Chemical Conversations: Sustainability in the European chemical industry

Author Argus

Argus is pleased to collaborate with the European Petrochemical Association (EPCA).

Argus SVP Strategy and Business Development Muhamad Fadhil speaks to Hartwig Michels, President of BASF’s Petrochemicals Division and EPCA President, Gina Fyffe, CEO of Integra and Chair of the EPCA’s talent, diversity and inclusion committee and James Elliott, Argus European Business Development Manager.

In this wide-ranging roundtable, Fadhil, Hartwig, Gina and James speak about sustainability in the European chemical industry against the backdrop of a more challenging economic environment.

This podcast delivers insights into:

  • What’s driving sustainability in the European chemical industry
  • The factors threatening a continued sustainability drive
  • The BASF and Integra sustainability roadmap
  • Europe’s progress towards achieving its sustainability goals
  • Opportunities for sustainability in Asia
Find out more about Argus Recycled Polymers here.

Argus is a gold sponsor at EPCA in Berlin, 4-6 October 2022. If you would like to meet with one of our chemical experts, please contact us

Transcript

Muhamad Fadhil: Hello everyone and welcome to "Global Chemical Conversations." My name is Muhamad Fadhil, and I'm the SVP Strategy and Business Development at Argus. This is a very special episode jointly brought to you by Argus Media, a leading independent provider of energy and commodity pricing information and the European Petrochemical Association or EPCA in short.

In this episode, we have two very special industry guests, Hartwig Michels, president of BASF’s petrochemical division and president of the EPCA, and Gina Fyffe, CEO of Integra and chair of the EPCA's Talent, Diversity and Inclusion Committee. I'm also joined by my colleague James Elliott, European Business Development Manager at Argus.

Hello everyone. Thank you for joining me today. James, firstly, can you set the scene? What's driving sustainability in the European petrochemical industry?

James Elliott: Thanks Fadhil, it's great to be here with you today. The drive to sustainability in Europe is multi-layered. Firstly, you have regulation. For instance, the European Green Deal which set the EU on a course to become a sustainable, climate-neutral, and circular economy by 2050. This is written into European climate law, which also sets the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. We have to consider the consumer too. We, the consumer, society, have become aware of the need for sustainable solutions. We're demanding goods made from sustainable sources and recycled material and companies are reacting to this. Brand owners are making new pledges on a regular basis about selling their goods using recycled and recyclable packaging. The financial community needs to be highlighted too. With ESG investing, the chemical industry needs to be focused on sustainability in order to attract investment.

There is the business side too - cost is such an important driver. And that applies to sustainability. Why use virgin material if recycle material can fulfill the same role at a lower cost? European chemical companies have either aligned their sustainability goals with the UN Sustainable Development Goals, or with the European Green Deal, or perhaps they have stated further ambitions within their goals. The European chemical industry is now working and investing to achieve their sustainability goals.

Muhamad Fadhil: Well said, James. Hartwig, BASF is a global chemical producer. How does BASF assess where to focus sustainability initiatives or investments? Is it by value chain, product, or geography?

Hartwig Michels: Well, Fadhil, thank you very much for having me here. To your question, as a global player that has pledged to achieve climate neutrality by 2050, we at BASF are driving our emission reductions and our push for circular economy, of course, in all regions already today. And since the vast majority of our CO2 emissions is originating from the production of base chemicals and from the production of power as steam, this is where we put specific emphasis, it's basic chemicals and it's energy. So let me give you one example here. We are investigating, for instance, several options to substitute the fossil fuel used to generate the heat in the steam cracker furnaces. This can be done either by the use of climate-friendly fuels, such as biomethane or hydrogen or via electrification of the furnaces in combination with the use of renewable energy. And we are also looking into the option to directly capture the CO2 emitted from the furnaces and storing it permanently. Later this year, we will have the groundbreaking for the world's first pilot electric cracker furnace. We are pursuing this project, for instance, jointly with our partner, SABIC, and Linde.

