EPCA's virtual Annual Meeting lacked the usual networking but delivered presentations of the highest quality and importance
For decades now, the petrochemical industry has been bent on growth, expanding its market around the globe and into new end-user sectors. In the past couple of decades, that growth has had to be tinged with increasing expectations of environmental care and, more recently, with new targets for sustainability, decarbonisation and a move towards a circular rather than linear economy.
Over that period, operators in Europe – and beyond – have been able to lean on the experience and learning opportunities provided by the European Petrochemical Association (EPCA), whose Annual Meeting in particular has always offered the latest thinking in the trends that are affecting petrochemical producers as well as a gathering point where senior executives can give their thoughts and where their teams can get on with the business of doing business.
EPCA’s 54th Annual Meeting, scheduled to take place in Budapest at the start of October, was, though, a casualty of this year’s black swan event: the spreading Covid-19 pandemic. EPCA made an early decision not to hold the Annual Meeting in person, which was bad news for hoteliers and restauranteurs in Budapest as well as for the thousands who were looking forward to turning up and meeting their colleagues, suppliers and customers. But, having taken on board discussions at recent Annual Meetings about the potential for digital techniques to provide help in maintaining operations, EPCA followed other event organisers in taking this year’s Annual Meeting online.
EPCA’s Community app has been developed to keep its members in touch with one another and with the broader industry and so the ‘virtual’ Annual Meeting this year focused on presentations that would normally form the business sessions during the actual event. Those were as thought-provoking as ever and the IT held up pretty well to enable discussion and debate, while also giving the audience the chance to question the presenters and get immediate answers. In addition, and again in common with other recent events that have been forced into cyberspace, the presentations are available on the EPCA website for those members who have registered.
STEP OUT OF THE CRISIS
It cannot be said that this year’s EPCA Annual Meeting was the same as those that have gone before but then nothing is the same in this most unusual of years. But, as EPCA CEO Caroline Ciuciu said during her introduction to the first of three days of online presentations, EPCA has been the primary business network in Europe for the petrochemical industry worldwide for more than 50 years and is not about to let the Covid-19 pandemic stop it continuing to perform that valuable role.
The online EPCA Annual Meeting offered the chance for members to “step out of crisis mode for a moment”, Ciuciu said, and, with the help of expert speakers, to consider how industry will move forward in a post-pandemic world. The critical question, she said, is this: how can the petrochemical industry contribute to a smarter, circular and more inclusive economic re-emergence in an environment driven by climate change?
“How do we equip ourselves to face the new challenges post-pandemic with the same vigour we faced the crisis?” she asked. And how can industry do that while facing up to aggressive moves by the EU, through its new ‘Green Deal’, to bring a low-carbon future ever closer?
The petrochemical sector is no stranger to operating in a volatile environment and has learned that effective leadership is key if it is to continue to prosper. To examine how leadership has coped during the pandemic, EPCA had invited four senior executives from the petrochemical industry to take part in the ‘C-Suite Leadership Forum’, which constituted the business session for the first day of the Annual Meeting on 5 October.
Introducing the session, moderator Karin Helmstaedt stressed that the world we are living in this year is the ‘new normal’ and that we just have to keep calm and deal with it. The petrochemical sector is well placed to adapt to this new environment and there have been plenty of examples of companies pivoting in response to changing markets. There had been plenty of momentum on other issues evident at last year’s EPCA Annual Meeting, she said, and it is vital to keep that going. Furthermore, while the EU’s Green Deal might seem a challenge, industry has a lot of opportunity to shape how it will work.
EPCA president Marc Schuller, COO of Arkema, had a similar story to tell. In recent years the EPCA Annual Meeting has focused on the reinvention of the European petrochemical industry, in partnership with its international colleagues, for continued growth. “But no one expected the level of reinvention that would be required,” he said. Those trends that were evident last year are still there and will need to be addressed post-pandemic: an ageing population, the demand for a circular economy, the possible threat of ‘reshoring’, and coping with the energy transition over the next 30 years.
“All change presents risk,” Schuller said, “but the risk of doing nothing is greater.” The Covid-19 pandemic has offered a catalyst to speed up changes that were already in train and the post-pandemic new normal will involve constant change – it is impossible to find an end point.
BUILD BACK BETTER
Introducing the speakers, Helmstaedt challenged the panel to explain how the petrochemical industry can help the world to “build back better”. The first speaker, Martin Brudermüller, CEO and chief technology officer of BASF, said that, even without the pandemic, industry is looking at a range of challenges that have not been seen for some time, especially the growing conflict between the US and China. He expects that global competition will be even more fierce post-Covid and said that Europe still has to find a role in the world.
