STRATEGY FOR DELIVERING CHEMISTRY-FUELLED GROWTH OF THE UK ECONOMY CHEMISTRY A
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Britain’s chemical and chemistry-using industries
Strategy for delivering
chemistry-fuelled growth
of the UK economy
EMIstry
CH AT
W
O
RK
CHEMISTRY
GROWTH
STRATEGY
GROUP
CHEMISTRY
GROWTH
STRATEGY
GROUP
II
Vision
‘By 2030, the UK chemical industry will have further reinforced its
position as the country’s leading manufacturing exporter and enabled
the chemistry-using industries to increase their Gross Value Added1
contribution to the UK economy by 50%, from £195 billion to £300
billion.
Secure and competitive energy and feedstock, accelerated innovation
and strengthened supply chains will be critical in realising this vision.’
THE CONTRIBUTION OF THE CHEMISTRY-USING INDUSTRIES TO THE UK ECONOMY
The Industry
(£195bn)
Chemical manufacturing (£10bn)
Pharmaceutical manufacturing (£9bn)
Chemistry Consumer products (£46bn)
CHEMICAL MANUFACTURE Automotive (£11bn)
THE PROCESS TECHNOLOGY
CHEMICAL Aerospace (£7bn)
PRODUCT DEVELOPMENT
SCIENCES
APPLICATION AND
FORMULATION SKILLS Construction (£23bn)
Extraction of oil and gas (£24bn)
Production of electricity (£6bn)
Other (£59bn)
Source: ONS Annual Business Survey 15/11/2012
1
Gross Value Added (GVA) is total sales less
purchased raw material and services.
Foreword Contents
The chemicals sector is at the very By taking this new, long-term Executive summary 3
foundation of the UK’s manufacturing approach, and working in partnership with
industries and is behind a wide variety business, we can give greater confidence Chemistry growth timeline 4
of products, ranging from lightweight for investment and growth - something
polymers, through to medicines, clean that the whole country will benefit from. Recommendations 5
drinking water and even the food we eat. The vision in the strategy sets out
It is a multi-billion pound industry that has a compelling case for action from both Time for change 7
significant exports and employs people in industry and government to secure and
high-value and highly skilled jobs. build upon our competitive advantage in Our priorities 10
The UK has a vibrant and competitive the global chemicals market and deliver
chemicals industry and has an important the growth and business opportunities Our essential enablers 16
role to play in the transition to a low identified in this report.
carbon economy. Therefore I’d like to I am therefore keen to work with Acknowledgements 19
thank the Chemistry Growth Strategy industry to deliver this strategic vision for
Group for bringing the sector together to the benefit of the chemicals industry and Appendices 20
produce this clear strategic vision for the UK economy as a whole.
sector.
The Government’s Industrial Strategy
sets out an approach which looks 10,
20, 30 years into the future to how Rt Hon Michael
Government supports sectors and this Fallon MP,
industry-led strategy is an important Minister of State
contribution to the Government’s overall for Business and
approach to industrial strategy. Enterprise
Contact:
myviews@ukchemistry2030growth.co.uk
1
Introduction
Chemistry is the bedrock of these businesses have a crucial role to Group was formed by business leaders
manufacturing. Strong competitive play as a strong innovation and growth to make a difference. We believe that it is
chemical industries underpin all great driver for the economy. Failure to act possible to do more. Consideration of the
manufacturing nations in the developed cohesively now will result in risking a huge current landscape and several scenarios
world because chemicals and materials opportunity loss. for the future led to clear consensus on
are the essential component on which Although Government already has an our priorities and recommendations. We
manufacturing is built. By 2030, the world array of initiatives and investments that believe that the interests of the nation
population will be 8.3 billion, 60% of the will contribute to a successful outcome, can best be served by the formation
world’s population will live in urban areas, much needs to be done if UK chemistry of a Chemistry Growth Partnership for
there will be 2 billion cars on the road and is to deliver its full potential for economic the UK, to take these forward. Leading
50% more primary energy needed. These growth and ‘greening’ the economy. manufacturers and users of chemicals
huge challenges cannot be met without Larger parts of our industry need to will work with Government to deliver a
embracing the chemical and chemistry- become more globally competitive and the manufacturing renaissance.
using industries. The UK’s industrial fragmentation within and across industries We present the strategy here, and look
recovery and growth, and our nation’s needs to be more nationally cohesive. In forward to delivering chemistry-enabled
ability to respond to these challenges this respect, it is essential that the industry growth for the UK.
depends on nurturing and sustaining a builds on existing infrastructure and
differentiated chemical industry. integration to remain globally competitive.
The success of all the UK’s established Special attention is also needed to address
growth sectors – including aerospace, agri- the national skills deficit in the natural and
tech, automotive and life sciences – will be engineering sciences.
dependent on chemistry, often delivered As the facts and figures in this report
through competitive supply chains with set out, despite the downturn in the
SMEs at the heart in providing essential global economy, chemical producers
manufacturing, service and design links. and users in the UK remain very strong
The global economic downturn has and valuable contributors to the national
severely impacted the chemical and economy and to society. Recognising that
chemistry-using companies in the UK great progress has already been made in Keith Wiggins Graeme Armstrong
like many others across manufacturing. the development of a national industrial (Chair, Chemistry (Chair, Chemistry
However, with the right leadership and strategy and more balanced vision of the Growth Strategy Innovation)
the appropriate support from Government, future, the Chemistry Growth Strategy Group)
2
Executive summary
The UK needs chemical and chemistry- both energy and feedstocks (the raw SMEs will help to address key supply
using businesses. The entire UK materials for chemical manufacturing) are chain weaknesses through their agility,
manufacturing sector relies on chemistry available, affordable and environmentally innovativeness and connectivity – hence
to generate £600 billion of annual optimal. In particular, the CGP will support delivering a substantial contribution to the
aggregate sales to the economy. The the urgent exploitation of the UK’s UK economy and balance of payments.
