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Chemingineering | Bhopal@35

This month marks the 35th anniversary of the terrible tragedy at Bhopal. In this 35th edition of CHEMINGINEERING, our columnist revisits Bhopal and examines the many failures and causes. Bhopal also taught us many lessons and the chemical industry is a distinctly safer place than what it was 35 years ago.

35 years ago this month, a horrific incident happened at Bhopal. It killed thousands and injured hundreds of thousands. Bhopal became synonymous with industrial catastrophes. The art and science of safety advances only through accidents and near-miss incidents; thus Bhopal became an unfortunate milestone in the history of chemical industry. Bhopal was a rude wake-up call to the chemical industry. Many checks and balances were put in place, some legislatively, others voluntarily. In the aftermath of a terrible human tragedy, the chemical industry learned to be more responsible.

The Incident

It is worth recalling what happened in the pesticide plant of Union Carbide India at Bhopal on the night of 2nd/3rd December 1984. Water leaked into a storage tank of Methyl Isocyanate (MIC) and triggered a runaway chemical reaction. As the temperature and pressure inside the tank increased, a safety valve in the tank opened and released a massive cloud of the toxic gas into the atmosphere. The killer gas spread far and wide leaving behind a terrible tragedy in its wake.

Failures

Water had leaked into the tank through a faulty valve intended for cleaning. The refrigeration system designed to keep the contents of the storage tank cool was dysfunctional, the refrigerant having been drained for use elsewhere in the plant. The gauges in the storage tank were not functioning and failed to signal the increase in temperature and pressure. The vent gas scrubber intended to neutralise MIC with caustic soda solution was not operational and allowed untreated MIC to be discharged into the atmosphere. The flare for burning MIC was also not operational. The water curtain with the stated purpose of quelling the gas cloud could not develop the desired height due to inadequate pressure. The community alarm for release of toxic gas was not activated early enough.

Root Cause

The plant was initially set up for formulating pesticides by importing MIC in small quantities from the parent company. Subsequently to improve the competitiveness, the company implemented backward integration and started to manufacture the raw materials in the same plant. But as demand for pesticides dropped, following crop failures in early 1980s, the company decided to suspend production and started to dismantle equipment for shipping to other locations. Since the facility was bleeding money for the company, there were severe cutbacks in plant personnel. Maintenance was poor and the safety awareness was appallingly poor. MIC inventory thus stood with safety systems seriously compromised in a plant that has ceased manufacturing operations. At the root of the tragedy was a poor understanding of the reactive hazards associated with MIC.

Fallouts

There were several learnings from Bhopal which got translated into many beneficial outcomes across the world. The general awareness of safety went up by several notches, both in the industry and among the lay citizens. Chemical industry began reviewing and reducing their inventory of hazardous materials. Many multinational companies took concerted action to bring up the safety standards of their plants located in less developed countries to the same footing as those in their home countries. Communities living next to hazardous chemical plants began to take active interest in safety and disaster management. Many governments enacted tougher legislations and also started to enforce them strictly. Investigations of incidents became more diligent. Courses on safety were started by many institutions and universities. Safety training was accorded priority and treated with respect. Safety became an important cornerstone in process development and design. Principles of Inherent Safety and Process Intensification gained currency in process design.

Reactive Hazards

When Bhopal happened, the knowledge about reactive hazards and runaway reactions was next to nothing. It took another 14 years before the US Chemical Safety and Hazard Investigation Board (CSB) uncovered as many as 167 “incidents” involving uncontrolled chemical reactions. CSB’s investigation also revealed that more than half of these “incidents” involved chemicals not covered by OSHA or US EPA. OSHA, EPA, American Chemical Council (ACC) and Synthetic Organic Chemical Manufacturers Association (SOCMA) joined hands to educate the industry about chemical reactivity hazards. The Center for Chemical Process Safety (CCPS), the process safety arm of AIChE set up in 1985, has developed and published comprehensive set of guidelines on effectively managing reactive hazards.

Management of Change

Post Bhopal, Management of Change (MoC) became a best practice to ensure that safety, health and risk are not compromised when an organisation makes changes to its facilities, operations or personnel. This was singularly absent in Bhopal and was the primary cause of the disaster. The plant had many safety features, but they were all either crippled or disabled because the management was in the process of stopping operations and shipping out the plant. The most important lesson from Bhopal is that even simple changes, if not properly managed, can lead to catastrophic consequences. In the aftermath of Bhopal, CSB investigations identified lack of MoC as the underlying cause in several incidents. An effective MoC should address all changes that could affect the safety of plant and personnel, regardless of whether the change is permanent or temporary.

Responsible Care

Notwithstanding the terrible tragedy at ground zero, the fallouts of the Bhopal gas leak were very positive in faraway North America and Europe. The most significant among them was the development and evolution of the principles of Responsible Care by the Canadian Chemical Producers Association in 1985. In 1988 the American Chemistry Council adopted this programme, followed by many other countries through their national chemical associations. Signatory companies to Responsible Care must fulfill specific environmental, health, safety and security performance criteria. Today, Responsible Care is practiced by chemical companies in more than 65 countries around the world. Nearly 150 companies in India are signatories to the Responsible Care programme.