The EU’s Green Deal – an “unprecedented political project,” as he termed it – will place new and fundamental restrictions on the chemical industry’s business and dealing with both that and the coming energy transition will likely mean that margins will stay depressed. But the industry cannot just sit back and complain – it has to be part of the solution and, while it’s about it, make sure that politicians and the public are aware of that.
BASF has developed its own strategy for the current and upcoming challenges. First is a focus on operational excellence, driving operating expenses to the edge to get the most out, while understanding that it is necessary to allow investment to drive transformation. This is, Brudermüller said, crucial for all companies.
Second is making ‘chemcycling’ a reality. Industry makes a lot of noise about circularity but there has been little in the way of concrete action, Brudermüller said. It is vital for industry to stay ahead of regulation in this matter, which will mean it will continue to have a licence to operate. The petrochemical industry, he reasoned, has to be an enabler and “a friend of the Green Deal”. He described the circular economy as an opportunity; those that oppose it will be out of business.
Thirdly, BASF is using innovation in its push towards a low-carbon economy, something that Brudermüller said has to be at the top of the agenda. The necessary technology is not there yet and BASF is working hard, both on its own and with partners, to develop it. As an example he described the electrification of some of the company’s furnaces, which he said is “an exciting development”. There must also be a new approach to carbon management, to keep it in the system.
Creating transparency is the fourth imperative. Maintaining credibility is important so that customers know what chemical producers are doing. BASF has now calculated a carbon footprint for each of its products, which is provided to its customers.
Finally, Brudermüller said, “Do good and talk about it.” Trust in the industry is weak and it has to make a case for chemicals and get out of “complaining mode”. Since the EPCA Annual Meeting, Brudermüller has been appointed president of the European Chemical Industry Council (Cefic) and will be in a good position to drive that message home in the industry.
A transatlantic perspective was offered by Jim Fitterling, chairman/CEO of Dow. He began by saying that it seems foolish to try and look beyond the next few weeks but the signs are there. The pandemic has led to a retrenchment and a new focus on being leaner. This has led to accelerated restructuring, plant closures and delayed investment. Operating expenditure is at new lows and capital expenditure is at a premium. The entire industry is focusing on its core strengths, which has forced a very quick pivot, he added.
But no challenges come without opportunities and those that prosper in the post-pandemic world will be those agile enough to capture them. The pandemic has accelerated trends in environment, social and governance (ESG) and digitisation and strengthened the view that ESG is crucial. All customers are pressing for more sustainable product. Dow has responded by setting new sustainability targets, including reduced carbon emissions and closing the loop on plastics. This will, Fitterling said, “unleash an unprecedented level of collaboration” both horizontally and vertically.
Digitisation has shown its worth during the pandemic and, Fitterling added, data is the new raw material. The abilities provided by smart digital systems will be an advantage for some companies.
Thomas Casparie, executive vice-president of Shell Chemicals, said that the Covid-19 crisis has made the chemical industry’s critical role in society even more apparent, especially as manufacturers reacted quickly to deliver the products needed to cope with the pandemic. But the economic impact will likely increase the depth and length of the trough the industry is already in. The supply side is also stressed, with refiners struggling to adapt. This could point to an increase in the price of naphtha, he suggested, and a likely move by refiners into the production of base chemicals. “The long-term fundamentals are robust but there are a lot of challenges,” he added.
Meanwhile, consumer behaviour and expectations are changing. There is growing demand for more sustainable, circular products. Industry has all the ingredients to be able to change and deliver those products, Casparie said, “not because we have to but because it’s the right thing to do”.
CHANGE IS NEEDED
The chemical industry is one of the largest emitters of greenhouse gases and this has to change, Casparie stressed. There has been some progress but much more is needed, hence Shell’s pledge to become carbon-neutral by 2050. It also has a role in helping its client industries move to net-zero. A first step on this road is to improve energy efficiency at existing plant; Casparie reported that Shell’s Moerdijk plant is now producing the same volume of product with half the number of furnaces as it used to. It is also looking at introducing hydrogen as fuel for furnaces at other sites.
Shell also wants to be part of the solution to the problem of plastics waste, Casparie continued. Plastics material needs to have a value if it is not to just be discharged to the environment at the end of its use. Shell is currently working on using waste plastics as feedstock and is anticipating taking 1m tonnes a year out of disposal by 2025.
Collaboration is also going to be key. Innovation and risk sharing within the industry is an obvious move but this needs to go wider, bringing in authorities, NGOs and other interests. The chemical industry has to stop merely objecting to government policies and start playing a role with regulators to incentivise plastics recycling, Casparie said.