chemical sector itself has an annual unconventional gas sources, including Central to success here will be reinforcing
turnover of £60 billion, sustains proof of commercial viability by 2014. industrial clustering and infrastructure to
500,000 jobs throughout the country • Accelerating innovation effect economies of scale and greater
and is consistently the UK’s biggest The CGSG endorses the establishment efficiency and productivity through greater
manufacturing contributor to the national of an open-access Innovation Centre for integration. There are also opportunities to
balance of payments, posting an annual £5 the formulation of chemical products. The attract foreign direct investment (FDI) into
billion trade surplus. CGP will work with Government to explore the UK which will help to fill gaps in UK
Despite these impressive statistics, the business case for this Centre and will supply chains.
our industry faces some fundamental subsequently promote usage of the Centre The CGP will also provide strategic
challenges if it is to prosper and grow. to exploit the UK’s leadership in formulated leadership to mobilise and utilise the wider
Responding to these challenges, the product design and manufacturing, driving community of the chemical and chemistry-
Chemistry Growth Strategy Group (CGSG) maximum benefit from the Centre’s using industries in pursuit of these three
was formed to identify priorities and world-class expertise, technology, priorities. A focus on six key enabling
recommendations that will accelerate equipment and skills. It is envisaged that areas will provide further support. These
national economic growth. This group of the proposed Centre will complement the are:
senior industrialists has consulted and already established centres for Sustainable • Enhancing the contribution of
collaborated with many key stakeholders Chemistry, Industrial Biotechnology and chemically enabled climate change
leading to a collective vision: Materials located in the Centre for Process solutions for growth sectors in existing
‘By 2030, the UK chemical industry Innovation which is part of the High Value UK supply chains.
will have further reinforced its position Manufacturing Catapult initiative, as well • Promoting and leveraging existing
as the country’s leading manufacturing as the innovation programme established Government initiatives across a whole
exporter and enabled the chemistry- by the Chemistry Innovation Knowledge range of activities and helping to
using industries to increase their Gross Transfer Network. contribute to new ones for the future.
Value Added contribution to the UK Industry will be encouraged to leverage • Working with Government to
economy by 50%, from £195 billion to links with the Continuous Manufacturing ensure enhanced export promotion
£300 billion. Secure and competitive and Crystallisation Centre (CMAC) in programmes and effective trade
energy and feedstock, accelerated Scotland. The CGP will also encourage agreements.
innovation and strengthened supply industry to optimise UK and European • Working through trade associations
chains will be critical in realising this public funding to drive innovation. and other stakeholders to deliver a
vision.’ • Rebuilding UK Chemistry Supply regulatory culture and climate that
To achieve this ambition, the CGSG Chains supports sustainable growth and
proposes the establishment of a joint The CGP will work with Government business investment.
industry/Government Chemistry Growth and industry to refill the UK’s hollowed- • Bringing industry and the financial
Partnership (CGP), that will build on the out chemistry supply chains, with community together to strengthen
vision set out in this strategy and help particular focus on UK SMEs to serve their understanding of each other’s
the industry achieve the potential growth down-stream industries. In recent years, business requirements; and ensuring
opportunities that have been identified. economic considerations have led many better signposting to and navigation
Initially it will target three critical priorities: key manufacturing sectors to buy their of available Government and private
• Securing competitive UK energy and chemical technology and products from sector funding initiatives.
feedstock supplies overseas. Whilst the market place through • Securing the right people in terms of
The CGP will work with appropriate imports to the UK has responded to this a competent, diverse and sustainable
Government departments and other challenge in many areas, supporting workforce.
stakeholders on policies to ensure that the redevelopment of the UK’s base of
3
CHEMISTRY GROWTH TIMELINE
VALUE CREATION IN THE SUPPLY CHAIN
350
Supply chain expansion
300
Innovation
250 Competitive energy
TH
200 W
G RO
D
TE
RA
£bn
150 E
C EL
AC
100
50
0 2013 2030
The value creation will be from the chemical sciences utilising competitive energy.
The value capture will be spread across the chemical and chemistry-using industries in accelerated
innovation and rebuilding the UK value chains across the chemical and chemistry-using industries.
4
RECOMMENDATIONS
Our platform for growth Essential to chemistry’s ability to number of additional recommendations
The CGSG recognises the benefits of the deliver its growth potential for the also serve as enablers to growth.
Government’s many activities to support UK economy are: secure supplies of CGSG therefore calls for joint industry/
UK chemistry: especially the establishment competitive ‘clean’ energy and feedstocks Government action to establish a
of the Office of Unconventional Gas and for chemical manufacturing; support to Chemistry Growth Partnership that will
Oil, the Technology Strategy Board’s accelerate innovation from concept to oversee and ensure the development of an
Catapult Centres, Knowledge Transfer commercial use; and, action to reverse the action plan to drive the implementation of
Networks, Sector Skills Councils, Research hollowing-out of the UK’s chemistry supply this report’s recommendations.
Councils and other funding initiatives. chains by rebuilding them from within. A
Priorities The CGP will work with the relevant stakeholders to:
Securing competitive energy 1. Support appropriate policies to enable safe exploitation of unconventional gas, sustainable
and feedstocks use of biofuels, and optimal use of waste resources.
2. Enable the industry to undertake projects to provide further proof of commercial viability of
shale gas by 2014, to enable commercial flows by 2017. This should include working with
local communities on fracking issues and benefits.
