Research, innovation and renewal in the chemical industry

170

RESEARCH, INNOVATION AND RENEWAL IN THE CHEMICAL INDUSTRY Umberto

Colombo

This article appraises the prospective for the European chemical industry at a time of economic crisis when forecast rates of economic growth for the next two decades are continuing to decline. Through an examination of key issues in the chemical industry-its changing geography, industrial redeployment, the change from a product chemistry to a function chemistry, and the role of microelectronicsattention is drawn to the problems of scientific and technological innovation and its consequences for industry and society. future studies;Europe;chemical

Keywords:

industry.

within the context of the work of an expert group of the OECD asked to the Technical and Politico-Economic Change report,’ I presented my

IN 1976, prepare

perspectives

on the evolution

industry-which

of a highly

in the 20th century,

innovative

and more

industry-the

specifically

chemical

immediately

after

World War II, was considered to be one of the pace-setters in industry. The group of experts was worried about the potential link between the economic recession of the 197Os, heightened by the 1973 energy crisis, and the noticeable drop in innovation rates in various industrial sectors which, in the previous decades, had been the main economic drivers of modern industrial societies. Indeed, for a wide range of related reasons, sectors such as the steel industry, the shipbuilding industry, the automobile industry, the petrochemical industry and the textile industry, which in the past had created a considerable number ofjobs, were in a state of crisis which was threatening to lead to large job losses. Moreover, the industrial sector which could contribute, more than any other, to overall technological innovation in the next lo-20 years, ie microUmberto

Colombo

Research

and

Energy

and

Development Nazionale

is former

Strategic New

Energies

Committee Idrocarburr

Director

Planning

of the

(ENEA). (CERD)

(ENI).

0016-3287/86/020170-08$03.000

Donegani

at Montedison.

The

Mr and F rench

He Colombo

was

Research

is now is

appointed

version

of this

Institute,

President also

by

President the

article

became

of the

Italian appeared

1986 Butterworth & Co(Publishers)

Italian

of

the

Government

General Commission

European as

Manager for Research

President

in ZG~‘ulurtbles, November

Ltd

of

Nuclear and of

Enti

1982.

FUTURES April 1988

Rcwarch,

electronic

information

of industrial

processes,

technology, which

innovation

was enabling

could

worsen

and renewal tn the chemical industy

automation

the already

171

(even robotization)

serious

unemployment

problem. These concerns were justified. However, the link between microeconomic effects (stagnation, inflation, unemployment) the

innovative

capacity

of industry,

together

innovation (from job-creating innovation unconvincing and too superficial. I worked

for a long period

and then as a research and strategic

planning

the

research

chemical

company

character

innovation),

field,

I was also lucky enough

of a major

changed

to job-destroying

in the industrial

manager.

with

the most obvious and the drop in of

seemed

first as a researcher

to manage

for several

the research years.

All this

convinced me that the innovation potential of chemical research was still very high and that we were about to witness technological changes so drastic that structural transformations would were thought to be mature, and major surprises. As my contribution

to the report

be required in the industrial sectors which which therefore promised a future with no prepared

by the OECD

group

of experts,

I

was encouraged to prepare a text initially distributed in 1976-77 within the OECD, and subsequently published in Research Policy’ with some minor amendments. In this survey, by using the chemical industry as an example, I wanted to illustrate the extreme its continuous interdependency

complexity of the innovation process as well as with economic, technological and social

constraints, and with those constraints linked to the environment that industry has to accept and which it has sometimes been able to transform into more favourable

situations.

The article in Research Policy aroused the interest of European researchers in some of the ideas put forward, and was mentioned several times in the Beta Report on Prospectives for the Chemical Industry in Europe.” When reading it, one should keep in mind why it was written in the first place and by reference to the context of my previous work. In a study jointly carried out with Giuseppe

Lanzavecchia,4

I mentioned

the

limitations of economies of scale as regards the selection of optimum dimensions for chemical plants, and rejected the then unquestioned conventional wisdom that bigger and bigger plants had to be built. This was in the early time, many people were full of admiration for the ‘ultimate plant’