The fourth speaker was Bernard Pinatel, president of refining and chemicals at Total. Covid-19 has taught us that the world is uncertain, he began; the best way to cope is to focus on control – not just costs and cash but capital allocation, operations and safety. Diversification is also vital, in terms of sourcing, supply chains and in end markets. This is the best way to remain resilient in a world of uncertainty. Globalisation has worked well for many and industry should not go backwards by reshoring, he said.
The crisis has also been a test of leadership and, Pinatel stressed, communication is key. What would have happened if the crisis had come along 10 or 15 years ago? IT and digital communications have come a long way since then and have enabled organisations to move rapidly to remote working – and not just for office staff.
The climate crisis is also still there; during the pandemic, carbon emissions have fallen but not far enough to meet the targets set by the UN. Emissions reduction has to be a priority, both internally and within the industry’s customers.
Some solutions were offered during the panel discussion following the presentations, with Jim Fitterling expressing the strong view that decarbonisation will not happen without the contribution of nuclear power.
THE STRESS TEST
Presentations during the second day of the EPCA Annual Meeting were, as ever, devoted to supply chain and logistics issues. Introducing the day, Caroline Ciuciu noted that there were around 1,000 delegates registered for the first day, showing, she said, that “our network is vibrant and engaged”. Helmstaedt summarised the first day’s discussions, with the overriding message that Covid-19 has intensified the challenges facing the petrochemical industry but that leadership has stepped up to meet those challenges. It is clear that collaboration is increasing – and will stay that way – she said, and that the petrochemical industry has a pivotal role to play in re-emergence from the pandemic.
Dirk Verstraeten, director of global logistics procurement at Covestro Deutschland and chair of EPCA’s Supply Chain Programme Committee (SCPC), introduced the session, noting that there is action on sustainability and the circular economy within the logistics sector, which is aware that it will have a big role to play. It is fortunate, therefore, that supply chains are more agile and innovative than ever before, he said.
With the aim of opening up discussion, Peter Hinssen, author, speaker and co-founder of nexxworks, described 2020 as “the year the earth stood still” and said it has been “a great stress test”, both at work and at home. But he challenged the idea of the ‘new normal’, suggesting that we now find ourselves in a ‘never normal’ world. It is just as well that industry has invested heavily in IT in recent years; digital used to be the cherry on the cake but now it’s the cake. But in a ‘never normal’ world, the process of digitisation will never be over.
There have been fast changes in IT, climate and global politics, with each seismic shock triggering opportunities. The Covid-19 crisis has also accelerated changes in consumer and business behaviour, with a huge impact on finances. Hinssen’s message was that we had all better get used to such volatility as it will be norm going forward. “The comfort zone of the ‘old normal’ may be gone forever,” he cautioned.
In a world of constant flux, businesses need a vaccine or, as Hinssen had it, a ‘VACINE’. He preached Velocity (if everything is under control, you’re not going fast enough), Agility (learn to read the changes), Creativity (tap into the potential of your employees), Innovation (in products, services, technology and so on), Networking (“connectivity is everything”) and Experimentation (don’t be afraid of risk, lower the cost of failure). For the petrochemical industry in particular, Hinssen urged it to leverage the power of its networks.
“Think about the day after tomorrow,” Hinssen concluded. “Sense what’s going on, try new stuff, scale up and run with it. Move the dial up to 11!”
THE PEOPLE PEOPLE
Coming back to earth, Gina Fyffe, CEO of Integra Petrochemicals, said her company saw the pandemic coming, operating as it does with a major focus on Asia. Integra introduced new protocols in February and, she said, “rolled with the punches”, with relatively few outages. She said she found that the company’s systems were only as good as the personnel using them. “It was humans, working from home, that kept stuff moving,” she said. “It’s all still about people.”
At the start of the year, Fyffe said, she anticipated global overcapacity in many areas. But no one could have predicted the pandemic, which has changed the conversation and challenged industry’s ingenuity. So far things have gone reasonably well but failure is not an option. Companies need to consider their employees’ health as, she said, “our people are our greatest assets”. For a trading company like Integra, that duty of care extends to crews on ships, an issue of considerable concern due problems in effective crew changes in many parts of the world.
“Maybe we’re at the end of the beginning,” Fyffe continued, predicting that 2021 will be “a long year”. Operators should look now at supply diversification and inventory levels (“Just in Time may be Just Too Late”), as well as issues relating to ageing infrastructure. She also noted that supply chains are global in nature and national political agendas, trade sanctions and tariffs can backfire.