3. Explore the potential to increase support for research into technically and economically
viable options for carbon capture and storage, and preferably usage on an industrial scale.
4. Support the continuing development of renewable resources through industrial
biotechnology and synthetic biology.
Accelerating innovation 5. Endorse the establishment of a world-class open-access Innovation Centre for advanced
formulated product design and manufacture and the CGP will work with Government to
explore the business case for this Centre (as proposed by the Technology Strategy Board’s
Formulation Special Interest Group).
6. Guide and encourage industry to fully leverage the suite of Innovation Centres covering
synthesis, industrial biotechnology, chemicals for photovoltaics, materials and advanced
formulation. Encourage industry to engage with the UK research base, especially with
Research Council Centres and Institutes (e.g. the EPSRC UK Catalyst Hub), drawing on the
research and training expertise available.
Rebuilding UK Chemistry 7. Ensure chemistry-intensive SMEs fully leverage business support available from initiatives
Supply Chains such as the Advanced Manufacturing Supply Chain initiative and the new national
Manufacturing Advisory Service, and the established Scottish Manufacturing Advisory
Service.
8. Encourage major chemical and chemistry-using companies to strengthen business
relationships with UK suppliers and customers, as well as exploring new foreign direct
investment opportunities.
5Recommendations (cont.)
Enablers
Climate change solutions 9. Enhance the contribution of chemistry and biotechnology-enabled climate change solutions
to growth sectors of the UK economy; incentivise and increase uptake of existing energy
efficiency measures by these sectors, recognising their importance as a cost-effective lever
to reduce carbon emissions across the UK economy.
10. Identify which technologies and innovations are likely to help reduce emissions and
optimise heat use across the sector. Ensure the right framework and incentives for the
adoption of energy efficient and low-carbon technologies to reduce the chemical industry’s
own emissions; stimulate R&D programmes and facilitate new technologies prior to
commercialisation with a focus on the whole-life cycle.
Leveraging Government 11. Act as a focal point to improve SMEs’ awareness of and ability to navigate existing support
initiatives and networking initiatives.
Trade 12. Pursue national export promotion campaigns, targeting high-value sectors and markets.
13. Continue to push for rapid conclusion of a free trade agreement between EU and USA to
remove nuisance taxes on chemical shipments.
Regulation 14. Respect and support the work of trade associations and others helping to create a
regulatory climate and culture that strengthens international competitiveness and delivers
growth while addressing social and environmental responsibilities.
Finance and funding 15. Bring industry, especially SMEs, and the financial community together, to strengthen
their understanding of each other’s business requirements and establish greater clarity on
lending risk, investor benefits and product/business cycles.
Skills 16. Engage with wider society and school children in particular to address perceptions of the
industry through programmes such as See Inside Manufacturing, Children Challenging
Industry and the Catalyst Science Discovery Centre.
17. Address the specific need for more professionally accredited technicians and apprentices
through an employer-owned, demand-led system facilitated by the sector coming together
around a bid to develop a Science Industry Partnership (SIP).
18. Promote training and qualifications that meet robust and professionally verified standards
including the ‘Cogent gold standard’ as a brand for excellence in chemistry skills.
19. Reinforce and strengthen improvements in higher level graduate, masters and post
graduate level training, accredited by the appropriate professional organisations.
6Time for change
The global landscape for driving growth. a manufacturing component, chemistry
The current macroeconomic shift is The importance of the European Union is vital. In the UK, these sectors include
unprecedented in modern times. Since as a market for UK manufacturers cannot aerospace, automotive, construction,
the global economic downturn of 2008- be over stated. As the UK’s number one energy generation and supply, life
2010, the world has had to recognise and manufacturing exporter, over 50% of sciences, consumer products and
deal with some new norms. The volatility those exports go to Europe. On-going chemicals manufacturing – identified in
of both financial and political systems uncertainty over our membership of 2010 by UK Government as priorities for
around the world is increasing. Energy the Union is not helpful for trade and growth. Of the eight great technologies
security and economic issues prevail, investment decision-making. Respecting that the Government is funding to propel
with increasing urgency around climate the democratic process, we hope the the UK to growth, six are chemistry based.
change and the nuclear debate. Greater debate and decision can be concluded as Chemistry and chemical products
complexity is making the global regulation quickly as possible. currently underpin a significant share of
and trade environment more difficult to the UK economy. In 2011, chemicals and
navigate. A marked ‘flight East’ has taken pharmaceuticals accounted for 12.3%
DESTINATION OF UK CHEMICALS
place in Western manufacturing and (SITC5) EXPORTS, 2012 of manufacturing value added, or 1.4%
finance sectors. (Total £52.7bn) of gross value added in the economy.
Our planet is expected to be home to 3% 2% 1% In addition, chemical companies use a
4%
some 9 billion people by 2050, with 7 out 4%
wide range of services (e.g. distribution,
of every 10 living in cities . Pressure on plant and building construction and
resources – especially energy, food and 11%
maintenance, IT, accounting and legal
water – is already evident. In this situation, services, contract research, advertising).
chemistry is central to making life liveable And many downstream manufacturing
and business growth attainable. Chemistry 56% operations are dependent on chemical
will extend the life of materials and inputs in their products and/or processes.
products, lower their carbon intensity, Chemistry’s contribution to the UK’s
19%
enable more reuse and recycling of critical economic growth happens regionally.
elements, and reduce the energy intensity EU NORTH AMERICA
Regional growth opportunities –
of transportation, buildings and domestic ASIA and OCEANIA WESTERN EUROPE particularly for SMEs – are embedded in
excl EC
and industrial equipment. the four chemical clusters around the UK.
