A key component of the modern world economy, the chemical
industry delivers products and innovations to enhance everyday life.
It is also an industry in transformation where chemical executives and workers
are delivering growth and industry changing advancements while responding
to pressures from investors, regulators, and public opinion, discover how
leading companies are approaching these challenges here on the chemical show.
Join Victoria Meyer, president of Progressio Global and
host of the chemical show.
As she speaks with executives across the industry and learns how they are leading
their companies to grow, transform, and push industry boundaries on all frontiers.
Here's your host, Victoria Meyer.
Victoria: Hi, this is Victoria Meyer.
Welcome back to The Chemical Show.
So in today's episode, it's a bit of a unique episode.
I recorded most of it at the WPC World Petrochemical Conference, 2024.
Which was held in Houston.
, just a couple of weeks ago.
As part of my intro, I'm just going to give you the three things that really were
in focus for me during the conference.
And I think for others as well, and number one is the energy transition
and the critical role that chemicals has to play with the energy transition.
The second piece is around supply chain and.
Um, 20, 24.
Much like 20, 21 and 2022, I think is the year, the year of the supply chain, right?
Since we've had some dramatic, uh, challenges with it so
far, already this year.
Um, and I have a great conversation that I had with Rahul Kapoor from S&P Global that
you'll be hearing, um, and a little bit.
And then the third thing is that really this expectation
of a future upside, an upturn.
Probably not till the end of the decade.
So don't be looking too closely for upside because what we really
know is that there's dramatic oversupply currently in many markets.
So, you know, as a chemical industry leader and I'm kind of drawing my
conclusions first here, this time as a chemical industry leader.
What can you do about this and with this, and when you listen to the, to
this episode, and as you're thinking about it, Um, What can you be doing?
And so, number one, I would say, first of all, is understand the role
that you and your company play in the energy transition, whether it's
providing products for new technologies.
Right.
When I think about.
Batteries and EVs and even, uh, solar panels and solar cells
and a wide variety of things.
There is no doubt that the energy transition is not
possible without chemicals.
So that's one piece, um, And then the second piece that goes with it as
around, you know, reducing your footprint and your carbon footprint while still
supporting growth, maybe is a little easier said than done, but nonetheless,
that's, that's one of the considerations.
The second piece is around building supply chain resilience.
So we've been talking about this for a few weeks on and
off here on the chemical show.
Um, and really for a couple of years, about the importance
of supply chain resilience.
This year's events with crisis and the Red Sea and a crisis in the Panama Canal
have created some dramatic challenges.
Um, What does that mean for you?
And what do you need to be thinking about doing is number
one, building optionality, right?
So understanding your options and alternatives as it
relates to your supply chain.
And then number two.
Um, looking at alternatives, right?
So, uh, alternatives in product.
At alternatives and supply points.
Alternatives and suppliers.
Having a really robust strategy and frankly not just a strategy.
An execution plan that's been tested and understood and is
ready to go is really critical.
The third piece is preparing for a future upside.
So there is investment underway, even though markets are long and they're
going to be long for quite a while.
However, as we all know, this industry is cyclical and
markets will tighten up again.
So, um, preparing for that future upside with financial discipline.
And in fact, one of the speakers on stage talked about the fact that,
um, the focus right now and for the next several years is truly financial
discipline, particularly in Asia.
It was a, a speaker from Asia who was referencing this and financial
discipline is really critical.
And then practice playing a long and strategic game.
So, what I mean by that is really looking at today's markets and
responding, but don't over respond.
However understand the markets and the products where you are going to be winners
and losers in the longterm and positioning yourself to move into those markets,
finding opportunities to differentiate.
Right.
And differentiation is key.
What I think is interesting.
You'll hear from me later.
And, and this was a topic of conversation with folks when we were talking about
like who's paying for it and how do we pay for quote, unquote green.
chemicals, whether it be green ammonia, green, hydrogen, uh, other
products would even talk a lot about green surfactants and bio-based
surfactants throughout these.