But we all now have the opportunity to review matters and adapt. After all, as Darwin noted, adaption is crucial for survival. Having young people in the team can help with that and, Fyffe concluded, “We need to keep recruiting, keep planning.”
Bertschi too had been alerted by its Chinese operation to the coming pandemic and, CEO Jan Arnet reported, the organisation in Europe went immediately to home working. But, like at Integra, Bertschi had to protect its workers out on the road or in depots. Overall, Bertschi switched rapidly to online systems, adapting changes that would normally have taken 18 months or more. The company established a task force to find answers to questions that had not yet been asked, and had to skip the planning and piloting stages for new systems and go straight to implementation. “That needed trust and communication,” Arnet said.
That process, though, revealed an innovative spirit that can now be leveraged to take the digitisation process even further. Bertschi is looking at estimated time of arrival (ETA) visibility for consignees, with logistics service providers linking data from various shippers; at the automisation of business planning and analytics; at diversified sourcing, greater flexibility and a reduction in working capital, and greater sustainability. This will involve bundling volumes to reduce part loadings, greater use of intermodal transport, clustering trucking operations, and avoiding the use of flexitanks.
“We have to take a long-term view,” Arnet said. “Think in generations, not in quarters.”
DEALING WITH UNCERTAINTY
The third speaker was Christian Kohlpaintner, CEO of Brenntag, who took office at the start of the year. “It’s been an interesting ride since,” he began. For him, the key learnings from the Covid-19 pandemic have been the ability of the industry to “keep the shop open”. Safety was obviously a priority, especially for its drivers. And the company had to deal with massive swings in demand from both customers and suppliers. There were new border controls and a great deal of financial uncertainty. On the other hand, the crisis focused minds and, he reported, Brenntag has enjoyed its best safety performance on record, partly due to quieter roads.
As a result of his experience so far, Kohlpaintner described three hypotheses, the first being a move from ‘Just in Time’ to ‘Just in Case’. Global networks and interconnected supply chains allowed uninterrupted supplies during the pandemic. Reshoring and nationalism are not the right answers to tackling the ‘new normal’, he insisted. Rather, things need to become even more diversified, with products having to switch between supply chains to keep moving. “We have to be smart and create a stable network of supply chains,” he said. “There will be other, unknown challenges coming and we need to be set up to deal with them.”
Kohlpaintner termed his second hypothesis ‘From Segregation to Integration’. Interfaces between people, and between suppliers and customers are becoming more integrated, driven by digitisation. Collaboration between all parties will ensure this journey will continue. Having personnel working from home challenged the idea of greater integration but, he reported, internal communications worked well and customer interaction stayed good. It did, though, raise concerns about the ability of sales teams to do their job as effectively as they would if they were out on the road seeing customers, suggesting that different ways of selling might be needed.
Finally, Kohlpaintner turned to sustainability which, he said, is turning from a fringe concern to a core element of business strategy. Companies should be aware of the short-term responses to the crisis and their potential impact on an organisation’s overall sustainability. In the medium term, the sector should look at the end-to-end supply chain and how it can be made more sustainable.
Challenged by Helmstaedt as to whether the pandemic has been a challenge or a crisis, Kohlpaintner said it was a big challenge – but that responding to challenges is what logistics providers do all the time. There was a lot of improvisation, a lot of communication and some luck. But with all players in the supply chain, from producers to end users, all in the same boat, they had to work and act together, responsibly. That is an important lesson for all.
QUESTIONS AND ANSWERS
Kohlpaintner also reasoned that work practices will have to change in the future; the set of capabilities in the organisation need to change; new skill sets will be needed. Just what are those skill sets? Hinssen urged companies to hire now for flexibility to cope with the coming changes. Fyffe agreed: while the older generation still has a lot to offer, young people are being hired for their potential. “We should be looking for people with plasticity of thought,” she said. They will need to be able to work across the organisation and not be kept to a well defined position. Arnet observed that, during the crisis, everyone felt more important – they were part of something bigger. It would be good to keep that feeling and take it forward.
Conversation continued with discussions on innovation, where Arnet said there is still plenty of room for work, especially in respect of reducing the environmental impact of transport by road. On-site operations can be more automated, he added, and there is still the opportunity to automate work processes; interactions need to be less transitional and more integrated through the supply chain.
There does seem, though, that there is still a reluctance in some quarters to integrate data sources and share information. Fyffe said that there is a lot going on but it is making things more cumbersome: there is a need for common platforms. Arnet responded that customers fear that standardisation will reduce flexibility and are wary of becoming locked into a particular system. The work that the European Chemical Transport Association (ECTA) is doing on standardising milestone information may help but, he admitted, connectivity has to remain agile.