So let me briefly go back to the regional aspect. Of course, Europe currently is pushing most in terms of creating regulation to substantially reduce the CO2 footprint and to increase circularity. However, this does not mean that the EU and all European countries are automatically also leading in creating the necessary infrastructure, the necessary regulatory environment, and the necessary investment climate. So let me just give you here two examples. The acceptance and the push for carbon capture and storage (CCS) is probably the most important drop-in technology for short and midterm reduction of our emissions. It's much higher in the US, and also in European countries like Belgium, Netherlands, and Norway. Germany, for instance, is only very slowly accepting CCS as an important bridging technology and has not yet developed any owned storage facilities. Second example, the US is applying a simple but very effective tax credit system to support investments into CCS or CCU. For every ton of CO2 going into CCS, you receive a tax credit of $50 US, which might even be increased in the future. Of course, these aspects also play a role in making country or even specific investment decisions.

Muhamad Fadhil: Really comprehensive overview, Hartwig. And I just want to take this opportunity to also welcome Gina to the podcast. Gina, could you take the opportunity now to share for us the future sustainability roadmap for Integra.

Gina Fyffe: Thank you very much for inviting me here today. It's really quite exciting to get the chance to talk about sustainability in a podcast. In Integra, we've been looking at particularly society and governance most of the years of our existence. And over the last couple of years, we've been beginning to look more at the environment. We did our first Together for Sustainability audit in 2021 after spending a couple of years trying to figure out how to make it work. And then we completed our International Sustainability Carbon Certification also in 2021. Both of these audits helped us to create a step-wise roadmap. So as a trading company, we obviously have an indirect role in the carbon value chain. But we want to use and we are using our platform first to inform and then to educate staff, and the industry players that we work with as part of our own ESG strategy, as well as reducing our direct emissions.

We started out by discussing this with our staff and holding internal workshops globally to discuss what we wanted to do and why and canvassing opinions. We got every staff member up to a basic level of understanding on the topic and asked them also to advocate in their local and wider communities. We're currently collecting data and working to identify the emissions across the supply chains end to end. Once we do this, we're already discussing internally using the information that we're collecting to begin to make decisions on how to reduce the emissions by buying, selling, swapping more locally, and working with transporters who have lower emissions than others on the basis that not all transporters, not all ship owners are the same, and also working with clients who have good control of their emissions. Since this is an industry-wide initiative, and we're just a tiny little cog in that wheel, it's very much a work in progress for us. And we're also, like many other companies, trying to make sense of whether or not we should get involved in buying carbon credits or other industry or third-party external programs.

Muhamad Fadhil: That is very, very interesting, Gina. I really like what you just mentioned about internal workshops and the whole thought process around that. Hartwig, Gina has provided this exciting overview on Integra's roadmap and vision. Can you share areas of the sustainability business you would like to see BASF develop more of?

Hartwig Michels: Well, if I have to pick one area where BASF and the whole industry is only at the beginning and more to come that is the question of getting more sustainable feedstock as renewable or recycled raw materials into our process. And here the key to understanding our approach is that by using our existing asset base, alternative feedstocks are, in principle, relatively easy to integrate in huge quantities. For example, renewable raw materials can be used as a drop-in solution in which part of our fossil naphtha in our steam cracker is replaced by bionaphtha or a part of the natural gas used in a synthesis gas plant is replaced by biomethane. By using a certified mass balance approach, which is a method to mathematically allocate a certain amount of sustainable feedstock to a sales product, we can offer already today our customers products with a proven environmental impact such as, for example, reduced CO2 emissions or reduced fosil feedstock consumption.

So being able to use our existing asset base will be decisive if we want to achieve a fully circular economy within the next 30 years. Therefore our industry is a key enabler for the transition to a circular economy. Since I see a lot of room for improving our sustainability business here, I should not forget to mention the hurdles we are facing. First, we are facing quite some issues with the availability of both bio feedstocks and recycled feedstocks. So secondly, we are facing regulatory hurdles, the biggest being the acceptance of chemical recycling together with the acceptance of the described mass balance approach as this would allow our products to contribute to various recycling targets. This is an important requirement for our customers.

Muhamad Fadhil: Thank you so much, Hartwig. I want to pivot now to James. James, we at Argus are also watching the sustainability space very closely. We work hand in hand with our clients and industry partners. In your opinion, how is the European industry proceeding towards its sustainability goals?