MIDDLE EAST LATIN AMERICA
and N AFRICA and CARIBBEAN Growth in chemicals creates job
EASTERN EUROPE SUB-SAHARAN AFRICA
Changing places and growth opportunities for customer
The UK’s relative position in the global industries and support services. For every
economy has changed. Developing direct job in the chemical sector, at least
countries are now competing throughout UK chemistry’s vital contribution three are supported in purchased services
the value chain. This is threatening the The UK economy today depends heavily and supply chains.
UK’s existing position. If the UK stands on its chemistry-related strengths. These
still, there is a danger we will be left include an abundance of natural gas, SMEs – vital to UK economy and UK
behind. including potential for local unconventional chemistry3
The Government’s response to this gas; a world-class science and innovation • 99.7% of UK companies are SMEs.
is its Industrial Strategy, setting out a base; superior product formulation and • SMEs employ 53% of UK workforce,
long-term, whole-Government approach to marketing skills, and skills in difficult and represent 44% of turnover and 50%
supporting business. This core economic complex process technologies; and more. of value added.
policy will provide long-term clarity and Chemistry-using industries currently • In chemicals (including
confidence to encourage businesses to generate over £600 billion of sales and pharmaceuticals), 95.6% of UK
invest and grow in the UK. The Industrial £195 billion in gross value added (GVA) companies are SMEs employing 42%
Strategy’s spectrum approach to from UK-manufactured output.2 Chemical of the total workforce, accounting for
supporting sectors will fully recognise that and pharmaceutical companies are the 29% of turnover and 23% of value
a strong and innovative chemicals sector is nation’s top manufacturing exporters, and added.
an important – even critical – requirement among the top ten in the world, with a £6 • SMEs tend to be highly innovative.
billion trade surplus: GlaxoSmithKline alone
exported £2.3 billion worth of pharma
2
hemistry Innovation Knowledge Transfer
C
products from the UK in 2010, and spends
Network, A strategy for Innovation in the UK
chemistry-using industries, June 2013. more than £40 million a year on chemicals
3
Eurostat Economic Data, 2010.
from UK supply chains.
In fact, for any industrial sector with
7chemicals. These include renewable
PROJECTED INDEX OF VALUE ADDED, UK CHEMICALS INCLUDING PHARMACEUTICALS, 2009=100
feedstocks and feedstocks from
waste; industrial biotechnology; new
160 developments in advanced materials,
especially for transport; battery
technologies; and opportunities in
advanced product formulation, at which
the UK excels.
Yet higher average growth of up to
3.6% a year (increasing GVA to £31 billion
Log scale
100
by 2030) is feasible if the UK successfully
exploits its indigenous unconventional gas
resources. Shale gas in the USA has led to
a wave of massive new investment: the
American Chemistry Council has calculated
that the reopening of mothballed plant and
new capacity builds will add at least 15%
60 cumulative growth in overall US chemicals
90
92
94
96
98
00
02
04
06
08
10
12
14
16
18
20
22
24
26
28
30
output over the next 5 years. In the UK,
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
2030 added value in 2011 prices and annual growth 2013-2030 for the modest impact of shale gas to date
shows that potential additional growth in
Basic chems contract 10% pa to 2025: £18bn/0.5% pa
Base (Oxford Economics): £22bn/1.7% pa the chemical sector from existing capacity
With generic improvement: £25bn/2.5% pa
+ Innovation boost: £28bn/3.1% pa is considerable. Nevertheless, in order
+ Unconventional gas boost: £31bn/3.6% pa
to capitalise on this potential, and as
This graph shows the projected growth of chemicals GVA based on different scenarios and
highlighted by the Royal Society and the
demonstrates how a combination of generic improvements, innovation and the exploitation of shale
gas can increase the chemical industry’s GVA to £31 billion by 2030.
Royal Academy of Engineering review5
of hydraulic fracturing, operational best
practices must be followed to ensure the
Future scenarios – projected a further £3 billion to GVA by 2030. The health, safety and environmental risks are
contribution of chemistry to the UK UK Government has already recognised managed effectively.
economy to 20304 the need for many of these improvements However, it is important to recognise
In a baseline scenario, based on a in The Path to Strong Sustainable and there is also the possibility of further
continuation of current policy and Balanced Growth. Such improvements contraction. Present UK policies on
economic conditions, UK producers work must ensure that secure and competitive climate change are ambitious. The
to counter the impacts of: increasing supplies of energy and chemical complexity of the UK’s finely balanced
competitive threats to bulk chemicals feedstocks (raw materials) and a level energy markets and continuing emphasis
manufacturing from the Middle East; a playing field on climate policy costs are on costly renewable energy brings
rejuvenated USA with its liberation of in place. This means exempting most of associated risks. Together, these factors
shale gas; and continuing emphasis on the UK’s energy-intensive manufacturing are leading to higher energy prices and
costly renewable energy at home. In this from climate policy costs, or providing cost disadvantage relative to EU or
scenario, chemistry’s contribution to the compensation, over relevant investment global competitors. Companies with
economy makes a modest recovery with horizons to retain a global level playing plant capacity across Europe have
an average 1.7% annual growth rate from field. Other feasible improvements include allocated manufacturing to sites outside
2013 to 2030, leading to a GVA of £22 adjusting regulatory regimes, raising the the UK. One consequence of which is
billion (a real increase of £3 billion) by quality of the UK’s technology workforce, the weakening of UK chemistry supply
2030. and giving SMEs the stable supportive chains. For example, INEOS ChlorVinyls
Adding some ‘generic’ improvements environment they need to thrive. is now the sole manufacturer of chlorine
to the scenario could improve that An estimated 3.1% growth per year in the UK. The nation’s overall production
chemicals growth rate to 2.5%, and so add (increasing GVA by a further £3 billion to of chemicals and pharmaceuticals fell
£28 billion by 2030) could be achieved by 5% in 2012, partly owing to a shift
if a boost is provided specifically to UK of pharmaceuticals output to lower-cost
4
Oxford Economics, The UK Chemicals Outlook innovation efforts. Chemistry Innovation regions of the world, and partly because
to 2030, December 2012.
has identified a range of innovation of fluctuating demand for bulk organics
5
Royal Society, Shale Gas Extraction Final Report,
opportunities with the potential to create leading to a big drop in chemicals output.