EPA

Following Bhopal, the environmental awareness and activism increased significantly in our country. The Environmental Protection Act was passed in 1986 and it is the country’s first piece of legislation that gave government the authority to prohibit, close or regulate any industry. Over the years, EPA has been used to frame a set rules and regulations for controlling pollution and management of hazardous waste.

Epilogue

The terrible tragedy at Bhopal has taught us many invaluable lessons. Many best practices have been implemented by the chemical industry and there is no gainsaying the fact that there has been a significant reduction in the frequency and severity of accidents, in comparison to the increased production volumes after 1984. Our understanding of reactive hazards and runaway reactions has improved considerably. The Responsible Care movement has taken roots in the industry and is growing. The price humanity paid in Bhopal may not have been in vain.

Readers’ responses may be sent to: k.sahasranaman@gmail.com or chemindigest@gmail.com

Chemical Industry Digest – December 2019

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Articles covered in this issue:

Societal Impact Area Assessment of a Hazardous Chemical Odorant Release from a Hydrocarbon Process Unit
– Dr U K Chakrabarti, Institute of Petroleum Safety, Health and Environment Management (IPSHEM, Goa)
Ethyl mercaptan is used for hydrocarbon leak detection. Being flammable, toxic and malodorus in nature, it has adverse effects in people living close to the plant. This paper addresses the worst and alternative case scenarios to bring ethyl mercaptan release under permissible limits.

Hydrostatic Test Pressure in Piping Line List
– RaghurajPuri, Nikhil Jagtap, Pranjal V, Fluor Daniel India Pvt. Ltd
The paper provides insights on significance of hydro testing from piping code perspective, the exceptions, and the changing ASME B31.3 requirements for pressure testing which has significant impact on project execution.

Process Safety Guidelines for Small and Medium Scale Enterprises
– J. Ganeshkumar, Vijay Bhujle, GVS Cibatech Pvt. Ltd., Mumbai
Hazards and mishaps in chemical plants, whether small or large, are too dangerous to be allowed to happen. Therefore, it is important to make sure that proper safety measures are taken to manage and control hazards. This article discusses how chemical accidents can be prevented if proper process safety guidelines are followed.

Effective Alarm Management for Improved Plant Functioning
– Ghanshyam Shakya, Gaurav Kothari, Fluor Daniel India Pvt. Ltd.
Reducing operator effort and improving plant safety can be made considerably easy with alarm assessment and management. Discover how alarms can be assessed, implemented and maintained to effectually enhance industrial processes.

Non-Destructive Testing: A Requisite Armour against Safety Related Complications
– S. Raghava Chari, Independent Consultant
Safe operations of industrial machinery is of paramount importance and Non-Destructive Testing (NDT) plays a crucial role in ensuring proper maintenance and examination of irregular industrial machines and equipment. Read this article to find out more about Visual Inspection, Magnetic Particle Testing and Eddy Current Testing as strategies for appropriate safety maintenance evaluation of various industrial equipment.

Chemingineering – Bhopal@35
– K Sahasranaman – Independent Consultant
The Bhopal gas tragedy is undoubtedly one of the worst disasters in the history of humankind. Our columnist scrutinizes the failures and root causes of the disaster, and emphasizes on the radical transformations in the safety measures of the Chemical Industry in the aftermath of the incident.

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ONGC Mangalore Petrochemicals Ltd – Various Opening

ONGC Mangalore Petrochemicals Ltd

NGC Mangalore Petrochemicals Ltd (OMPL) is a Government of India Enterprise, jointly promoted by Oil and Natural Gas Corporation Ltd (ONGC) and Mangalore Refinery and petrochemicals ltd (MRPL) located strategically in MSEZ Mangalore, is engaged in the Aromatic business. This young company promises high growth potential in the near future. It has already created brand position in the Global marketed and is number one PSU in term of net foreign exchange earner for the country for last 2 years .with more than 1500 safe man-days , it is one of the safest Petrochemical Industries in India to work with.

Recruitment of Engineer (E1 grade) through GATE Score 2019

OMPL invites application from the eligible Indian National for he Following Streams through score 2019

Engineering Streams No of Posts Gate-2019 Papers & Code
Chemical 9 Chemical Engineering (CH)
Mechanical 1 Mechanical Engineering  (ME)
Electrical 2 Electrical  Engineering (EE)
IT 1 Computer Science and Information Technology
Instrumentation 3 Instrumentation Engineering  (IN)
Electronic & Communications Engineering (EC)

*The Initial shortlisting of candidates will be based on GATE-2019 score

Recruitment of Engineer / Executives (E1 grade) through written test
OMPL invites application from the eligible Indian nationals for the following posts

Post No of posts Essential Qualification
Engineer (Fire & safety) 2 Bachelor Degree I n Engineering in fire /Fire & safety
Executive  (Finance) 4 CA/ ICWA/ MBA Finance

*The initial shortlisting of candidates will be based on written test

Candidates are required to apply online only. Please visit our website www.ompl.co.in
Opening of Online Application 19/12/2019 Last date of submission of Online application 18/01/2020

 

Note:  Please contact the Company above directly on the website or Email id Provided.

Carve-outs to drive chemical M&A amid headwinds

An uptick in corporate restructuring involving carve-outs ahead of a potential downturn is set to drive chemical mergers and acquisitions (M&A) activity, even as buyers turn cautious amid a challenging macroeconomic outlook.

