Picture: REUTERS
Picture: REUTERS

Moorgate — For more than a century, BASF has stuck by its strategy of running sprawling, integrated chemical plants, even as rivals including DuPont break up. This degree of industrial might risks being a hindrance when it comes to environmental credentials.

The world’s largest chemical maker obtained a high overall environmental ranking among diversified peers in Bloomberg’s environmental, social and governance (ESG) scores. Yet some lower-performing rivals are selling their most carbon-intensive assets, an option BASF doesn’t have under its current strategy.

When periodically quizzed by investors about the future of BASF’s Verbund complexes, a succession of CEOs have rigorously defended what’s widely considered to be the industry’s gold standard for efficiency. The rationale goes: if there’s one last drop of oil in the world, give it to BASF, as there’s zero waste given the Verbunds produce energy, raw materials and finished products such as cosmetic ingredients. Any byproducts also get used up.

Even though BASF is expanding in new markets that score highly on the environmental scale, such as battery materials for electric vehicles (EVs) and insulation, CEO Martin Brudermüller has no quick fix for gas-fueled steam crackers that split naphtha into ethylene and other basic building blocks for plastics and chemicals.

“It highlights the inherent difficulty Brudermüller has, which is that petrochemicals are dirty and generate more emissions,” said Jaideep Pandya, an industry analyst at On Field Investment Research. “In the Verbund model, there is no magic bullet to tackle scope 1 and scope 2 emissions,” referring to discharges from its own sites and its suppliers’.

Carbon dioxide-neutral growth

As the EU pushes its Green Deal, many regional chemical players have set targets to cut emissions, some even to zero over the longer term. A BASF spokesperson said the company is looking into technical solutions to reduce emissions. BASF is striving for carbon dioxide-neutral growth by 2030 by taking steps such as purchasing low-carbon energy and developing new methods of manufacturing to offset the start-up of large plants.

Arkema, which ranks lower in Bloomberg’s ESG scores than BASF, is selling an energy-intensive acrylics business to focus on high-performance adhesives and materials used in construction and EVs. Evonik Industries has divested a similar unit as it seeks to transform into a nutrition-ingredients provider.

At Belgium’s Solvay, CEO Ilham Kadri is selling smaller peripheral assets and has indicated there are no “sacred cows” at the company. Solvay has a heritage soda-ash business which, if sold, would eliminate three quarters of its scope 1 and scope 2 emissions all at once, Pandya said.

Longer path

BASF is taking a longer path to combating emissions, arguing that selling assets just passes the buck to another company. It has said it wants to develop the technology first before setting long-term goals that aren’t backed up by detailed plans. BASF’s seventh Verbund, in China, will draw on renewable energy sources, though the site will add to the company’s tally of upstream chemicals with a bigger environmental footprint.

By contrast, BASF’s methane pyrolysis project splits natural gas or biomethane into hydrogen and solid carbon using a fraction of the energy from the standard process of water-based electrolysis, and no emissions if renewable energy is used.

BASF’s greenhouse gas emissions fell below 20-million tonnes of carbon dioxide-equivalent in 2019 for the first time in almost a decade, data compiled by Bloomberg shows. The company’s carbon intensity, measured as emissions per unit of revenue, stands up well considering how much bigger it is than most of its rivals.

BASF reported €60bn of revenue in 2019. Solvay produced 12-million tonnes and €11bn of revenue, while Arkema had 3.8-million tonnes of greenhouse gases last year when it posted revenue of €8.7bn.

Bloomberg

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