Global economy shifts to regional production

21 June 2018

By Sietse Wiersma and Diana Taylor

Given the pressure to reduce ­climate change, we may see the world move towards the ­regional production of consumer goods and ­intermediates – looking to satisfy a local ­market without the need for global ­distribution. But what will be the effect on the cost of production and will it be supported by the market and consumer? Who will be the first to force production back onto home turf? And what impact will it have on the ­European chemical industry as a whole?

Whatever one may think about the cause of climate change, it is undeniable that ­global warming has ­become a political topic. ­Almost all countries signed the Paris Agreement, which promised to adopt measures to keep the rise in temperature below 2°C.

In this article, we look at various ­factors in this discussion; the energy at hand, the ­multimodal logistics and the effect a move ­to ­regional production will have on the ­chemical industry.

Governments worldwide are encouraging a ­reduction in the use of coal, oil, and gas as a base for energy production. Alternative sources, which are mostly concentrated on wind, solar, tidal, nuclear and the energy derived from biomass, are being explored across the world. Turbines have become a regular feature on almost every skyline, with each generation larger and more powerful, ­especially those at sea. ­Multiple roofs and land areas are covered with solar panels which have become more efficient over time. In addition, several ­research labs are experimenting with larger and smarter batteries. Hydrogen – not an energy source – is promoted as a car fuel. Hydrogen can be ­produced by using the power of ­turbines during times when energy ­production exceeds ­energy demand.

Finally, biomass is an exceptional form of alternative energy. Either it is processed to ­produce energy directly, or components are used to make chemical base products while the residue is processed into energy. ­Although the use of biomass sounds promising, it has a parallel downside. As green as it may sound, carbon dioxide emissions are significant and add substantially to ­overall process emissions. This rate of ­emission far outstrips the absorption of ­carbon dioxide by the replacement of trees. As much as wood can be considered a raw ­material for the chemical industry, the most optimistic prediction is that it will ­comprise only 10% of the required volume.

These developments together sound ­amazing and suggest that we could soon be leaving the era of fossil fuels. However, one of the big oil companies recently revealed that in a worst case scenario, its consumption of oil as a fuel will be a ­dominant contributor to ­energy production in the next decade. The ­energy transition is ­certainly not just a matter of flicking a switch.

And yes, we must look at alternative energy sources, knowing that coal, oil and gas are not infinitely available, and yes, we must be ­careful to use all the available energy sources efficiently to save as much as possible for ­future generations.

But no, despite all the promising headlines and tantalising views of a future without coal, oil and gas, we will be largely dependent on fossil fuels for a long time yet. What is promising, is the fact that the less coal, oil and gas that is used for transportation, the more these raw ­materials will be available for the chemical industry. As is widely known, no more then 5-10% of the current usage of coal, oil and gas is used by the chemical industry, and thus lower ­demand will result in more ­competitive raw material prices in the chemical market. And as no one is expecting lower demand for products – despite the call for a circular ­economy – for everyday life, the ­future looks bright for the chemical industry.

Source: ICIS Chemical Business, Full article available at ICIS.com  Global economy shifts to regional production 

Sietse Wiersma is president of the European Chemical Site Promotion Platform (ECSPP) and a strong ­believer in the future of the chemical industry in Europe. Email: sietse-wiersma@planet.nl
Diana Taylor is a business transformation consultant specialising in chemical ­clustering, and managing director of Marketing Humber, which seeks to ­promote The Humber region in the UK. Email: dtaylor@opala-consultancy.co.uk

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