EPCA's 2019 Annual Meeting revealed the extent and pace of change in the European petrochemical industry and how the supply chain is responding
Like any representative trade body, the European Petrochemical Association (EPCA) has to reflect the changes in the business environment that are affecting its members. It has to move with the times and help lead its membership through the changes that they face.
So much was obvious early on at this year’s EPCA Annual Meeting, which took place in Berlin this past 6 to 9 October. For a start, the nu`mber of smokers congregating outside the entrance to the InterContinental Hotel continues to diminish, with more electronic cigarettes on show this year. It was also somewhat hazardous at times, with middle-aged men in blue suits whizzing along the pavement on electronic scooters, readily available at points all around the city.
The theme of this year’s EPCA Annual Meeting was officially ‘Writing together the Next Chapter of the European Petrochemical Industry’, but president Marc Schuller, executive vice-president of Arkema France, explained it more succinctly as an opportunity to explore how the European petrochemical industry is reinventing itself in the new business environment. At the 2018 Annual Meeting, it had been suggested that industry was facing “the end of business as usual”; that has now been confirmed, Schuller said: chemical manufacturers and their logistics partners are having to work in an environment that is more uncertain, unpredictable and volatile than ever before.
FACE THE FUTURE
In this environment, Schuller said, EPCA’s role has to be to support industry and, therefore, it has to focus on the next chapter, to build on the 2018 Annual Meeting’s discussions of the implications of the move towards a low-carbon future. “Youth is calling for transition,” Schuller said. Industry has to embrace this new pace of change and be ready to meet the extent of the ambition for change.
It is not necessarily a transition to be afraid of; paradigm shifts can open up major opportunities, Schuller said, and the petrochemical industry is well placed to provide the products needed to move towards a sustainable world. His comments were picked up on by the event’s moderator, Karin Helmstaedt, who reminded the audience that it was now 30 years since the fall of the Berlin wall, which was supposed by some to be a marker of the ‘end of history’. And yet, today turbulence is the overriding background. “In turbulent times, Europe needs to focus on its strengths,” she said. In particular, that means its huge, well educated and highly skilled market.
The EPCA Annual Meeting took place just ahead of the arrival of a new European Commission, which is expected to be tougher on climate change issues than its predecessor. “Businesses need to look at how they are responding,” Helmstaedt said. “Standing still is not an option.”
To avoid standing still, it is worth knowing where we stand now so we know when we are making progress. “Economics is the study of progress,” explained Paul Romer, joint recipient of the 2018 Nobel Prize in Economic Sciences and former chief economist at the World Bank, and ‘economics’ can also explain why progress is good to have. He also posited a question to the audience: “What costs are you willing to bear now to provide your grandchildren with the world you want them to have?”
We live in a world of almost infinite possibilities, Romer said, limited only by finite resources. One thing that ‘progress’ can achieve is to make more out of those resources: Romer gave the example of the switch from the vacuum tube to transistors, which revolutionised the electronics sector and enable a vast expansion in the availability of products with a much lower impact on energy demand and resource consumption.
On the other hand, one measure of progress is life expectancy; after rising consistently in the developed world, the trend has stalled in recent years. Romer pondered why this should be, moving seamlessly into his main thesis, which is that the ‘market’, left to its own devices, will deliver some outcomes that are deleterious to humanity, society and the environment. It is the nature of industrial corporations that they concentrate on activities that are profitable; some of those will be beneficial to people and the plant, others will not; further, there are unprofitable but beneficial activities that will be overlooked.
“Governments play a role that the market cannot,” Romer said. Markets cannot be relied upon to achieve ‘progress’ and sometimes there is a need for a government that is firm and is willing to say ‘no’ to companies whose profits derive from activities that are harmful. The world has done this with chlorofluorocarbons (CFCs), which had been identified as the primary culprits behind the growth of the hole in the ozone layer, and the world, via its governments and supra-national organisations, now need to do the same with greenhouse gases (GHGs). There must be an incentive to reduce GHG emissions and, once that is in place a solution will emerge, Romer said.
He was critical of the economic mainstream that emerged in the 1980s, with its mantra that “government is bad”. Getting government out of the way has allowed the market to pursue harmful but profitable activities. “We’ve lost the capacity to say through our governments: ‘no, you can’t make money doing things that are harmful’,” Romer said, before concluding: “We don’t need less government; it’s in our interest to have our industry tightly regulated.”
