Published by Callum O'Reilly,
How would you move Mount Fuji? This is an old interview question that was supposedly asked to prospective employees of Microsoft to gauge their thinking process and creativity. A purely engineering approach to this question may result in eyeballing a volumetric and weight assessment, estimating a number of excavators and dump trucks needed, or calculating operating costs, road access, etc. On a more corporate level, how do we achieve industrial decarbonisation? Do we increase technical efficiency and processes? Pursue new scientific research and innovation? Bean count a more rigorous cost analysis?
The new reality is that the rubrics of sustainability and decarbonisation are posing what – to some – may be deemed an existential challenge to the hydrocarbon processing industry itself. This is evident in the marked increase in concerns across policy, media and society, with terms such as ‘sustainability’, ‘green’ and ‘low-carbon’ being bandied around.
Regardless of how incongruous some of these contexts may appear, the societal landscape has clearly shifted. Not taking a stance on sustainability is untenable. The breadth and depth of the green movement across all corporate and industrial sectors and all levels of society and governments indicates that this shift is a long-term foundational one, requiring petrochemical enterprises to view and react as a paradigm shift in the business landscape itself.
The petrochemical industry, and more broadly hydrocarbon processing, finds itself in the crosshairs of public criticism and an easy target due to its core linkage to carbon emissions. Turning this challenge on its head, large-scale petrochemical enterprises may still be able to attempt to radically seize such paradigm disruption to recapture a strategic sunrise growth characterisation.
A better mouse trap
If we were to move a mountain, the underlying approaches – from a technical perspective – have not really changed in over a century. The shovels and trucks may now be mechanised but still, the approach of moving a tonne of dirt remains the same. By and large, improvements during that century have also been from an incremental efficiency perspective. From a macro view, the hydrocarbon industries over the past century have also tended to rely on such incremental technological improvements with the same basic models of product generation and processing.
In the current global landscape, seeking rigorous yet difficult efficiency gains on the margins of process measurements is unsurprisingly not seen as sufficient or even interesting to the media and public. As a result, even with the best of intentions, if an industrial enterprise were to invest significant resources and technological research into squeezing additional hard-earned extra dollar savings from a lower-carbon process, excluding some fanfare it might receive from fellow industry attendees at a technical industry conference, its main impact in the eyes of government regulators and policymakers, financing parties, media, and even the public may simply be flow without a ripple, in the face of the vastly larger global crisis.
In the early days of this sustainability paradigm shift, some industrial enterprises took the decarbonisation push as a structural business threat requiring a frontal confrontational pushback against climate change and carbon. Such approaches missed the point that the main challenge may not even be about the science, but rather on the perception of dissonance from the broader paradigm trend. Bundled with this misdirection is the strategy of such corporations or even industry trying to provide so-called education against misconceptions, properly contextualising the important role of the hydrocarbon sector to society, or otherwise trying to emphasise efforts in better technological efficiency and R&D.
Given that decarbonisation is so broadly themed in the context of global crisis, conversations via education, debate or just media outreach may actually be counter-productive, by simply highlighting further negative perception points. Enterprises seeking external financing, or even shareholder support for financing projects in the hydrocarbon sector, are receiving an unwelcomed spotlight that they would prefer to avoid. In prudence, some things really may be better left unspoken.
Take another look
Sometimes, the so-called environmental, social and governance (ESG)-friendly processes may appear to be more financially-costly. On a purely micro basis, it may be rejected. However, by considering the overall lower corporate cost of funds for the ESG-friendly process, the holistic corporate finance outlook may actually be cheaper for the corporation. As the pool of dedicated ESG-related financing approaches trillions of dollars, positioning to access such lower cost of capital pools simply makes better economic sense.
Sunset to sunrise
Carbon dioxide (CO2) capture, green catalysts and bio-based plastics are all excellent and logically-solid as individual solutions. The question is: can they sufficiently generate a broad paradigm identity shift?
Too often, companies in the hydrocarbon chain are broad brushed as ‘sunset’ sectors, and harshly judged on purely returns metrics with low valuations and multiples. The only messaging that society willingly hears about its companies often just tends to vilify them. The disruption paradigm, though, may be just the threshold opportunity to seize a more sweeping and dynamic narrative and strategic initiative.
