The number of projects to produce olefins from coal feedstock has been increasing rapidly, with nearly 2 million t/a of production already operational, and several million more under development. This is merely one facet of a new push toward coal-based chemical production across the board, from ammonia and methanol to downstream dimethyl ether, urea, even gasoline and diesel. China has been at the forefront of these expansions, but other countries such as Australia and South Africa are moving ahead with coal-based chemical production and the US and India have also seriously considered such developments.
High oil prices have of course been the main driver, particularly for olefins and fuel derivatives, as well as the increasing use of natural gas for power production, edging out chemicals production in some places in the world. China in particular has faced rocketing demand for fuels and a lack of oil or gas to use to supply that demand. Indeed, until quite recently the orthodoxy was that high oil and gas prices would lead to a new focus on coal and other heavy feedstocks such as heavy fuel oil, petroleum coke, refinery bottoms and so on. Just this week I came across a report written as recently as 2006 by a leading consultancy – I will spare the company’s blushes by not naming them, but many of us were saying exactly the same thing back then – which said that coal to liquids production had reached a “turning point”, and could now become the feedstock of choice in a world where oil production may have already peaked.
Of course, in the world of basic chemicals there are few truly new ideas, and in some ways this is a question of turning the clock back to the first half of the 20th century, when the chemical industry was almost exclusively coal-based, before widespread car use had created the oil refining industry and before cheap natural gas had begun to displace coal as a feedstock for ammonia and methanol production. Indeed, it could be argued that in many ways this new era of coal-based chemicals is something of a backwards rather than a forwards step. One major reason is that in a world where global average temperatures are increasing, generating 50% more CO2 per tonne of fuel or chemical produced (as compared to natural gas) is not sustainable in the long term. Various ways of overcoming coal’s limitations on this score have been proposed, mainly revolving around carbon capture and storage (CCS). But this technology remains unproven on the grand scale that would be required, and is only really currently viable in areas where the CO2 can be used to re-pressurise declining oil and gas reservoirs.
And now, in just the past few years since that 2006 report, a new complication has emerged, in the form of shale gas. Shale gas has come to dominate ‘unconventional’ gas production in the US, eclipsing coalbed methane and tight gas production. US shale gas production increased by an astonishing 50% year on year from 2006 to 2010, and could soon be supplying 40% of all US gas demand. Were that to be replicated in China, which itself has massive resources of shale gas, then the future of the chemical industry could begin to look very different indeed.
Shale gas itself is of course not a panacea. There are genuine concerns about its use of water, especially in dry regions, the potential for aquifer contamination (albeit something often overstated by those with a vested interest in seeing shale gas falter), and the use and disposal of fracking fluids. Perhaps more seriously for its green credentials, some very recent studies have claimed that – taking into account the energy expended in drilling and fracturing the rocks – shale gas can actually in some situations be responsible for generating more CO2 than coal.
So it is beginning to look as though it may be a question of which feedstock – coal or shale gas – is best able to answer its environmental critics. In the meantime, a degree of caution on the current coal to liquids boom may be called for.
Wednesday 7 December 2011
Wednesday 5 October 2011
Ammonium nitrate faces unwelcome spotlight - again
The past couple of months have seen a renewed spotlight turned upon ammonium nitrate, after it has been found to have been used in a number of terrorist attacks around the world. The Mumbai bombings of 13th July and Anders Breivik’s attack on central Oslo on July 22nd have both been found to have used ammonium nitrate fertilizer as their base. On a visit to Islamabad in August, US Senator Robert Casey told Pakistani officials that the CIA estimates that 80% of all improvised explosive devices (IEDs) used in Afghanistan to kill and injure US and allied troops (there have been record numbers of IEDs this year, killing or injuring 368 US soldiers so far) are based on calcium ammonium nitrate fertilizer produced in Pakistan and smuggled across the border into Afghanistan. And now suspicion has also fallen upon ammonium nitrate in the car bombing of the UN compound in Abuja, Nigeria on August 26th.
The succession of incidents has led to intense discussion in governments across the globe, and the use of ammonium nitrate as a fertilizer has come under scrutiny of a sort it has not seen since the mid-1990s, in the wake of the 1993 World Trade Center and 1995 Oklahoma City bombings in the US, and the IRA’s 1993 Bishopsgate bombing and 1996 Docklands bombing in London. The reaction this time has been swift. Even in just the first few weeks following the new set of incidents the US Department of Homeland Security has finally issued its notice of proposed rulemaking on AN – something that was mandated by Congress in 2007 but left on the back burner. India likewise has dusted off its own plans for reclassifying AN with a high nitrogen content as an explosive, and there are also reviews under way in Europe, Norway, and other Scandinavian countries. It seems a fairly safe bet that there are likely to be further moves to regulate AN around the world. Already straight ammonium nitrate is banned as a fertilizer in China, Colombia, Afghanistan, Ireland, Germany and the Philippines. Might more countries follow suit? Could this be the end of AN as a fertilizer?
