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Response by Remco Van Santen

We receive many e-mail messages. While our general views and motivation are expressed in the Why section, our response to some are reproduced here.

If you agree, disagree or simply want to express an opinion then drop us a quick e-mail.


Your comment Our response
Do you see prospect for a PVC project for Australia?

I G August 2000

I doubt we we will see a PVC project in Australia. I suggest government was duped to believe the Pilbara Petrochemical Project was serious and it failed to understand the drivers for success. A small pre-feasibility study by the successful venturers can be levered up to negotiate a better offer from another country (ie. spend a half million and then obtain $100 million from an Asian government to establish there. 

The VCM to PVC industry is paid for by PVC resin users. 

The great irony for the world is that here is a country with the salt technology and key exporter, the worlds largest importer of caustic soda but we will probably never produce PVC. Government ineptitude with two lost opportunities playing an important role.

PVC under attack by you. The subject of a separate article in the August 2000 issue of Chemistry in Australia, published by the RACI.

NO!  

PVC was raised for being under international scrutiny with strong interest for alternatives and its precursors subject to trade ban assessments including by Australia. For Victorians, where it is made for Australia, important health, safety and transport issues are involved in road freighting imported VCM. For Australia, the price inflating effects for users of import duties and anti-dumping legislation on PVC users to protect some one hundred manufacturing jobs should be weighed against the cost of its manufacture.

I estimate the cost of tariffs alone at $100,000 per manufacturing employee involved in its manufacture - add to that the cost of anti-dumping legislation (the threat of action alone inflates the domestic price). The manufacturer, Australian Vinyls, could not find a buyer for its business (presumably as it is only viable under tariff and anti-dumping protection).

PVC will probably always have a place in Australia and it can live side by side with alternative polymers that are not mutually exclusive.

The respondent in the Chemistry in Australia "Opinions" took a superficial reactionary approach. That said, what else could Australia do with a $100,000 per person subsidy?  

CSIRO are you taking note? Could not your Molecular Science division develop a UV resistant polymer with a $10 million per year subsidy for some applications of PVC?. But again, PVC is not the issue, regulations, and tapping into opportunities were! 

What is the carbon tax and how will it impact on the chemical industry A carbon tax is imposed on fossil fuels at rates proportional to the carbon content of each fuel. The carbon content determines how much carbon dioxide (the main greenhouse gas) will be emitted when the fuel is burned. The carbon content of a fuel is proportional to the carbon dioxide emissions associated with its combustion. Burning a ton of carbon results in the emission of approximately 3.667 tons of CO2 (assuming 100 percent of carbon in the fuel is oxidised).

Per unit of energy, coal has the highest carbon content and natural gas the lowest, with petroleum products such as gasoline in between. The rate of a carbon tax is expressed in dollars per ton of carbon contained in a fuel. A carbon tax is not imposed on energy sources that do not emit carbon dioxide, such as hydroelectric dams and nuclear, geothermal, solar, wind, or biomass energy. In principle, biomass should only be exempted from a carbon tax if the fuel is produced on a renewable basis with no net carbon dioxide emissions over the complete fuel cycle. Moreover, a carbon tax can be combined with an energy tax that is designed to account for the environmental hazards of nuclear power and large-scale hydropower. For example, the European Commission has proposed a carbon/energy tax that is levied 50 percent according to the carbon content and 50 percent according to the energy content of a fuel or energy source. This would apply to fossil fuels, nuclear power and large-scale hydropower, but exempt alternative renewable energy sources. Fossil fuel exports are not subject to the tax, while fossil fuel imports are taxed.

A figure of $30 per tonne of carbon (eg $7.80 per tonne of carbon dioxide) is being discussed so its impact is substantial. ACIL estimated that coal generated electricity costs could double (increasing by $16 per MWhour as gas-fired and $40 for brown coal). While Australia's allowance was increased to 108 per cent of 1990 levels, most other developed countries had their target for 2008 reduced to 95 per cent. Developing countries are exempt and that could promote major shifts in energy-intensive operations - referred to as "carbon leakage".

The impact on the chemical industry is complex. I will comment on that later. One immediate observation is that in producing environmentally friendly chemicals in Australia, such as methanol for fuel) would create a carbon dioxide debit in Australia while reducing carbon dioxide emissions in the country where it is used for fuel. 

One scenario for the Australian chemical industry in year 2005

Part of a presentation by ACTED 

Possible development scenarios
  1. Subject to anti-dumping protection and tariffs, VCM importing business by Australian Vinyls rationalised to Laverton (ca 2000). 
  2. Orica sells out of the polymer JV with Kemcor (ca 2001).
  3. Kemcor sells out. (To Huntsman Corporation?) (ca 2001)
  4. Orica out of chemicals and becomes an explosives services company. 
  5. Orica purchased by explosives company (SASOL of South Africa or Wesfarmers?)
  6. The Pilbara Petrochemical Project commences as integrated operation with ammonia and methanol) (ca 2005). 
  7. Unless some changes are instigated, Australia unable to move away from production of commodity chemicals using imported technology and locked into factor cost sensitive activities.
  8. Non-"chemical" projects dominate value adding development (eg. laterite nickel, magnesium metal).

Obstacles

bulletNo national perspective by government (eg. assistance to Comalco Alumina Refinery).
bulletPoor coordinated internal intellectual infrastructure and will. See for example, (and inter alia) Chemicals Summit of 1999

The outlook may perhaps best be summed up by paraphrasing a senior industry spokesperson:

With largely depreciated assets, these facilities can continue operation until a decision for significant investment is required. At that point the overwhelming economic reality of import from world-scale manufacturing operations may likely cause closure of the local operation.

Mr Noel Williams, Business Development Manager, Asia Pacific. Dow Chemical (Australia) Ltd

The Pilbara Petrochemical Project I read your review (at www.chemlink.com.au/wachem.htm) of the project and agree with much of what you said. You did not mention the proposed scale which is on the small side for such a new project away from its principal markets.

B B USA
Dec 1998

Yes rather small Yes at the scale proposed, I estimate a capital cost penalty of 17 to 25 per cent for the ethylene production unit (and a similar cost penalty for its operation). I am also concerned that the production of glycol is being considered as it erodes the competitive advantage with such a high bulk low value product being shipped to Asia.

I criticised the PICL project for its location that would require a $1.20 per gigajoule pipeline tariff, I agree this project (should be referred to as a "venture") runs the risk of being little more than a bargaining chip to get a better deal in the Asian region.

Botany's future Where do you see Orica's Botany complex going?

W B Australia (Mar 1998)

Orica will sell We have speculated that Orica may sell Botany which seeded its entry into Australia's chemical business. Botany is now largely a polyethylene operation and with the promoted sale of its PVC business (Australian Vinyls Corporation), polyethylene now sits weakly in its stable of products. The umbilical cord from South Australia to Botany is speculated as being for sale.

If Kemcor is the buyer then it begins to undo the naiveté of the Fraser government decision to defer the review of tariffs for the chemical industry in 1979. The tariff review (read reduction) was deferred in return for a LPG/naphtha cracker though there was surplus ethane in Victoria for an alternative expansion at the Altona complex.

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