James Elliott: Thanks, Fadhil, a great question. And there isn't a simple answer. The European chemical industry is taking multiple pathways to achieve its sustainability goals and we see investment across a full spectrum of routes, technologies, and projects. I guess the first category goals for them is carbon neutrality via reduced emissions and carbon offsetting. And two examples, both already mentioned by Hartwig, many chemical companies are working to reduce their scope 1 and scope 2 emissions by diversifying energy supply and adding a larger component of renewable energy. And of course, another key route to reduce emissions, which the industry is working towards, is the use of renewable or bio-based feedstocks like bionaptha. As an aside, Argus already assesses a European bionaptha price within our biofuel service.

The second category of goals is the fully circular economy via reuse, reduce, resource efficiency, as well as mechanical and advanced recycling. Regarding mechanical recycled polymers, demand is strong. And this ties in with the regulatory environment, for instance, with EU plastics strategy targets, and beyond this, the pledges brands are making to consumers. As Hartwig mentions, there is a shortage of recycling feedstocks. Further investment in collection, sorting, and recycling is required if the industry is to meet the EU plastic strategy targets. There have also been a flurry of announced projects in advance recycling. By 2025, there could be over 500,000 metric tons of pyrolysis/hydrolysis capacity in Europe based on current projects with stated startup dates. But here there are also questions around feedstocks availability for advanced recycling via pyrolysis. I've referenced various different themes here. And all of these are covered within the Argus Recycled Polymers service, which is a single source for price data and global market analysis in the space of sustainability in the chemical industry. And this service is to launch on the 29th of July later this month.

Muhamad Fadhil: Thank you, James. I'm very excited for the launch as well of our recycled polymer service. I just want to now talk to Hartwig again. Further to what James is saying, could you share your own thoughts on carbon footprint again, and the actions needed on climate change?

Hartwig Michels: Of course. I'm more than willing to share what is on our mind here. First of all, addressing climate change is the greatest challenge of the 21st century. And we all need here swift and clear action to ensure that the targets agreed in the Paris Climate Agreement can be achieved. And we at BASF, we stand by our responsibility, we are really committed to achieve net-zero emissions by 2050. And we have set ourselves a very ambitious milestone on this path. By 2030, we want to reduce the greenhouse gas emissions from our production sites and our energy purchases by 25% compared with 2018 while still growing production. And this will, at the end, correspond to a decrease of around 60% compared with 1990. We are working here intensively to significantly reduce the carbon footprint of our production, and thus the carbon footprint of our products. And we will also allocate substantial capital for this journey.

Our focus here is on five strategic levers. First, we are increasingly meeting our energy needs from renewable resources as mentioned already earlier. Second, we are increasingly relying on energy recovery to produce steam. Third, we are working to further improve the energy and process efficiency of our existing plants. Forth, also already mentioned, we are increasingly replacing fossil resources with bio-based raw materials. And fifth, alone as well as jointly with partners, we are developing new and nearly carbon-free new production processes, especially for emission-intensive basic chemicals.

To illustrate to you the huge challenge that each of these levers presents, let me give you just one example. This transformation will require significantly more energy from renewable resources. Today, we use roughly 6 terawatt hours of electricity at our Ludwigshafen site in Germany. Initial estimates suggest that we would need to roughly quadruple this renewable power supply to fully implement new low-carbon electricity-based production processes, so from 6 terawatt hours to 24 terawatt hours. To put this into perspective, this equals roughly twice the electricity consumption of Berlin today, or roughly the consumption of 14 million electric vehicles. So quite a big challenge also here to have the renewable energy available for the industry to make this journey happen.

Muhamad Fadhil: Thank you so much, Hartwig, really interesting insight there. And I want to talk to Gina about Asia and move away a little bit from Europe. Gina, what are you seeing in Asia? Can you share the opportunities for sustainability in the region?

Gina Fyffe: Sure. I mean, sustainability is becoming more of a discussion point in Asia, not nearly as much as in Europe, however, for the moment. Being based in Singapore, we've seen how over the last couple of years, the Singapore government and agencies have increasingly focused attention on the subject, opening up grants and possibilities. And we've got some great initiatives on climate change, on global warming, and of course, being a small island, on food security. There's a lot more going on in Asia, for example, in China, as well as in Singapore, than perhaps we sitting in Europe realize. It does feel though as if other countries in the region are catching up. But it's a huge and diverse region, and politics and policies need to become action and have understandable and measurable consequences.