Outright bans are fairly unlikely, and there are still powerful arguments for continuing the use of AN, which has definite agronomic benefits in some climates, and which is widely and safely used as a fertilizer across Europe and the CIS – but the major threat that the compound faces arguably comes not from an outright ban, which has by and large so far only happened in countries where usage was already fairly low, but rather a gradual accumulation of regulations on storage, handling, transport and security which make it too expensive or impractical or even simply too much of a hassle to use, compared to urea or various NPKs. Many dealers in the US have already stopped handling AN fertilizer because of steadily growing restrictions, and those in Europe could begin to follow suit if the regulatory burden became too onerous.
To head this off, various methods have been proposed on the production side to try and reduce the risk posed by AN. The question of ‘tagging’ ammonium nitrate to determine its origin – something that was initially proposed in the 1990s – has been raised again, as has colouring it so that it can be immediately spotted by customs officials. There have also been the usual calls to blend AN with other substances to make it less explosive, although it remains is arguable to what extent this is truly possible and still have a usable fertilizer. Honeywell sells a mixture of AN with ammonium sulphate which it claims meets Department of Homeland Security guidelines, and during the 1995-6 lawsuit against ICI Explosives that followed the Oklahoma City bombing there was also mention of a patent filed by a Samuel Porter in the US which mixed AN with ammonium phosphates to reduce its explosive characteristics. However, calcium ammonium nitrate is arguably already an attempt at such a formulation, and yet has been successfully used as an explosive by the IRA and the Taliban, as the compound can be dissolved and the AN can be recrystallised from solution.
What will happen as a result of the current focus on AN is still very uncertain, but what is not in doubt is that manufacturers and users of AN face their greatest challenge in more than a decade.
The succession of incidents has led to intense discussion in governments across the globe, and the use of ammonium nitrate as a fertilizer has come under scrutiny of a sort it has not seen since the mid-1990s, in the wake of the 1993 World Trade Center and 1995 Oklahoma City bombings in the US, and the IRA’s 1993 Bishopsgate bombing and 1996 Docklands bombing in London. The reaction this time has been swift. Even in just the first few weeks following the new set of incidents the US Department of Homeland Security has finally issued its notice of proposed rulemaking on AN – something that was mandated by Congress in 2007 but left on the back burner. India likewise has dusted off its own plans for reclassifying AN with a high nitrogen content as an explosive, and there are also reviews under way in Europe, Norway, and other Scandinavian countries. It seems a fairly safe bet that there are likely to be further moves to regulate AN around the world. Already straight ammonium nitrate is banned as a fertilizer in China, Colombia, Afghanistan, Ireland, Germany and the Philippines. Might more countries follow suit? Could this be the end of AN as a fertilizer?
Outright bans are fairly unlikely, and there are still powerful arguments for continuing the use of AN, which has definite agronomic benefits in some climates, and which is widely and safely used as a fertilizer across Europe and the CIS – but the major threat that the compound faces arguably comes not from an outright ban, which has by and large so far only happened in countries where usage was already fairly low, but rather a gradual accumulation of regulations on storage, handling, transport and security which make it too expensive or impractical or even simply too much of a hassle to use, compared to urea or various NPKs. Many dealers in the US have already stopped handling AN fertilizer because of steadily growing restrictions, and those in Europe could begin to follow suit if the regulatory burden became too onerous.
To head this off, various methods have been proposed on the production side to try and reduce the risk posed by AN. The question of ‘tagging’ ammonium nitrate to determine its origin – something that was initially proposed in the 1990s – has been raised again, as has colouring it so that it can be immediately spotted by customs officials. There have also been the usual calls to blend AN with other substances to make it less explosive, although it remains is arguable to what extent this is truly possible and still have a usable fertilizer. Honeywell sells a mixture of AN with ammonium sulphate which it claims meets Department of Homeland Security guidelines, and during the 1995-6 lawsuit against ICI Explosives that followed the Oklahoma City bombing there was also mention of a patent filed by a Samuel Porter in the US which mixed AN with ammonium phosphates to reduce its explosive characteristics. However, calcium ammonium nitrate is arguably already an attempt at such a formulation, and yet has been successfully used as an explosive by the IRA and the Taliban, as the compound can be dissolved and the AN can be recrystallised from solution.
What will happen as a result of the current focus on AN is still very uncertain, but what is not in doubt is that manufacturers and users of AN face their greatest challenge in more than a decade.
Tuesday 26 July 2011
China looks to the future
China published its 12th Five Year Plan in March this year. Although the very notion of a Five Year Plan was copied from the old Soviet Union, and the concept remains a relic of central planning, this year the Chinese government is insisting that it be called a ‘guideline’ rather than a ‘plan’, in order "to reflect the transition from a centrally planned economy to a socialist market economy". Those who might be tempted to scoff at this as a purely cosmetic touch should at least consider just how far and how fast China has changed over the past decade, and how fast it is still changing. And the new plan shows that the Chinese government is fully aware of China’s problems with pollution and environmental concerns, sustainable growth and inequalities of wealth, and is attempting to take steps to tackle them. This is the first Five Year Plan to mention climate change, for example, and it sets a target for a 17% improvement in energy efficiency.