Nobody really wants to pay more for what is effectively a drop in replacement.
So therefore figuring out how to create meaningful differentiation.
Understanding your markets, understanding what you're bringing
to tape the table, what your customers need and differentiate,
differentiate, differentiate.
That's probably my number one message for you guys today.
We're going to segue over to our onsite recordings.
And let me know what you think about today's episode.
And if you were at WPC, what you heard and saw and what your takeaways were.
We'd love to hear from you.
Hi, I'm recording today at the WPC World Petrochemical Conference 2024,
which is sponsored by S& P Global.
The theme of this year's conference is Positioning for the Next Upturn.
And it's actually been a really interesting mix of conversations both
on stage and off stage about what that actually looks like because there is, you
know, a number of key themes around this.
One of which, and in fact, this is the overarching theme, is that,
yes, well, we're in a bit of a downturn at the moment, right?
There's no doubt.
Supply, or demand is flat, or appears to be relatively flat.
We're in oversupply.
Inflation has had an effect.
What's going on in China has had an effect.
Interest rates have had an effect.
Yet, the industry continues to be cyclical, and that we are
clearly poised for an upturn.
Maybe not this year or next year.
But certainly when we think about by the end of the decade, there is
an expectation of significant growth and investment restarting globally.
So a couple of big themes that we talked about here
at the conference that I think are just worth sharing.
Number one is decarbonization.
In fact, I spent a lot of time this week in conversations around
decarbonization, hearing from people on stage as well as off stage.
And so what's really interesting is the onstage carbon onstage conversations for
80 percent of the time where basically that, Hey Decarbonization is here.
We need to get there.
Um, we need to be investing in hydrogen.
We need to be reducing our greenhouse gas emissions.
We need to be targeting 2050.
And yet, um, aside from one bold panelist who talked about how we're
paying for this, that, that was really primarily the sidebar conversation.
Almost every break I was in after every panel or every
discussion was Decarbonization is great, but who's paying for it?
The investment in hydrogen, ammonia, methanol, um, as the future of the
energy transition is expensive.
It's expensive, it's costly, it requires a public and private
partnership, and it's not yet clear, really, who's paying for it.
Because, of course, there's a conundrum, and, and you guys know this, and I know
this, and, is that, um, People want or think they want sustainable products.
They want greener products.
They want products with a lower carbon footprint.
However, they need to be offering something more.
Otherwise they're not paying for them.
And so this is a little bit of a dilemma I see is that, you know, if
we think about some of these products that are very much commoditized,
um, let's take ammonia, for example.
Ammonia is ammonia is ammonia.
Now, okay, somebody who's producing and selling ammonia, you might tell
me differently, but the reality is it is very much a commodity product.
And so there needs to be a bigger differentiator.
People are not buying on product alone.
What is the rest of your differentiation story?
And that is something that frankly, we did not talk about a lot here on
stage, but I think it's something to talk about and we'll be continuing
to talk about on The Chemical Show.
Cause as you guys know, I like to talk about the customer experience,
how you differentiate your business.
Um, and, uh, How you really create value and you're not creating
value by doing the same thing.
You have to create value by understanding your customers' "why".
Creating a differentiation, whether it be in product or in service or an offering
or how you package it all together.
Um, and that is where the value comes in.
/Hi, I'm here with Rahul Kapoor from S& P Global today here at WPC 2024.
Um, and we're going to be just talking a few things about the shipping
industry and what's going on there.
So, Rahul, thanks for joining me.
/ Rahul: /Thanks, Victoria.
Good to be at WPC and welcome.
/ Victoria: /So, first of all, let's just talk about what's
going on in shipping today.
/ Rahul: /Sure.
I think if you look at the shipping industry, right, or rather the
shipping markets, what we are seeing today is it's in the midst of what
we call a geopolitical storm, right?
If I take you back three years, it started with COVID.
We had all the supply chain disruptions, massive ones at the end, right?
So we had port blockages, we had all the stuff at the other end of the
world, and we were waiting for all the Uh, shipments to arrive in the U.
