UK government announced a budget boost of more than £500m for the sixth CfD auction round, raising the budget to over £1.5bn This means offshore wind funding has increased from £800m to £1.1bn, the largest budget ever Despite this vast increase, the budget will not be enough to procure the capacity needed to meet UK’s 2030 offshore wind target LONDON (ICIS)–Modelling by ICIS Analytics indicates that the UK government’s latest £530m funding increase to its Contracts for Difference (CfD) scheme is too low to procure the capacity required to meet its 2030 offshore wind target. The UK aims to quadruple offshore wind capacity by 2030, a target the Labour government first announced before being elected. The budget boost was announced on 31 July, ahead of the sixth auction round of the Contracts for Difference (CfD) scheme this summer, and raises the overall budget to over £1.5bn. The pot for offshore wind has now increased from £800m to £1.1bn, the largest ever budget. But to meet the UK target, nearly £3.2bn would be needed – if the auction cleared at a base case scenario strike price of £60/MWh, ICIS analysis shows. Furthermore, there are too few auction entrants to procure the 16.6GW of offshore wind capacity needed in the first place. This is because only 10.6GW in projects have the required development consent to proceed to auction. “Last year’s auction round was a catastrophe, with zero offshore wind secured,” energy secretary Ed Miliband said in a statement, adding that the new budget would support construction work for the sector. The unsuccessful 2023 fifth auction round saw no offshore wind bids mainly due to a low strike price in the wake of increasing supply chain costs. The previous government had set the maximum strike price for offshore wind in the sixth auction at £73/MWh, allocated offshore wind its own funding pot and set a budget of £800m. The new government’s aim to quadruple offshore wind capacity is also an increase on the UK’s previous target. OFFSHORE WIND ANALYSIS To interpret targetted 2030 capacity, ICIS quadrupled its forecast for installed capacity by the end of 2024, resulting in 61.08GW by 2030. Actual intended capacity may vary, and the government did not address enquiries that could help specify the exact date from which it intended to quadruple capacity. ICIS Analytics calculated that, in auction rounds six and seven, offshore wind capacity needs to average 16.60GW per auction to obtain the capacity needed to reach the 2030 target. Calculations show that if the auction cleared at a strike price of £60/MWh, the £1.1bn budget could finance 5.8GW of capacity. Similarly, if the auction cleared at its maximum strike price of £73/MWh, the budget would only be able to fund 4.3GW. Given that only 10.6GW of offshore projects have development consent to proceed to auction, this puts increased pressure to secure further capacity on the seventh auction in 2025. For now, ICIS Analytics forecasts only 39GW of offshore wind capacity will be built by 2030, under a base case scenario. BOOST FOR ONSHORE WIND The overall budget the CfD scheme is divided into three pots (see infographic) depending on the technology it supports. The budget for pot one, for established technologies like onshore wind, was increased from £120m to £185m as a result of the latest £530m injection. The government has also removed a de-facto ban on onshore wind in England this month. Additional policy tests previously meant that wind power planning applications had to go though additional hurdles compared to many other types of energy development proposals. The government also plans to consult on bringing onshore wind back into the nationally significant infrastructure projects regime, meaning decisions on large onshore wind projects would be made by the Secretary of State instead of local planning authorities. This could further speed up permitting. ICIS analyst Robbie Jackson-Stroud previously stated that onshore wind is cheaper and quicker to build but has a thin pipeline of projects due to previous red tape. “While there is more opportunity for the technology, it may take until the seventh auction round for onshore projects to be ready to bid in the CfD,” Jackson-Stroud said. FLOATING OFFSHORE WIND Pot two, which is for emerging technologies such as floating offshore wind, saw a funding increase from £105m to £270m. This should help the UK move closer to its target to deploy up to 5GW of floating offshore wind capacity by 2030, despite £15m being ringfenced support for tidal stream projects. ICIS previously reported that the increase in maximum strike price to £176/MWh and budget of £105m for the sixth auction could make the round more attractive to developers and could procure more floating offshore wind capacity. In the fifth auction, there were no bids for floating offshore wind amid a low strike price of £116/MWh and a budget of only £37m for the pot.

SINGAPORE (ICIS)–Ethane is gaining favor as the feedstock for steam crackers in China, as its competitive prices make ethane-cracking the most profitable route for ethylene production compared to other options. Join ICIS LPG analysts Lillian Ren and Yan Wang as they discuss how Chinese steam crackers are eyeing ethane as a cracking feedstock. Several steam cracker operators in China plan to revamp and switch to cracking more or only ethane instead of propane. Propane/butane still takes a larger share than ethane in steam cracker feedstock slates. The cost advantage of ethane will narrow with increasing demand and a single global source.