China is often excoriated as an example of unfettered economic growth and a ‘slash and burn’ attitude to the environment, but in fact the country is – at least in recent years – often more forward-thinking than its critics give it credit for. On a recent visit to China, I was struck by the sheer number of wind turbines that seem to have proliferated across the northern hills, to take just one example. China has revised its target for wind energy to generate 70GW by 2015, higher than the previous target for 2020.
However, China’s main feedstock remains inescapably coal, with 94% of China’s energy currently coming from coal. In attempting to convert this to other uses, possibly involving carbon capture and storage, syngas-based industries will continue to play a key part in China’s economy. Coal to olefins production will need to cover a forecast gap of 6 million t/a of olefins demand by 2015, and the current plans indicate that 5 million t/a of this could come from coal-based methanol to olefins (MTO) plants. The Five Year Plan targets 20% of olefin production to come from ‘diversified’ sources, which for China essentially means coal, and the successful start-up of the Shenhua Baotou plant in August last year has helped to alleviate some concerns regarding MTO as a process route.
Coal to liquids (CTL) production is also estimated to rise to 12 million t/a over the period of the 12th Five Year Plan, and the four huge synthetic natural gas (SNG) projects currently under development are scheduled to be producing 15 bcm per year by 2015, and the approval of a fifth project could take that to 20 bcm.
Ammonia and especially methanol production are also set to increase – methanol demand being bolstered by new national fuel standards on methanol and dimethyl ether (DME) which are due to be published this July. The previously fragmented nature of some of these industries, with small plants, difficulties in accessing coal and access to commercially viable technologies have emerged as the main roadblocks in coal-to-chemicals projects, and so China's National Development and Reform Commission (NDRC) has now set minimum project sizes required to gain approval; the minimum capacity for a new coal-to-olefins plant has been set at 500,000 t/a in terms of olefins, while a 1.0 million t/a limit has been set for coal-to-methanol projects, in order to gain suitable efficiencies of scale. This will be assisted by moves on the feedstock front; another key part of the 12th Five Year Plan is the streamlining of the Chinese coal industry, with the current 11,000 enterprises to be reduced to 4,000, mostly in the hands of 6-8 major coal groups. The bulk of the announced coal-to-olefins projects are from companies that have coal arms or utilities businesses with coal supply, thus ensuring feedstock supplies for the projects.
China has already come to dominate the methanol industry, and is the largest ammonia producer and consumer in the world. It looks as though it will also be setting the pace in the development of CTL, MTO, DME and many other syngas-based industries as well.
China is often excoriated as an example of unfettered economic growth and a ‘slash and burn’ attitude to the environment, but in fact the country is – at least in recent years – often more forward-thinking than its critics give it credit for. On a recent visit to China, I was struck by the sheer number of wind turbines that seem to have proliferated across the northern hills, to take just one example. China has revised its target for wind energy to generate 70GW by 2015, higher than the previous target for 2020.
However, China’s main feedstock remains inescapably coal, with 94% of China’s energy currently coming from coal. In attempting to convert this to other uses, possibly involving carbon capture and storage, syngas-based industries will continue to play a key part in China’s economy. Coal to olefins production will need to cover a forecast gap of 6 million t/a of olefins demand by 2015, and the current plans indicate that 5 million t/a of this could come from coal-based methanol to olefins (MTO) plants. The Five Year Plan targets 20% of olefin production to come from ‘diversified’ sources, which for China essentially means coal, and the successful start-up of the Shenhua Baotou plant in August last year has helped to alleviate some concerns regarding MTO as a process route.
Coal to liquids (CTL) production is also estimated to rise to 12 million t/a over the period of the 12th Five Year Plan, and the four huge synthetic natural gas (SNG) projects currently under development are scheduled to be producing 15 bcm per year by 2015, and the approval of a fifth project could take that to 20 bcm.
Ammonia and especially methanol production are also set to increase – methanol demand being bolstered by new national fuel standards on methanol and dimethyl ether (DME) which are due to be published this July. The previously fragmented nature of some of these industries, with small plants, difficulties in accessing coal and access to commercially viable technologies have emerged as the main roadblocks in coal-to-chemicals projects, and so China's National Development and Reform Commission (NDRC) has now set minimum project sizes required to gain approval; the minimum capacity for a new coal-to-olefins plant has been set at 500,000 t/a in terms of olefins, while a 1.0 million t/a limit has been set for coal-to-methanol projects, in order to gain suitable efficiencies of scale. This will be assisted by moves on the feedstock front; another key part of the 12th Five Year Plan is the streamlining of the Chinese coal industry, with the current 11,000 enterprises to be reduced to 4,000, mostly in the hands of 6-8 major coal groups. The bulk of the announced coal-to-olefins projects are from companies that have coal arms or utilities businesses with coal supply, thus ensuring feedstock supplies for the projects.