WHAT INDUSTRY CAN DO
Joining Paul Romer on the stage at the opening session of the 2019 EPCA Annual Meeting was former EPCA president Tom Crotty, director of the Ineos Group, who gave some examples of ways in which his company is using technology to ensure growth in the future. In the short term, there is a pressing need to renew ageing assets, of which there are plenty in Europe. Ineos is taking a lead, investing €3bn in ‘Project One’, which will see construction of a 2 mta olefins plant in Antwerp, using low-cost propane and ethane feedstocks. This is, Crotty said, “the largest investment in the European petrochemical industry in a generation”.
Secondly, the drive towards a circular economy implies development of ways to achieve the chemical recycling of plastics – taking them back to the molecules – as mechanical recycling has its limits. Chemical recycling, on the other hand, has the potential to retrieve 100 per cent of plastics material. Achieving that potential will take time and the development of an integrated supply chain – where governments will have a crucial role. Ineos is examining a range of technologies and has also shown that, in the laboratory, it is possible to turn used yoghurt pots back into virgin polystyrene.
The emerging hydrogen economy is a “real opportunity” for the petrochemical industry, Crotty continued. Ineos currently produces hydrogen as a by-product of some processes and already uses it internally as a fuel; this may help point towards a model for a hydrogen fuel market and Crotty said Ineos is already active in several industrial and transport projects involving hydrogen in the UK, France and Norway.
Patrick Labat, senior executive vice-president, northern Europe, of Veolia confirmed some of Crotty’s points, noting that the European petrochemical industry has been so successful for many decades and has revolutionised the way we live; in the process of doing so, it has also taken plastics everywhere, even to places where there is no means of managing the waste streams. As a result, the petrochemical industry is seen as being the party most responsible for plastics pollution in the world’s oceans. “In fact,” Labat said, “all links in the chain are responsible.”
In early 2019 the Alliance to End Plastic Waste (AEPW) was formed, with broad participation on the part of petrochemical producers. Labat showed some examples of projects that have already been set up in south-east Asia to collect and recycle plastic waste and noted that “nobody has the whole solution, but together it’s possible”.
Indeed, the petrochemical industry needs to find more ways to use recyclate, otherwise there is no incentive to recycle plastics waste. This would also help industry reduce its carbon dioxide emissions, though it will also need to look at energy efficiency and alternative energies if those emissions are to be reduced to an acceptable level, Labat said.
AROUND THE TABLE
One innovation at this year’s EPCA Annual Meeting was a ‘Digital Café’ session devoted to digitisation and sustainability in the chemical supply chain. This followed on from work undertaken by Vlerick Business School and EPCA over the previous three years. Opening the roundtable session, Prof Ann Vereecke, partner at Vlerick Business School, highlighted the fact that climate change protests were happening in Berlin that very day and that ‘sustainability’ represents the next wave of environmental priorities.
Since Vlerick Business School started working with EPCA, a lot of progress has been made and Vereecke said she was “impressed by the speed of change” in terms of the digitisation of the petrochemical supply chain. However, she added, both industry and consumers now expect that the supply chain will be more sustainable. The question for the workshop was: can digitisation enable sustainability? Would a move from a linear to circular economy present a threat or provide an engine for growth?
Those who attended the Digital Café were invited to break into small groups to discuss the space where technology, sustainability, the circular economy and petrochemical supply chains meet. After reports from table representatives, the preliminary results were collated and presented back to the group by Prof Vereecke.
Sustainable value comes from increasing asset utilisation and from eco-efficiency, and industry is busy working on that, Vereecke said. However, it has not been easy to find examples of life extension projects or looped materials in the petrochemical sphere. Furthermore, she said, sustainability is become a more important driver for digitisation in the supply chain but it is not the biggest.
Indeed, the discussions brought up once more some of the barriers to greater collaboration that have thus far hindered a more rapid uptake of digitised networks within the industry, not least the need for standards and for a willingness for partners within the sector to trust each other with their data. As before, it is clear that pressure for digitisation is coming from the consumer, not from within.
The main focus of the digitisation process is to increase transparency and this can generate both optimisation within the supply chain and eco-efficiency, Vereecke said. Collaboration is important, she added, noting also that start-ups can offer learnings for industry – but that industry should not sit around and wait for them to emerge.
PEOPLE FOR THE JOB
It was clear elsewhere at the EPCA Annual Meeting that sustainability is a consideration that cuts right across business operations. EPCA’s Talent and Diversity Inclusion Council (TDIC) confirmed that by basing its business session around the topic of sustainability leadership, with Stephen Hahn-Griffiths, chief reputation officer of the Reputation Institute, pointing out that this goes back some 15 or 20 years. Initially, the idea of ‘sustainability leadership’ concentrated on the environment but soon spread to cover the impact of operations on humanity, which coalesced into the concept of Corporate Social Responsibility (CSR).