June 2012.
multi-billion pound new markets for UK Other data for 2012 show the UK’s
8chemicals imports have risen faster than industry achieve the growth opportunities
exports, reducing the traditional surplus it highlights. Initially the CGP will target
in chemicals and pharmaceuticals from three priority outcomes:
around £500 million per month to around • Securing competitive energy and
£300 million per month.6 feedstock supplies
The CGSG therefore concludes • Accelerating innovation
that the UK now has a short-term but • Rebuilding UK chemistry supply
compelling opportunity to take decisive chains.
action to liberate natural resources and set The CGP will also provide strategic
long-term policy that supports growth and leadership to mobilise and utilise the wider
investment. community of the chemical and chemistry-
using industries in pursuit of these three
Strategic intent priority outcomes. Action by the CGP will
We live in times of rapid change and additionally focus on six key underpinning
exceptional opportunity for the chemicals areas:
and chemistry-using sectors in the UK. • Enhancing the contribution of
These sectors welcome the Government’s chemically-enabled climate change
position: to rebalance the economy, and solutions for UK growth sectors.
to form industrial policy that supports • Promoting and leveraging existing
the competitiveness and rebuilding of Government initiatives.
UK manufacturing for the long-term. • Ensuring effective trade agreements
UK chemistry can make an exceptional and export programmes.
contribution to building up the supply • Respecting and supporting the role
chains that have been diminished, and of trade associations in forming the
to national growth through delivering regulatory climate.
ambitious targets. • Strengthening the mutual
The CGSG was formed to identify understanding of the SME and
priorities and recommendations that will financial communities, and improving
accelerate national economic growth awareness and navigation of
through the chemical and chemistry-using Government funding initiatives.
industries. Consultation and collaboration • Securing the right people in terms of
with key stakeholders and associated a competent, diverse and sustainable
industry bodies has led to a collective workforce.
vision: The CGP recognises that the success
‘By 2030, the UK chemical industry of its work depends crucially on the
will have further reinforced its position expertise, experience and motivation
as the country’s leading manufacturing of the UK chemistry workforce and its
exporter and enabled the chemistry- various representative bodies. Its mission
using industries to increase their Gross will therefore include efforts, from primary
Value Added contribution to the UK school level upwards, to inspire students
economy by 50%, from £195 billion to and young people to follow careers in
£300 billion. Secure and competitive chemistry. It will also encourage greater
energy and feedstock, accelerated take-up of the Sector Skills Councils’
innovation and strengthened supply existing programmes, and the activities
chains will be critical in realising this of professional organisations and others,
vision.’ to broaden and deepen the nation’s
To achieve this goal, the CGSG chemistry-related skill base.
proposes the establishment of a joint
industry/Government Chemistry Growth
Partnership (CGP), that will build on the
vision set out in this strategy and help the
6
Royal Society of Chemistry, 2012 Chemical
Industry Review, January 2013.
9OUR priorities
Parts of the chemical and chemistry- manufacturers also need a level playing
Securing competitive energy
using industries are energy intensive. field with respect to climate policy costs. It
and feedstocks
However, for every tonne of carbon is therefore important that Government’s
Accelerating innovation emitted, they save 2 tonnes, as assessments of the competitive
Rebuilding UK Chemistry evidenced by a July 2009 McKinsey implications of new proposals for energy
Supply Chains report ‘Innovations for Greenhouse Gas and climate policies take into account the
Reductions – A life cycle quantification of cumulative impact of existing measures.
A. Securing competitive energy and carbon abatement solutions enabled by New sources of feedstock can make a
feedstocks the chemical industry‘. To be successful, significant contribution to both growth and
Chemistry provides the key enablers manufacturers need competitive and ‘greening’ of the economy:
for renewable energy, low emission secure supplies of energy and feedstocks • Although quantification of recoverable
transportation, energy efficient homes and (raw materials). This means striking an reserves is not yet available, the UK
businesses, and sustainable agriculture. It affordable balance in the energy mix potential for unconventional gas could
is at the heart of the UK’s development of between natural gas, clean coal, new be equivalent to twice that of North
a ‘green economy’. nuclear and renewable sources. And Sea (conventional) gas – reducing
dependence on imported gas and
Example: INEOS Bio – innovation for sustainability improving the business case for
INEOS Bio was formed in 2008 as part of the INEOS group of companies, to build investment in UK chemical capacity.
and operate industrial scale facilities for turning waste and non-food crop biomass • Biofuels and waste recycling also
into advance biofuels and renewable power, using INEOS’s proprietary bioenergy offer sources of feedstock and a
technology. route to lower carbon emissions from
The technology turns biomass wastes to bioethanol by a process of gasification production, for example: mechanical
and conversion. When the bioethanol is burnt, it returns carbon dioxide to the recycling of plastics uses 25-60% less
atmosphere which was taken out as the biomass grew. This is quite different from energy than that required to produce
burning traditional petrol, which releases carbon dioxide into the atmosphere from primary polymers as feedstocks.