The Asian SMEs have been slow, as far as I can identify, to grab or even realize the opportunities because the awareness level is much lower. That means there are opportunities building on what has happened in other regions, to bring the best of those initiatives into Asia, as well as building on our own platforms and programs in the region. For example, Bain & Company recently reported that Southeast Asia has fallen significantly behind on the sustainability agenda although advancements in this space could bring more than $1 trillion of economic opportunity for the region by 2030. So, there's a lot of possibilities in Asia.

Muhamad Fadhil: Thank you, Gina. Very useful insights, as you said, on the SME and also the RCM perspective. And we've heard earlier from Hartwig on the producer thinking around sustainability. I want to check in with you in terms of your own learnings, what can you provide to petrochemical trading companies who would like to go on this ESG sustainability journey?

Gina Fyffe: What I think I can say on it is it does seem like a huge undertaking. As I said earlier, we spent quite some time thinking, planning, rethinking. And the risk there for traders is to say, "It doesn't affect us directly. So let's put it off until other people have done something, and then it's going to be clearer and easier." That seems at first sight to be a compelling argument, but you risk being left behind and being left to play catch up, and you risk damaging your reputation. So it's better to just jump in, seize the challenge, talk to a company that can help you understand, and move towards certification, and get on and start the journey. It's not so hard when you get started. And it is an important thing to do. It's really quite interesting. You don't have to do it the way that we've done it at Integra. But everybody really needs to get on the path and move forward. It's important and it will help you with your recruitment, it will help you keep employees, and it will help you with your customers and clients.

Muhamad Fadhil: Thank you again, Gina. Very, very useful feedback that you mentioned. Last question now for Hartwig. High inflation, geopolitical challenges, and a weaker economy. This is something that we've been discussing on the virgin side a lot and there's a few things that we're seeing as well. I just want to get a clear steer from you, Hartwig, can sustainability still feature heavily as the business environment gets more and more challenging? What threats do you see in this environment in driving initiatives?

Hartwig Michels: Well, great question which is certainly on the mind of all of us. This sustainability transformation, it is a challenge of historic proportions, with or without the recent additional challenges which you just mentioned. And I strongly believe that the sustainability trend is here to stay because it's not just a trend, it's a clear necessity seen by all of us. However, this transformation will require gigantic investments in a relatively short period of time. And actually, it will result in higher cost which, at the end of the day, will have to be borne by the consumer. Now, the fact that we are currently entering a period of a weakened economy with higher inflation, and geopolitical tensions will make this transition even more challenging. This will bring another dimension into the game, which was not at the forefront of the political discussions until recently, this is the social dimension.

We have to take the people along on this transformation journey. However, we will realize that we cannot compensate all negative impacts on rising living costs via state subsidies. So pushing through this to a growing transformation agenda, especially as currently being designed in the EU in such an environment, will have a growing risk that the lower income segment of our population might reduce the support for a high-speed and broad-based sustainable transformation. As a consequence, we, meaning industry and legislators, are well advised to start thinking about a more staggered approach in this journey. One example, for instance, is here the question of when to tackle the chemical strategy for sustainability. At the end of the day, the transformation will only be successful if at the end of this journey we'll still have a competitive industry and high employment in Europe.

Muhamad Fadhil: Hartwig, Gina, James, thank you very much. Your insights are all excellent, very valuable. I wish we could go on but due to time constraints, we have to draw to a close now. It's been a pleasure talking to you. And thank you to our listeners, for being here and listening to us. This has been a special edition podcast between Argus Media and the European Petrochemical Association or EPCA.

We look forward to seeing you and attending the EPCA in person in Berlin on 4-6 October. And we would like to, once again, extend our appreciation to the EPCA for this collaboration.

For more information on Argus petrochemical product coverage, please visit argusmedia.com/chemicals.

Argus Global Recycled Polymers launches on 29 July 2022. To get the first report for free register your interest here.

Argus are a gold sponsor at EPCA in Berlin, 3-6 October 2022. If you would like to meet with one of our chemical experts, please contact chemicals@argusmedia.com.

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