Many chemical companies are taking a long-hard look at their asset base and wondering if Europe is still worth the hassle.
Energy costs, the 14,000-page Green Deal document, new regulations, a loss of talent overseas, taxes…it’s all a bit too much or too quick for many. When Dow recently announced a plan to rationalise its number of high-cost sites, CEO Jim Fitterling left no-one in any doubt that his gaze is firmly on Europe. The US company watched aghast as its chemical plants in the region shifted into the “high-cost bracket.”
A lot will depend on the policy decisions that the EU and individual member states take regarding energy polices and other changes being looked at, Fitterling said on a call. “It’s hard to anticipate when they will make those decisions. We don’t want to jump the gun and get ahead of any policy changes that might make them competitive long term.”
Perhaps it’s a bluff, a game of chicken with European policy makers.
It isn’t, according to Matthias Zachert, CEO of Cologne-based Lanxess AG. You just need to look at the closures and bankruptcies among small- and mid-sized players that have already happened, he added. Actions already taken include Trinseo closing a styrenics business in Böhlen Germany and BASF shutting down a number of plants at its flagship Ludwigshafen Verbund.
A host of other companies also claim to be looking at following suite.
Energy costs have come down but volatility remains a risk as imported LNG and the current pace of wind-farm construction can’t compensate for the loss of Russian gas supplies, according to CEOs. It’s not an easy problem to overcome, Dow’s Fitterling said especially when the cost of LNG into Europe is currently in the $14-17 per mmbtu range, compared to $2-3 in the US.
Huntsman saw its MDI plant in Rotterdam tumble from cost-leader besting North America and China to bottom of the pile, factoring in costs to import material by ship. But at the energy-price peak, the cost delta between production in China and Rotterdam was more than $1,000 a ton. “Never in the history of following MDI have we seen a $1,000 difference just because of natural gas and energy prices between one region and the next,” CEO Peter Huntsman said on a call. “That’s the impact of energy policy, failure or success, has had on an operation like that.”
Huntsman is also restructuring its European operation.
Germany is now proposing a subsidised industrial electricity price of EU60/MWh, about a 50% discount, for energy intensive sectors like chemicals, lasting until 2030. Lanxess’s Zachert says the proposal has his backing but he would have preferred the German energy market find a less-bureaucratic solution.
That’s because a lot of the focus is already on this coming winter.
European gas futures over next winter and 2024 are pricing in expectations of a tighter market than current levels, according to Fertigloble, a JV between Abu Dhabi National Oil Co and fertiliser maker OCI. In the cut-and-thrust world of fertilisers, if pricing remains below cost for a sustained period, it could result in closures of European marginal production, the company said.
“We really want to speed up bureaucracy,” said Zachert. “The Americans are much tougher. They’ve seen the red tape in Brussels and Berlin, the glut of laws triggered recently that only increase bureaucracy but don’t give us any proper benefits. Despite all the emotional links to Europe and European sites, even German and European companies are wondering how long they want to say. I’m reflecting on this as well.”
It doesn’t help to have an emerging powerhouse in chemicals on your doorstep. The Middle East could potentially have the best of both world’s when it comes to both cheap raw materials and a pathway to renewable energy thanks to solar power. And Saudi Arabia, Abu Dhabi and neighbours have big plans for chemical production as they move away from fuels.
“Rightfully, they have a claim when it comes to energy vectors, if you think about green methanol, green ammonia, they have very good costs,” Martin Brudermueller, CEO of BASF, said recently. “That’s exactly what the Saudi government has in mind. Very ambitious plans on the one hand on the renewable side and also on oil-to-chemicals” as they redirect raw-materials to chemical production away from gasoline for combustion engines.