China has already come to dominate the methanol industry, and is the largest ammonia producer and consumer in the world. It looks as though it will also be setting the pace in the development of CTL, MTO, DME and many other syngas-based industries as well.
Egypt’s new powerhouse
A couple of months ago it was announced that Egypt’s Orascom, via its Dutch subsidiary OCI Nitrogen, had bought a 50% stake in the Pandora ammonia and methanol project in Texas. In conjunction with Deo van Wijk’s Janus Methanol, which holds the other 50%, the company will rehabilitate the old Beaumont methanol plant, with 250,000 t/a of ammonia production due to re-start by the end of this year, and 750,000 t/a of methanol production next year. The move is yet another sign that Orascom is now a major player in the global basic chemicals market, branching out with this purchase from nitrogen products into the methanol market.
It is only one of a flurry of developments in the past few years. Beginning with the purchase of the Egyptian Fertilizer Company in 2007, with 1.2 million t/a of ammonia-urea capacity at Suez, Orascom has also taken positions in Egypt Basic Industries Corporation (60%) with ammonia and now downstream ammonium sulphate capacity, Notore Chemicals in Nigera (a 23% share, later cut to 13.5%) – where another ageing ammonia-urea plant is being rehabilitated, Sofert in Algeria (51%), with a 1.1 million t/a urea plant now commissioning, and last year the company attracted worldwide attention with its 100% purchase of DSM Agro. It was also named as a bidder for Brazil’s Copebras in 2009, and more recently has also been in the frame as a potential purchaser of the Burrup Fertilizers Plenty River ammonia plant in Australia. While commenting on the Beaumont purchase CEO Nasser Sawiris said that the company is also considering a bid for BASF SE’s nitrogen fertilizer unit at Antwerp. In just four years the company has come seemingly from nowhere to become one of the top ten nitrogen fertilizer producers in the world, and it seems to have an appetite for more. March this year saw agreement with Maire Tecnimont, now owners of Stamicarbon, on project developments in sub-Saharan Africa.
The company can trace its origins to 1950, and remains 55% run by the Sawiris family that founded it. The group’s portfolio includes Orascom Telecom Holding – one of the largest operators in the Middle East, Orascom Hotels and Development, Orascom Technology Solutions, and Orascom Construction Industries (OCI) – the latter is the arm that has been responsible for the group’s move into nitrogen fertilizer production. The group has been widely recognised as one of the most dynamic companies in North Africa, as evidenced by its rapid expansion into nitrogen fertilizers and now methanol. The latest acquisition in Texas pushed OCI shares to 253 Egyptian pounds, valuing the company at $8.8 billion, while profits for Q1 2011 were up 77% on last year at $206 million on the back of higher ammonia and urea prices, and seemed unaffected by the turmoil in Egypt earlier in the year. OCI makes most of its money in Europe and North America now, with less than 10% from North Africa. Industry commentators have noted that the group’s investments have been canny ones, backed by low gas price contracts in Egypt - although there have been warnings that Egyptian gas prices may be set to escalate soon.
A few years ago, as traditional European and North American chemical producers continued to exit the basic chemicals sector, the assumption was that production would devolve either to large integrated oil and gas companies or to state-run firms in the developing world. However, Orascom is a symbol of the new dynamism and confidence of private companies based in Russia, the Middle East and North Africa, China, Brazil and other industrialising regions. It will be fascinating to see where they move next.
It is only one of a flurry of developments in the past few years. Beginning with the purchase of the Egyptian Fertilizer Company in 2007, with 1.2 million t/a of ammonia-urea capacity at Suez, Orascom has also taken positions in Egypt Basic Industries Corporation (60%) with ammonia and now downstream ammonium sulphate capacity, Notore Chemicals in Nigera (a 23% share, later cut to 13.5%) – where another ageing ammonia-urea plant is being rehabilitated, Sofert in Algeria (51%), with a 1.1 million t/a urea plant now commissioning, and last year the company attracted worldwide attention with its 100% purchase of DSM Agro. It was also named as a bidder for Brazil’s Copebras in 2009, and more recently has also been in the frame as a potential purchaser of the Burrup Fertilizers Plenty River ammonia plant in Australia. While commenting on the Beaumont purchase CEO Nasser Sawiris said that the company is also considering a bid for BASF SE’s nitrogen fertilizer unit at Antwerp. In just four years the company has come seemingly from nowhere to become one of the top ten nitrogen fertilizer producers in the world, and it seems to have an appetite for more. March this year saw agreement with Maire Tecnimont, now owners of Stamicarbon, on project developments in sub-Saharan Africa.