carbon that has been stored in oil for a much longer time. • With carbon capture there is potential
The first INEOS Bio facility in Florida, USA, brings to commercial reality the to reuse and generate value from CO2
fruits of a pilot project which began in 2000. By 2003, when a gasifier was added emissions by converting them into
to the pilot plant, it became a fully hydrocarbons. Much greater research
integrated gasification-fermentation- is urgently required on the potential for
distillation demonstration facility. With commercialisation.
the establishment of INEOS Bio five US experience of shale gas shows that
years later, work started on the design the community benefits from developing
and engineering for an industrial scale such resources can be significant. The
plant which broke ground in 2011. establishment of the new UK Office of
Investment in the project exceeds $130 Unconventional Gas and Oil is a good step
million. During the project development towards ensuring UK communities gain
phase, 400 direct and indirect jobs as much as possible from any shale gas
were created. development in their area, while protecting
With its advanced thermochemical the environment and safeguarding the
and biochemical bioethanol technology, public. Shale gas can also be a valuable
INEOS Bio is aiming to contribute chemical feedstock, as well as a cheaper
significant growth to the European and energy source.
North American bioethanol market, The current US debate about a
while supporting more sustainable possible ban on exporting Liquefied
communities and transportation. Natural Gas (LNG) made from shale gas
illustrates the ongoing uncertainty and
‘The chemical industry’s ability to underpin sustained growth in UK manufacturing changes in the global landscape. UK
is increasingly determined by the need for competitive and secure supplies of policies need to ensure UK companies
energy and feedstocks. The safe exploitation of unconventional gas is central to stay competitive; encouraging the
that supply and will also provide an essential bridge to a longer term UK energy liberation of indigenous natural resources
mix that includes nuclear and renewables.’ will reduce or eliminate dependence on
imported energy or feedstocks.
Tom Crotty, Director, Ineos
Using more fossil fuels in the form of
unconventional gas for power generation
10Example: Oxford Catalysts – unlocking the commercial potential of synthetic
fuels or chemicals from shale-gas and from biomass
Oxford Catalysts is an SME that spun out of the University of Oxford at the end of
2005 with two platform catalyst technologies focused in the area of clean energy
and clean fuels. The company completed an Initial Public Offering (IPO) on the AIM is, in our view, not inconsistent with
Market of the London Stock Exchange in April 2006, raising £15 million and enabling greening the economy, because gas
it quickly to set up its own laboratories and begin to focus on developing its catalysts is the cleanest burning fossil fuel. The
for the first targeted applications. Whilst seeking out and working with clients with positive impact of replacing coal (and
specific commercial targets for its technology, the company identified, and ultimately, oil) with gas for electricity production
in 2008, acquired, a US spin-out company called Velocys, which was developing an is therefore significant. Gas also has
impressive portfolio of microchannel reactor technology, and thus provided a perfect capital and operating cost advantages for
platform to exploit the type of highly active catalyst enabled by the Oxford Catalysts power generation. And it offers a flexible
technology. Today, commercial roll-out of Oxford Catalysts’ Fischer-Tropsch reactors complement to intermittent renewables.
and active catalyst has begun. The reactors produce synthetic crude oil from a feed of In the medium term, revenues from
synthesis gas (a mixture of carbon monoxide and hydrogen). Together with its delivery the use of UK unconventional gas can
partners the company offers a complete gas-to-liquids solution, producing ultra-clean help pay for growth in renewables and
diesel. In April 2013, Ventech Engineers International placed an order worth $8 million important future technologies such as the
for Oxford Catalysts’ Fischer-Tropsch reactors – sufficient for a plant producing around ‘hydrogen economy’. Support is needed
1,400 barrels per day of liquid products. The company has been able to raise further for the production and safe handling of
funds in the UK markets amounting to a total of over £55 million since the IPO, hydrogen, and to advance current research
the latest, an oversubscribed placing in January 2013 worth £30 million to support into different materials that could be used
commercialisation activities. for efficient hydrogen storage and fuel
The technology was first demonstrated in the Austrian eco-town of Güssing, cell technology. The CGSG supports the
where the town’s heat and power is produced from a woodchip gasifier. The Oxford work of the Government to look at the
Catalysts trial unit took a slip-stream off the gasifier output as its feed, and ran for commercial challenges for this market that
over a year producing synthetic crude oil. This successful demonstration has led to could help shape the direction of this area.
significant commercial interest in the technology and the two most advanced projects Moving forwards, the establishment of
serve as important exemplars of the technology’s potential. First, Solena Fuels, a Chemistry Growth Partnership will have
who are to build a municipal several actions related to energy.
waste-to-fuels plant to supply The CGP will work with Government
British Airways with jet fuel at and industry stakeholders to:
London City Airport by 2015, 1. Support appropriate policies to
has specified Oxford Catalysts’ enable safe exploitation of
Fischer-Tropsch technology for unconventional gas, sustainable use
the project. Secondly, in the of biofuels, and optimal use of waste
USA, the company has been resources.
selected to provide Fischer- 2. Enable the industry to undertake
Tropsch technology for a projects to provide further proof of
gas-to-liquids plant for Calumet commercial viability of shale gas by
Specialty Products Partners 2014, to enable commercial flows by
L.P., who will use shale gas as 2017. This should include working
an input to produce ultra-high with local communities on fracking
quality specialty products issues and benefits.
(lubricants and waxes). The 3. Explore the potential to increase
economics of the project are support for research into technically
regarded as highly attractive – and economically viable options for
a conclusion that should raise carbon capture and storage, and
interest here in the UK as we usage on an industrial scale.
move towards exploiting our 4. Support the continuing development
shale gas reserves. of renewable resources through
industrial biotechnology and
‘Oxford Catalysts is excited to be commercialising its breakthrough technology. synthetic biology.
