27 April 2017

Innovation is key to Europe’s petrochemical industry future, says academic

In an interview, Samuele Furfari, Professor at the ULB, the French-speaking university of Brussels, explains why technological evolution drives geopolitics and not the other way round.

In his recently-published book in two volumes entitled The Changing World of Energy and the Geopolitical Challenges: Understanding Energy Developments , he demonstrates how for instance the development of shale gas and shale oil in the US has completely reshaped global geopolitics. Innovation will also have a major influence on Europe’s petrochemical and chemical industry. It will enable the industry to remain competitive and will contribute to building a more sustainable future.

1.Is energy only a commodity or a means to influence politics?

Energy should be a commodity because it is the feedstock to run the economy. It would be impossible to work without energy. In physics, we learn that energy and work are the same physical entity and have the same unit of measure. This unit is joule in the international system. So when you talk about energy, you could use a synonym work; therefore, it is a commodity.

But unfortunately, energy has become also a means to influence politics. There are several ways of generating electricity by burning oil, gas or coal, by using nuclear or hydro power or the energy of the sun or wind etc. Different fuels also exist for heating: oil, gas, wood etc. So for electricity generation and heating, there are solutions to diversify energy sources. However, in the field of transport these alternatives do not exist. Transport is still heavily dependent on oil as a fuel for 94%. Electric cars, trams and undergrounds account for only two to three percent and biofuel two to three percent too of the overall consumption of fuels for transport. This dependence is the reason why oil became a means to influence politics and this is also the reason why OPEC managed to make so much troubles in the 1970’s.

But, this is progressively changing and we are entering a new paradigm.

2.Will geopolitical issues influence the future feedstock for petrochemicals (shale gas from US, oil from Iran etc.)?

I strongly believe that it is the evolution of energy technologies that influences geopolitics and not the other way round.

The geopolitics of energy was invented by Winston Churchill when he was Lord admiral of the British Navy.

He was told that there was a new technological solution to make war ships more rapid and efficient. This new technology was the use of oil as fuel instead of coal, but the UK didn’t have oil. Churchill was told that there was oil in the Middle East. So, after the fall of the ottoman empire, he chose to take control over Iran and Iraq rather than Syria and Lebanon like France.

Nowadays it is the same and I am convinced that it is the evolution of technology that drives geopolitics and not the other way round. This is something that is very much misunderstood.

The development of shale gas and oil in the US is a very good example of that. In 1980’s, experts knew there was a potential to develop shale oil. President Carter at that time tried to promote this technology and The National Geographic in 1981 even published an article regarding the opportunity to develop shale oil. However, there was no technology available yet to extract it and we had to wait until 2005-2007 for this technology (fracking) to be developed in order to exploit shale gas.

The current geopolitics is a consequence of the evolution of shale gas and oil technologies, but also of the evolution of conventional oil and gas production. 

The reason why Iran accepted to agree on a nuclear deal is because the strategy of sanctions on oil exports was limiting their exports without analyzing the situation in OECD countries. With the development of shale gas and shale oil and Saudi Arabia (a historical enemy of Iran, there are new competitors on the oil and gas market that are more than ready to compensate for the lack of exports from Iran. The country was obliged to accept the agreement. In the nuclear agreement, the word “oil” is mentioned 65 times and the word “gas”, 12 times. The Iranian nuclear agreement is in fact also an oil and gas deal and Iran needs new technologies to produce and export.

It is obvious that innovation in new technologies drives geopolitics. You need to be clever and understand that before the others if you want to stay ahead of the game.

Mrs. Clinton understood that perfectly when she was State Secretary. She reoriented the whole US international policy based on that. She made a number of statements explaining this new vision and President Obama created a new bureau inside the State department, the Bureau of energy resources, to make the most of this new situation that emerged thanks to this new technology. Other countries thought it was only a bubble that would burst sooner or later, but like Churchill Mrs. Clinton understood before the others the potential of shale oil and gas technologies. New technological developments are amplifying this vision.

In Europe, public acceptance is an issue because the population is often against everything and reluctant to see new technologies being developed. 

3.What options does the EU have to secure affordable, clean and reliable energy to all its members in the next decades?

The EU new clean energy strategy of the Juncker Commission is based on five pillars.

The first one is security of energy supply. The EU currently imports 55% of its energy needs every year. The energy dependency of Japan and Korea amount to over 90%, but that doesn’t threaten the economy or the stability of these countries because they are able to manage this dependency. The goal of the EU, therefore, is not to reduce drastically energy imports but to manage its consequences by diversifying its energy suppliers.

The second pillar is the creation of a single market for electricity and gas. The EU started this process 20 years ago but the energy market is not completed yet because member states are not implementing properly what the Council decides. To complete the single market, it is fundamental to remove bottlenecks that are still existing between some member states. It is one of the main priorities of the Juncker Commission to facilitate the development of new electricity and gas infrastructures (in particular with the “Projects of Common Interest”). 