Expertise and experience
Companies in sectors such as sustainability, technology, big data and artificial intelligence (AI) are bestowed with forgiving valuations, generous financing, and overall sunrise growth mantles. To strategically shift to a more sunrise positioning, petrochemical process industries should not be mired in micro-efficiency trench warfare, but instead should use this sustainability paradigm disruption to recapture a scaled growth storyline, as well as integrate the newer growth trend sectors into business. A clear advantage of hydrocarbon process industries lies in the sheer scale of their deep expertise and experience. One illustrative example is with respect to the current public discourse on carbon credits. The actual reality of the carbon credit markets is that almost all generation projects tend to be very small, and enterprises struggle with the rigorous project management and application processes involved. As a result, there is a gaping shortfall of reputable supply.
On the other hand, the immense size of industrial process plants means that such plants are capable of generating significant volumes of carbon credits through various and continual debottlenecking, energy management, and efficiency projects. While the pure dollar amounts may not appear significant, compounded by the lens above, such limelight is disproportionally positive. In reality, while everyone talks about buying or trading carbon credits, those markets are struggling with the lack of supply. Large process industry plants may rescue the carbon credit markets from sliding into a small curio market, thanks to their scale and management expertise. Liked or not, being able to supply significant volumes of these (rare) carbon credits means that petrochemical plants are attractive.
The threshold opportunity
Beyond being grudgingly accepted, can petrochemical enterprises and projects cross the threshold from being tolerated to being valued? Simply talking the talk on how green and sustainable an enterprise functions, is too often an expensive and futile exercise, with the risk of being accused of greenwashing. In addition to this, too often, due to historical legacy scepticism, ESG is simply viewed by hydrocarbon enterprises as a set of separate process-specific metrics, often with no standardisation or even accounting or audit consolidation across a whole corporation. Companies reacted to ESG compliance pressures from various non-governmental organisations (NGOs) and policymakers on a reactive battlefield-by-battlefield approach. As a result, ESG and its compliance and reporting is often seen by large process industry corporations as a major concern and resigned necessity. The actual ESG and compliance itself is often just done on a patchwork of department by department, plant by plant, or even process by process segregation. Without industry-wide or national guidelines, ESG compliance too often devolves into a cynical numbers play of scattered number tweaks and band-aids all viewed as cost items.
Moving Mount Fuji?
Take a couple of steps, shift the perspective, and in effect the moving of the mountain has already been achieved. By looking at the purpose behind the move itself, there may be alternative perspectives which indicate that the solution sometimes just involves utilising what is already there.
Given their size and inherent complexities, are petrochemical process companies actually generators of extremely large and constantly adjusting sets of datapoints and metrics which just happen to relate to certain chemistries? In turn, being such a generator means that there are significant value drivers from the management of the associated ‘big data’, especially with respect to the multitude of scattered ESG activities already being undertaken by companies.
If this is the case, petrochemical enterprises should then utilise the sustainability paradigm disruption to approach ESG metrics and compliance as a fertile source of performance big data points which could be uniformly standardised across the entire corporation to help in the maximisation of performance efficiency. Such works are increasingly being driven through AI and machine learning (ML) modelling. Large corporate process industries are uniquely positioned to have the requisite scale to generate significant amounts of such data, and the management experience and expertise to organise and manage such data and model results.
Whether the investor markets are wanting big data analytics, or clearly scaled sustainability impacts, the petrochemical industry can supply that demand for organised, scaled volume, performance data sets, and with some chemistry thrown in too.
Could the future of large corporate process industries, if properly understood, be strategically positioned to be in the sunrise growth sector of a modern-scaled AI and ESG big data generation enterprise? While the conclusions are not yet set, the petrochemical sector should not miss seeing this decarbonisation and sustainability paradigm disruption for the strategic opportunity that it really is.
Written by William I.Y. Byun, Chief Sustainability Advisor, ChemOne Group.
Read the article online at: https://www.hydrocarbonengineering.com/special-reports/03022023/facing-decarbonisation/
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