More recently, there has been an attempt to address the balance between business and responsible behaviour, meaning that sustainability leadership is directly tied to the bottom line. And the idea of the ‘triple bottom line’ – people, planet, profits – has given way to ‘purpose’: why does a company exist, and what are its morals?
CSR is now incorporated into the scrutiny given by investors, analysts, media, governments and the public, so cannot be ignored. The petrochemical industry is showing an improvement in its ratings for sustainability leadership, Hahn-Griffiths said, but it still does very badly compared to other industrial sectors. It is therefore time for action. “Be the kind of leader you want to follow,” he advised. “Take the initiative – don’t wait for the CEO to decide!”
Anyone can be a sustainability leader, it doesn’t have to be the CEO, agreed Prof Wayne Visser, holder of the BASF-Port of Antwerp Randstad Chair in Sustainable Transformation at Antwerp Management School (AMS), who reported on a study carried out by AMS and EPCA. Sustainability leaders need certain characteristics, which cannot be taught: they should have intrinsic motivation, display trustworthy behaviour, and show moral courage. They also need some capabilities that can be learned, such as ‘sustainability literacy’, visionary engagement and an ability to communicate openly.
ON THE RIGHT TRACKS
Of most interest to HCB readers was probably the business session on supply chain issues, led for the first time by Dirk Verstraeten, director of global logistics procurement at Covestro Deutschland, who took over the chairmanship of the EPCA Supply Chain Programme Committee (SCPC) from Bertschi’s Johan Devos earlier this year. Some might have thought that this session would veer away from sustainability when Verstraten began by saying: “Today the focus is on hardware,” but he went on to explain that the momentum within the supply chain is all about rail.
With containerships getting ever larger – the latest generation can carry around 23,500 20-foot containers – how can a port such as Antwerp cope with the rising volume of freight passing through its terminals? And there is more to come: Ineos is not the only chemical company to be planning investment in production capacity in Antwerp. In addition, recent problems with water levels on the Rhine have exposed the vulnerability of the German chemical industry to transport disruption in inland waterways.
All this points to a need to move freight onto the rails. “Can EU legislation help in developing rail capacity?” Verstraeten asked. “Let’s rattle the cage!”
First to take up that challenge was Peter Klaus, retired professor at Friedrich-Alexander University, who explained that ‘infrastructure’ is not just about physical assets, it’s what frames and channels (and restricts) logistics flows, and what determines the success of logistics businesses. “But it’s outside your control,” Klaus said.
The petrochemical supply chain – or, rather, network – is extremely complex, covering a wide range of consignment size, transport mode, and full- and less-than-truckload movements. This network is very asset-heavy and slow to change, and based on process-driven technology.
The petrochemical supply network is multi-dimensional, Klaus said, not only in terms of its physical and IT infrastructure but also the legal and regulatory framework and ‘soft’ infrastructure – the social and cultural forces the shape the world in which it exists and which allow it to function. It is, though, facing some severe challenges, congestion on the roads and rails and in terminals, “enormous” compliance demands, and the need to reduce fuel consumption and emissions. In the future, the picture will be complicated by selected public investment and by developments in technology, such as autonomous vehicles, platooning, smart roads and so on.
However, there is currently an enormous backlog in maintenance across the transport networks, which will soak up a lot of the investment coming into the sector, and it will take time to make these changes. Europe faces constraints in terms of the availability of land for expansion of the network and is also beset by some over-optimistic expectations.
Help may be at hand, though: growth in transport demand in Europe is levelling off and, in in terms of capacity growth, bottlenecks are being removed. There is, Klaus said, also a high level of awareness of the ability of digitisation to make a difference, along with growing political support for the transport sector. Take-up of digitised solutions is being held back by a lack of standards, the risk of cyber-threats, a global shortage of the necessary talent, and a brake from the culture of the petrochemical industry: the petrochemical logistics sector works on long time scales and its people have been trained to think within the established framework.
Klaus concluded with what he called some “obvious” messages: businesses need to take a 360-degree view to see what’s coming at them; don’t try to control everything – decentralise and devolve operations and decision-making; and resilience will depend both on investment in hardware and a willingness to adopt a new mindset.