“The ongoing portfolio reshuffling and restructuring of larger multinationals is providing good asset offerings, particularly for private equity buyers,” said Bernd Schneider, managing director at investment bank Alantra.

“Companies are reshuffling their portfolios again, preparing for a downturn. They are trying to offload non-core businesses. So there are opportunities for private equity sitting on tonnes of capital to be deployed for primary carve-out opportunities from multinationals,” he added.

Assets being sold by or being carved out from major European chemical companies include BASF’s construction chemicals business, Clariant’s masterbatches unit and Lonza’s specialty ingredients business.

US-based Celanese had reportedly been exploring the separation of its acetyls and polymers businesses but CEO Lori Ryerkerk said a split would not add value at this time because of dis-synergies associated with any separation. Celanese may need to take on additional transformational activity before the company could justify splitting itself up, she added.

There has already been a wave of corporate carve-out divestitures announced and completed in 2019.

On 14 October, France-based Arkema announced the sale of its Functional Polyolefins business to SK Global Chemical for €335m in a deal expected to close in the second quarter of 2020.

In August 2019, US-based Huntsman agreed to sell its chemical intermediates business to Thailand-based Indorama for $2.1bn in a deal expected to close by the end of the year. Also in August, US-based PolyOne announced the sale of its Performance Products and Solutions (PP&S) business to SK Capital for $775m. PolyOne is also reported to be in talks to acquire Clariant’s masterbatches business.

And BASF in August agreed to sell its global pigments business to Japan-based DIC for €1.15bn in a deal expected to close in Q4 2020. It is still seeking a buyer for its construction chemicals business.

Germany-based Evonik at the end of July completed the sale of its methyl methacrylates (MMA) business to private equity firms Advent International for €3bn.

“We expect an extremely active M&A market in the next 12-18 months driven by a confluence of factors lining up nicely for elevated activity,” said Alain Harfouche, managing director at investment bank Guggenheim Partners.

“Large and mid-size corporates are increasingly divesting assets they view as being non-core and could fit better with someone else, providing them an opportunity to still garner a good valuation,” he added. And more entrepreneurs and family-owned businesses are also looking to sell before a potential economic cycle.

Most of these carve-outs represent over $1bn in deal value and would be ripe for private equity buyers rather than strategic buyers, noted Alantra’s Schneider.

“The strategists that would have synergies may not be willing to pay a strategic premium for a competitor as they often take a cautious approach toward acquisitions or see headwinds in their own portfolio,” said Schneider.

“Meanwhile, private equity is sitting on dry powder and also raising more funds,” Schneider added.

Competition among private equity firms is “fierce” but the number of attractive assets on the market has largely remained constant, driving up valuations, especially for high margin non-cyclical assets, said the banker.

This year has been marked by an absence of mega deals – those of $5bn and above. However, deal activity has continued to move at a healthy pace.

“Due to the absence of any mega deals, the total dollar volume of M&A year-to-date has fallen dramatically compared to last year. However, the number of deals is still quite solid as companies and private equity firms continue to sell non-core businesses and portfolio companies that are mature,” said Peter Young, president and managing director of investment bank Young & Partners.

“In fact, both the dollar volume and the number of deals is solidly in the mid-range of activity when compared to the long-term trends,” he added.

Global economic uncertainties caused by the US-China trade dispute, the slowdown in GDP growth worldwide and geopolitical turmoil have caused companies to cut capital spending but this has not markedly slowed M&A activity.

“The strategic need to grow and to improve business portfolios, coupled with the secondary deals that are the result of large mergers such as DowDuPont and separations, are driving an underlying solid level of transactions,” said Young.

“It is also worth noting that Asia continues to be the region where close to half of the businesses that are being sold are located, as consolidation in China continues to be a driver of M&A activity in that country,” Young. added.

RISE OF THE MID-SIZE BUYER

One banker sees the next wave of M&A activity in the chemical sector involving mid-size companies buying non-core assets being divested by larger companies.

“Although there are more mega deals to come within the chemicals industry, there has been a noticeable shift to undertake smaller acquisitions and divestments that target specific portfolio shortcomings and deliver tangible results in the short and mid-term,” said Chris Cerimele, managing director at investment bank Balmoral Advisors.

“It is expected that going forward, the next wave of M&A in the chemicals industry will involve mid-sized companies buying some of the non-core assets of the new mega companies,” he added.

One example would be PolyOne’s rumoured potential acquisition of Clariant’s masterbatches business.

MACROECONOMIC HEADWINDS

Negative sentiment by company managements is one factor that could limit buy-side deal activity.

“Psychology has gotten ahead of reality in the US – we are sensing CEO confidence is down. Economic indicators are not quite signaling recession but the sentiment is ahead of the market,” said Leland Harrs, managing director at investment bank Houlihan Lokey.

“We see choppiness feeding through to some sale processes, especially those exposed to cyclical end markets, Europe, Asia or trade. Geographic issues are at the forefront of people’s thinking,” he added.

There is a dichotomy between macro conditions in Europe and Asia, and those in the US, the banker noted.

“The consumer is still very strong in the US, and some sectors such as personal care, home care, and nutrition and health are holding up well,” said Harrs.

