? an interview with Wojciech Lubiewa-Wieleżyński, President of the Board of Polish Chamber of Chemical Industry [Polska Izba Przemysłu Chemicznego]

Please cite as: CHEMIK 2013, 67, 6, 484-489

Mr President, what is the position of the European chemical industry at the global scene? Does it change? And how does it change?

Only in 2010, the European chemical industry gave way to the position of the worldwide leader in sales volumes to China. This trend in losing the Europe?s leadership position to Asia and China could be observed from the year 2000. Since in the decade , the volume of chemical industry production sold in the European Union (EU 27) increased by 17%, whereas the global production increased by 64%, and in China as much as by 524%! Contribution of the European industry to sales on the global chemical market decreased from 36 to 21% in a twenty-year period 1991÷2011. Speciality chemicals constitute the largest sector of the European chemical industry, the other large sectors include polymers and petrochemicals. EU 27 contributes to 19.6% of the global chemical industry in total. And the value of annual sales in 2011 amounted to EUR 539 billion. In 2011, the European chemical industry generated EUR 42.5 billion of trade surplus. It is worth remembering that this sector is created by nearly 30 thousand enterprises which directly employ more than 1.2 million workers. However, over 70% of sales volume is generated by few (about 4%) biggest enterprises. It is important that the European Commission adopted a new strategy. The implementation of this reindustrialisation strategy is intended to increase the industry contribution to the European Union gross domestic product (GDP) from the current average GDP exceeding 15% to 20% in 2020. This is a very good decision as the industry contribution to the EU GDP was continuously decreasing in the previous decades. The industry was more and more associated with dirty technologies, and its place was taken over by the service sector which dominated the structures of advanced economies. Strong support for developing research works in Europe and an aid for the European small and medium enterprises to come into international markets is a method for increasing the industrial contribution to GDP of the EU States. Moreover, investments in education are to become a priority. This will increase the supply of qualified manpower and will make Europe again an attractive production place. However, Europe also intends to realise tight environmental goals until 2020. That?s why a new industrial policy will be also promoting such branches which can combine the creation of new places of employment in the industry with environmental protection. The most crucial target of the European Commission is to put a greater emphasis on achieving more rapid economic growth, improving industrial policy and creating new places of employment. Industrial activity has a great impact on production and employment in other sectors; every 100 employment places in the industry generate from 60 to 200 new employment places in other economic sectors. Europe needs strong industry to achieve welfare and economic success ? it is a conclusion of a new development concept for Europe and a great chance for the European industry.

What is the situation of the European chemical sector? What is the position of Poland among other European countries? What is the status of the chemical industry in Poland? What are the most important conditions for increasing production and obstacles to the development?

Germany and France are currently the largest European manufactures of chemicals (29% and 15.4% respectively). Consecutive positions are occupied by the following countries: Netherlands (10.3%), Italy (9.7), Great Britain (8.6%), Spain (7.2%), Belgium (6.4%) and Poland (2.5%) in eight place. An attention should be paid to the fact that nearly 70% of sales in the chemical sector go towards other economic sectors, and only 30% go directly towards consumers. Thus, the chemical industry is considered to be a branch mainly working for the needs of the whole economy, and all economic sectors are receivers of the chemical production. That?s why the market situation has such a direct impact on the results of the chemical branch.

In Poland, the total chemical production is growing systematically. Except for 2009, the continuous growth has been reported since 2003 ? from more than EUR 12 billion in 2003 to nearly EUR 30 billion in 2011. When we mention these values, we talk about the production of chemicals, pharmaceuticals and processing of plastics altogether. However, the structure of that production is not satisfactory as in Poland, so called base chemicals account for more than 60% of sold production, and pharmaceuticals account for only EUR 2.6 billion. Those proportions are reverse in the advanced countries. In my presentations, I often show a diagram of a development path of the chemical industry with a marked area for EU 15 and EU 12. The bottom line illustrates fertilisers, ammonium, base chemicals, and the processed polymers are at the very top of that diagram. Poland is situated almost in the middle of that diagram. Unfortunately, in practice our position slightly shifts towards the top, and it is still too little not only to sufficiently satisfy the needs of our market, but also to manage the European and global competition. If we consider the chemical consumption as EUR per capita, in Poland this value (almost EUR 400 per capita) is almost five times lower than, for example, in Belgium (about EUR 1900 per capita), three times lower than in France (about EUR 1100 per capita). For many years, we have been noticing negative cash flow for the Polish chemical industry, including the highest negative balance of trade exchange observed for polymers (EUR 2.8 billion, pharmaceuticals (EUR 2.7 billion) and speciality chemicals (EUR 2.5 billion). In 2011, this negative balance for the whole chemical industry in Poland accounted for EUR 8.3 billion in total.

