Ineos chief says Europe must embrace shale to compete

BRUSSELS — The chemical industry faces dire consequences if Europe does not develop low-cost energy to make it competitive with other regions like the U.S., which is benefiting from shale gas, says Jim Ratcliffe, chairman of Ineos.  

“Europe has invested three times as much in renewables as the U.S. has spent on shale. Europe's energy balance gets 5 percent from renewables and the U.S. gets 50 percent from shale. So who looks smarter, the Europeans or the Americans?” said Ratcliffe. 

In a hard-hitting address in Brussels, he criticized the EU's competitiveness strategy in relation to manufacturing, energy and raw material costs and regulation. At the PolyTalk conference organized by PlasticsEurope, Ratcliffe spoke of the stark contrasts between the EU and the U.S. that are impacting chemicals producers such as Ineos.

The group owns polymer and chemical plants in both regions, with roughly two-thirds of its manufacturing assets in Europe and one-third in the U.S.. Five to six years ago, two-thirds of Ineos' profits came from Europe and one-third from the U.S., he said.

“Today in Ineos, well over 70 percent of our profits come from the U.S., and considerably less than one-third come from Europe. That is why we're worried,” said Ratcliffe. 

The chemical industry is important to Europe, he said, and is similar in size to the automotive industry. He noted that the European Commission seemed to agree as it has set a target of increasing manufacturing's share of GDP in the EU from 15 percent now to 20 percent by 2020. 

“What are the things you need to run a profitable chemical company? It's quite simple. You need competitive raw materials, you need competitive energy, and you need competitive labor — in that order,” he said.

Yet, gas in Europe is three times the price of gas in the U.S., electricity is two times the price and labor is also more expensive in Europe, he said.

The U.S. is also investing much more heavily — about $150 billion — in its chemical industry, including shale gas production. 

“In the UK, there have been 22 closures of chemical plants in the past five years. So Europe is in total contrast to the U.S.,” he said.

The other major producing regions have also been making large-scale investments in chemical capacity, with worrying implications for European production. China usually absorbs surplus. chemical production in the world market, but Ratcliffe said that is not going to happen in the future as capacity investments make the country more self-sufficient.

“They will buy less from Europe, but more importantly they will buy less from the Middle East,” he said. 

The Middle East is investing and its chemical industry has “unbeatable economics” for its production, which is largely exported. 

“What I see is that you will get a wave of products coming [to Europe] from the U.S. and you'll see a wave of products coming from the Middle East, and there will be dampened demand in Europe for European chemicals,” he said. 

Europe's response to this situation has been negative. “We've said no to shale, we've said no to nuclear, we've said we want more green taxes,” said Ratcliffe.

He also complained about obstacles to corporate restructuring. Ineos has faced delays in gaining approval from EU competition regulators for its deal with Solvay which would bring together the two groups' vinyl and chlor-alkali businesses. 

“This business we have, which is number one in Europe, has not made any money for 10 years,” said Ratcliffe. “But Brussels has said we have a dominant market position in Europe — we have not made any money in 10 years, we can't afford to invest in that business. I should fire the chief executive, because if he has a dominant position, he should have made more money than he has done in the last 10 years.”

Ratcliffe said he had two suggestions for making European manufacturing more competitive. 

“We must have competitive energy in Europe,” he said. “You can't have Europe at a disadvantage to the rest of the world, as energy is so important to manufacturing. There are only two sources of competitive energy. One is shale — and we've seen the dramatic effects it has had in America — and the other is nuclear.”

Europe has good reserves of shale gas and should follow in U.S. footsteps.

“America has drilled 1.1 million wells. They haven't had any environmental disasters,” he said.

“Europe needs to look at that quickly in my view, because in 10 years we're not going to have a chemicals industry left that consumes electricity.”

 He said European competitiveness is also hampered by “green taxes,” such as levies included in energy bills to help fund renewable energy.

“I don't have a problem with the notion of improving the climate,” said Ratcliffe. “But what we absolutely must not do in Europe is sacrifice our manufacturing and chemicals industries because we want to blindly lead the world in climate change. We must do it in a measured way that retains the competitiveness in Europe.

 “If I have one message, we must not sacrifice our manufacturing. A politician would get nowhere in America if he came up with the notion of sacrificing manufacturing for leading the world on climate change. America's laws are tighter than Europe's but they absolutely respect the manufacturing industry and they will not touch it.” 

In a question and answer session, Ratcliffe discussed negative public perceptions in Europe about fracking in shale gas production. In September, Ineos announced it would give UK homeowners, landowners and communities above or near where it drills for shale gas 6 percent of the revenues generated by a particular well. 

“What we're beginning to see in the UK is a more level debate about the positives and negatives, rather than hearing just the negatives from a very vocal minority who are not really talking on a basis of fact,” he said.

The difference between Europe and the U.S. is that land owners in Europe do not own mineral rights, but in the U.S. they do and are paid a percentage of revenues from shale gas production on their land. 

Ratcliffe said: “Here [in Europe], it's full of NIMBYs [Not in my backyard]. In America they benefit, they share in the upside. What Ineos is doing is we're taking an interest in shale in the UK, because the UK is leading shale in Europe. We've said we will give 6 percent of all the hydrocarbons you get out of the ground to the land owners on a voluntary basis. So all the land owners, suddenly they have a stake in it. I think they will change their view in the UK, frankly.”