S.
and other markets, right?
So we went through that, it normalized, freight rates corrected, freight rates
actually went to record highs, we were actually looking at 20, 000 per
TEU, and that has made an impact on many of the chemical companies, right?
So the whole supply chains were disrupted.
We went through that, then we had Russia, Ukraine, right?
I think that led to many trade flow changes.
When you look at the pet camps, when you look at the oil markets and so
on, so that had an impact as well.
And just recently, back in November, we had this Red Sea crisis, right?
So back to back, shipping has been facing some of these geopolitical crises.
Uh, just talking about the Red Sea, and if, uh, you want to go
there, because that's a major disruption which we're seeing.
/ Victoria: /Yeah, let's, let's talk a little bit more about the Red
Sea, because obviously, you know, we thought things had normalized.
And then along comes the Red Sea crisis, which is a crisis,
you know, not just for shipping.
It's certainly a humanitarian crisis and a crisis for the people in the region.
But as we think about the relationship and what it means
to chemical shipping, can you
/ Rahul: /I think there are two parts to it, right?
So first of all, Red Sea or the Suez Canal is a global artery
for maritime trade, right?
You can call it a super my time highway, the 20, 000 ships which pass through that
around 20, 25 percent of the global Uh, container trade, then you have almost 8
million barrels of products and crudes, including chemicals passing through
it, both eastbound and northbound.
And then you have LNG LPG, right?
So it's, it's a major highway, uh, my time, super highway.
What we have here is we have to understand that, uh, uh, within the
commercial shipping, there's a principle of freedom of safe navigation, right?
That's been severely challenged.
These are commercial ships which are passing through a narrow channel
and they become an easy target.
Uh, the only time we've seen that is back in 1980s when we
had the tanker wars, right?
But otherwise commercial shipping, despite the wars and all of
that, continues to flow through.
So essentially coming here is we've seen almost 80 percent off.
Container trade, which has been diverted, right?
What that means is you're spending more time at sea, additional two weeks on.
So that is high inventory cost, right?
We did hear about some of the European customers, particularly suffering
because of this high inventory cost as well as most, uh, time at sea, right?
So there is a bit of a disruption.
The good thing was demand is soft as we were talking earlier, right?
So I think that has helped and some of the capacity has been, uh, coming back.
So overall the impact on prices, freights are still higher, but they're
not to the level of it's, it's not as bad as COVID it is bad, but nothing
comparable to what we had back then.
/ Victoria: /Right.
So I think most chemical companies would not think that demand
being soft is a good thing.
But as you point out, in, in context of combining it with the shipping
crisis, it certainly has eased some of the, the concerns and the height of
what the disruption could really be.
That's a good idea.
Yeah.
So, so let's talk about, um, how this, these geopolitical
challenges start factoring in.
And there's a couple of things that.
When I talk with companies, we're talking about, one of which is
regionalization, and when we look at potentially shifting to more regional
supply chains, and in some ways regional independence of supply chains.
/ Rahul: /Certainly.
I think if you go back and the global, if you say the global economy has benefited
from globalization in that sense, or the world trade, right, since China
joined WTO, essentially, you've seen a lot of increase in the global trade
coming out of 2012 14, when we started seeing some of these companies as well
as some of the policymakers talking about a bit of protectionism, right?
We started seeing that some of the tariffs which came about.
So the global trade still continues to grow.
But COVID actually brought to the fore what we call supply chain resilience.
And last year at WPC, we actually did that track was the supply chain resilience.
And this year we're doing decarbonization, right?
Supply chain resilience is very important.
And that was challenged massively in the COVID time.
So there is a small effort towards what you would call
a French shoring, reassuring.
Right?
Some of these, but China still stays at the center of the global
factory of the world, right?
It's a very long drawn process.
We've seen some of that move to Vietnam, India, and so other places, but it's
a very slow process I would say.
/ Victoria: /Yeah, definitely.
And one of the things I've seen and have heard is that there's some of
this regionalization is kind of North South instead of moving East West, that
we're going to see more North South.