So, what are the factors determining the development? Are they availability of raw materials and their prices? Availability of energy and its prices? Legal aspects of the operation of the chemical industry? Environmental factors? What are the aspects impeding the development of the chemical industry in Poland? Can be anything done to change that situation?

For Poland, the biggest obstacle in the path of developing the chemical industry is the lack of any raw material base. That?s why we have developed a concept of an additional petrochemical centre. Of course, it is not easy to get an access to every technology, but some of them are within a reach ? for example, a technology to produce acrylic acid, and further acrylate (required in the production of, e.g.nappies) for which there is a big demand on the Polish market. The general liberalisation of the energy market, that is, of gas and electricity market is also important. After all, the price of spot gas was twice or three times lower in 2009 and 2010, but we still paid twice or three times more. All in all, it does not matter what the gas price is. The point is that this price is not higher than the one offered to our competitors. So, huge investments are risky to us. Say, the investment in the Gulf of Mexico because there gas price is 4÷5 times lower, similar situation is reported in Russia. We still have to be alert to prevent the situation when cheap fertilisers, produced at completely different gas price, are flooding our market. Similarly, the liberalisation of the energy market is essential. We are the only European Union State, in which the industry pays more for electricity and gas than individual customers. The European Commission has requested the Court for ruling a penalty for Poland ? just for the fact that the industry is cross financing the individual consumers. There are also other extremely important legislative issues, a number of legal acts related to the chemical sector is increasing exponentially (from about 300 in 1990 to more than 2100 in 2012). That would not have affected negatively the operation of the European chemical sector if all regions in the world had introduced the same regulations at the same time. But only Europe has imposed limits to CO2 emission! So, all our enormous efforts will not change anything at a global scale. In Poland, a lot was done for the chemical industry in the last 20 years. Many technologies were modernised, particularly to meet the ecological requirements and improve energy efficiency, reduce emission, etc. Unfortunately, no installation for fine chemicals installation with greater value added was started-up.

What is the reason for inhibiting so definitely the development of the chemical industry in Poland?

In my opinion, first of all, we missed a suitable time to employ the organisational structures of the Polish chemical industry that had been created earlier. We nearly had concerns, that is, unions such as Petrochemia comprising nitrogen woks and also Petrochemia Płock. However, the contemporary owner ? the State Treasury did not establish some principles of proper functioning. All of us relished our freedom. At that time, everything could have been done in a different way. But it was not. So now, we start everything from the beginning. Last year, the Group Azoty ? a big chemical group was established. It is composed of complementary companies with various traditions and specialisations, whose potentials are intended to be used to realize the common strategy. So, this is the biggest in Poland and one of the biggest in Europe chemical concerns. However, it is still too small compared to global players. A company which wants to become the major global company must have at least EUR 5 billion of sales.

Increasing demand for olefins and aroma products on the national and regional market, basic derivatives (PTA, phenol, styrene) and the forecast of an increase in consumption of common polymers (PE/PP/PS/PVC/PET) by about 21.5% until 2015 as well as the forecast of an increase in consumption of engineering polymers by about 43% until 2015 ? they are circumstances for establishing a concept of chemical industry development. Who has developed that concept?

Polish Chamber of Chemical Industry with Industrial Chemistry Research Institute. According to that programme, PKN Orlen, apart from developing its fundamental business operation related to fuel production and distribution, will also strengthen the chemical production within EKD-24 using satisfactory prospects for chemical production within the field of sustainable development and for olefin and aroma product processing into intermediate and organic products (polymer, rubber). Thus, developing the production of basic organic chemicals is the objective of the programme for developing petrochemicals and plastics production. This programme is to be realised in two stages.

Can you tell more about this programme? About its most important values?