1970s. At the concept, ie a

plant designed to manufacture a given chemical product-for instance, an intermediate petrochemical product such as terephthalic acid. This plant would be so big and the unit cost of production so low that it would deter any competitor from entering the market controlled by whoever had the strength, technology, means and courage to build this ‘ultimate plant’ (in the above mentioned example of terephthalic acid, the duPont Company). In another survey, 5 I studied the position of the chemical industry in the context of the energy crisis. I also advised the petrochemical industry to carry on using oil as a raw material for a long time; I also underlined the fact that, conversely, it was not very logical to use this raw material in applications less important than transportation and petrochemicals. This was not only because of economic reasons but also because of the complex molecular structure of oil. Finally, in a survey presented to the Society of Chemical Industry in 1975,6 I

FUTURES April 1986

172

Research,

spoke

innouatum and renewal in the chemical industry

about

the geographical

decentralization

of large

petrochemical

plants

to

the oil-producing countries and also indicated the terms, types of products and objectives which, somehow, would make this decentralization not only acceptable but also desirable from the European chemical industry viewpoint, within the framework of an ever increasing geopolitical areasin this case, between

interdependence Europe

and

North African hydrocarbon-producing countries. The second oil shock, which culminated in the removal of Iran,

and in events

the chemical

which brought

industry

the factor

upheavals

which

the

between

the main

Middle

East

and

from office of the Shah

in Iran and then in Iraq,

had the most obvious

was for

and outstanding

impact in the past few years. Oil prices had slightly decreased in real terms after the large rise of 1973-74, but they once more suddenly increased provoking an economic

recession

from that of 1975. Western industrial

which was both hard to solve and structurally Indeed, the economic difficulties countries but also the industrial

very different

have not only affected countries of Comecon

most and

most developing countries, including a large number of OPEC members (deeply affected by the reduction in international demand for crude oil, at a time when ambitious and very costly programmes for economic development and accelerated

industrialization

were

underway).

We

try

here

to

appraise

prospectives for the European chemical industry in this crisis period where the rates of economic growth forecasted by experts for the next ten or 20 years have dropped scientific

to lower and lower levels. We pav due attention and technological innovation and’its consequences

to the problem of for industry and

society.

A changing

geography

should first be noted that the ‘delocalization’ process of productive investments in the petrochemical industry, in favour of oil-producing countries, is occurring, even if it is slower than the more optimistic forecasts of a few years

It

ago. For instance, in 1982, some petrochemical companies began building, in conjunction with the Saudi government, petrochemical plants in Saudi Arabia. These plants have an overall capacity of 1.6 million tons/year for ethylene and approximately 3.5 million tons/year of basic petrochemical products including some

I million

tons per annum

of polyolefine-based

plastics.

In a recent survey, ’ Robert Stobaugh identified a link between the degree of maturity of various products and the variable production technologies, and the tendency towards locating ‘commodity-type’ petrochemical products in oilproducing countries. According to Stobaugh, this delocalization of production will occur through the building of large plants at economic production costs, as well as by a strategy of the worldwide marketing of products obtained through joint ventures (in countries such as Saudi Arabia); however, this delocalization also implies that the oil producer will be the sole owner of these plants and that the industrial countries will have to offer their technology-in design, plant construction and cooperation contracts-for the sale overseas of selected products. However, the delocalization of production processes to the oilexporting countries is a slow process, and follows, in terms of the timescale involved, what occurred in the Comecon area, Canada and other regions.

FUTURES April 1986

Research, innovation

The about

turnover 30%

of the European

chemical

of total world turnover)

and renewal m the chemical industry

industry

is forecast

(which

to decrease

173

in 1980 represented

in percentage

terms

to

about 26% by 1990; a similar variation is forecast for Japanese industry (from 13.5 % to 12.5 %). The North American chemical industry should be able to contain the decrease in its share from 29% in 1980 to 28% in 1990.8 Indeed, although the Canadian contribution will increase, the USA will still retain a residual advantage over Europe, materials, crude oil and gas.

because

In the USA, even more than in Europe, of chemical companies is still occurring CONOCO $8 billion, industry

of lower

than

average

costs

for raw

the vertical upstream concentration (on this subject, the purchase of

by duPont is a good example-this resulted in a transaction of about which is probably the largest repurchase of all time). The metals (eg US Steel,

Kaiser

Aluminium,

Alcoa)

is also gradually

moving

into

the petrochemical industry, in particular into plastics; this strategy is linked in some way to the idea that the industry is moving from a product industry to a function industry. in the automobile

For instance, and building

forecasts industries

ofa large increase in the use ofplastics did certainly force the traditional steel

and non-ferrous metal suppliers to move into these market sectors in order to supply also synthetic products, based on petrochemical materials, which could but with a decrease in weight and with carry out the same functions, considerable

energy

savings.