The company can trace its origins to 1950, and remains 55% run by the Sawiris family that founded it. The group’s portfolio includes Orascom Telecom Holding – one of the largest operators in the Middle East, Orascom Hotels and Development, Orascom Technology Solutions, and Orascom Construction Industries (OCI) – the latter is the arm that has been responsible for the group’s move into nitrogen fertilizer production. The group has been widely recognised as one of the most dynamic companies in North Africa, as evidenced by its rapid expansion into nitrogen fertilizers and now methanol. The latest acquisition in Texas pushed OCI shares to 253 Egyptian pounds, valuing the company at $8.8 billion, while profits for Q1 2011 were up 77% on last year at $206 million on the back of higher ammonia and urea prices, and seemed unaffected by the turmoil in Egypt earlier in the year. OCI makes most of its money in Europe and North America now, with less than 10% from North Africa. Industry commentators have noted that the group’s investments have been canny ones, backed by low gas price contracts in Egypt - although there have been warnings that Egyptian gas prices may be set to escalate soon.
A few years ago, as traditional European and North American chemical producers continued to exit the basic chemicals sector, the assumption was that production would devolve either to large integrated oil and gas companies or to state-run firms in the developing world. However, Orascom is a symbol of the new dynamism and confidence of private companies based in Russia, the Middle East and North Africa, China, Brazil and other industrialising regions. It will be fascinating to see where they move next.
Tuesday 5 April 2011
Feeding the world
The current difficulties that have engulfed several countries of North Africa and the Middle East have monopolised world attention for the past few months. However, what has had less media ‘airplay’ is the role that high food prices have played in stoking the fires of discontent. It is instructive to remember that the protests in Tunisia and Algeria that started the whole ball rolling began with food riots.
Prices for basic foods such as sugars, cereals and edible oils were at or near record levels this February, according to the UN Food and Agriculture Organisation. Their ‘weighted basket’ index of wholesale food prices is now at its highest level for 21 years – even higher than in the 2007-08 price spike. Wheat prices have risen by 74% over the past year, coffee by 94%, and corn by 88%, while sugar has risen 14% in price. In 2008, as global food prices reached their previous peak and countries around the world began to impose export bans on rice and other food crops, there were riots in dozens of different nations, in one of which – Haiti – the government was toppled. Are we about to see the same thing this year? There seems little doubt that the cost of living is contributing to the current anger and unrest in the Middle East, and could easily spread elsewhere. Other countries ‘at risk’ include much of sub-Saharan Africa, Central America, and Central Asia.
A major difference this year is that rice prices have so far not risen as fast as other food crops, helping to keep a lid on tensions in southern and eastern Asia. Last year was a bad one for food production, and especially grains. Rain in Canada, drought in Russia, a hard winter in the US which lowered yields on winter wheat and disastrous flooding in Australia all played their part in the shortage of grain, exacerbated by low global stocks still not replenished from previous crises. Wheat production will be down 4.3% in 2010-11 compared to the previous year, while demand has increased by 1.2%. There are worries about stockpiling and speculation driving prices higher still. In advance of northern hemisphere harvests, April and May this year could be particularly difficult months.
However, regardless of what happens this year, for the longer term food price inflation will be a major issue for countries around the globe to tackle, as the world’s population steadily rises towards 9 billion, and arable land resources are slowly eroded. The ultimate answer will have to come from a variety of factors, including further improvements in agricultural productivity, food distribution systems and greater nutrient use efficiency. Many have suggested, for example, that Africa needs its own ‘green revolution’ comparable to the one that India went through in the second half of the 20th century.
Fertilizers, especially nitrogen fertilizers, of course have a role to play in this situation. Regardless of gains that are made from increased efficiency of fertilizer use via balanced nutrition and micronutrients, some of the extra food will have to come from increased application in regions where fertilizer use is currently low. Achieving this will be a delicate balance between the interests of industry, farmers and consumers, to ensure that the first two are sufficiently rewarded to induce them to produce more, without placing too high a burden on the latter.
Energy markets also play their part. Fertilizer production consumes 1.2% of world energy use, according to the International Fertilizer Industry Association (IFA), and 94% of that energy goes into the production of ammonia, the most energy-hungry process and yet one of the most vital – at a rough estimate 50% of all people alive today owe their existence to the Haber-Bosch process. Moves towards carbon pricing in the fertilizer industry must also recognise the crucial contribution that ammonia producers make to global food security. Riots over food prices and collapsing governments can only serve to emphasise the urgency of the task in hand.
Prices for basic foods such as sugars, cereals and edible oils were at or near record levels this February, according to the UN Food and Agriculture Organisation. Their ‘weighted basket’ index of wholesale food prices is now at its highest level for 21 years – even higher than in the 2007-08 price spike. Wheat prices have risen by 74% over the past year, coffee by 94%, and corn by 88%, while sugar has risen 14% in price. In 2008, as global food prices reached their previous peak and countries around the world began to impose export bans on rice and other food crops, there were riots in dozens of different nations, in one of which – Haiti – the government was toppled. Are we about to see the same thing this year? There seems little doubt that the cost of living is contributing to the current anger and unrest in the Middle East, and could easily spread elsewhere. Other countries ‘at risk’ include much of sub-Saharan Africa, Central America, and Central Asia.
