DAY 1 REPORT OF THE EPCA 2014 48TH ANNUAL MEETING GLOBAL COMPETITIVENESS AND THE CHEMICAL INDUSTRY: WHAT ABOUT EUROPE? 4 TO 8 OCTOBER 2014 IN VIENNA, AUSTRIA REPORT OF THE 48TH ANNUAL EPCA MEETING CONTENT DAY 1 BUSINESS SESSION GLOBAL COMPETITIVENESS AND THE CHEMICAL INDUSTRY: WHAT ABOUT EUROPE? KEYNOTE SPEAKERS GRAHAM DANIELE PROFESSOR XAVIER VAN’T HOFF FERRARI SALA-I-MARTIN EDUCATION WORKSHOP WHEN AND WHY DO CHILDREN MAKE STEM CAREER CHOICES? DIVERSITY WORKSHOP DIVERSITY MATTERS DAY 2 CLOSING LUNCH SESSION CREATING SHARED PROSPERITY KEYNOTE SPEAKER PROFESSOR JOSEPH E. STIGLITZ SUPPLY CHAIN AND LOGISTICS LEADERS BREAKFAST to th o e g se to c t k i c o i l n C REPORT OF THE 48TH ANNUAL EPCA MEETING DAY 1: BUSINESS SESSION GLOBAL COMPETITIVENESS AND THE CHEMICAL INDUSTRY: WHAT ABOUT EUROPE? MONDAY 6 OCTOBER 2014 3 Click here to go back to the content OFFICIAL OPENING DAY 1 OFFICIAL OPENING TOM CROTTY EPCA President from June 2014 INEOS GROUP TOM CROTTY EPCA President from June 2014 INEOS GROUP ” have a record number of continued, the development of shale gas ” registrations this year. Almost has transformed the competitiveness of We 2800,”said EPCA president Tom the US chemical industry, and now Europe Crotty, welcoming delegates faces a potential wave of imports from two to Vienna. “But I’m not sure whether this regions benefiting from low-cost production. is a sign of a recovery in the industry, or whether in the face of adversity it’s better At this point, he put the meeting into to have strength in numbers!” Certainly, the the hands of moderator Nadine Dereza global chemical industry is seeing seismic to introduce the speakers to offer their change, with massive shifts in global demand perspectives on the competitive challenges and in energy supply, Crotty noted. For this facing their companies and the industry reason, the meeting’s presentations would and how best to respond. focus on how the European petrochemical sector can remain competitive in the face of these changes and the new challenges they bring. When EPCA met in Vienna back in 2005, the focus was on the impact of investment in low-cost Middle East production capacity. There were predictions that a tsunami wave of imports would herald the demise of European petrochemicals, the Ineos director recalled. “But it didn’t happen, because China mopped up this production.” However, today’s picture is very different. China has invested heavily in base chemicals production NADINE DEREZA and its economic growth is slowing, which Moderator is impacting imports. Furthermore, Crotty 4 Click here to go back to the content REPORT OF THE 48TH ANNUAL EPCA MEETING KEYNOTE SPEAKERS Did Europe get lucky, or take measures to the Shell executive said, “North America remain competitive? Probably a combination has re-established itself as a low-cost of both, said van’t Hoff. As Middle East petrochemical manufacturing region due production grew rapidly, demand in Asia, to the so-called ‘shale revolution’. Since and particularly China, also grew well ahead 2009, absolute price differentials between of expectations. Europe also had some hydrocarbon streams have increased, and good fundamentals, including highly energy- recent crude-gas spreads of $14/mmbtu (oil efficient plants, a productive labor force, vs. Henry Hub) have created a particular GRAHAM VAN’T HOFF and a vast, differentiated product portfolio. downside for the European chemical industry. Executive Vice-President These crude-gas spreads are expected to SHELL CHEMICALS Today, Europe has to grapple with increased continue and favor US ethane crackers production costs, including feedstock, fixed against European naphtha crackers.” and variable costs. For example, IHS reckons VISION OF AN UPSTREAM that in 2008 an average European cracker Planned new crackers based on cheap ethane INTEGRATED GLOBAL CHEMICAL cost 20% more than its global equivalent, feeds plans could raise US ethylene capacity PRODUCER van’t Hoff noted. By 2014, this cost gap had 40% to around 40 million t/y, and make risen to 45%, and by 2018 is expected to be North America a major ethylene derivatives Does Europe’s chemical industry have the exporter, said van’t Hoff. South America right ingredients to stay competitive despite and Europe would likely each receive 40% the region’s difficult economic struggles? of these exports, with China being the This was the question posed by the annual “the chemicals sector destination of last resort, in part due to the meeting’s first keynote speaker, Graham Middle East’s freight advantage. With US van’t Hoff, Shell Chemicals’ executive vice- PE imports into Europe expected to double president. can play a key role to 4 million t/y in 5-7 years, Europe could be facing PE capacity cuts of up to 2 million He believes it does, but sees two major in re-industrializing t/y, and knock-on cracker rationalization. challenges – the cost of production, and the potential threat of North American shale gas. However, the outlook is not totally gloomy, To these, he identified six key responses: Europe and in securing