Japan is directing its production (for instance, foodstuffs pharmaceuticals, biotechnologies). of investment

chemical

Simultaneously in chemicals

industry

towards

it is about to become and in chemical industry overseas

the Japanese

companies

in order both to reduce

which has created excessive bottlenecks and serious increase interdependency links with oil-producing supplying other raw materials, as well as with sophisticated Industrial

Japanese

industrial

more

sophisticated

very powerful branches related are enforcing domestic

in to

a policy

production

pollution problems, and to countries and countries potential buyers of more

products.

redeployment

The European chemical producers, a production

industry has, in the petrochemicals sector, too many overcapacity estimated at between 25% and 30% of the

overall market, and an unfavourable cost profile (raw materials, manpower) with respect to the major competitive regions. Some large European companies are especially strong in the field of fine and specialized chemistry and have already initiated a rationalization and reorganization process for petrochemical production in order to reduce costs (including measures for substantially increasing energy efficiency) and to improve the quality of their products (thanks to improved research), but other companies are still facing serious difficulties. In particular, in France and Italy, a massive rationalization is beginning in the mainstream chemical industry-most of it is now owned by the state. The outcome of this process is employment implications at a time and more mobility are required in various geopolitical regions is bound

FUTURES April 1986

unclear: considerable constraints exist, eg when brave decisions, a long-term vision a world where interdependence between to increase.

174

Research, znnouation and renewal in the chmical

industry

In ten years, the oil price has risen by a factor of almost ten on the international market (if we take into account the inflation rate, we can say that the crude oil price has risen by a factor of five or six), but this does not seem noticeably to have encouraged people to abandon crude oil in favour of other raw materials in mainstream organic chemistry. This phenomenon can only be understood by realizing that the major intermediate petrochemical products contain carbon and hydrogen in a ratio not far from that found in fractionated oil used as a raw material. Further, oil can be transformed into basic intermediate products (eg ethylene, propylene), through a reduced number of operations which have become economically very profitable. This is why, out of a total world production about

of some

95 % have been obtained

120 million

through

tons/year

fractionated

of organic

compounds,

oil and natural

gas.

Oil or coal? The eventual replacement of oil by coal requires enormous investment and implies an important loss of raw materials to produce the basic intermediate products

(synthetic

oil or Synfuel)

required

to obtain

petrochemical

However, I am sure that the use of coal as a petrochemical raw material become profitable when the liquefaction and gasification processes themselves intended

become

profitable,

for the synfuel

ie complestely

and gas thus obtained.

independent

products. will only for coal

from the types of use

In other words,

its use in petro-

chemicals will not make coal profitable in this regard, but the price differential between oil and coal will, at a given point, be such that coal could profitably be converted

into gasified

products

and synfuel,

which,

in turn,

will find applica-

tions in the petrochemical sector. In this way it is possible to understand why the major petrochemical companies have been trying hard in the past few years to improve the energy content of actual technological processes, by introducing, wherever possible, modifications to their plants, provided those modifications can offer short payback periods; these modifications are always based on oil, but use all kinds of tricks to optimize the energy content. The energy consumption of basic processes

such as vapour

cracking,

A trend is beginning chemistry. This compound

for instance

has been reduced

by 40 % -50 % .

to be noticeable: the development of methanol can be derived from gas or coal and is interesting

more for its general energy vector than for its specific petrochemical potential. It is well known that methanol can be turned into acetic acid by carbonylation. Acetic acid is a major intermediate compound in the production of vinylic resins and other products. This process was developed a few years ago by the Monsanto company, and is likely to become obsolete because two other methods designed by the Eastman and Halcon companies can produce vinyl acetate from methanol via catalytic reactions, without having to produce the intermediate compound, ie acetic acid. Further, methanol can be selectively changed into ethylene by cracking with zeolitic catalysts or into approved methanol; the latter product can be changed into ethylene by catalytic dehydration and could then be a substitute for natural gas and for ‘virgin’ naphta, as a raw material in ethylene chemistry. We are slowly and carefully moving to a methanol chemistry which could become, in the medium term, one of the most important sources of future organic chemistry. FUTURES April 1966