Buyers are becoming more cautious with the constant stream of negative macro news and data points, including those related to US-China and US-EU trade disputes, Brexit and weak manufacturing activity.

“Some deals continue to take longer and in some cases processes are abandoned. In terms of end markets, construction and automotive are issues,” said Federico Mennella, managing director at Rothschild & Co.

In addition, seller expectations are often still too high. “A lot of deals don’t happen because sellers are unrealistic or unwilling to reduce the price. Plus, strategic buyers are being more disciplined,” he added.

While chemical M&A activity continues at a healthy pace, “anxiety levels among CEOs have been heightened” amid concerns about a potential economic recession, said Telly Zachariades, co-founder and partner of The Valence Group.

“One CEO said: ‘If we’re not careful, we’ll talk ourselves into a recession’. There’s so much talk of it in the media and negativity can unfortunately feed upon itself. But so far it’s been business as usual and that’s what we expect for the foreseeable future,” he added.

A number of companies are running into headwinds that make short-term forecasting more difficult – which is typically a hindrance to M&A.

However, for now, the M&A market has been able to shake off all of the incessant noise around Middle East tensions, US presidential impeachment proceedings, and the US-China trade war, as well as a potential recession, he said.

CAUTION FLAG

Private equity firm The Carlyle Group is exercising greater caution than usual in its approach to chemical and other industrial acquisitions in an increasingly uncertain business environment.

“There’s a yellow flag on the racecar track. It is time to be careful and we will be very cautious,” said Brian Bernasek, managing director and the head of the global industrial and transportation team at The Carlyle Group at a recent meeting of the Chemical Marketing & Economics Group (CM&E) in New York.

“It’s clearly a more challenging environment than in the past several years, and it’s not certain where we are [in the economic cycle],” he added.

Yet even as macroeconomic challenges mount and earnings growth slows, M&A valuations have persisted at high levels.

“Interest rates are likely to stay low for the foreseeable future, so equity values are likely to remain high with the caveat that business performance needs to be strong. We expect this high valuation environment to continue,” said Bernasek. However, he sees corporates increasingly becoming more and more cautious in their appetite for acquisitions as well.

“In general, strategists are becoming less bullish. So much of the competition [for deals] is micro-based – on whether it’s a great strategic fit or attractive growth opportunity for the company. But we’re pretty confident that… board rooms and CEOs are less enthusiastic than they were six to 12 months ago in doing deals,” said Bernasek.

Carlyle’s investment strategy comprises making operational improvements, finding and supplying disruptive growth and backing market leaders with world-class management teams.

It specialises in industrial carve-outs – what it calls its “calling card”. Examples include buying AkzoNobel’s specialty chemicals business, which it renamed Nouryon, and acquiring DuPont’s automotive coatings business (Axalta Coating Systems) which it took public. It also sees the energy sector as a “unique place to invest”, said Bernasek.

“Some private equity firms think we’re in an industrial recession now, but have raised funds and need to put that capital to work,” said Sean Gallagher, managing director at investment bank Janney Montgomery Scott.

“Some are looking for businesses that are relatively immune to recession or counter cyclical. For others, their timelines are not always economy-related,” he added.

And more caution on the part of large multinational chemical companies because of the macro challenges could open up more opportunities for private equity, the banker noted.

“Larger multinationals are pulling in their horns now and cutting back on costs,” said Gallagher.

STOCK PRICE FALLS MAY SPUR M&A

A downturn in chemical stock prices could spur more mergers and acquisitions activity.

US and European chemical equity prices have largely been flat to down in 2019, with some exceptions, even after a sharp bounce off their August lows.

“The next 12-18 months should see the continuation of a very busy M&A market. Public chemical valuations have come down a bit and this may bleed into the private side, making businesses across the board more actionable,” said The Valence Group’s Zachariades.

“From an M&A standpoint, this potentially creates opportunity. Some public companies that had been considered unattainable are now on buyers’ radar screens as they’ve become more reasonably priced,” he added.

In July 2019, US-based specialty chemicals company OMNOVA Solutions, following a sharp drop in its share price, caught 
a bid from UK-based Synthomer at a 52% premium to its 3-month weighted average stock price.

On the public chemical company side, valuations have come down, making some “very actionable” from an M&A standpoint, said Harfouche at Guggenheim Partners.

Buyers remain well positioned to drive activity with private equity sitting on growing piles of “dry powder” and looking for deals, and corporate balance sheets relatively healthy, he said.

“As valuations come down, we’re going to see more portfolio optimisation which should be a catalyst for activity,” said Mario Toukan, managing director at SK Capital Partners.

“As public valuations decline, it makes it easier for these companies to sell non-core assets as it won’t be dilutive,” he added.

Conversely, when public valuations are high, selling off businesses becomes difficult as companies are already getting high multiples off these assets in the stock market – essentially getting greater credit for the cash flows.

“In the chemical world, there are a lot of headwinds. We are technically in a chemical and manufacturing recession,” said Toukan.

M&A transaction multiples continue to be strong for the moment, but they will likely trend lower with public valuations, he noted.

“It takes time for M&A valuations to normalise – there’s always a time lag. The buyer/seller valuation gap is going to narrow, but it will take time,” said Toukan.