According to the principles of this investment programme, the national production of common polymers (PE/PET) will considerably increase, the base (styrene) will be created to significantly increase the production of PS, a profile of manufacturing base of caprolactam (phenol) will be modified and the raw material base for PC production with global parameters will be created, there will be also a significant increase in manufacturing capacities of intermediate product to produce rubber (butadiene) and the development of manufacturing capacities of phenol (for PC) and perhaps of ethylene glycol (for PET). Many undertakings involved in investing are intended to be part of the Development programme established on the basis of the perspective demand analysis. The planned development of production capacities of petrochemical raw materials (butadiene) and intermediate products (phenol and styrene) includes the probability for its realisation jointly with industrial partners who are interested in purchasing such chemicals and their further possible processing in their plants (ZAT,ZAK, SYNTHOS). Of course, various types of partnership and shares in individual projects are possible. Long-term forecast of demand (until 2020) was the baseline for evaluating values required for development. A new pyrolysis installation with production capacity of about 700 thousand t/y of ethylene is required if we want to achieve the level of olefin supply for the chemical industry similar to the demand level. Regarding sufficient supply in benzene and toluene, aromatics block configuration with the maximised production of benzene and toluene and minimised yield of xylenes will be required. This configuration will not only result in using feedstock for pyrolysis gasoline, but also for reformed gasoline (aromizing). Of course, the development of production capacities proposed in the Programme, will not solve the problem on insufficient raw material base for the chemical industry in Poland. However, it will significantly decrease and restrict deficiency in demand on those products. In Poland, there will be certainly a market for the produced volumes, which will also narrow the deficit in foreign trade in common polymers. The proposed investment programme is to be realised in two stages, including minimum and maximum variants. In both variants, the general increase in sales is significant even regarding the whole sales of the Concern. Thus, it is a very good way of sustainable development towards the production of organic chemicals and polymers whose value added is considerably higher than that of inorganic chemicals and fertilisers.

The development programme for PKN Orlen refers to possible production of ethylene and propylene from petroleum for the purpose of plastics. Is a process for obtaining syngas and further methanol, and let?s say oxo alcohols using propylene considered at all?

Indeed, it has long been known that coal and its application in syngas production could provide the cheapest chemical production in Poland. BASF also presented such a concept during the meeting of High Level Group of Chemical. It is known that production from coal is nowadays the cheapest because coal prices are lower. It could be a good idea if there is not any charge for CO2 emission. If we talk about CO2, prices of CO2 emission have not been defined until now. Puławy have decided to use gas for its combined heat and power plants, while coal will be used in Kędzierzyn. Which solution will turn out to be better? We will see. The Directive provides for financial compensations; we have struggled for taking into account a type of used fuel while evaluating the CO2 emission. For 1 MWh from coal, CO2 emission accounts for more than 920 kg, and for nuclear energy, emission is at a level of only 40 kg. It is an incomparable difference; there is a huge gap between those values. Chlorine production is the best example as it does not involve any process emissions, but indirect emissions resulting from heat and electricity demand. However, the Commission has rejected our proposal. Such a decision will particularly affect the Polish industry. That?s why we are still struggling (now for so called backloading). This decision will not allow to create competitive conditions with Germany, whose power plants also use coal, but their emission level is 400 kg of CO2 per 1 MWh.However, Germany provides a compensation system for indirect emissions. In Poland, no decisions have been yet made on that issue.

Who is authorised to make such decisions?

Of course, the government. The Directive accepts such a possibility. Sometimes I regret that directives are not issued as the regulations which must be adopted by all States with the same proposed content. Poland tends to tighten the requirements, but the Government should not create conditions that are less competitive than in other countries. Further to your previous question, our programme demonstrates which products we need. We do not talk about raw materials. We know that at low price syngas can be used as well, and further methanol or propylene can be obtained. Methanol is even more important as it offers better selectivity. Kędzierzyn has known from the beginning that syngas for CHP plant will be used, among other things, for acrylate production.

One of the EU integration objectives is to create one integrated European market. So, this requires a gradual liberalisation of previously domestic (close) markets of monopolistic structure, such as energy and gas market. Does it make sense to have a uniform and competitive market within the EU? What does it mean for the chemical sector in Poland?