PORT TO RAIL
As Antwerp had been mentioned several times already, it was fortuitous that Jacques Vandermeiren, CEO of the Port of Antwerp, was on hand to report on current and future developments. The port is looking to double the proportion of freight moving by rail by 2030; the question is: how? It should be achievable, he said; currently only some 7 per cent of freight moving through the port goes by rail, compared to as much as 40 per cent in Hamburg, which suggests there is room for growth and plenty of opportunity for rail operators.
To achieve a modal shift, though, the port must move from being a passive landlord to being an active community builder. A lot of ideas have already been thrown into the ring and some of them – hydrogen-powered tugs, a coalition on carbon capture and sequestration/use, for instance – have already been given the go-ahead. But Vandermeiren is aware that concrete solutions need to emerge urgently if the port is to hold onto its licence to operate.
Any talk about rail transport in Europe inevitably turns towards intermodal transport and Bernhard Kunz, managing director of the Hupac Group, was well position to inform the discussion. Hupac was founded in 1967 and is now moving nearly one million road transports onto the rails every year. Kunz agreed that maintenance has suffered over many years, but the work that is now being done is not being coordinated across Europe, leading to local capacity problems. As with road transport, the rail sector is also facing a driver shortage. The Rastatt closure in 2017 highlighted the problems of accessing a Europe-wide solution when drivers cannot easily work in other countries, and the fact that the vital rail corridor from Antwerp to Basel relies on just two tracks.
Kunz said there is a need for a single European rail area with full interoperability, more investment in infrastructure, and a reasonable solution to the problem of coping with both passenger and freight rail demand. “All stakeholders need to have input,” he said.
MOVING RAIL FORWARD
Also appearing on the stage during the supply chain session was Clemens Först, spokesman of the board of Rail Cargo Group, who began by saying that consistently moving 75 per cent of freight by road is not sustainable. “Rail is the only way to combine economic growth and climate goals,” he said. “We are now at a pivotal point – political will is building.”
Först spoke about the Railfreight Forward Initiative, instigated in 2018 by a group of rail operators across Europe to provide a common voice. It is aiming to increase the share of freight moving by rail to 30 per cent by 2030 – Austria and Switzerland are already at this level so it is up to the rest of Europe to catch up. One way to do this is to provide a level playing field in terms of cost: trucking puts a hidden cost on society in terms of emissions, congestion and road casualties, which is absent in the rail sector but is not reflected in the comparative price of moving goods by each mode; countries should provide subsidies to railfreight in order to reflect this, he said.
Först also echoed Kunz’s comments about interoperability: driving a train across Europe should be as easy as driving a car, he said – but it is not, and often for political reasons. Rastatt threw a spotlight on those issues, as well as on the lack of resilience. A lobby for the railfreight sector in Europe has long been missing, he added; this has been reflected in the lack of investment – “there are no votes in rail,” he said.
During the panel discussion following the presentations, Kunz said that things are changing, and a lot of investment is in the pipeline. However, the main corridors remain vulnerable and political considerations continue to block some developments.
Rail is also failing to take advantage of digitisation, it was agreed. Rail operators fail to provide enough information to their customers, and Jacques Vandermeiren said that more visibility would improve asset utilisation. That applies also to infrastructure operators: he added that the Port of Antwerp cannot get decent rail traffic information from Infrabel, the Belgian infrastructure owner. “We don’t have a clue how many trains come in and out of the port,” he said. “This has to change, and as soon as possible.” Kunz agreed: “We get plenty of data from our customers and rail operators but nothing from infrastructure operators.”
Rail infrastructure is widely seen as a matter of strategic national importance, so it is perhaps not surprising that infrastructure owners remain largely under state control and are by definition state monopolies, with all the implications that has for inefficiency. However, there seemed to be no appetite for liberalisation or privatisation in the sector. Rather, a coordinated approach at EU level is seen as an urgent need.
Summing up the panel discussion, Verstraeten asked: “We are connecting Europe to Shanghai, why not Antwerp to France?” It is a question of legislation, he felt, and urged industry to join forces and make a noise in Brussels. “Let’s make things happen in 12 months, not 12 years,” he said.
Speaking to the press after the session, Kunz questioned the assertion that there are not votes in rail, noting that youth are the voters of tomorrow and they are the people who care that rail reduces carbon dioxide emissions by 90 per cent. Furthermore, people sitting in traffic jams see plenty of freight vehicles around them and might start wondering why that freight doesn’t move by rail instead – and people sitting in traffic jams are also voters.
