European Union Chemicals Output Stalls

March 19, 2014
Critics blame energy policies for lag in Europe’s chemical industry growth.

The European Chemical Industry Council (Cefic), Brussels, Belgium, released its annual "Trends Report" in March, showing that the sector achieved zero growth in 2013. However, on a positive note, the result was slightly better than predicted by Cefic and the sector’s net trade surplus reached a record €45.8 billion ($63 billion).
One of the key challenges facing the chemical sector in the European Union (EU) is the region’s energy policy. This was described as "in a crisis" by Dick Benschop, president, director Shell Netherlands and vice president Gas Market Development, Royal Dutch Shell, The Hague, The Netherlands, when he spoke at the International Petroleum Week conference in London on February 19.

Benschop said the current policy and its three separate goals for 2020, for energy efficiency, renewables and energy reduction — together with the market for carbon allowances — should be cutting the use of high-carbon energy sources such as coal. It also should increase the affordability of expensive renewable energy.

"Intentions are good, results are not. The economic downturn has reduced the demand for allowances. And the three targets are competing with each other. This has led to a surplus of allowances and a collapse in their value," he noted.

Some scenarios suggest this could result in the closure of 110 gigawatts of gas-fired capacity over the coming years, while 11 gigawatts of new coal capacity could potentially come online in Europe in the next four years.

At the same time, he said, the EU does an outstanding job promoting wind turbines and solar panels. "The stand-alone target for renewables is driving rapid but uncontrolled growth…their share of electricity supply could increase to 35% by 2020. Essentially, this is good news. Renewables are crucial to the energy system of the future. But renewables still depend on flexible back-up when the sun doesn’t shine or the wind doesn’t blow. They also depend on strong government support. In 2012 alone, support for renewables across the EU amounted to around €30 billion ($41 billion). And governments are expected to give another €330 billion ($456 billion) until 2020…with costs passed on to consumers and the industry."

As a result, the combination of global downturn, an influx of American coal, and EU policies isn’t doing Europe much good, he added. "Clean but costly renewables grow, at the expense of business and taxpayers. More and more countries use polluting coal plants as a back-up, at the expense of cleaner gas. The adverse effects are already visible. Carbon dioxide emissions in Germany and the U.K. in 2012 actually increased, says Eurostat. At Shell, we call this the European energy paradox. But maybe that’s an understatement. It’s a European energy crisis."

Benschop believes innovation in the gas market is the way forward, citing Shell’s Prelude floating LNG project as one way to overcome major infrastructure challenges posed by onshore LNG projects. Projects such as this will help Shell and other gas suppliers strengthen the competitiveness of natural gas, he believes, while encouraging governments around the world to give gas a proper place in their energy mix.

BASF is similarly concerned about the energy situation. Publishing its fourth quarter results on February 25, the company revealed energy costs, and the growing demand in North America and China, as reasons it will make most of its capital investments outside Europe for the first time.

Chief executive Kurt Bock said low-cost shale gas was driving demand in North America, while cheaper coal was doing the same for businesses in China — leaving European chemical makers at a significant competitive disadvantage.

In an interview with the Financial Times following publication of the results, Bock said that over the next five years BASF plans to invest 49% of its €20.2 billion ($28 billion) capital expenditure budget in Europe, compared with two-thirds of total capex (including acquisitions) in the 2009-2013 period.

"In Europe we have the most expensive energy and we are not prepared to exploit the energy resources we have, such as shale gas. We have relatively high wage costs and we have a stagnating market," he warned.

The Financial Times article also notes Bock has been a prominent critic of German and EU climate and energy policies, arguing these are ineffective, raise costs for industry and cause job losses.

Seán Ottewell is Chemical Processing's Editor at Large. You can e-mail him at [email protected]

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