A major difference this year is that rice prices have so far not risen as fast as other food crops, helping to keep a lid on tensions in southern and eastern Asia. Last year was a bad one for food production, and especially grains. Rain in Canada, drought in Russia, a hard winter in the US which lowered yields on winter wheat and disastrous flooding in Australia all played their part in the shortage of grain, exacerbated by low global stocks still not replenished from previous crises. Wheat production will be down 4.3% in 2010-11 compared to the previous year, while demand has increased by 1.2%. There are worries about stockpiling and speculation driving prices higher still. In advance of northern hemisphere harvests, April and May this year could be particularly difficult months.
However, regardless of what happens this year, for the longer term food price inflation will be a major issue for countries around the globe to tackle, as the world’s population steadily rises towards 9 billion, and arable land resources are slowly eroded. The ultimate answer will have to come from a variety of factors, including further improvements in agricultural productivity, food distribution systems and greater nutrient use efficiency. Many have suggested, for example, that Africa needs its own ‘green revolution’ comparable to the one that India went through in the second half of the 20th century.
Fertilizers, especially nitrogen fertilizers, of course have a role to play in this situation. Regardless of gains that are made from increased efficiency of fertilizer use via balanced nutrition and micronutrients, some of the extra food will have to come from increased application in regions where fertilizer use is currently low. Achieving this will be a delicate balance between the interests of industry, farmers and consumers, to ensure that the first two are sufficiently rewarded to induce them to produce more, without placing too high a burden on the latter.
Energy markets also play their part. Fertilizer production consumes 1.2% of world energy use, according to the International Fertilizer Industry Association (IFA), and 94% of that energy goes into the production of ammonia, the most energy-hungry process and yet one of the most vital – at a rough estimate 50% of all people alive today owe their existence to the Haber-Bosch process. Moves towards carbon pricing in the fertilizer industry must also recognise the crucial contribution that ammonia producers make to global food security. Riots over food prices and collapsing governments can only serve to emphasise the urgency of the task in hand.
Tuesday 1 February 2011
Tomorrow’s world
I am a bit of a sucker for futurology. It probably comes of reading too much science fiction in my youth. In a sense all of us in any industry have to be futurologists of a sort; identifying trends, looking for the next growth area or the next business opportunity, and so on. Perhaps it is because we have just completed a year ending in ‘0’ and everyone is looking towards the next one in 2020, but there seems to have been a lot of futurology about of late. My attention was drawn particularly by a rash of reports at the end of last year from several consultancy companies – Deloitte, Frost & Sullivan and KPMG – which all aimed to pick out ‘megatrends’ that they believe will shape the future of the chemical industry over the next decade and beyond. Some companies have looked further still, out to 2050, where the future becomes hazy indeed.
Such reports are well-meaning of course, though hardly containing much that will surprise. Some of the predictions are easy and uncontroversial – demographic shifts are relatively predictable for some way into the future, economic shifts are predictable on a broad scale over the medium term, and resource trends likewise – again to a degree. The impact of increasing urbanisation and the rise of the BRIC countries on chemical demand, and the impact of the resource-rich Middle East on chemical production are already evident and equally evidently likely to continue. The centre of gravity of the chemical industry continues to shift, and the buyout of DSM Agro by Egypt’s Orascom is just one such straw in the wind. Occasionally unnoticed but equally relevant are other trends such as the growth of corporate ‘economies’. Measured against national economies, 46 of the top 100 global economic entities are now corporations rather than nation states. In 2007, WalMart, Exxon and Shell were bigger than Denmark, Iran and South Africa.
Some trends are more industry specific. The retreat of the ‘old’ European and North American chemical industry from commodity chemicals and into specialities is almost complete, except where those commodities are integrated into complexes which add value at various stages of the production chain. Frost & Sullivan single out the BASF ‘verbund’ integrated chemical complex concept as paving the way forward for the European and US industries, and increasingly likely to be exported to the developing world.
Likewise I am sure that the reports are right when they say that the industry will increasingly be driven by sustainability criteria, and not just in the developed world. China has discovered for itself the social and environmental costs of rapid industrialisation, and is working harder than many give it credit for to ameliorate them. I am also sure that they are right that we will see more use of bio-feedstocks and so-called ‘white biochemistry’ in chemical production, although I personally believe that poor economics and competition for scarce land and water resources will inevitably prevent any large-scale move towards biomass feedstocks for the commodity chemicals sector.