On the question of infrastructure, Kunz said that corridor managers have to be empowered as, at the moment, they are at the behest of infrastructure owners. In addition, there needs to be a means of guaranteeing slots for freight on the rails; who will invest in rolling stock if there is no guarantee of service?
OUTLOOK FOR TRADE
EPCA’s Annual Meeting always closes with a lunch, wrapped around presentations to the winners of the European Youth Debating Competition and a speech by a high-profile speaker. This year that speaker was Pascal Lamy, former director-general of the World Trade Organisation (WTO) and former EU Trade Commissioner, and now chair of the Paris Peace Forum. Given the recent revival in the use of trade and tariff wars, this was a highly appropriate move by EPCA.
Lamy attempted to give his audience an understanding of the medium- and long-term factors shaping the industry. Some of these are clear, he said: demographic changes are increasing the proportion of the elderly in the population, while there is a huge expansion of the middle classes, especially in Asia, which is adding immensely to consumer demand; new technologies are emerging quickly, notably digitisation, AI and biotechnology; there is a new “political wave” in terms of ecology and a focus on plastics pollution; and the beginnings of the transition to renewable energies, with a likely impact on raw material prices.
What is less clear is the pace of global economic growth, which looks like being slower in Europe (around 1.5 per cent a year) than in the world at large (around 3.5 per cent) – and that assumes no repeat of the 2007/08 “surprise”. Lamy noted the recent rise in populism, nationalism and authoritarianism but said this should remain contained, noting that there has already been a reaction – although China will remain the big exception. Speaking of that, he saw no hope of a rapprochement between the US and China, which is likely to affect the US hegemony more than it hurts China – so brace for some turbulence!
That disconnection between the US and China will be particularly apparent in the technology sector, Lamy predicted, not least due to concerns about security vulnerabilities. This is not all doom and gloom, though, and could generate opportunities for tech companies in Europe and elsewhere in the world.
The potential for serious deglobalisation is less clear, but there are already signs of a move away from broad integration. Existing business patterns are set up to work with price and demand differentials, and globalisation is efficient – although it causes pain for some. The process of deglobalisation will be inefficient and will also cause pain and bring costs – Lamy mentioned Brexit as a prime example. However, the cost of disentanglement in the petrochemical sector will be too high, he said, and there is no political pressure for it to happen – the same is true in the food, automotive and consumer goods sectors.
Lamy then moved on to look at the implications of the new European Commission, which he predicted will be ‘greener’ than its predecessor and will also take a stronger stand on sovereignty issues in areas such as defence and trade. There will be increasing regulatory pressure, some of which will affect the petrochemicals sector, and a likely rise in carbon prices. Carbon price adjustments at borders are good in part, he said, but will increase the price of imports. More promisingly, there should be more investment in research and innovation under the new Commission.
In the short term, Lamy said, the EU will have to decide the nature of its relationship with the US and China; will the three systems converge or diverge? And in the very short term the impact of Brexit is still unknown. Lamy likened it to “a big vehicle moving very fast with no driver” and said that, if and when it takes place, the big question will be the nature of the future trade and economic relationship between the EU and UK. In the end, he predicted, there will be no difference – there will be no tariffs, though any regulatory divergence could cause problems. It would be “politically stupid” to do that though – a comment that was little succour to the Brits in the audience who have become used to political stupidity over the past three years – and would be costly. In his opinion it will be “BINO” – Brexit In Name Only.
Wrapping up proceedings, Marc Schuller said his main takeaway from the 2019 Annual Meeting is that paradigm change, especially in terms of sustainability, reminds us that nothing lasts forever and that ‘business as usual’ is no longer the answer. “Industry has reinvented itself before,” he said, “we must do it again.”
The final flourish, as always, was to announce the venue for the 2020 EPCA Annual Meeting which, to no great surprise, will be Budapest. The event will take place from 4 to 7 October and the main hotels in Pest are already booking up. More details will made available on the EPCA website.[post_title] => EPCA: The next chapter [post_excerpt] => [post_status] => publish [comment_status] => open [ping_status] => open [post_password] => [post_name] => epca-the-next-chapter [to_ping] => [pinged] => [post_modified] => 2019-12-02 17:29:56 [post_modified_gmt] => 2019-12-02 17:29:56 [post_content_filtered] => [post_parent] => 0 [guid] => https://www.hcblive.com/?p=13507 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw )
EPCA's 2019 Annual Meeting revealed the extent and pace of change in the European petrochemical industry and how the supply chain is responding