SK Capital, which specialises solely in chemicals, pharmaceuticals and specialty materials, is well positioned to execute such deals in a tougher market, he pointed out.

“For deals we consider, we must have a view on transformational change in the business – we may be indirectly exposed to commodities, but we won’t play cycles,” added Toukan.

CSIR-National Chemical Laboratory – Latest Openings

CSIR-National Chemical laboratory

 Last date for Receipt of Online applications:  06.01.2020
A unique opportunity for research careers in science & technology

The council of scientific and industrial Research (CSIR) is an autonomous organization under the ministry of science & technology, Government of India. It is amongst the foremost scientific and industrial research set-ups in the world, having state-of-the-art infrastructure and scientific and technical manpower second to none, CSIR covers practically the entire spectrum of scientific and industrial R& D of national and international importance. This ranges from aerospace to ocean exploration, microelectronics to structural and environmental engineering, smart materials to mechatronics, petrochemicals to synthetic biology and from robotics and micro-machines to drugs pharmaceuticals and agrochemicals.

National Chemical Laboratory, a unit of council of scientific and Industrial Research (CSIR), is a premier scientific organization involved in conducting high-quality research in area of chemical and allied sciences. Application are invited Online Only from Indian nationals For Filling up the following scientific positions:

Designation

 

No Of post Pay Matric(7th CPC) *Total Emoluments (per month) **Upper Age Limit not exceeding (as on last date of online application)
Scientist 04(UR) 01(EWS) 03(OBC) 02(SC) 01(ST) Level-11 (Rs.67700-208700) Rs.1,00,136/- 32 years
Sr. Scientist 08 (UR) ( Including 01(UR) backlog  Level-12 (Rs. 78800-209200) Rs. 1,15,232/- 37 years

 

*Total Emoluments mean approximate total emoluments on minimum of scale including HRA in Class X city.

** Please seed age relaxation under Relaxation Column.

For further details please visit our Website http://recrute.ncl.res.in and apply through the online application form available there3. The detailed advertisement, terms and conditions and instructions to the candidates are available on the website. For any technical query while applying online, please send e-mail to recruit@ncl.res.in

Date of Commencement of online applications: 06.12.2019

Last date for receipt of online applications: 06.01.2020

Last date for receipt of hard copy applications:24.01.2020

GMM Pfaudler Offers Acid Recovery Capabilities with Process Technology and Complete Range of Engineering

The Chemical Industry produces thousands of tons of diluted inorganic waste acids containing inorganic and organic impurities. These acid waste streams are often simply neutralized prior to transfer to wastewater treatment facilities. However, rising operating costs in difficult economic times create the need to recover the acid for further use. Stricter environmental regulations globally also mandate recovery of acid rather than waste treatment.

GMM Pfaudler offers Acid Concentration plants with process technology and the complete range of Engineering  provided by Pfaudler Normag Systems, Germany, active in the field of acid treatment and all related services since decades. Our highly experienced team of Process Developers, Project Manager and Experts of all related disciplines evaluate the most appropriate process technology for the given application. The offered plant is based on the latest state of technical knowledge and all plant units are optimized with respect to investment costs and minium oprating cost  of the plant. The scope of supply is proven to be suitable regarding safety and operability.

Our capabilities expand across the globe, designing and engineering plants for the following Acid recovery processes:

  • Spent Acids
  • Nitric Acid
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  • Hydrochloric Acid
  • NOx Absorption
  • Post treatment of Waste Water and Waste Gas streams

GMM Pfaudler’s Acid Concentration System Features include:

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Laboratory test facility allowing for proof of concept/performance, optimization of design and data collection for commercial-scale system design.

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Single-source responsibility including process design, engineering design, construction, performance guarantee, installation supervision, maintenance services and spare/replacement parts.

For any queries or information on our product offerings, kindly visit our website www.gmmpfaudler.com or mail us at sales@gmmpfaudler.com

Chemingineering | A New Bellwether

There have been 2 noteworthy decisions on the fossil fuel front this month – one by the world’s largest public bank and the other by the world’s largest oil producer. The first is the decision by The European Investment Bank (EIB), the lending arm of European Union, to phase out its multibillion-euro financing of fossil fuel projects. The second is the IPO, purportedly the world’s biggest, of Saudi Aramco. These two decisions work at cross-purposes in determining the future of fossil fuels. With “Climate Emergency” looming large in our crosshair, economists and environmentalists seem to be at loggerheads.

EIB Funding

Under its new policy, the EIB will align all its lending decisions with the Paris Climate Accord and energy projects seeking EIB’s funding need to demonstrate CO2 emission levels of below 250 grams per KWH of energy produced. Climate campaigners are claiming that the EIB’s decision is a significant victory for the climate movement and an important step towards fulfilling EU’s objective of becoming carbon-neutral by 2050. The world’s largest public lender has clearly yielded to the growing public pressure and may have driven yet another nail in the coffin of the fossil fuel industry. But has it?

Aramco IPO

On the other hand, the funeral of the fossil fuel industry must be far removed in the minds of the sponsors of Saudi Aramco, as they embark on the ambitious project of floating the largest public stock in our history. Obviously, they see a glowing future for oil and are inviting us to participate in their dream. In its 658-page IPO prospectus, Saudi Aramco, currently the most profitable company in the world, is seeking to become also the world’s most valuable company by displacing Apple. Will oil replace data, is the trillion-dollar question before hopeful investors seeking to buy into Saudi Aramco’s dream?

