How Chemistry Is Intertwined With Our Life: The mother of all industries is in the valley of tears

 "November 11, 2024 · Weak demand and high energy costs are causing problems for the German chemical industry. Nobody can say today how much production will ultimately remain in Germany. The green transformation is becoming a ride in the fog.

 

The chemical industry is considered the mother of all industries. Cars, consumer goods, houses, cosmetics, even medicines - there is chemistry in everything. How long and complex the value chains really are is often forgotten in good times.

 

The sanctions on  Russia, of all things, has raised awareness of this again. As soon as gas and oil suddenly became scarce and expensive, supply chains threatened to break. BASF CEO Martin Brudermüller even warned in an interview with the F.A.S. of irreversible damage if the federal government imposed a gas boycott. It has not been that bad, but the chemical industry is still going through a valley of tears. And the disruptions give an idea of ​​the rocky road ahead for industry if it does not use oil and gas.

 

In fact, large chemical plants are not only fueled by fossil fuels, but gas and naphtha are also the most important basic chemicals in chemistry. In huge plants, known as crackers, gas or naphtha comes in at the top and important basic chemicals such as ethylene and propylene come out at the bottom. These are then processed further in many production steps: into plastics and insulation material, varnishes, paints, seals, adhesives, consumer goods, fertilizers, detergents, cosmetics and, as mentioned, even medicine. In order to become "green", the energy-intensive industry must pursue a two-pronged approach: replacing both fossil fuels and fossil raw materials. The transformation is enormous and it will be very expensive.

 

There are a good two thousand chemical and pharmaceutical companies in Germany, employing almost half a million people. The number has been more or less constant for 25 years; for a long time the chemical industry was considered a haven of stability. Strikes were rare, and the last major industrial dispute was more than fifty years ago. While large companies such as BASF and Bayer determine the public image of the industry, the majority of the industry is still dominated by medium-sized companies. According to the industry association VCI, just 69 of the 2094 companies employ more than 1000 people.

 

In addition to individual large sites such as the BASF headquarters in Ludwigshafen, many companies have joined forces to form chemical parks. There they produce electricity, heat and steam together and efficiently line up individual plants one after the other. In Europe, the German chemical industry is by far the largest, with a global market share of 4.2 percent. But the music is playing in Asia: China, by far the largest chemicals market, is approaching a 50 percent share of sales.

 

In Germany, the chemical industry is currently under pressure. Due to weak demand from the automotive industry and the construction industry, two of the most important customer sectors, production in this country has fallen by more than a fifth since 2021. Many chemical plants are not profitable due to the lack of orders, reports the VCI. The decline in production is dramatic in some cases: Above all, ammonia production, which is particularly dependent on gas and from which Ad Blue and fertilizers are made, has fallen by 32 percent since 2020. For the important basic chemicals ethylene and propylene, the declines are 17 and 15 percent.

 

It is unclear to what extent production in Germany will shrink permanently. Plants are already being closed permanently. If BASF's plant balance sheet is taken as a benchmark, this selection process is likely to continue for some time: 80 percent of the plants at the headquarters are therefore also competitive in the long term, the remaining 20 percent "are associated with risks under the given circumstances".

 

In the last thirty years, the industry has certainly done its "green" homework, in its own opinion. While the production of chemical and pharmaceutical products has increased by 61 percent, energy consumption has fallen by a fifth and greenhouse gas emissions by more than half, reports the VCI. However, this view is distorted: It is true that greenhouse gas emissions fell sharply, especially in the years after reunification, when outdated GDR companies had to close. Since then, emissions have continued to fall, but at a much slower rate. Energy-saving measures are no longer sufficient to achieve climate-neutral production by 2045. The industry must renew all of its processes.

 

Today, 85 percent of chemical production is fed by fossil raw materials, primarily naphtha and gas. By 2050, according to the forecast of the DECHEMA trade association, the fossil share is likely to drop to six percent.  It is to be replaced by recycled plastics, biomass and above all carbon dioxide. Of all things, the "climate killer" could become a raw material. According to the Fraunhofer Institute for Interfacial Engineering and Biotechnology, basic chemicals and synthetic fuels can be produced from it with "a few chemical or electrocatalytic" production steps.

 

It is clear that the conversion will cost a lot of money and drive up the demand for green electricity, hydrogen and carbon dioxide. However, there are differing opinions about the right path to climate neutrality. Forecasts vary greatly depending on how many of the plants will be operated with electricity or hydrogen in the future, how large the proportion of renewable raw materials or recycled plastic will be. The VCI has just revised its demand forecast downwards due to current production declines and new pessimistic long-term assumptions. It assumes that the production of basic chemicals in Germany will shrink by half a percent annually until 2045, and only the business with specialty chemicals will grow. This will do little to change the hunger for green energy. If you take the average of the forecasts, the chemical industry will consume seven times more electricity in 2045 than it does today."

 

As you see, cheap Russian hydrocarbons-based chemistry is needed in order to build  affordable "green" transformation. Chancellor Merkel was right, working with  the Russians. Chancellor Scholz is wrong ruining the chances of the West in this field.