Research, innovation and renewal in the chemical tnduslry

Function In

my

17.5

chemistry

article

in Research

Policy I emphasized

certain

trends

that

I found

significant. One of them was a transfer in innovation evolution from a ‘product chemistry’ to a ‘function chemistry’. As M. Bohy” correctly stated, this evolution is not really new. In the 19th century, once the sense of wonder born of the realization that man could synthesize an increasing number of new chemical compounds for an ever-increasing number of applications, finally disappeared, the emphasis gradually moved to the function that one product or another could fulfil. Today, for instance, to speak of dyes in broad terms is meaningless if the fabric,

the

cloth

or material

technological process The major plastic characterized characteristics,

to be dyed

is not

mentioned

applied for this dye is not specified. materials which have become actual

by composition and physical, adequately standardized-have

mechanical increasingly

and

even

if the

‘commodities’and miscellaneous diversified within

and thanks to this evolution, today there are the major polymer families, plastics which are designed and manufactured for specific purposes (packaging, tubes, laminates, etc); there are also composite greenhouses, crop covers, materials properties fibres,

in which plastics provide such as tensile strength

metal

fibres

or carbon

the support and in which specific mechanical and shock absorption are provided by glass

fibres,

and

from those of the matrix compound. Clearly we are currently in the middle

even

polymer

of ‘function

compounds chemistry’:

different if this was

then what is new in the tendency I describe to draw to the already known, attention of experts and futurists? We can give numerous examples of this chemistry, such as nitrogen-based fertilizers

replaced

by a direct

nitrogen

fixation

in the roots of plants

and cereals

(wherever possible through DNA rearrangement processes); or biological warfare against noxious insects instead of using chemical insecticides. Such examples show that the transfer from product chemistry to a function chemistry can even lead to a complete extinction of one product. This ‘dematerializing’ innovation requires, in order to be used effectively, a deep transformation in the structure of economic activities in which this innovation is based (in this case, agricultural production) as well as new industries and related services. It is true that biotechnologies completely industry; upstream extremely

will play a part in the deep-seated

innovations

which

will

transform one of the most traditional sectors of the chemical it is also clear that the development of biotechnologies requires chemical research which is properly subdivided, thorough and dedicated. For instance, fixation of atmospheric nitrogen could be

achieved in the roots of one cereal through genetic engineering techniques capable of achieving a symbiosis between the plant roots and their nitrogensettling micro-organism (for instance Rhizobium) as is now the case with leguminous plants. This objective is not easy to attain, a whole series of problems will have to be solved, and a whole range of biochemical, chemical and physical research carried out. One of the problems concerns energy. To obtain a chemical transformation of atmospheric nitrogen into a nitrogen molecule useful to the plant, this plant will have to supply the energy required for this reaction through processes related to chlorophyllian photosynthesis. This energy

FUTURES April 1966

176

Research, innooatm and renewal in the chemical industry

absorption

through

nitrogen

fixation

would be obtained

to the detriment

of the

plant’s growth rate and would therefore reduce agricultural yield unless photosynthesis efficiency could somehow be improved. In other words, the energy we consume today as methylene or petrol to produce ammonia (and from this nitrogen-based fertilizers, in large chemical plants) could be obtained by using solar power available at the field without interfering with provided that the combined objectives of fixation of atmospheric increased

efficiency

Microelectronics

of plant

photosynthesis

could

plant growth, nitrogen and

be met.

in chemistry

Microelectronics

is another

research and the latest information technology,

example

technology, with the

of the

interaction

between

mechanical

with synergistic effects. Developments in arrival of new generations of computers,

require extensive research in solid-state chemistry and physics to produce the basic materials (silicon, semi-conductors, gallium arsenide compounds, magnetic bubbles, etc) as well as miniaturization technologies. This dependence of microelectronics on research in chemistry and materials science is counterbalanced by the increasing use of computers in chemical research. Indeed, in pharmaceuticals, phytopharmacy, dyes, aromas, etc, the traditional ‘random synthesis and screening’ system of new active organic products (which is becoming increasingly costly because of the enormous number of molecules that have to be synthesized before finding one with the required properties, without negative side-effects) will necessarily be replaced, for the most part, by synthesis theoretical chemical,

methods

with specific objectives. Thanks to computations in the correlation between molecular structure and chemistry, biochemical, etc properties, will be understood in the physical,

minutest detail. The discovery of new organic products various sectors of relined chemistry, through optimization through computer-guided synthesis (‘lead These examples of complex interactions chemistry and research in other scientific

could thus occur in processes and even

optimization’ and ‘lead generation’). between research and innovation in sectors and industrial activities, only