Which I also think ties into decarbonization, because when I think
about supply chains and the effect that they have on emissions, and certainly
Tier 3 emissions, which is, is due to the supply chain, um, It makes
sense to have shorter supply chains.
So what do you see happening from that space?
/ Rahul: /That's one of the key topics which we are covering at WPC, right?
Uh, I'm doing a track chairing essentially called decarbonization of supply chains.
The first session is about this chemical value chain and the second
is about the transportation, right?
It is at the core of what's going to happen over the
next 15, 20, 30 years, right?
Uh, if you look at particularly on the transport side, right, and we talked
about Red Sea, Uh, energy security essentially means that the ships
which are rerouting now are emitting three times to four times more.
So in the times of energy security, the sustainability goals take a hit because
the ships have to reroute, they're speeding up, they're spending more time
at sea and burning more fuel, right?
But if you look at what, where we are coming from, as well as what we look
at, uh, the supply chains, particularly on the transport side are going
from what you used to call a single bunker or for that matter, bottom of
the barrel, uh, heavy fuel oil, low sulfur fuel oil to what we have today
is ammonia, methanol, we're talking about hydrogen, carbon capture, right?
It's a multi fuel future.
which is going to be costlier, right?
So it will have an impact on the chemical value chain.
It will have an impact on the global supply chains in terms of higher costs.
/ Victoria: /Hmm,
that's interesting.
So one of the sessions I was in earlier today talked about how, um, the costs will
be coming down when we think about energy transition broadly, not specifically about
the decarbonization of supply chains.
But as these technologies get more robust, um, higher, uh, higher
supply availability of energy.
So, the question is, how do we get to the point where we can actually
start coming down the cost curve?
Should we expect to see that in decarbonization of supply chains?
/ Rahul: /We
should expect to see that, but you have to take the cost up front.
Right, so the challenge is the green methanol or green ammonia, right,
so those are very expensive today.
The capacities have to come in and the industry, particularly in the
supply chain side, is dealing from that chicken and egg situation, right?
Whether you will get that alternative fuel today or whether you'll get it 27 and 33.
Right?
So the capacities have to be set up.
The initial cost is going to be higher.
And as it works in the free market, all of that should settle down.
Victoria: Yeah,
awesome.
So if we think about just three trends that as it relates to Shipping and
decarbonization, what are the big three?
What would should we
be looking for?
Rahul: I think the first one would be supply chain resiliency.
I think the three events which we've seen over the last in, in a
matter of three to four years, have shown you that supply chains being
resilient is very important, right?
So the companies are talking about that and we continue to talk about, right?
You will see some of that, uh, diversification of supply chains, right?
So the industry is very dependent on a certain regions in that sense.
A bit of that coming back to, I would say the Americas a bit on the Europe side.
That would be one.
Second is everybody would take a part, or stakeholders will be
in order decarbonization, right?
So it's a process.
We have to be patient, but it will take some time, but we'll get there.
/ Victoria: Rahul, thank you for this.
/ Rahul: /Thank you,
Victoria, for having me.
/ Victoria: The second theme that's really come through is the need
for alignment and collaboration.
Um, and this is really around, , standards, right?
So at the moment, Right?
We know this.
Every country has its own set of standards as it relates to reporting,
um, as it relates to sustainability and decarbonization, which those are
key big things that are driving us, but it also relates to products and
how we sell and how we don't sell.
And the industry groups have done a great job when we think about harmonization
It's to chemical products and I think about REACH as an example, um, while
it started in Europe, it certainly got global implications and the industry
groups have been very effective in driving standardization, um, and alignment and
creating a system that works, uh, across the industry and across the globe.
Not true today when we think about sustainability and ESG measurements.
It's the targets that are, countries and companies are expecting us to hit.
Marine Schroeder, who's managing director of Stolt Tankers, she
expressed on stage, she said, "I wish we could turn all of the people
that we've got working on reporting.
Um, and the complexities of reporting because the reporting requirements are
different in every single jurisdiction.
