BASF rides the waves

Ludwigshafen, Germany - BASF SE continues to chart a steady but careful course within the global chemicals market amid uncertainty over trading conditions in certain markets, as well as over carbon emission regulations and project-build timescales, officials explained at BASF's annual result press conference at Ludwigshafen headquarters.

Commenting on some challenging market conditions during 2007, particularly in North America,  BASF chairman Dr. Jürgen Hambrecht insisted " there is no reason for talk of a recession.” He forecast global GDP growth to fall slightly to 2.8% this year, from 3.8% in 2007, with a return to healthy growth including in North America by the end of this year.

"The first weeks of 2008 have run on smoothly from the past year for BASF," continued Hambrecht. "The level of orders remains strong and the capacity utilization rates of our plants are high. We therefore expect that BASF’s business will also develop positively in 2008."

For 2007, overall, group earnings (EBIT before special items) rose 5% to Euro7,614m, on sales 10% higher at Euro60bn. Fastest sales and earnings growth occured in Asia Pacific where income (EBIT) rose 376% to Euro828 million on sales 18% higher at Euro8.8 billion. This performance totally eclipsed that in Europe and more particularly North America, where earnings fell 12% to Euro762 million on sales 5% higher at Euro12 billion.

European sales, meanwhile, rose by 9% to Euro3.4bn; growth driven by the Catalysts and Construction Chemicals divisions as well as higher sales volumes and prices in the Intermediates and Inorganics divisions. Compared with 2006, income from operations declined slightly by 1.3% to Euro5.415 million, principally due to issues in the Oil & Gas segment.

Not surprisingly, Hambrecht cited China as BASF’s top priority for investment with the company in the approval stages for a Euro1-billion expansion at its Nanjing site. The company, he added, is also in the pre-approval stages for a major, new urethane chemicals project at Caojing near Shanghai.

Overall, BASF has earmarked capital investments of Euro2.8 billion for 2008 and around Euro11 billion over the next five years, noted Hambrecht, who went on to highlight issues facing its expansion programme in Europe, such as its planned coal gasification plant at Ludwigshafen site: "At the moment in Germany hardly anyone can make investment decisions due to the lack of clarity in regulations. This makes it impossible to gauge the feasibility of such projects - especially given that Kyoto 1 will expire in five years.”

Hambrecht, meanwhile, acknowledged that there will be delays on some of BASF’s expansion projects such as the company’s HPPO project in Antwerp, Belgium, due to the impact of rising steel prices and other pressures on the capital costs of projects.  “Demand is very high among purchasers. Despite our enormous economic power we cannot always be no.1 in terms of buyers,” the BASF chairman commented.

BASF claims to have become the world’s first company to present a comprehensive carbon balance for its operations. The group's Carbon Balance report, it said, shows that BASF products can save three times more greenhouse gas emissions (252 million tonnes per annum) than the entire amount caused by the production and disposal of its products (87 million tpa). 

The Carbon Balance is based on an analysis of all BASF operations and raw materials suppliers across the group — excluding its gas business — from production, use and disposal as well as the CO2 equivalent savings that the products provide in use. The production phase covers raw materials production, including from suppliers as well as BASF energy requirements for production. It also includes CO2 emissions from transportation of raw materials.

 An independent third party, the Öko-Institut in Freiburg, has reviewed and confirmed the Carbon Balance analysis, which then factors in the product lifecycle of 90 key products that save CO2 emissions when used in end products. This includes products such as polyurethane foam insulation, which BASF estimates can lower energy consumption of the average house by 70%, and provide an overall greenhouse gas savings of 140 million tpa. Another example covers the use of catalysts for reducing nitrous oxide, company officials citing a project at PetroChina, which is saving the equivalent of 10 million tpa of CO2 emissions.

By 2020, BASF said it aims to reduce its specific greenhouse gas emissions per tonne of product sold by 25%, compared with 2002. The group also aims to increase the specific energy efficiency of our production processes by 25% by 2020 compared with 2002. "This," said BASF director Harald Schwager, "is a very ambitious goal, but also a very important one. We see energy efficiency as the key to combining climate protection, conserving resources and achieving a competitive advantage."

Looking at potential savings going forward, Schwager cited how BASF produces acrylic acid, which in turn produces steam. "We use this steam in other plants but in transporting the steam from A to B there are losses. So by reducing these losses we improve energy efficiency. We also try to develop the catalysts used to produce acrylic acid and if we get the yield up then you get higher production for the same energy input. So there are many ways but each and every step is difficult to achieve and takes a lot of work. The big leaps are behind us."

Asked about carbon capture and storage, Schwager said: “We have worked on several projects to sees if carbon capture and storage might be a solution for the future. We don’t have technology here today to do that but the idea seems right. From a technological point of view we don’t have an answer today; we are working on it.

However, he also saw a potential stumbling block: “Would you want a gas cavern underneath your house or the gas pipe coming through your neighborhood and then you know there is all this CO2 coming through from Europe. This will be the discussion. We have this discussion if you extend a runway at an airport or a new power plant and the same will happen when you announce a CO2 cavern and all the people in the vicinity. But still I think it is a good idea and we work on it..

Meanwhile, Schwager voiced concern about the lack of clarity over how energy intensive industries sucvh as chemicals will be treated in the EU carbon trading scheme. “As long as there is no clarity as to how CO2 will be treated in an energy intensive industry there will be a postponement of investments because economical guarantee is missing,” he stated.