Peak Oil

In 1956, M King Hubbert, a geologist employed with Royal Dutch Shell, formulated the concept of Peak Oil, according to which the oil production in the US would peak in the 1970s before eventually running out. Hubbert’s prognosis appeared to be coming true, as after peaking at 9.6 MMBPD in 1970, US oil production was mostly on a southward slope for the next 3 decades. Last year, the daily production of oil in US exceeded the daily production in 1970. Thanks to advances in prospecting, exploration and drilling technologies. According to International Energy Agency (IEA), conventional crude oil production peaked in 2006. The current Peak Oil forecast ranges from early 2020s to 2040s and will largely be governed by economics and how governments respond to the climate crisis. Aramco used to dismiss Peak Oil as “not based on logic and facts, and formed mostly in response to pressure and hype”. But in its IPO prospectus it concedes to a levelling off of demand by 2035.

A Stern Warning

Earlier this month 11,000 scientists feeling a moral obligation to warn humanity of any catastrophic threat and to “tell it like it is” declared that planet Earth is facing a climate emergency. This group that calls themselves as “Alliance of World Scientists” has recommended that we should leave the remaining stocks of fossil fuels under the ground, and rapidly implement massive energy efficiency and conservation practices. They are demanding an immediate replacement of fossil fuels with low-carbon renewables and other cleaner forms of energy. Aramco also foresees a reduction in demand for crude as a result of increasing availability of alternative energy sources, greater energy efficiency, and the emergence of new technologies like electric vehicles. Notwithstanding this, the company forecasts 0.8% annual growth rate upto 2030 with the main demand emanating mainly from the developing countries in the Asia-Pacific region.

A New Peak

In the last century, “Peak Oil” reflected concern for a dwindling natural resource. Today, after having established alternative resources, it signifies hope and a new green beginning. Many environmentalists would be more than happy if the world were to run out of fossil fuels tomorrow. It would only hasten the adoption of alternative sources of energy. The growing concerns on climate change has shifted the “Peak Oil” narrative from supply to demand. When will the demand for oil peak?

The Indicators

Vitol, the Netherlands based company that trades in 7 MMBPD of crude oil and petroleum products, believes that, even with the increased adoption of EVs, the demand for oil will continue to grow for the next 15 years but will begin to fall thereafter. The company is however taking cognisance of the energy transition and have announced their intention to invest in renewable energy assets across Europe like windmills and battery parks. Andy Hall, the legendary oil trader, believes that the demand could peak as early as 2030. IEA also predicts that demand for oil will plateau around 2030. Transportation accounts for nearly 60% of the demand for oil and this is the area where most changes, technological as well as sociological, are expected. Electric Vehicles powered by cheaper and robust batteries (Powering the Future, Chemingineering, October 2019) are poised to make rapid inroads. Environmental conscience will make more people switch from owning cars to sharing and hailing rides. And most importantly, this peaking has to happen at the earliest if we have a reasonable chance of meeting the Paris Accord target of limiting the global warming to below 2 degrees Celsius.

Contrarian View

So, there is a broad consensus on peaking of demand for fossil fuels in general and oil in particular in the next 2 decades. How quickly it happens depends a great deal on policy decisions, like the kind made by EIB earlier this month. But rogue politicians are also rolling back stringent energy-efficiency norms. Saudi Aramco’s controversial IPO apparently flies in the face of this consensus. One explanation could be that it wants to milk the last gallon of oil before it vanishes altogether. Probably the company sees the writing on the wall and wants to divest and use the proceeds to diversify the country’s economy. This sobering thought will perhaps help us understand its vision of growth “by balancing production between maturing areas and newer production sources, tapping into new reservoirs when required to optimise the depletion rate of its fields”.

Epilogue

Even as I am writing this, news is coming in that the company has scrapped its international roadshows and want to limit the IPO to within the kingdom. This scale-back is ominous. Saudi Aramco’s stock price will be finalised on December 5th, after which it will start trading on the Saudi bourses. The stock will then become a new bellwether of the fossil fuel industry.

Readers’ responses may be sent to: k.sahasranaman@gmail.com or chemindigest@gmail.com

Chemical Industry Digest – November 2019

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Articles covered in this issue:

Digital Disruption in the Lab: The Case for R&D Digitalization in Chemicals.
– Michael Ulbrich, Dr Vikas Aggarwal, Dr Paul Bohm, Dr Eike Eschenroder, Accenture Strategy
There are no areas of the Chemical Industry that will not be transformed by the application of latest digital technologies R&D is one such an area. Adopting digitalization in laboratory is expected to create a revolution with transformational benefits. This article gives an overview of the ideation, connectivity, process and analytics that can transform laboratory practices and R&D.

Pilot Plant Size and Configuration – Getting Your Choices Right
– Rajeev Hallur, V T Jagtap-Patil, Shailesh S Kulkarni Xytel India Pvt Ltd
Commercial plant scale-up poses challenges in chemical process development. Pilot plant plays an important role as lab scale data alone is insufficient for building a commercial scale plant. This article delves into the various imponderables from appropriate design and size selection of the pilot plant to the challenges faced in picking the right equipment and hardware.