HOUSTON (ICIS)—Chemical company Clariant Catalysts has announced the expansion of its strategic cooperation with global engineering firm KBR regarding ammonia production. Clariant said the partners will continue collaborating on traditional ammonia projects while significantly increasing their focus on low-carbon and carbon-free green ammonia applications. It further said the solutions will combine Clariant’s outstanding AmoMax ammonia synthesis catalysts with KBR’s K-GreeN ammonia technologies to maximize the economics and energy efficiency of ammonia production. For the production of carbon-free green ammonia, KBR’s technology is combined with Clariant’s catalyst to convert green hydrogen with nitrogen from an air separation unit. Clariant said the partners’ complete green ammonia solution has already been selected for 10 prestigious green ammonia projects around the world. “We are proud of our long and successful history as partners and are delighted to strengthen our cooperation with KBR. By extending our collaboration towards sustainable ammonia solutions, we generate synergies for innovations supporting fertilizer production and the energy transition,” said Georg Anfang, Clariant Catalysts, vice president syngas and fuels. “Our state-of-the-art catalysts optimally complement KBR’s advanced process technologies to enable economical and reliable large-scale production of low-carbon and green ammonia.” KBR has licensed and designed over 250 grassroot ammonia plants worldwide with Clariant providing catalysts best suited for the optimum performance of KBR-licensed ammonia plants.

HOUSTON (ICIS)–Although net income and sales fell year on year, US fertilizer producer CVR said it had a solid result for Q2 2024, which was driven in part by a combined ammonia production rate of 102%. The producer of ammonia and urea ammonium nitrate (UAN) announced during the period it had a net income of $26 million and net sales of $133 million for Q2 compared to net income of $60 million and net sales of $183 million for the second quarter of 2023. CVR said its facilities remained consistent compared to this quarter in 2023 as they produced 221,000 short tons of ammonia, of which 69,000 net tons were available for sale. The remaining balance was upgraded to other products, including 337,000 short tons of urea ammonia nitrate (UAN). In Q2 2023, those levels were at 219,000 tons of ammonia, with 70,000 net tons available to sale with the remainder upgraded, including 339,000 short tons of UAN. The average realized gate prices for UAN has also decreased with it down by 15% to $268/short ton, while ammonia dropped 26% to $520/short ton year-on-year. During this period in 2023 the average realized gate prices for UAN and ammonia were at $316/short ton and $707/short ton respectively. “CVR Partners reported solid operating results for the second quarter of 2024 driven by safe, reliable operations and a combined ammonia production rate of 102%,” said Mark Pytosh, CVR Partners CEO. “The spring planting season experienced some weather interruptions, however, planted acreage was higher than expected and demand for nitrogen fertilizer was strong.” Pytosh added that they expect to see good demand for nitrogen fertilizer remaining throughout 2024 even with prices being higher than experienced in 2023. “Our focus for the remainder of the year will continue to be on safe, reliable operations and maximizing our free cash flow generation,” Pytosh said.

Spanish renewable capacity is set to rise drastically between 2024 to 2050 In times of surplus supply and low demand frequent negative prices have occurred, raising investor concerns Spain is investing €160 million in energy storage to stabilize and sustain renewable growth LONDON (ICIS)–Spain should prioritize investing in energy storage to prevent market volatility and balance surplus supply. With low Spanish demand levels for power and ample renewable power production, there needs to be more storage capacity to ensure negative prices are managed. RENEWABLES BOOM The country aims to achieve national climate neutrality by 2050, targeting 100% renewable energy in the electricity mix, the International Energy Agency shows. In the Spanish national recovery and resilience plan the country dedicates 39.7% of its goals to the ‘green transition,’ funded partly by €58 million from the Brexit adjustment reserve. The EU’s long-term strategy also supports this regional goal of achieving net-zero emissions by 2050. Renewable capacity in Spain is forecast to grow from 98.3GW in 2024 to 209.2GW by 2050 according to ICIS Analytics. MARKET VOLATILITY Demand is not expected to keep in pace with the growth in Spanish renewable supply, according to ICIS Analytics. If supply of electricity is to continue to exceed demand levels in coming years, the likelihood of negative prices occurring could remain. A trader active within the Spanish power market told ICIS that so far in 2024 there have been 671 hours of null or negative prices, of which a third are negative with minimums reaching -€2.00/MWh in June. In comparison to 2022, where the market only had 3 hours of negative or null prices. Balancing mechanisms such as storage will play a key role in managing this imbalance. ICIS Analytics shows that Spanish battery storage capacity is expected to rise from 1.2GW in 2024 to 9.8GW in 2050. FUTURE FOCUS Investors are increasingly concerned about market volatility, as negative prices deter further investments in renewable projects. To address these challenges, the Spanish government is investing €160 million in grants for energy storage projects, aiming to bring 600MW of storage online by 2026. ICIS Analytics predicts that batteries will begin to make a small presence in Spanish capacity from 2024 with 1.9GW, however total supply is expected to continue to overpower demand through till 2050. Spanish interconnector capacity is set to begin to grow steadily from 2028 onwards, according to ICIS Analytics. In 2024, there is an upcoming project on the connection between Spain and Portugal, to update capacity to 5GW. Following this, in 2033 a 1.8GW interconnection will be join Spain with UK. Both projects will enable surplus energy to be sent to neighbouring regions. A suggested solution is electrification with the Sanchez government setting a target of making 34% of the economy reliant on electricity by 2030 to increase demand. However, concerns continue to rise due to fear that the pace of electrification and energy consumption may not keep up with the growth in renewable energy generation.