If we could turn all of those people and that money, that investment
into those people and their time and resources into innovation.
Into innovations to figure out how to become, uh, sustainable and decarbonized."
And, um, Developing the future platform for the industry, both from a product
perspective, from a supply chain and logistics perspective, and more.
And so that is, you know, a source of real frustration that I've certainly
heard the theme coming through from stage is, um, that currently we
don't have a lot of great alignment, um, on some of these standards.
across the globe and we need to get there.
The second piece that goes with that is really the request that we are
less prescriptive in terms of how we get to carbon and greenhouse gas
reductions and instead be and instead of being prescriptive about the
how be prescriptive about the what.
Right.
And so allow the chemical industry and the creative minds across the industry
to identify the best and the optimal products and technologies and solutions
to get us to a more circular, lower carbon, um, profitable and world that
we're all looking to grow and be part of.
The third piece of that and the third theme that really comes through
throughout the conference again, both from on stage and off stage as I talk to
people across the conference is the fact that the chemical industry is a really
vital part of the energy transition.
And in fact, I spoke with Tony Potter from S& P Global and I'm going to include a
clip with Tony, so stay tuned for that.
But Tony, um, talked about how we actually need more chemicals in a low carbon
energy transition world when we think about moving away from our traditional
energy sources like oil and into energy sources like solar and wind and
hydrogen We need more chemical products.
Hi, I'm here talking with Tony Potter, who is the head of
chemicals for S&P Global so, Great.
Tony, we're, we seem to be living in a world of oversupply.
That's certainly a concern when we talk to people.
Um, there's been a big discussion around decarbonization and
what it means for chemicals.
And I think some people see the pros of it and others perhaps see the cons of it.
Um, but what do you see as the role of chemicals in the energy
transition and in decarbonization?
/ Tony Potter: Okay.
Well, thanks for the opportunity to talk with you.
Okay.
Um, I think chemicals are absolutely essential in the path to decarbonization.
We no longer just talk about the energy transition.
We talk about an energy and materials transition.
That's a reflection that to get to net zero All materials of
fabrication of construction need in themselves to, to decarbonize.
Um, thermoplastic start off as a relatively low energy intensive
product relative to iron, steel, aluminum, glass, uh, whatever.
Um, and, uh, whilst the chemical industry needs to decarbonize
its processes, um, chemicals and thermoplastics play a key role in that.
And in most scenarios that we look at, uh, we see people substituting these
higher energy materials, uh, for plastic.
Uh, you can't lightweight any form of transportation.
Without plastic.
No one's invented a paper car yet.
Um, you don't build wind turbines without plastic and you don't
build solar panels without plastic.
/ Victoria: That's a great perspective.
Uh, and I think, you know, the general public doesn't understand much of that.
Even, uh, I've had conversations recently in the recent past about,
you know, uh, fuel tanks, right?
Fuel tanks today are all made out of plastics.
Um, which is why we're Nobody has rusted out fuel tanks in their cars anymore.
Whereas, you know, probably two decades ago, that was a major issue for, you know.
Especially if you are working on an old car.
Tony Potter: And of course as we move to EVs, you don't need that fuel tank.
That is true.
But as we study the transition to EVs, uh, maybe the composition of
the plastics changes slightly, but net we think, uh, we think that more
plastic is used in an EV than in an I.
C.
E.
/ Yeah, that's
Victoria: really, that's really interesting.
There's a lot of conversation when I talk with people wondering about are we ever
going to reinvest in chemicals, right?
So we feel that we're overbuilt certainly in the commodity
chemicals and in plastics.
Um, operating rates are low.
We've built for a world that's not this current cycle.
Of course, we also know that our, you know, we tend to be very
cyclical and we like to, um, in some cases, buy high and sell low.
It seems like when we're talking about investments in
the chemical industry, right?
Are we going to be investing again?
What do you see?
/ Tony Potter: Yeah, I mean, I think it's inevitable.
Every, uh, every cycle, someone says this is the end of cycles, and it never is.
