Economists Talk Free Trade, Emissions Targets and Artificial Intelligence at World Chemical Forum
HOUSTON -- Economists addressing the World Chemical Forum on Sept. 13 stressed the importance of unrestricted trade, warning that tariffs and other barriers could stifle growth in the sector. They also called for a balanced approach toward sustainable energy, including continued investment in fossil fuels.
The speakers opened the second day of the event hosted by Dow Jones’ Chemical Market Analytics by OPIS.
More than 40% of chemicals are consumed in a different region than where they’re produced, said Dewey Johnson, senior vice president of global base chemicals insight at Chemical Market Analytics.
“Chemical plants build where there is available, low-cost feedstock and then export to the demand center, so anything that impacts the supply chain or creates frictions on international trade is a critical issue for the industry,” Johnson said.
This includes geopolitical tensions leading to tariffs and “self-sufficiency” policies that encourage domestic production over imports. Such policies lead to less market transparency as countries begin to act independently, Johnson told attendees.
Oxford Economics CEO Adrian Cooper said that while globalization has experienced a slowdown in some parts of the world, like the U.S., it’s not as dramatic in other regions, such as the U.K. and EU.
The Future of Technology in Chemicals
A more significant decoupling between global trading partners is occurring on the technology side, where more countries are imposing intellectual property protection measures, he added.
In terms of market growth, the chemical industry can expect a gradual recovery from pre- pandemic levels. Operating rates for some key building-block chemicals, including ethylene and propylene, have declined by about 10 percentage points since 2018, according to Johnson. He expects those markets to see a recovery in the 2025-2026 timeframe.
The session speakers also speculated on the potential impact artificial intelligence (AI) could have on the chemical sector and global economy. AI will create “massive innovation and change” in the way we live, said Cooper. While Johnson expects AI will continue to help chemical plants optimize their operating process, he also sees an opportunity to leverage AI for product development and to facilitate carbon trading.
Fossil Fuels Still in the Mix
Sustainable energy will help industry become more efficient, but keeping global temperature increases to the 1.5-degree Celsius threshold set by the Paris Climate Agreement would require impractical reductions in fossil-fuel consumption, said Nick Livingstone, a managing partner with Rystad Energy. A more realistic target is 1.6-2 degrees, he added.
“The energy transition is not about a fast acceleration away from fossil fuels,” Livingstone said. “It’s about a planned acceleration away, but the notion of acceleration is actually very nuanced because we have not made the investments required to get us to a place … where there are no fossil fuels being produced.”
Livingstone shared a graphic showing how each half-degree Celsius reduction in the targeted temperature threshold coincides with a significant required reduction in fossil fuels consumption.
Even so, a shift away from fossil fuels will eventually bring more efficiencies to industry.
“The beauty of moving away from fossil fuels is that you end up with a much more efficient energy system,” he said.
Burning fuels to generate power is an extremely inefficient process compared with electrification, he added.