LONDON (ICIS)–Germany’s chemical-pharmaceutical industry is operating at unsustainably low capacity utilization as it continues to face severe challenges, raising doubts over the sector’s long-term prospects, industry officials said at a webinar hosted by the chemical producers’ trade group. Operating rates remain below profitability threshold Bureaucracy and other challenges discourage production and investment Domestic demand weak as Europe’s growth engine has stalled In the second quarter, the operating rate was only 75.1%, down from 78.1% in the first, according to the latest industry data. It was the 11th consecutive quarter when the rate was below the long-term average of around 82%, which the industry needs to operate its assets profitably. (Blue bars: capacity utilization; orange line: profitability threshold; source: VCI) The low operating rates reflect the challenges the industry faces in producing in Germany and call into question the country’s long-term outlook for chemical production and investments. So said Christiane Kellermann, an economist at the German Chemicals Industry Association (VCI). More capacity may need to be removed from the market as it does not make economic sense to run plants unprofitably in the long term, she said. Meanwhile, companies are holding back on new domestic investments while shifting more investments abroad, she noted. BUREAUCRACY The burden from bureaucracy is the top challenge for chemical production in Germany, according to a recent survey of VCI member companies. Bureaucracy is not an abstract concept, but rather a significant cost factor for companies, Kellermann said. According to the survey, chemical companies estimate that the cost linked to bureaucracy, as a share of sales, comes to about 5% on average. Other challenges are high energy and raw materials costs, a lack of qualified labor and geopolitical uncertainties, according to the survey. Energy and material costs are down from 2022-2023 peak levels but remain high, with no significant further relief expected, Kellermann said. WEAK DOMESTIC DEMAND While chemical export demand has stabilized, domestic demand is weak. Most of the major domestic customer industries, with the exception of food and paper, saw year-on-year sales declines in the first five months of 2024. Germany’s GDP is expected to grow only marginally this year, said Jupp Zenzen, economist at the German Chamber of commerce, who also presented at the webinar. Since early 2022, the country has been in a stagnation phase, which continues in 2024, Zenzen said, adding: “We won’t have growth this year.” 2024 GDP FORECASTS: Government +0.3% Bundesbank +0.3% Government export council +0.2% Joint forecast by leading institutes +0.1% Chamber of Commerce flat (Compiled by the Chamber of Commerce) For the second quarter, GDP fell by 0.1% from the first quarter, following a 0.2% quarter-on-quarter increase in the first quarter, according to data from the country’s federal statistics office on Tuesday. Overall industrial production remains below pre-COVID levels and the chamber currently does not see an upward trend, Zenzen said. Domestic new orders are trending down as demand is weak, he said. Export demand seems to have stabilized as “the world economy is robust”, but this has yet to be reflected in the orderbooks of German industrial producers, he said. Most of the big domestic industrial sectors are pessimistic about their business expectations, and their plans for domestic investments are largely “negative”, which is dimming the prospects for growth, he said. CHEMICAL PRODUCTION In contrast to overall industrial production, Germany’s chemical production recovered at the start of the year but since then has moved sideways, said Kellermann. The trade group expects the country’s chemical production (excluding pharmaceuticals) to rise by 5.0% in 2024, which, if realized, would come after a 10.4% decline in 2023. While at first glance a 5% increase may seem strong, production remains far from levels during 2010-2021, she said, and pointed to the following chart showing Germany’s chemical production (excluding pharma) since 2008: Whereas chemical production recovered quickly after the 2008-2009 global financial crisis and after the pandemic, it has yet to recover from its collapse in 2022 in the wake of the Ukraine war, she said. Currently, production is “incredibly” low, meaning that the expected 2024 growth would not mark a return to past production levels, she said. Customer inventories may often be so low that even if customers produce only a little, they will have to order some chemicals and other materials – but this can hardly be described as a recovery, she noted. Compared with weak sales in 2023, chemical producers expect an improvement in sales this year but are pessimistic about profits because of their high costs, according to the VCI survey. Companies now expect that demand and chemical production could begin to recover in 2025-2026, according to the survey. Their previous expectation was for a recovery to get underway in the second half of 2024. Thumbnail photo source: VCI Focus article by Stefan Baumgarten Please also visit Macroeconomics: Impact on Chemicals