The panellists also looked at the economic situation. Kohlpaintner said the chemical industry has not done too badly during the pandemic, forecasting that output might drop by around 5 per cent this year compared to 2019; Covid-19 has certainly been a shock but its impact will likely be less than the 2008/09 financial crisis. It has not been the same in other sectors, he admitted, and the petrochemical sector needs to prepare itself for the next shock and think about the day after tomorrow. Hinssen said that there is likely to be a long-term financial impact; Arnet agreed, saying that once central banks remove support we could be in for a very different environment.
Wrapping up the discussion, Verstraeten thanked the speakers for their inspirational words. The supply chain is more important than ever, he said: it’s been a lifeline during the crisis. But logistics remains about people. “Perhaps we will need different people - but people still matter,” he said.
EPCA is all about connecting, he concluded. “Let’s all reinvent the supply chain for the day after tomorrow.”
Another regular feature of the EPCA Annual Meeting is that the final lunch is accompanied by a closing speech from someone outside the industry. This year delegates had to make their own lunch arrangements but they still had the chance to hear from Professor Lin Boqiang, director of the China Centre for Energy Economic Research. Introducing him, Marc Schuller said that the stringent targets that China has recently put in place – to become net-zero by 2060 – will provide a challenge across industries.
Lin explained that China is spending a lot on emissions prevention and control but its ability to fund this work will be impacted by the impact of the Covid-19 crisis on economic growth, which was only 1.6 per cent in the first half of 2020. The fall in international trade volumes and changes in supply chains have increased unemployment and there has been a small decline in total energy consumption in the first half.
Looking more globally, there is a risk that the pandemic will support an anti-globalisation agenda. If this happens, national energy policies will focus more on domestic resources in the face of supply security issues; this will make it hard to allocate resources for clean energy and could also harm global cooperation in addressing climate change. It would also create difficulties for China in meeting its carbon neutrality target, which is already a major task.
One of China’s main problems is its reliance on coal, which accounted for some 58 per cent of 2019 energy consumption. Non-fossil fuels supplied around 15 per cent, which is well below the level of 26 per cent in the EU. In the short term, China will look to use more natural gas and less coal and oil but the transition is moving slowly. And, Lin said, it is hard to address coal consumption without looking at overall energy demand.
Lin said that China’s energy policy objectives for the next 10 to 20 years will need to focus on the development of ‘clean coal’ and growth in renewables; the 14th five-year plan, currently in development, will need to look at both. But clean coal is constrained by high costs and the potential to add to CO2 emissions; coal-to-oil and coal-to-gas are both limited by capacity. Policy support for carbon capture and storage or use will be needed, along with greater efficiency in the end-to-end energy chain. Energy storage will be vital too and, now that costs for solar power and other renewables have fallen dramatically, the focus is shifting form technology to developing the necessary infrastructure.
China’s petrochemical industry is also facing great challenges, Lin continued, with over-capacity in many areas. It will have to plan to develop renewable energy sources to meet the decarbonisation targets. Carbon asset management will maximise the value of carbon and drive emission reduction, he said.
Are the 2030 and 2060 targets for emissions reduction viable? Lin said that the government in Beijing would not have put them in place without thinking hard beforehand. It is, though, uncertain whether the plans in place will deliver the savings. The largest uncertainty, though, is US-China relations. And given the US position on climate change, China and the EU need to get together to form a consensus and continue to support action in this area.
Closing the conference, Marc Schuller handed the reins over to Hartwig Michels, president of petrochemicals at BASF, who has assumed the position of president of EPCA. The three days of the virtual Annual Meeting had been “very inspiring”, Michels said. “The sector has suffered but is playing a central role in people’s lives.” He praised the EPCA community for its commitment and energy as industry moves forward in the new normal.
Michels will certainly face a challenging period as EPCA president; one outstanding item to be decided is the nature of the 55th Annual Meeting, due to take place in October 2021. EPCA will take a view on how that event will look once it has had time to review the feedback from members on the virtual event. More information will be made available in due course at https://epca.eu.[post_title] => EPCA: Steer this ship [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => epca-steer-this-ship [to_ping] => [pinged] => [post_modified] => 2020-10-23 07:45:57 [post_modified_gmt] => 2020-10-23 06:45:57 [post_content_filtered] => [post_parent] => 0 [guid] => https://hcblive.com/?p=29581 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw )
EPCA's virtual Annual Meeting lacked the usual networking but delivered presentations of the highest quality and importance