give a vague idea of the type of structural change which will occur in this industry. In other words, the tendency is to break up the chemical industry, to split it up into sub-sectors which are increasingly closely linked to the solution of specific problems (or to the answer to given demands) and to rearrange it into new industries born from an interdisciplinary conception of the contribution of integrated either horizontally (eg US companies in the mnovation, metallurgical sector) or vertically (eg the integration between energy and raw materials-petrochemical and synthetic derivatives). This massive innovation process-which affects science and technology as well as industrial structures and services-should create many jobs, but certainly not traditional ones. It is forecast that research centres will be dedicated to finding solutions to increasingly important problems (here, for instance, I am thinking about the shortage in soft water foreseeable in only a few decades, and the need to purify and desalinate recycled and sea water). New services will have to be created to offer technological assistance to agriculture, to fight corrosion and to prevent

illnesses.

All these

activities,

and others

related

to the design

of

FUTURES April 1966

Kesrarch, mnoua!ion and renewal in the chenncal industry

new software

and to the computing

wider basis for research, will most probably

requirements

of chemistry

as well as for computer-aided

employ

technicians

and specialists

design

on a wider

177

and

and manufacture,

in greater

numbers

than

the number of jobs lost through increasing automation and robotization. In conclusion, it can be stated that the evolutionary prospective in chemistry rich in deep-rooted

and significant

innovations.

The

chemical

industry,

is

as we

have been used to saying from its birth until today, now opens up fields which are so wide that no common denominator with a strong enough base can bc found. Literally, the ‘chemical’ industry is no longer required. It will tend to dissolve markets

and and

to rebuild itself around fields of activities, problems, explicit societal demands. During this process, it will combine with

industries which, traditionally, were buying its products or, conversely, were supplying it with raw materials. This does not necessarily mean that the major chemical companies-which are now some of the largest companies in the world-will disappear. They will continue to exist, but they will increasingly resemble f‘actors,

industrial

conglomerates

and will no longer

intersectoral

held together

be uni-strategy

by financial

companies.

They

and organizational will manifest

strong

synergy.

Chemical research has still to reap a rich harvest in innovations that will be fertilized by research carried out in disciplines such as physics, biology and new information technologies. All this is bound to happen; however, this statement applies process

in a thermodynamic sense, if I can use that term. However the kinetic If the positive aspects of deep is nonetheless extremely uncertain.

structural innovation receive some understanding, and ifthis process is assisted, the transition will be shorter and less arduous than if, on the contrary, the flexibility requirements encounter mistrust and if the unavoidable changes were to have traumatic effects on an excessively rigid and sclerotic industrial and sociopolitical system.

Notes and references 1. B. Delapalme et al, Changement Noour cau Contexfe Economiqur

Technique

OECD, on innovation

the nrw Econorntc and Social Context),

2.

U. Colombo, 1980,

3.

[‘“$yS

P. Cohendet

“A viewpoint X14-23

et Politique Economique:

et Social ( i’khnical

and Politro-economic

1980. and the chemical

la Science et la Technologie dam le Change. Science and 7 bchnolo,/y in

industry”,

h’esearrh Po/ic_y, 9 (t?).

1.

et al, Les Perspectives de la Chimie en Europe (Perspectiues for the European Chemical of’ European Report prrparcd fbr thtt FAST P.10bTrLunrrre of thr Commission

Indu.\r~y) BETA

4. 5

Communities. U. Colombo and G. Lanzavecchia, “Criteri di scelta della potenzialitk degli impianti chimici”, Iq chim Ital, 9 (2) 1973 pages 22-30. U. Colombo, “Is oil too valuable to burn”, paper presented at the World Petrochemicals Conference organized by the Financial 7’imo and 011 Da+, in Lu Chlmita P I’lndurtrin, 6, 197.5, pages 395-401. ChrG/ry (2nd Indn~/rp, u. Cololnbo. “Geopolitical inllurnce on invrstmcnt strategy”. December 1975, pages 994-998. R. Stobaugh, “11 ciclo di vita del prodotto, i flussi tecnologi internationali e il settore pctrolchimico”, industria Chimica, Supplement0 de1 No 1, 1982, pages 20-28. Estimatr from the Stanford Research Institutr (SRI International), 1981. (“Pcrsprctives on Europcarr “10 pvrspcctivcs dr la chimiv cn Europe” M. Bohy, chemistry”). Scrims FAST-EEC. No. 2, 1982.

FUTURES April 1966