Laboratory Safety – Evaluating Hazards and Assessing Risks
– Vijay V. Bhujle, GVC Cibatech Pvt. Ltd.
Assessment of hazards and potential risks are an important aspect of planning a safe experiment in laboratories. With proper planning, risk analysis, proper infrastructure and training, safe laboratory operation is possible even when hazardous chemicals are involved. This article discusses the various aspects of the required safety culture.

Article & Interview: Agarwood – Wood Of Gods
– Basma Hussain, Freelance Journalist
Throwing light on the Oudh Industry and the future of ‘Agarwood’ termed as the ‘Wood of Gods’, Tayyab Ali, Founder of Asia Oudh Co. Ltd., Thailand, enlightens on the various issues and challenges in the ‘Agarwood’ business. As the demand for this enigmatic wood increases, the Indian ‘Agarwood’ industry tries to match up to the challenges in supplies with its high quality offerings.

Continuum Approach to Optimizing Downstream Final Drying with Upstream Solid-Liquid Filtration, Cake Washing & Dewatering
– Barry A. Perlmutter, BHS-Sonthofen Inc.
The “Continuum Approach” results in saving of energy and nitrogen as well as capital savings of a smaller filter area and a small increase in the dryer’s capacity. This article advocates a holistic approach for appropriate selection of solidliquid filtration process to the final drying process and steps to be taken to optimize the drying.

Chemingineering – A New Bellwether
– K Sahasranaman – Independent Consultant
Our columnist scrutinizes the astounding developments in the area of fossil fuels. He emphasizes on the catastrophic threat that fossil fuels pose if not replaced by cleaner forms of energy.

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Solar Dryers: Empowering the Future of India

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Chemical Innovation: a new era of growth

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We are living in a transformative world. Everything around us is changing at a very rapid space. This disruption has created new categories and products in established industries – from retail, hotels, and transport to telecom. Innovation lies at the heart of this rapid change. Industries across domains are innovating in terms of learning & unlearning, implementing ideas differently or re-designing in this dynamic environment. Trying to understand this from the chemical industry’s lens, it is evident that the industry needs to be agile in adapting innovation and research to keep pace with the changing world.

The global chemical industry is not new to innovation. Many new chemicals and compounds were discovered and commercialized post World War II. Most of these discoveries were of plastics and polymers, derived mostly from hydrocarbons, particularly petroleum. The chemical industry played an important role in global economic growth on the back of these high-value innovations. For example, as demands on the nonferrous metal industry increased in America, plastic replacements were used wherever possible.

The product pipelines of chemical companies dried after the 1980s. They started focusing on global expansion, thus moving production to the emerging markets. However, the financial crisis of 2008 stalled this globalization phase. With their products turned into commodities, the chemical companies now concentrated on acquisitions for growth. For legacy chemical businesses, investing Research & Development became secondary as they were competing against an entrepreneurial mindset with uncertain outcomes. As specialty chemicals also became commoditized, price became a dominant factor of competition.

In recent years the role of innovation has dramatically changed at chemical companies. The new dynamics are forcing companies to alter the ways they manage innovation portfolios. Traditionally one breakthrough – molecule or a product was a profitable proposition for companies for years together. The innovation in plastics was a growth driver for decades. Today consumers – individuals and corporates, are consciously reducing the use of plastic to curb damage to the environment. Major multinationals have started looking at alternatives for plastic packages. Hence the role of innovation in chemical companies is moving from product innovation to enhancing functionality, customizing products and adapting to the new market opportunities catering to the needs of their business customers.

With a domestic chemical industry of approximately $160 billion, India has the potential to play an important role in R&D innovations. In India companies typically spend 3-4 percent of revenue on R&D against the global average of 7-8 percent. The research spending does not include the research grants provided by the government to R&D, academic and industrial establishments.

Since its inception, the Indian chemical sector has regarded science and technology (S&T) as a major source of growth. The pool of scientific knowledge actually applied in its production activities, however, varies from sector to sector. In smaller chemical companies, the technological sources are mainly in-house whereas in several medium and large scale companies, the technologies are being brought in through transfer from external including overseas agencies.  Modern S&T application through R&D requires teamwork in well-equipped laboratories under the umbrella of a large number of research projects. The specialty and knowledge-intensive chemical sectors requires R&D for product improvement as well as orchestrate process innovations for cost savings.

The Indian manufacturing companies invest in R&D depending on several factors like short or long term goals, viability and gestation period of their ongoing projects, profitability levels of their manufacturing activities and the market structure. Most of the Indian R&D is of adaptive nature as it provides technological independence and strengthens their position in an increasingly competitive global environment. The innovation lies at the core of Tata chemicals businesses as the key differentiator in a competitive market and encompasses multiple facets of business, communities, and environment to develop solutions for a better world and ensure sustainable value creation for stakeholders.

India’s increasing spending power, access to information and technology has provided chemical companies avenues to diversify and expand. A well-known paint company has successfully changed the perception of painting from a routine chore to a decorative exercise.  Using digital technology, it now gives individual and institutional customers an option to visualize their preferred colors and designs and also offers painting services.