Um, look, this downturn will End some point.
It is a long, slow downturn, something like ethylene
operating rates are down to 80%.
It's a long, slow haul back to reinvestment type margins until
capacity utilization tightens, you know, towards the end of the decade.
But beyond that, Look, we see a world where oil demand peaks, uh,
around the end of the decade and then slowly starts to go into decline.
We see no such peak for petrochemicals.
We're doing forecasts out more than 30 years.
We've never found anything that we could describe as peak polymer.
Petrochemical demands will keep on growing as long as the
population grows and as long as the wealth of that population grows.
/ Victoria: That seems a little bit contrarian.
I mean, I, I agree with you on the fact that we all seem to like to use
plastics, and yet there are so many, um, you know, I think about the plastics
treaty, which was really around, it went from, in fact, we heard Jim Fitterling
talk this morning about it going from being about reducing plastics pollution
to reducing plastic, and now we're back to reducing plastics pollution, um, I
think there's some people that would say that's a big, uh, that this continued
growth pattern Maybe cannot continue.
/ Tony Potter: Cannot, but what do you grow with if you don't grow with plastic?
Okay, so, uh, there's no doubt the world has a plastic waste problem and
it needs dealing with and legislation is likely to be passed to deal with that.
Whether it's international treaty or individual governments, uh, plastic
in the wrong places is a problem.
Um, uh, there's no doubt that the, as part of the energy and materials transition,
we need to build a more circular economy and plastics recycle is part of that.
But at the moment, if I take polyethylene as an example, probably
seven or eight percent of polyethylene globally is, uh, mechanically recycled.
Okay?
Um, we see that number almost tripling in the next ten years, but the
underlying demand growth for polyethylene is still such that we see virgin
polymer demands continuing to grow.
And one of the issues is actually building out the supply chain to
collect, to sort, to clean waste, which in itself is carbon intensive.
Um, you know, unless you build a green supply chain, there's actually a danger
you expend more carbon than you save.
/ Victoria: Right, because it is intensive to get the recycling and the mechanical
piece of it, and it, it doesn't exist in many places, and even where it does,
It's not always fully utilized, right?
I certainly know that in my own community, many people don't recycle, recycle, even
though we have curbside recycling, right?/
Tony Potter: And in, in the U S there are over 80 different types of legislation,
not even consistent at the state level, but from municipality to municipality,
what can and can't be recycled.
It's crazy./
It's, it's complicated.
It's very complicated.
Well, Tony, thank you for joining us.
I appreciate your perspective.
/ You're welcome.
Victoria: So that's one factor of it.
And just the continued evolution of products, innovation,
Lifestyles, et cetera.
So I think, you know, there's no doubt that, and this was a theme
that came through is that the energy transition and the chemical
industry are clearly hooked together.
And we're going to be seeing more of that.
So I think there's an opportunity for innovation.
We've heard from a number of people across on stage, Karen McKee from Exxon Mobil,
others about the innovation that's going to be coming through from the industry,
In order to enable the energy transition.
So to sum it up, I would say, you know, the, the pulse and the theme
of the week is the future is bright.
There is an upturn.
There is a lot of positivity.
There is a concern about how are we paying for it and who is paying for it.
And are the experts in the industry, um, scientists, engineers, technologists, to
really develop optimal solutions for us, for the world, as it relates to energy,
greenhouse gas emissions reductions, etc.
And, clearly a theme of who's paying for it.
Right, so I think everyone, um, is clear that the economics have to work, and
that's maybe a big shift, this fact that we actually need to have, we're shifting
to where this has to make economic sense.
It just can't make theoretical sense.
Sustainability, um, our reduction in greenhouse gas emissions by
2050 makes perfect sense in theory.
However.
It also has to make economic sense for companies, for governments,
for individuals, um, in order to support the drive where we're going.
So anyway, um, that's my summary from WPC 2024.
I hope you've enjoyed it.
If you attended, send me a note, let me know what you heard, what
other themes came through for you.
And I'd love for you to share that with me.
Thanks.
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