Europe’s Chemical Industry – Adjusting to Change

1. Europe’s Chemical Industry – Adjusting to Change Peter Anderton President, ECSPP February 13th 2008

2. The world chemical order is changing… • Europe has been world chemical industry leader for more than 100 years But • Centre of gravity is shifting eastwards Due to • Rise of low-cost Middle East producers • Emergence of China as a global chemical power • Imminent emergence of India as a global chemical power • Surge in chemical demand growth throughout Asia www.ecspp.org

3. The European chemical industry will have to change… Europe will have to find a new role for itself within the changing industry order Some plausible scenarios for Europe over the next 20 years: • Move progressively away from low-value bulk commodities to higher-value performance and specialty products • Shift from sophisticated high-tech products into ultra high-tech products • More medium/small-scale production capacity instead of world-scale plants • Consolidation and co-siting via clusters • Operational optimization through synergy maximization www.ecspp.org

4. Europe is also facing other challenges….. Impact of: • REACH policies on competitiveness • Emission Trading Scheme(ETS) policies • Carbon Capture Scheme(CCS) policies • Declining role as leading world exporter of chemicals • Increasing low-cost imports of commodities and plastics from new production sources eg. Middle East www.ecspp.org

5. The industry needs to adjust to the changing order… • Adjusting to change means doing things differently… • Smarter operations are needed, not only in manufacturing but along the whole • value chain: • Organization of production operations • Raw materials and feedstocks supply • Energy, utilities and services supply • Logistical infrastructure • Labour and maintenance • Health, safety and environment Clusters have an important role to play in promoting smarter operations down the value chain… www.ecspp.org

6. Clusters - Organization of Production Operations • The days of the stand-alone chemical plant are numbered • For operational reasons, organizing production in clusters is the smart way forward • Manufacturing synergies • Cluster integration eg. extensive outsourcing possibilities for non-core activities • Favourable investment climate eg. co-siting opportunities • Enhanced role and support of local authorities • Advantageous supply chain (infra)structure • Collaboration mindset of cluster members to collective advantage • Total cluster performance better than the sum of the individual cluster members performance on a stand-alone basis (the 1 + 1 + 1 = 4 syndrome) www.ecspp.org

7. Clusters – Raw Materials and Feedstocks Supply • Clusters offer advantageous conditions for sourcing raw materials and feedstocks • Alternative supply sources • Competitive pricing • Flexible storage and delivery solutions (eg. reduced need for captive/on-site storage) • Optimal conditions for supply continuity (eg. back-up sources close by) • Opportunities for close upstream integration (eg. over-the-fence delivery, dedicated pipelines) www.ecspp.org

8. Clusters – Energy, Utilities and Services Supply • Many clusters have more than one supplier of energy, utilities and other services, offering chemical producers a choice of provider for major production cost components: • Electric power • Feedstock and fuel gas • Steam • Industrial gases • Water • Waste treatment (solid and liquid) • Clusters promote smart solutions for energy, utilities and services supply • Shared infrastructure • Possibility for shared purchasing arrangements • Optimal back-up in case of supply interruption • Being part of a cluster generally leads to lower energy, utilities and services costs for chemical producers www.ecspp.org

9. Clusters – Logistical infrastructure (1) • Clusters provide optimal transport and storage facilities for chemical producers • Non-coastal clusters > Direct access to at least 2 of the main “overland” transport modalities and in many cases all 4 * Road * Rail * Inland waterways * Pipelines • Coastal clusters > Direct access to deepsea and shortsea transport is also available • In both types of cluster, third-party storage and handling facilities are normally available for liquid and solid chemical products in addition to producer-owned storage, permitting outsourcing arrangements and increasing flexibility • In coastal clusters, third-party storage is generally much more extensive to cater for the large-volume seaborne traffic inbound and outbound www.ecspp.org

10. Clusters – Logistical Infrastructure (2) • Clusters normally offer a diversity of logistical service providers, allowing chemical producers a choice of provider and the possibility to negotiatecompetitive rates for moving product to the customer • If desired, producers can explore opportunities to pool logistical requirements with one or more colleagues to find mutually-beneficial transport and storage solutions • Clusters allow maximum use of cost-effective pipeline transportation • Point-to-point pipelines • Common carrier pipelines • MultiCore pipeline bundles • Direct access to pipeline network links with other clusters www.ecspp.org

11. Clusters – Labour and maintenance • Within a cluster, chemical producers can take maximum advantage of a permanent “pool” of skilled and unskilled labour • Maintenance stops and plant turn-rounds can be planned efficiently to synchronize with stops of suppliers and avoid possible timing conflicts with colleague producers, resulting in potential shortages of casual maintenace labour • Personnel transportation can be organized together with other cluster members to cut down on traffic delays due to bunching at shift change times • Initiatives can be launched with other cluster members to promote educational and training programmes to attract new personnel into the cluster in the future www.ecspp.org

12. Clusters – Health, Safety and Environment • Within a cluster, chemical producers can take advantage of knowledge and expertise of colleagues to assist in maintaining and improving own HSE standards • Fire-fighting, emergency response and crisis management activities can be organized on a communal basis • HSE standards will benefit from the element of (friendly) competition between cluster members as to who is best in class • Innovative solutions can be sought out in areas such as site security eg. joint gate security arrangements with neighbouring producers • Cluster members can share experiences and information on environmental compliance requirements eg. preparing Environmental Impact Assessments www.ecspp.org

13. Clusters – the right way forward for Europe’s chemical industry • Europe’s future depends on adjusting to the changing situation through smarter operations • Europe’s traditional place in the world chemical order is disappearing • Europe has always led the world in technological innovation – to maintain a leading position in the world, it now needs to adopt innovative solutions along the whole value chain • Clusters are the ideal vehicle for Europe’s chemical industry to achieve maximum innovation and minimum costs in the value chain • Europe can build on its successful track-record in cluster operations to embark on the logical next phase of development = Closer collaboration and operational integration between clusters within a Europe-wide network www.ecspp.org

14. ECSPP – Supporting the Development of Chemical Clusters in Europe • ECSPP sees active promotion of clusters as a key way to safeguard members’ long-term interests • Ongoing ECSPP collaboration projects: • EPCA’s Think Tank studies on cluster operations in Europe ECSPP is currently assisting EPCA in Phase 2 of this project on the implementation of the recommendations • CEFIC’s Ad Hoc HLG project on European competitiveness ECSPP will give a presentation to the European Commission’s HLG on February 29th on the importance of clusters to the future of the chemical industry in Europe. ECSPP will recommend the setting up of a Pan-European Chemical Cluster Platform to coordinate the growth and development of clusters in Europe and encourage closer inter-cluster cooperation • ECRN ECSPP is keen to strengthen its collaboration with ECRN to achieve better coordination/promotion of respective members’ mutual interests www.ecspp.org

15. Thank you for listening ! www.ecspp.org