Another sector that could see a large adaption of R&D is FMCG, Healthcare, and Wellness.  Indian consumers have become more health-conscious and opt for nutritious food and healthy snacks. Using natural and sustainable products is also on their top agenda. This trend gave chemical companies a window to introduce segmented offerings, an opportunity to enter new categories or revamp existing products for applications across domains. This has helped companies re-engineer their business models and enabled them to generate higher returns on their investments through innovation.

Executives recognize that R&D is at the heart of the chemical industry’s success, but the majority of them are of the opinion that companies are not fully utilizing the potential. To improve innovation, companies should align R&D to the business objective and growth drivers.  Failure to do so will lead to a weaker R&D team and innovation portfolio. Many times though companies hire top researchers, lack of direction undermines returns. Sometimes solving engineering problems becomes the R&D team’s priority instead of building delivery features that customers are looking for. At times teams do not invest enough in understanding customer needs, product roadmap or are unable to translate them into requirements. These weaknesses can be addressed by streamlining decision making and tightening development cycles. Companies have realized that the shift from pure research projects to developing applications in response to customer needs requires fewer stage-gate reviews. This is possible as the parameters for quality and success are well articulated. The traditional stage-gate process, with a lengthy waterfall-style cycle, is making way for a more agile model that can keep up with the speed of business.

One of the challenges for R&D teams and production labs is to innovate and develop high-quality products at lower costs and also meet the needs for improved health, safety, and environmental impact. The laboratory information management solution digitalizes the R&D process, optimizing the development of innovative, high-quality products, managing traceable processes and information flows, and aligning all R&D processes to directly support more successful new product launches.

A gradual step towards making R&D more agile and inclusive is adopting open innovation. The chemical industry is opening its doors to external ideas, thus making R&D not so secretive. The idea here is to broaden the research parameters and exchange of knowledge and ideas. This open approach also helps in understanding the value chain better, collaboration with industry and academia and also improve R&D outcomes. More so, it also encourages interdisciplinary cooperation as applications are developed across industries. For example, an automobile company’s inputs and research insights are equally critical in developing an energy-efficient battery.

Research indicates that open innovation is preferred during the initial stage of development than stages close to commercialization. There is a case made for making open innovation a strategic aspect of R&D instead of a tactical approach when in-house research is not enough. Technological advancements are making open innovation further mainstream as digital platforms are making real-time collaboration possible. While there are aspects like secrecy that need to be considered, open innovation could encourage more research across industries and academia.

Digital technologies like AI, Data Analytics are seeing quick adaption across industries. However, the research in the chemical industry is largely stuck in the traditional methods. Researchers and laboratory technicians still depend on collating data using conventional methods like internal sources, datasheets, CRM, etc.  Rethinking information management in the lab settings supported by digital technologies will boost R&D in the industry and improve outcomes.

Accenture’s Technology Vision 2018 survey revealed that 51% of chemical industry executives are planning to apply AI in R&D in the next two years. Deploying AI will help companies to automate the integration and cleaning of diverse laboratory data. Accenture’s strategy experience report indicates that digital capabilities in R&D can improve the innovation process by 15 percent.  For example, companies will be able to include faster preparation and experimentation through lab automation and robotics and complete research quickly. Digital technologies have the capability to make better decisions and increase R&D value.

The chemical industry has traditionally benefitted from R&D. In the digital and knowledge economy it is imperative for the industry to reinvent its research vigor. Shedding the black-box approach, the industry needs to embrace a collaborative approach to reinvent business models.

With rapidly growing competition for resources and increasing waste and pollution, the need to move towards an inclusive circular economic system is growing.  A circular economy has the incentives and means to use existing resources in an efficient and sustainable fashion – relying on renewable energy sources, extracting more value from waste products, eco-friendly products, minimizing food waste, and increasing the quality of life for all segments of society. The transition to chemicals that are safer for human health and the environment is a prerequisite for a globally competitive, low carbon, resource-efficient, and sustainable India as well as for a circular economy. This rests on safer chemical material flows, from product design to end of life.

It requires innovation and new ways of producing and consuming new products, markets, and business opportunities. Actions that are designed to scale investment and innovation in safer chemicals and technologies to accelerate their adoption. This will shape organizations from a range of industry sectors that have invested in chemicals, processes, and product innovations – often before and beyond the demands of regulatory compliance – to prevent, identify and eliminate the use of substances of concern across the life cycle of their products and to make it more sustainable. To achieve these, we require a concerted effort of a variety of actors: Government and the public sector, businesses (including SMEs), investors, academic and private/public research institutions.

Author’s Bio:

Mr. Zarir Langrana
Executive Director & Head of Global Chemical Business, Tata Chemicals Limited

Zarir Langrana currently heads the Global Chemicals Business of Tata Chemicals and is responsible for operations and growth of the inorganic chemicals business and the new ventures in Nutraceuticals and Silica. In the past, Langrana has headed the global marketing and strategy function overseeing and directing all sales and marketing plans, developments, growth, and new product activities and processes in these two areas for its global chemicals business across the four continents where it operates. He has been with Tata Chemicals for over thirty years, having been inducted through the Tata Administrative Services. Mr. Langrana is an economics graduate from the University of Madras and holds a post-graduate qualification in business management from XLRI, Jamshedpur.

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