said the Shell Chemicals EVP. North America leveraging clusters, technology investment, looks to be facing steep cost increases, refinery integration, advantaged feedstock, skilled labor shortages and productivity a better industry image, and gaining the a sustainable future challenges, which may check exports. support of policymakers. If the industry Many North American players have major gets it right, the Shell executive believes plants in Europe, which may be limiting the chemicals sector “can play a key role for the region.” US shale gas impacts in Europe, although in re-industrializing Europe and in securing US companies could cut European output a sustainable future for the region.” at least 55%, due mainly to hydrocarbon and and import instead. energy costs. Europe also faces a widening When van’t Hoff joined the industry in energy cost gap: industrial electricity prices Having outlined these two key challenges, 1984, there were fears that new Middle are more than double US prices, and 20% van’t Hoff suggested how Europe’s chemical East production capacity based on cheap higher than China’s; industrial gas prices industry should respond, by building feedstocks would destroy the European are 3 to 4 times above US and Russian on strong fundamentals to enhance petrochemicals sector by 2000. However, prices, and 12% higher than in China. Given competitiveness. “We should continue “Today, the European chemicals industry the close relationship between chemicals to leverage our clusters…such as the appears to be alive and kicking. It is a €558 and manufacturing industries, rising energy Antwerp-Rotterdam and Rhein-Ruhr clusters, billion industry providing over 1 million direct costs will have impacts across Europe’s down to Ludwigshafen and Marl,” said the and nearly 5 million indirect jobs in Europe.” economy. Shell manager. Competitive clusters are But while Europe’s chemical sales have more robust, as they are well integrated in doubled since 1992, its market share fell “While the availability of ethane in the terms of logistics, ownership and derivative from 30.5% in 2002 to just 17.8% in 2012. Middle East is now clearly less abundant,” units; and they have low cost to serve. 5 Click here to go back to the content KEYNOTE SPEAKERS DAY 1 KEYNOTE SPEAKERS GRAHAM VAN’T HOFF Executive Vice-President SHELL CHEMICALS However, smaller clusters with fragmented Producers should also seek more advantaged, global economy. It must also work harder to ownership may struggle, and producers lighter feedstock, such as LPG, although tackle its image problem with stakeholders, with less derivatives integration would be structural changes are required for feedstock and make policymakers understand its more exposed to the merchant market and flexibility. From 2010 to 2013, natural gas key role in economic growth, and that need to secure enough contractual volume liquid (NGL) cracking rose 13% to 31%, competitiveness needs to be the touchstone to ensure full asset utilization. with coastal plants accounting for about for all EU policies. 41%, and non-coastal for only 13%. Van’t Hoff also pointed to significant value The first wave of Europe’s ‘going lighter’ “Europe needs coherent, non-conflicting in integrating refineries and petrochemical strategy was mainly through LPG; the second energy and climate policies, aligned across plants. Shell, for example, draws strength wave is through cracking imported ethane. the EU, that deliver secure and competitively- from mega sites in the priced energy, without creating Netherlands, the US Gulf an overly burdensome regulatory Coast, and Singapore, environment,” said van’t Hoff. and continues to invest “We should continue to leverage He also said Europe needs in enhanced integration a consistent and predictable between Moerdijk plants legislative framework that does not and the Pernis refinery, our clusters…such as the Antwerp- drive away investment, and urged and in Rheinland. He a focus on regulatory efficiency. continued: “Globally, “The cost of compliance with chemicals has and is Rotterdam and Rhein-Ruhr clusters, REACH should be addressed and expected to continue to be other national and EU legislative a high-growth hydrocarbon down to Ludwigshafen and Marl.” initiatives should be consistent outlet, with growth forecast with this objective. These should at 50% over the next 10 be streamlined, so as to deliver years, compared to oil products at 10%. However, not everyone can import ethane, the same level of protection to workers and In Western Europe, chemical demand is as investments in onshore logistics, vessels, consumers, but at the lowest possible cost. stagnating, but fuels demand is worse, and import facilities are required, making it And the conditions and needs of small and declining at 3% per year.” Europe – like a viable option only for a few water-based medium-sized enterprise have to be taken many other regions – has surplus gasoline, locations with easily adaptable cracker into account in such a process.” with no obvious ‘new home’ for that extra infrastructure.