maybe in the end have company and regional pathways,” he added. By laying the groundwork this will allow for all-round de-risking – of supply chains, inputs and regulation to allow companies to scale up innovation. “We talk about raw materials in Europe, but what is really our European business case is innovation, so how do we scale that quicker? It will require cooperation between the public and private sectors,” said Jorna. Taking this action will not just encourage investment but will challenge the industry to think about how to upgrade skills in the sector, and benefit society more broadly. SINGLE MARKET PERSPECTIVEWhile the single market has previously been seen as a ‘big regulatory machine’ according to Jorna, and in its 30th year, and the transition pathway can be used as an opportunity to declutter some of the bureaucracy. “We see the single market is not only about removing barriers, it is about making sure that there are critical inputs available – chips or raw materials – and it is the execution of the single market,” she added. A key part of this is in shoring up supply chains, the significance of which have been highlighted in the wake of the pandemic and the Russian invasion of Ukraine. The challenge in rolling this pathway out across member states corresponds to the challenge of viewing the single market as one entity rather than a group of 27 economies. While engagement on a macroeconomic level has varied between nations, Jorna believes that the Commission holds some responsibility in coordinating the implementation of the transition pathway. Mensink cited that thinking about the single market in an holistic way would benefit European competitiveness, as from a US perspective, “the difference between Antwerp and Rotterdam is one gate.” BIGGER PICTUREMensink acknowledged that when the Green Deal was launched, no one realised the extent of regulations, with the four transitions tackling climate neutrality, circularity, the chemicals strategy for sustainability, and digitalisation. “This will be the start of a long journey for us with our members to explain what comes out of Brussels. We have just dropped the rock in the pond, the ripples have started to move, before it is out there,” he said. “We have said that if we accept the Green Deal, you need to trust us that we will make it workable over time, as the initial reaction is to say, ‘make it go away’.” The challenge for both Cefic and the EU Commission is looking at the issues from an aggregate level and seeing how this break down into every company’s perspective for the business case: inputs, skills, investments, and markets in the future. The transitions facing the chemicals sector is long lasting and will not be covered by the current investment cycle but will endure over the next five to ten business cycles, according to Jorna. By having a longer-term perspective, Mensink advised that sequencing measures in the right order could prevent short-lived investments – in a boiler for a chemistry that would disappear, for instance – it would provide clarity. The chemicals industry is the second sector after tourism to get the Transition Pathway treatment from the Commission, and the previous rollout has highlighted the need for shared databases to enable more efficient policy making. PUBLIC PRIVATE PARTNERSHIPBoth Jorna and Mensink were keen on the longevity of the Transition Pathway as a way of sustaining meaningful changes. Jorna said good policy making should make sense on the ground and from a company perspective, and this has sometimes been where communication has broken down between public and private sectors. The legislative guide aims to breakdown the overall transition into operational steps to enable coordination between regulatory timelines and company investments to see clearly what the next steps should be. While the incoming of a new Commission or government has previously disrupted progress towards long-term goals due to legislative change, Jorna stated that changes in unions or companies can also interrupt work towards these targets. “If we can own the Transition Pathway to shape our future on the basis that there will be enough room to innovate, that would be a good ambition to have,” she said. Insight by Morgan Condon

LONDON (ICIS)–Oil prices may be in for a bumpy ride in February as interest rate hikes by major central banks battle tight supply caused by the EU ban on refined Russian oil products. OPEC+ removed themselves from the situation, stating they will be sticking to their 2m bbl/day output cut amid uncertainty surrounding China’s economic recovery and the loss of Russian oil products from the market. Watch ICIS market experts identify this week’s five main crude oil price drivers.

MUMBAI (ICIS)–India has again delayed a planned import certification mandate for five chemicals by six months to August-September. The Bureau of Indian Standards (BIS) certification mandate for acetic acid, methanol and aniline will be pushed back to 3 August, the Ministry of Chemicals & Fertilizers announced on 2 February. For morpholine and acetone, accreditation now be required on 1 August and 13 September, respectively, it said. The mandatory BIS certification was expanded to cover more chemicals and petrochemical imports in 2019 as a non-tariff barrier against inferior imports.