Smaller scale Gas-to-Liquids (GTL) based on our innovative microchannel reactors
and highly-active catalysts open up the GTL market to the majority of energy and
specialty chemicals companies, allowing them to convert undervalued natural gas
and waste biomass into valuable liquid transportation fuels and chemicals.’
Susan Robertson, Chief Financial Officer, Oxford Catalysts
11B. Accelerating innovation part of the world, implemented in another process development and application
Innovation is the conversion of science, for sale in yet another. Commercial in this country and use overseas and/or
technology and know-how into commercial value is derived from sales of new implementation of an alternative business
value, which drives economic growth. It products, operation of new manufacturing model.
can involve technology developed in one processes, licensed income through Innovation is critical to growing the
UK economy. An important task for the
Example: Catapult Centres – accelerating innovation CGSG was to prioritise the areas with the
The UK Government, through the Technology Strategy Board, has established a greatest potential for growth, and highlight
series of Catapult Centres. These centres give businesses access to equipment and what is needed to accelerate innovations
expertise that would otherwise be out of reach, as well as opportunities to conduct in these areas to exploit these growth
their own proprietary R&D. Catapults also help businesses to access new funding opportunities.
streams and point them towards the potential of emerging technologies. In the analysis completed by
Companies working with a Catapult Centre can: Chemistry Innovation, three areas
• Trial new approaches to designing and manufacturing products, at reduced risk emerged as priorities: raw materials for
and cost the 21st century; smart manufacturing
• Take new knowledge from Technology Readiness Level (TRL)7 3 towards Level processes; and design for functionality.
7-8 The scale of each area’s contribution was
• Avoid capital investment until an unequivocal case can be made assessed within the 2013 Chemistry
• Leverage funding for medium to long-term (and high risk) R&D through Innovation Strategy.
collaboration with other companies on common, pre-competitive problems • Raw materials: The potential longer
The High Value Manufacturing Catapult was the first Catapult to be established. It term benefits of using biomass or
comprises seven centres, one of which is the Centre for Process Innovation (CPI). waste as raw materials reach £8
The CPI has attracted Government investment for many of its facilities, which include: billion. There is also potential for using
• Industrial biotechnology new technologies to replace scarce
• Smart chemistry metals, as defined in the Industrial
• Thermal technologies Biotechnology Innovation and Growth
• Printable electronics Team Report8.
• Anaerobic digestion • Smart manufacturing processes:
• Sustainable engineering Scalable, flexible and more resource-
efficient processes offer considerable
potential benefits in both chemicals
and industrial biotechnology. In the UK,
this opportunity is estimated at £10
billion.
• Design for functionality: A further
£10 billion opportunity is identified for
formulated products with designed-in
functionality. Currently, the formulated
products market in the UK is worth
about £180 billion a year, and the UK is
recognised as a strong player globally.
That advantage needs to be better
coordinated and developed, to enable
growth in both domestic and global
markets. A conservative estimate of
the potential benefit of intervention
on materials chemistry (to create
substitutes for materials currently
imported) stands at £5 billion. Chemical
products designed for a ‘circular
economy’ offer additional potential:
about £1 billion is currently achievable
7
Technology Strategy Board, High Value Manufacturing Strategy 2012-2015, May 2012.
through design for waste management
8
Industrial Biotechnology Innovation and Growth Team, IB 2025 Maximising UK Opportunities from
and recycling, and this figure could
Industrial Biotechnology in a Low Carbon Economy, May 2009.
grow up to tenfold by 2020.
12‘Johnson Matthey welcomes this Strategy and a potential Chemistry Growth
Partnership, which will be critical in further strengthening relationships between
the UK’s Chemical and Automotive Sectors and throughout the entire value chain.’
David Prest, Managing Director Johnson Matthey Emission Control
Some important interventions in innovation Technologies
have already started (see Appendix A).
There has also been progress (notably
in Scotland) on efforts to connect SMEs The Chemical Industry engages in all levels
of the Automotive Supply Chain
more with universities and the Catapult
Centres, to generate innovations that solve Offering of Steps in Supply Chain
real-life problems and promote growth. Chemical Industry
All these and other recent
Refinish coatings
developments will make a positive Coolants and brake fluids Aftermarket
Fuel additives
difference, but not necessarily enough to
meet the specific chemistry needs of the Coatings
Coolants and brake fluids
other sector strategies consulted as part of Plastics for OEMs
OEM
with own processing
this work (see Appendix B).
The proposed Centre for Advanced UK Chemical Plastics Module/
Catalysts
Formulation, it is envisaged, will Manufacturers Coatings for car parts
system supplier
TIER-1
complement the established centres
Plastics
for sustainable chemistry, industrial Catalysts Component
Coatings for car parts supplier
biotechnology and materials located in Pigments TIER-2
the Centre for Process Innovation, which
Plastic Parts
is part of the High Value Manufacturing Pigments supplier
Solvents TIER-3
Catapult, and also the innovation
programme established by Chemistry
Innovation.
The CGP will work with Government C. Rebuilding UK chemistry supply as well as regulatory and quality issues.
and industry stakeholders to: chains The aerospace industry alone bought
5. Endorse the establishment of a The UK chemical and chemistry-using about £220 million worth of chemicals
world-class open-access innovation industry already has a strong infrastructure and plastic products in 2010; converting
centre for advanced formulated in place which will enable the rebuilding imports to in-country sourced products
product design and manufacture, of UK supply chains – ethylene pipe lines, would make a significant contribution to
and the CGP will work with freight lines and ports in addition to sites the UK economy. Including embedded
Government to develop the business like Wilton, Runcorn and Humberside give chemistry in other components would take
case for this Centre (as proposed the UK a strategic advantage. this value much higher. Similar signs are
by the Technology Strategy Board’s Over the past decade, however, a being given by the automotive and other
Formulation Special Interest Group). previously more integrated chemical priority industries.