The difficulty with futurology is that it depends on continuing that line on the graph into the future. Provided that all trends stay constant, they are easy to predict. The problem is that they never do. There will always be geopolitical shocks like 9/11 or the fall of the Berlin Wall. And unfortunately, futurology is also at its most frustratingly vague when dealing with the impact of technology, which is especially problematic when making predictions about a technology-driven industry like chemicals. The drawbacks of futurology are clearly illustrated by one of the cult online phenomena of last year - a blog dedicated to reproducing a 1972 children’s book called 2010: Living In The Future. The book was originally written by Geoffrey Hoyle (son of the astronomer and SF writer, Fred Hoyle) and is an instructive and even nostalgic look at how we once imagined 2010 might be; a world of jumpsuits, automated kitchens, free public transport, supersonic travel and working for only three days a week as mechanisation provided increased leisure time. To give him his due, electric cars, videophones, videoconferencing and online shopping are all here as he predicted, but so are global warming, peak oil and suicide terrorism. And although the book was more prescient than most about the impact of computers on everyday life, in 1972 the internet was still something no-one could have quite imagined.
Indeed, perhaps its capacity to continually surprise us is the most encouraging thing about the future - it at least proves that it is still ours to create.
Such reports are well-meaning of course, though hardly containing much that will surprise. Some of the predictions are easy and uncontroversial – demographic shifts are relatively predictable for some way into the future, economic shifts are predictable on a broad scale over the medium term, and resource trends likewise – again to a degree. The impact of increasing urbanisation and the rise of the BRIC countries on chemical demand, and the impact of the resource-rich Middle East on chemical production are already evident and equally evidently likely to continue. The centre of gravity of the chemical industry continues to shift, and the buyout of DSM Agro by Egypt’s Orascom is just one such straw in the wind. Occasionally unnoticed but equally relevant are other trends such as the growth of corporate ‘economies’. Measured against national economies, 46 of the top 100 global economic entities are now corporations rather than nation states. In 2007, WalMart, Exxon and Shell were bigger than Denmark, Iran and South Africa.
Some trends are more industry specific. The retreat of the ‘old’ European and North American chemical industry from commodity chemicals and into specialities is almost complete, except where those commodities are integrated into complexes which add value at various stages of the production chain. Frost & Sullivan single out the BASF ‘verbund’ integrated chemical complex concept as paving the way forward for the European and US industries, and increasingly likely to be exported to the developing world.
Likewise I am sure that the reports are right when they say that the industry will increasingly be driven by sustainability criteria, and not just in the developed world. China has discovered for itself the social and environmental costs of rapid industrialisation, and is working harder than many give it credit for to ameliorate them. I am also sure that they are right that we will see more use of bio-feedstocks and so-called ‘white biochemistry’ in chemical production, although I personally believe that poor economics and competition for scarce land and water resources will inevitably prevent any large-scale move towards biomass feedstocks for the commodity chemicals sector.
The difficulty with futurology is that it depends on continuing that line on the graph into the future. Provided that all trends stay constant, they are easy to predict. The problem is that they never do. There will always be geopolitical shocks like 9/11 or the fall of the Berlin Wall. And unfortunately, futurology is also at its most frustratingly vague when dealing with the impact of technology, which is especially problematic when making predictions about a technology-driven industry like chemicals. The drawbacks of futurology are clearly illustrated by one of the cult online phenomena of last year - a blog dedicated to reproducing a 1972 children’s book called 2010: Living In The Future. The book was originally written by Geoffrey Hoyle (son of the astronomer and SF writer, Fred Hoyle) and is an instructive and even nostalgic look at how we once imagined 2010 might be; a world of jumpsuits, automated kitchens, free public transport, supersonic travel and working for only three days a week as mechanisation provided increased leisure time. To give him his due, electric cars, videophones, videoconferencing and online shopping are all here as he predicted, but so are global warming, peak oil and suicide terrorism. And although the book was more prescient than most about the impact of computers on everyday life, in 1972 the internet was still something no-one could have quite imagined.
Indeed, perhaps its capacity to continually surprise us is the most encouraging thing about the future - it at least proves that it is still ours to create.
Monday 15 November 2010
A tale of two gas industries
The new realities of the natural gas market can be seen starkly in the current difference in natural gas pricing on either side of the Atlantic. In the United States, the benchmark Henry Hub gas price has dropped below $3.50/MMBtu. While it is close to, albeit just a shade above last year’s record low, these prices are still some of the lowest seen in North America for many years. But even more surprising is the outlook as winter approaches. Storage is over 95% full, and US gas futures have dropped 40% this year. You can now buy US gas for 2011 on the New York Mercantile Exchange for an average of $4.10/MMBtu, including winter peaks as well as the current summer low.
This contrasts starkly with the received wisdom of just a few years ago, when US gas prices were looking like staying above $10/MMBtu a few years ago. But the promised US shortage of natural gas simply didn’t materialise. LNG cargoes have been left chasing buyers all over the world. Just this week Norway had to sell a ship full of LNG to South Korea, for want of anywhere closer. There has been a recession, it’s certainly true, and demand has fallen in most major markets. But that doesn’t seem to have affected the oil price very much. Brent Crude for December delivery is trading at $82/bbl.