SINGAPORE (ICIS)–Asian purified terephthalic acid (PTA) producers are in the midst of assessing the impact of their exports following a powerful earthquake that hit southeast Turkey and parts of Syria. As shown on the chart below, around 79% of Turkey’s PTA imports for 2022 came from Asia, according to the ICIS Supply & Demand database. The biggest share came from South Korea at 40% of total imports, while China represented a total of 38% of total imports, ICIS data shows. Producers in Asia are considering to postpone their shipments especially to the Iskenderun port, while several others added that ports such as Mersin port are currently seeing limited impact. Deliveries of natural gas to parts of the affected areas and some crude pipeline flows have been halted. Operating rates at downstream converters, blow moulding industries and the end markets might see a decline amid infrastructural and logistics challenges. According to several market sources, operating rates at Koksan’s PET facilities might have been affected, with the production units being located at Gaziantep. No further details could be obtained at the time of writing. According to ICIS Supply & Demand database, Koksan operates two 216,000 tonne/year PET units located at Gaziantep. Focus article by Samuel Wong Thumbnail photo: Photo illustration of a Richter diagram displayed on a smartphone and a flag of Turkey. (Source: Nikolas Kokovlis/NurPhoto/Shutterstock) Click here to view the Construction – impact on chemicals topic page. Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets.

HOUSTON (ICIS)–Global engineering firm KBR announced their green ammonia technology, branded as K-GreeN, has been selected by project partner Enaex for the recently revealed HyEx green ammonia project in Chile. It is planned that through the HyEx project that technologies for having stable green ammonia plant operations during the fluctuation of renewable energy from photovoltaic power plant will be studied. The construction site will be in Tocopilla which is within the Antofagasta Region and it planned that the ammonia plant will have an annual production rate of 18,000 short tons. Schedule completion is currently set for 2025 with Japanese firm Toyo Engineering Corporation (TOYO) and global ammonia marketer Mitsui also involved in the project which recently announced that a feasibility study had been funded for HyEx. “We are thrilled to be part of this project that will demonstrate Chile’s potential to harness renewable energy for green ammonia production,” said Doug Kelly, KBR president, Technology. “The innovative concepts that will be incorporated in this project will achieve industrial scale production of green ammonia using renewable energy from photovoltaic and wind power.” Since 1943, KBR said it has licensed and designed over 250 grassroot ammonia plants worldwide.

HOUSTON (ICIS)–Gas producer Linde has announced it signed a long-term agreement to supply clean hydrogen and other industrial gases to OCI’s new world-scale blue ammonia plant in Beaumont, Texas. Linde said it will build, own and operate an on-site complex which will include autothermal reforming with carbon capture, plus a large air separation plant, and will be integrated into their Gulf Coast industrial gas infrastructure. The total investment will be approximately $1.8bn and the project is expected to start up in 2025 and will supply clean hydrogen and nitrogen to OCI’s 1.1m short ton/year blue ammonia plant, which is set to be the first US greenfield blue ammonia facility of this scale to come onstream. Linde said it will supply clean hydrogen by sequestering more than 1.7m tonnes of carbon dioxide emissions per year. In addition to supplying OCI, Linde is set to provide clean hydrogen to existing and new customers in the region, addressing the increasing demand from companies to decarbonize their operations. The facility will also supply atmospheric and rare gases to existing and new customers. “Linde’s capabilities are already enabling the transition to a low-carbon-intensity economy. Our strategy is to support decarbonization by working with off-takers, like OCI, to safely and reliably supply low-carbon industrial gases at scale,” said Sanjiv Lamba, Linde CEO. OCI said it sees the Beaumont facility as strengthening their world-leading blue ammonia and clean fuels platform which will allow them to supply both the US and export markets with blue ammonia which help decarbonize hard-to-abate sectors such as agriculture, power and marine fuels at a competitive cost. “Linde’s expertise in managing large-scale and complex engineering projects, and safely and reliably delivering industrial gases, made it a solid choice as a partner for this project.” said Ahmed El-Hoshy, OCI CEO.

LONDON (ICIS)–The UK government has published guidelines for hydrogen producers seeking to produce hydrogen using fossil fuels with carbon capture and storage (CCS). The guidelines cover those who produce hydrogen and aim to use it within the same installation or project, and for projects that aim to export and sell the hydrogen to third parties.  The CO2 associated with the hydrogen’s production should also be transported by pipeline or other means and stored in permanent underground geological storage facility or used as a product itself. The guidelines have been developed between environmental regulators (Environment Agency, Natural Resources Wales, Northern Ireland Environmental Agency, Scottish Environment Protection Agency) and industry stakeholders. The guidance for production is relevant for “large-scale industrial plants” that are either new hydrogen plants or retrofits of existing plants that are typically greater than 100tonnes/day of hydrogen production capacity, equal to 140MW capacity at a lower heating value. However, the UK government said that “smaller plants should use this guidance until further guidance is available.” The guidance says that an overall CO2 emissions capture rates from hydrogen production should be “at least 95%” for an average performance over an extended period. For steam methane reforming, the regulators expect that more than 95% of CO2 can be removed from the reformer flue gases, or that the plant is designed such that hydrogen is used as the fuel gas for the reformer or there is CO2 removal prior to the hydrogen purification. For autothermal reforming and partial oxidation, which use an air separation unit, heat recovery is encouraged and that heat to be used within the rest of the hydrogen production process. The guidelines also suggested that hydrogen producers should consider purifying hydrogen using a pressure swing absorption process. Other sections of the guidelines surrounded waste, water usage and disposal, monitoring of processes, unplanned emissions and accidents, noise and odour.