BARCELONA (ICIS)–Collapsing second quarter financial results show that the industry may face permanently low growth, driving the need for radical business model transformation. Q2 financial results show persistent downturn in sales, profitability Europe chemicals still plagued by China-driven global overcapacity, higher production costs, poor downstream demand BASF reports double-digit fall in net income, weighed by lower prices. Warns of second half risks from stronger price reduction, lower volume growth Dow CFO says consumer durables, building and construction will likely remain weak through the rest of the year Need for widespread closures to balance supply and demand Chemical companies need to adopt radical new business models End of China’s economic miracle means there will be no return to strong demand growth globally In this Think Tank podcast, Will Beacham interviews ICIS business solution specialist Nigel Davis, ICIS market development director John Richardson and Paul Hodges, chairman of New Normal Consulting. Editor’s note: This podcast is an opinion piece. The views expressed are those of the presenter and interviewees, and do not necessarily represent those of ICIS. ICIS is organising regular updates to help the industry understand current market trends. Register here . Read the latest issue of ICIS Chemical Business. Read Paul Hodges and John Richardson’s ICIS blogs.

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson. Warning: Don’t put sustainability in the equivalent of a broom cupboard in the basement of your chemicals company HQ because profits from green and circular chemicals are today thin on the ground. Companies in Europe, South Korea and Singapore etc. should perhaps instead focus on higher-value chemicals and polymers that address the challenges of reducing carbon and circularity. They may have to in parallel close their commodity chemicals capacities down in a world of declining consumption growth. Everything is connected. Don’t make the mistake of intellectually compartmentalising sustainability into, again, a broom cupboard as the energy and chemicals transitions are connected to other big picture changes. In summary, this is how the chemicals world could look in just a few years’ time: • Global chemicals demand has peaked and will from now on decline because of demographics, the end of the China “growth miracle,” downward pressures on consumption from sustainability, the impact of climate change on economies and maybe artificial intelligence. • As demand shrinks, the feedstock-advantaged Middle East and the US continue to add capacity to gain bigger slices of a shrinking pie. So does China for self-sufficiency reasons. • Chemicals companies elsewhere increasingly focus on niche, smaller-volume higher-value chemicals and polymers. They shut down commodities capacities and choose to import the commodities they need. • Japan serves as an example of a country that is already travelling down this path. Please don’t make the mistake of assuming that this is just another downcycle. The evidence instead points to a fundamental realignment of the chemicals industry. If you think otherwise, you must believe that the chemicals industry is divorced from the rest the world when, of course, it isn’t. Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.

HOUSTON (ICIS)–US crops have continued to make steady progress with 77% of the corn acreage now silking with soybean blooming also at 77%, according to the latest US Department of Agriculture (USDA) weekly crop progress report. The current rate of silking does trail the 79% level achieved in 2023 but is slightly ahead of the five-year average of 76%. Corn having reached the dough stage is now at 30%, above both the 25% mark from last year and the five-year average of 22%. For corn conditions, there is still 3% rated very poor with 6% now listed as poor. There remains 23% considered fair with 52% now seen as good and 16% continuing to be viewed as excellent. For soybeans, there is 77% of the crop now blooming, which is just below the 79% from 2023 but is ahead of the five-year average of 74%. The amount of acreage setting pods has reached 44%, which is behind the 46% from last year, but it is above the five-year average of 40%. For soybean conditions, there remains 2% as very poor and 6% as poor. There is now 25% listed as fair with 54% as good and 13% as excellent. In harvesting updates, winter wheat is now at 82% completed, which is ahead of the 77% mark from 2023 and the five-year average of 80%.