Of course, it does. But if such a market is to function and comply with Directive III, there should be no cross-financing and transmission grids need to be developed. Naturally, Poland faces infrastructure backwardness. When gas industry grows, the demand on gas grid will increase. We purchase gas from Russia because we can transmit only about 2 billion m3 from other sources. And this volume is insufficient even for the chemical sector. We do not have yet gas terminal in Świnoujście. If its construction had been finished at the same time as Naftoport, we would have been able to negotiate gas prices with Russia in a completely different way. However, considering the situation in the United States, prices of LG should, without any doubt, fall. The United States will become an export trader. For sure not now, because legal regulations have to be changed. Export of hydrocarbons is prohibited in the United States, but not in Canada. At an increasing production of shale gas, the United State will develop its chemical production, which will also affect the situation in Możejki which used to export large amount of fuels to the USA. Lifestyle in the United States and Canada is also changing; people change from big cars to Japanese or European ones whose fuel consumption is lower than 20 litres per a kilometre. Everyone wants to be more economical.

How does it refer to the uniform market within the European Union?

Considering the internal European market protection, the uniform market within the European Union is very important. So far, the United States market was buying fuel and fertilisers from Europe. Now, when gas is cheap, investments in the chemical production, for example, in fertilisers generate a huge difference as gas cost contribute to 40% of the production, and regarding ammonium ? even up to 60?70%. The uniform market for internal market protection is able to prevent us from too high prices of gas from Russia and the United States which can pose a risk to the chemical industry.

The European Union is the global leader in a struggle against global warming, but it does not strive towards a global agreement. Meanwhile, it is difficult to accept the EU reduction targets when other global players do not make the same efforts. The present situation is described as the situation which leads to ?export? of investments and employment and ?import? of emissions. What will happen if there is a 3-fold increase in electricity prices caused by CO2? Does anyone consider supporting the Polish energy balance with nuclear power plant (costs of energy determine the chemical industry development)?

Indeed, it is very important. We talk about a uniform energy market, but we, particularly EU-12 States, do not have such a market. We do not have cross-border mergers for electricity transmission, while energy from France could be cheaper even up to 40%. Considering nuclear energy, Spain conducted a referendum, in which the majority of the Spanish voted against nuclear power plants. Italy had to change its constitution in order to build a nuclear power plant. However, both these countries are buying electricity from France, and electricity in those countries is cheaper by 40% compared to Poland. If prices of electricity in Poland increase three times because of CO2, we will not be able to compete with the industry of other European countries. A perspective for building a nuclear power plant has been postponed. If we now make a decision, this will take at least 20 years to build it. As it is essential to create the whole system, to train the staff. And most of all, Poland needs a strategy for energy. We should take into account the provisions of the International Energy Agency and determined policies, such as energy recovery, energy recovery from waste ? they are not applied in Poland at all. For sure, we will not become the second Sweden which generates half of its heat from waste, but we should at least make an attempt to establish such a policy. A good energy strategy should be connected with industrial policy and the development programme for individual branches. And this strategy should describe processes and technologies in a realistic way. We should remember that each technology can be cleaner, but not clean; greener but not green. Every technology has to affect the environment, as it needs energy and raw materials.

If the price of CO2 emission rights fell, would it create an opportunity for developing coal technologies for chemistry, not coal combustion? Is it a possible policy?

I think it could be possible. Everything will depend on related costs. And finally, those costs will determine the development of coal technologies for chemistry.

Mr President, it means that a new look at a problem of raw materials for chemistry is necessary. Thus, it is essential to realise objectives defined in the programme for developing production of petrochemicals and plastics. Will it succeed?

In my opinion, the deficit in foreign trade will not be reduced or eliminated, it will be increasing if we fail to realise that programme. Also, any development, particularly the development related to processed products, will be impossible. The Polish chemical industry will predominantly produce base chemicals, and this will result in much higher energy consumption. Thus, we have to succeed. Thank you for the interview.

Interview by Anna Bieniecka
(the interview from 21st January 2013)

Wojciech LUBIEWA-WIELEŻYŃSKI [M.Sc., Chem.Eng.] ? the President of the Board of the Polish Chamber of Chemical Industry; a member of the Board of Federations at the European Chemical Industry Council (CEIFC); a member of the Board of the European Chemicals Employer Group (ECEG). He is a member of the Standing Committee of Chemical Technology Congresses and a member of many scientific boards of chemical institutions and program boards of chemical journals, including our monthly magazine. He is an author and a co-author of many implementations, patents and publications.