NEW YORK (ICIS)–The US Inflation Reduction Act (IRA), which was signed into law in August 2022, will accelerate the development of hydrogen and carbon capture and storage (CCS) projects, which in many cases will go together. “There’s a lot of activity in this [low carbon] space – a lot of interest particularly with the IRA here in the US, but more generally around the world. I think [there’s] a real focus on low-carbon opportunities,” said Darren Woods, CEO of ExxonMobil, on the company’s Q4 earnings conference call in late January. He added that the IRA “further reinforces” its commitment to hydrogen and CCS. US-based ExxonMobil in December boosted its planned investments in its Low Carbon Solutions business to $17bn from 2022-2027 – up from $15bn in its prior plan. ExxonMobil in January awarded a FEED (front end engineering and design) contract to build what it calls the world’s largest low-carbon hydrogen facility at its site in Baytown, Texas. The project would produce 1 billion cubic feet (bcf)/day of blue hydrogen (with carbon capture) and also offer CCS for third-party CO2 emitters. The CCS project would be able to store up to 10m tonnes/year of CO2. For ExxonMobil’s Baytown olefins complex, the project could cut CO2 emissions by 30% if hydrogen is used to fuel cracker furnaces instead of natural gas. A final investment decision (FID) is expected in 2024 with start-up planned for 2027-2028. The Baytown project would be an initial contribution to a cross-industry supported Houston CCS hub which could capture and store 50m tonnes/year of CO2 by 2030 and 100m tonnes by 2040. US-based Chevron, which is also building low-carbon businesses such as hydrogen and CCS, sees the IRA potentially de-risking investments to some extent. “The IRA will probably accelerate some activity in the US, there’s no doubt. Hopefully, what that does is allow technologies to be de-risked, the cost of technologies to be reduced and the attractiveness of these investments to improve,” said Mike Wirth, CEO of Chevron, on the company’s Q4 earnings conference call. While the IRA doesn’t necessarily change Chevron’s long-term view on how it builds those businesses, “it does, perhaps, change the trajectory at which some of those businesses become more economically viable”, he added. UK-based BP sees increased incentives for CCS in the IRA supporting its greater use in the power sector, as well as in industry and to produce blue hydrogen. Source: BP Energy Outlook 2023 With the IRA and other incentives, the company sees US CCS deployment reaching over 100m tonnes/year by 2035 and close to 400m tonnes/year by 2050, according to BP chief economist Spencer Dale, in BP’s Energy Outlook 2023. Ultimately, it will take tens or more likely, hundreds of billions of dollars of investment in hydrogen and CCS to decarbonise not just the chemical industry, but all energy-intensive manufacturing sectors in the US. “What we start to see, with the IRA, is an increase in the price on CO2. That’s been raised to $85/tonne for the CO2,” said Dow CEO Fitterling in an interview with ICIS in November. The IRA increases the 45Q tax credits from up to $35/tonne for captured CO2 used in enhanced oil recovery (EOR) or in certain industrial applications, and up to $50/tonne for CO2 in secure geological storage, to $60/tonne and $85/tonne, respectively, according to US law firm Gibson Dunn. “That actually helps quite a lot as an incentive to capture the CO2, but what we have to do now is build the carbon capture hubs and the hydrogen hubs to make that happen,” said Fitterling. The Dow CEO said it would take between 6-8 hydrogen/carbon capture hubs in strategic locations to decarbonise as much as 85% of the entire chemical industry in the US, citing an analysis done with the American Chemistry Council (ACC). “And in the IRA, both the funding and the price on carbon help us get there,” he added. Along with hydrogen and CCS, which represents blue hydrogen, there will be greater investment in US green hydrogen, driven by the IRA. Green hydrogen involves electrolysis of water using renewable power. BP sees US low-carbon hydrogen usage increasing to 4m tonnes/year in 2030 and 26m tonnes/year by 2050. Source: BP Energy Outlook 2023 “The hydrogen incentives [in the IRA] are especially supportive of green hydrogen, which accounts for around 60% of US low-carbon hydrogen in 2050, compared with around 25% in [BP’s previous outlook in 2022],” said Dale. Source: BP Energy Outlook 2023 Insight article by Joseph Chang Thumbnail shows hydrogen. Image by Shutterstock.