The third is energy efficiency. It is a priority (“energy efficiency first”) because there is a huge potential of saving energy or reducing energy consumption especially in the domestic and building sectors. When a sector is faced with global competition like in the field of petrochemicals, it is bound to reduce energy consumption to decrease costs and remain competitive. In the domestic and building sectors, competition is absent and therefore, the sector is lagging behind in terms of energy efficiency.

The fourth one is increasing the share of renewable energies to decarbonize the economy. The EU is a champion in renewable energies. The fifth is research and innovation. The energy issue will never disappear, so we need to prepare long-term solutions and the EU is committed to finding new solutions by funding R&D projects like ITER, the fusion project managed by DG energy.

To achieve these goals, we need a new governance to make sure all member states are working in the same direction. The principle of solidarity is enshrined in the Lisbon treaty.

In the first European report on energy published in April 1959, the European Coal and Steel Community (ECSC) at that time said that energy was obviously a field where Europe would be better place to solve problems rather than member states separately. Energy policy should be done at EU level. But energy remains a shared competency and not an exclusive competency of the EU in the treaty. This is due to the fact that energy is fundamental. It is more important than defense and therefore member states do not want to give up their sovereignty to the EU in this field.

4.What impact does the EU clean energy policy have on the energy market?

The EU clean energy package has little impact on oil and coal, because the EU cannot influence a global market. But due to the first pillar, security of energy supply, it has a major impact on the gas market. The EU is developing a strategy to facilitate new gas supplies on the European market. For the time being, Europe is very dependent on gas imports from Russia, Norway and Algeria.

This will not change drastically, but the EU can now diversify suppliers and import more gas from Qatar (Middle East in general), Nigeria, Mozambique, Australia, and shale gas from US and Canada. Gas fields have also recently been discovered and are already producing in the Mediterranean Sea along the coasts of Israel, Cyprus and Egypt. Gas exploration is also being carried out in Lebanon. This could become “a new Norway” in the South of Europe.

On 3 April, Miguel Arias Cañete, Climate Change and Energy Commissioner was in Tel Aviv with his Italian and Greek counterparts to agree on the construction of a new gas pipeline from Israel via Greece to the south of Italy. So we expect more and more gas supplies in Europe. Gas should become a commodity, which is likely to decrease gas prices in Europe fixed by the market thanks to the construction of new pipelines and the transport of liquefied natural gas (LNG) from oversea.

In the electricity sector, it is more complicated. There is an increase by two to three percent in electricity price every year. Electricity prices on the gross market are decreasing thanks to the surge of renewables and competition, but electricity prices for consumers have increased because of the introduction of new subsidies and taxes. The EU is willing to encourage more competition on the renewable market, reduce subsidies and review the way the electricity market is designed. However, this cannot be reached rapidly. It is all the more important that renewables are mainly intermittent, which has a negative effect on grid stability. Therefore, grid costs are increasing and a new electricity market design is needed.

5.What role can the European petrochemical industry play in sustainable development?

The European petrochemical industry is an industry that has understood the importance of reducing energy intensity. 

In less than 30 years, the industry has managed to halve its energy intensity while at the time increasing its production. The improvement in energy efficiency is the result of two factors: a fierce global competition and technological innovation. The industry like the rest of the chemical industry and cement industry is performing well in sustainable development criteria and this should be explained to the general public.

Actually nowadays industry is doing much more in the field of environmental protection to comply with EU legislation and maintain their reputation than citizens and most people are unaware of that. I would encourage the petrochemical industry to continue to develop new chemical feedstock and products that would help citizens become more sustainable. People are willing to have more and more clean products to shape a circular economy. The European petrochemical industry should continue to carry out R & D to develop clean feedstock and deliver more sustainable products to consumers. Innovation is key to the future of the industry and of Europe’s economy.

In the medium term, the weight of the petrochemical industry in oil demand is expected to increase because fuels in the transport sector will diversify. Natural gas should penetrate the transport sector especially in the road and maritime freight transport. If this evolution is confirmed, the share of oil demand for the transport sector will stabilize or even decrease and petrochemicals will account for a bigger share in total oil demand. 

If oil production remains stable, you can have cheaper feedstock and more countries will be ready to supply the petrochemical industry with oil.

Therefore, I’m quite optimistic for the future of the European petrochemical industry as far as prices and availability of feedstock are concerned. I’m also confident that the petrochemical industry and the chemical industry at large will continue to make big progress in research and innovation enabling them to remain competitive and to build a more sustainable future.

Disclaimer: The views expressed by the author in this interview are his own and do not necessarily reflect the position of the EU institution he works for.