Meanwhile, in Europe, natural gas prices at the UK National Balancing Point, Europe’s closest equivalent to a trading nexus like the Henry Hub in the US, are around $7.50/MMBtu. The UK still has plenty of North Sea gas and receives piped gas from Norway and some LNG cargoes to make up the difference, but the situation grows more serious the further east you go, into the arms of Gazprom and its near-monopoly on supply to some countries. Under increasing economic pressure, Ukraine increased gas prices by 35% in August, to $8.20/MMBtu. The price is unlikely to come down during the forthcoming winter.
The difference between the European and North American gas markets is a startling one, and it is a gap which has opened up only in the past couple of years. People are now actively talking about taking advantage of arbitrage – the US could soon actually be exporting LNG cargoes to Europe! And the difference has been made by US unconventional gas supplies, especially shale gas. The huge Marcellus Shale stretches through Pennsylvania and into New York state; only a stone’s throw from the major cities of the US east coast. It is far easier to export gas from Pennsylvania to New York than to bring it by ship from Qatar.
At the moment it is still far from clear how this revolution in gas production will play out. Critics are keen to point to water requirements for fracturing gas-bearing rocks, and the potential for contamination of aquifers in some parts of the world which are short of potable water. But so far the ecological doomsday scenarios do not seem to have played out in the US, a country where local environmental issues can quickly stop a project in its tracks. Consequently, interest has been quickly gathering in other countries. India is now moving ahead towards shale gas production, and China, perpetually short of energy, especially clean energy, as our feature in this issue discusses, has rapidly moved to its first auction of shale gas licenses. In Europe, some countries, the UK in particular, remain very wary of shale, but Poland hopes to break its dependence on Russian gas and is actively developing its own shales – first gas is expected to be pumped next spring.
Gazprom has been doing its best to talk down shale - as well it might, because there is the clear potential for something as radical as the transformation in the US gas market to happen elsewhere. Middle Eastern LNG producers must also be considering the wisdom of their investments, and whether their abundant gas might be more profitably used in other downstream ventures. This month also marks the commissioning of Shell’s massive 140,000 bbl/day Pearl GTL project in Qatar. Cheap gas and expensive oil surely make a process that can convert one into the other look much more tempting?
This contrasts starkly with the received wisdom of just a few years ago, when US gas prices were looking like staying above $10/MMBtu a few years ago. But the promised US shortage of natural gas simply didn’t materialise. LNG cargoes have been left chasing buyers all over the world. Just this week Norway had to sell a ship full of LNG to South Korea, for want of anywhere closer. There has been a recession, it’s certainly true, and demand has fallen in most major markets. But that doesn’t seem to have affected the oil price very much. Brent Crude for December delivery is trading at $82/bbl.
Meanwhile, in Europe, natural gas prices at the UK National Balancing Point, Europe’s closest equivalent to a trading nexus like the Henry Hub in the US, are around $7.50/MMBtu. The UK still has plenty of North Sea gas and receives piped gas from Norway and some LNG cargoes to make up the difference, but the situation grows more serious the further east you go, into the arms of Gazprom and its near-monopoly on supply to some countries. Under increasing economic pressure, Ukraine increased gas prices by 35% in August, to $8.20/MMBtu. The price is unlikely to come down during the forthcoming winter.
The difference between the European and North American gas markets is a startling one, and it is a gap which has opened up only in the past couple of years. People are now actively talking about taking advantage of arbitrage – the US could soon actually be exporting LNG cargoes to Europe! And the difference has been made by US unconventional gas supplies, especially shale gas. The huge Marcellus Shale stretches through Pennsylvania and into New York state; only a stone’s throw from the major cities of the US east coast. It is far easier to export gas from Pennsylvania to New York than to bring it by ship from Qatar.
At the moment it is still far from clear how this revolution in gas production will play out. Critics are keen to point to water requirements for fracturing gas-bearing rocks, and the potential for contamination of aquifers in some parts of the world which are short of potable water. But so far the ecological doomsday scenarios do not seem to have played out in the US, a country where local environmental issues can quickly stop a project in its tracks. Consequently, interest has been quickly gathering in other countries. India is now moving ahead towards shale gas production, and China, perpetually short of energy, especially clean energy, as our feature in this issue discusses, has rapidly moved to its first auction of shale gas licenses. In Europe, some countries, the UK in particular, remain very wary of shale, but Poland hopes to break its dependence on Russian gas and is actively developing its own shales – first gas is expected to be pumped next spring.
Gazprom has been doing its best to talk down shale - as well it might, because there is the clear potential for something as radical as the transformation in the US gas market to happen elsewhere. Middle Eastern LNG producers must also be considering the wisdom of their investments, and whether their abundant gas might be more profitably used in other downstream ventures. This month also marks the commissioning of Shell’s massive 140,000 bbl/day Pearl GTL project in Qatar. Cheap gas and expensive oil surely make a process that can convert one into the other look much more tempting?
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