Does chemistry have to reinvent itself in the energy crisis?

The German chemical industry faced a number of challenges in the first half of 2022: High freight costs, long delivery times and bottlenecks in raw materials affected the business activities of chemical companies in Germany. However, the currently soaring prices for raw materials and energy – especially for natural gas – and a looming gas shortage present the chemical industry with completely new and unexpected challenges.

As an energy-intensive sector, the chemical industry accounts for about 10.5 percent of German energy consumption. The share is even higher for natural gas and electricity, the two most important energy sources for the industry. A comparison of the chemical industry with other industrial sectors shows that the manufacture of chemical products requires the most energy (2020: 304.7 billion kWh).

If energy prices in Germany continue to rise, it will be difficult for a German chemical company to remain competitive, especially in the area of basic chemicals, as it will be competing with rivals from regions where energy prices are many times lower. In the EU, natural gas currently costs around ten times as much as in the US, at around 200 EUR/MWh wholesale. The production of basic chemicals in Germany is very much under threat and currently not competitive. This could lead to a shift of production to locations with lower energy and natural gas costs outside Germany and Europe. According to the German Agricultural Industry Association, it is currently hardly possible to produce the important raw material ammonia in Germany in a commercially reasonable way. BASF has already reduced the capacities of its ammonia production plants in Antwerp and Ludwigshafen due to high natural gas prices.

Rising energy prices are not a new phenomenon in Germany. In the past, however, it was very easy to pass these costs on to the end customer, including in the current post-Corona phase, which triggered a boom in demand for chemical products. However, the looming gas shortage and the resulting explosion in energy and natural gas prices is hitting the chemical industry at a sore spot.

Compared to other industries, the chemical industry needs natural gas not only for energy production, but also as a feedstock for a whole range of important chemical precursors, such as syngas, ammonia and acetylene. 27 percent of natural gas is used as a raw material in the German chemical industry, the remaining share (73 percent) for energy production.

In 2021, around 3.2 million tonnes of natural gas were required as a raw material base for organic chemistry in Germany. This corresponds to a total share of 16 percent. The most important raw material source here is crude naphtha with a share of 69 percent (19.4 million tonnes). Other sources are renewable raw materials (13 percent) and coal (2 percent).

The chemical industry accounts for more than 15 percent of total German gas consumption for energy generation, making it the largest consumer in Germany. According to the German Association of Energy and Water Industries (BDEW), however, the current substitution potential for natural gas is only about 4 per cent, which clearly shows the current dilemma. Natural gas is currently an indispensable raw material and an energy source for the chemical industry that is difficult to substitute.

However, every crisis also creates new opportunities and directly releases potential. These should serve as a catalyst for a transformation of the chemical industry, away from a petroleum-based chemistry and the dependence on excessively high energy costs. The chemical industry must have a future in Germany and remain competitive. The companies have recognised this. Covestro, for example, announced when it published its financial figures for the second quarter of 2022 that it would push for a move away from fossil raw materials and energy sources. Politicians are required to look for alternatives to gas as an energy source in a „technology-open and de-ideologised“ manner.

More than ever, the chemical industry is confronted with fundamental and structural changes. The development and use of new technologies is imperative for the transformation of the chemical industry.

The following fields of action are of central importance from SVP’s point of view:

  • Expansion and provision of sufficient capacities of renewable energy at competitive prices.
  • Development of new technologies and processes (electric steam crackers, large industrial heat pumps, …)
  • Introduction of a (plastics) circular economy to reduce dependence on fossil raw materials.
  • Significant expansion of production capacities for bio-based raw materials, biogas and biorefineries
  • Promotion of key technologies such as carbon capture and utilisation (CCU)
  • Development of a hydrogen economy, including own production of hydrogen

The fields of action listed, which we will examine in more detail in a subsequent series of articles, will inevitably lead us towards a climate-neutral chemistry of the future.

Dr Volkhard Franke, Market Intelligence Senior Expert