6. Guide and encourage industry to industry with many raw material There are also opportunities to
fully leverage the suite of Innovation products manufactured here, has seen attract foreign direct investment (FDI)
Centres covering synthesis, keen elements no longer made in the into the UK. This will help to fill gaps in
industrial biotechnology, chemicals UK through restructuring based on UK supply chains and further improve its
for photovoltaics, materials and commercial decisions. Whilst the market competitiveness in the global market place
advanced formulation. Encourage place through imports to the UK has -– as evidenced by our Fenix Fluor case
industry to engage with the UK responded to this challenge in many areas, study.
research base, especially with supporting the redevelopment of the Ensuring a thriving community of
Research Council Centres and UK’s base of SMEs will help to address SMEs will be particularly important for
Institutes (e.g. the EPSRC UK key supply chain weaknesses. This has filling in the UK’s hollowed-out chemistry
Catalyst Hub), drawing on the resulted in key chemical building blocks supply chains. SMEs are less likely than
research and training expertise no longer manufactured in the UK or the the majors to move their operations, jobs,
available. country limited to sole supplier status for a and tax payments to another country when
number of key products. times are hard. They are generally agile,
More recently, however, there has innovative and well-connected to academic
been a noticeable trend among large and other centres of excellence. They also
chemistry-using companies (e.g. in need to be recognised as less resilient to
pharmaceuticals) to rethink the East- downturns than the majors are, and often
West balance of their manufacturing. in need of support to build their business
Influencing factors here include the growth skills.
growing costs of doing business in Asia, Local Enterprise Partnerships have an
13Example: Fenix Fluor producer of R-22 in the UK. Its formation strengthens what was
In October 2012, Mexichem Fluor signed the agreement to a fragile UK supply chain for the production of fluoropolymers by
form a new company, Fenix Fluor Ltd, a joint venture between providing a market for HF, chloroform and sulphuric acid, and a
Mexichem UK Limited and AGC Chemicals Europe Limited. stable and local supply of R-22 to the plastics industry.
This was a multi-million dollar investment, signalling Significantly, the companies that manufacture the
confidence in the UK chemicals industry from both Mexico feedstocks for R-22 are based on the same site as Fenix Fluor,
(Mexichem Fluor) and Japan (AGC Chemicals). Rocksavage in Runcorn. This includes HF, made by Mexichem
Based at Mexichem Fluor’s Rocksavage site in Runcorn, Fluor, chloroform from INEOS ChlorVinyl, and sulphuric acid
UK, Fenix Fluor manufactures R-22 (chlorodifluoromethane), a from INEOS Enterprises. The chloroform is supplied with
key raw material in the production of fluoropolymers used in the chlorine produced by INEOS Chlor which is also on the Runcorn
automotive, aerospace and construction industry. Mexichem site. These plants are the only assets that manufacture these
Fluor chose to pursue this investment to secure the integrity chemicals in the UK, therefore Fenix Fluor will help to ensure
of a long term asset, and to retain leadership status in the their future survival.
manufacture of quality R-22. Fenix Fluor produces R-22 of the highest purity and is
Its construction supported a number of UK suppliers, with therefore able to produce higher purity TFE. This will provide
the gas compression packages supplied by a firm in Great a stable and local supply to AGC Chemicals which is the only
Yarmouth, the industrial refrigeration packages by a firm in PTFE plant in the UK (and also based in the North West). The
Dartford and the plant control computer was made in Leicester. plant will be fully loaded via sales to global PTFE manufacturers.
During construction, around 70 contractors were employed on Without R-22 production in the UK, demand for HF,
site and around 20 permanent staff are now employed by the chloroform, sulphuric acid, and chlorine would all reduce. This
enterprise. would force these assets to seek markets further afield. The
But for the broader chemicals industry, the formation of transport of finished products into Europe and beyond adds
Fenix Fluor has a more significant impact. Fenix Fluor is the only additional cost and this ultimately puts pressure back on the
producer’s profits as they attempt to absorb this cost in order to
remain competitive with the end user. As the balance between
UK-based consumption vs sales abroad shifts more to sales
abroad, profit margins continue to be squeezed. Continued
erosion of the UK manufacturing base can and has ultimately led
to closures.
Without a UK-based R-22 supply, AGC’s PTFE manufacture
facility at Hillhouse would be forced into an R-22 import position
adding cost to their raw material again putting pressure on profit
margins.
The competitive nature of today’s global market means that
only the fittest manufacturers will survive. For the survival of
the UK chemicals sector it is essential that a thriving UK-based
supply chain exists producing and consuming raw materials with
a strong level of UK consumption to form the backbone of a
healthy export sector. Without this UK base the supply chain will
potentially begin to unravel as individual blocks from the supply
chain fail. Given the fragile and integrated nature of the overall
supply chain losing one single block could have very significant
consequences.
‘A key element of Mexichem’s vision is to ensure the
economic viability of our chemical operations through
creation of vertically integrated and highly utilised supply
chains. This co-investment by Mexichem and Asahi Glass in
the UK is a prime example of putting that vision into practice
and one that must be replicated throughout the UK chemical
Business and Enterprise Minister, Michael Fallon, MP opens the industry to generate a critical mass of integrated and diverse
new Fenix Fluor Manufacturing facility at Mexichem Fluor, Runcorn. chemical production chains.’
The plant provides key raw materials for use in the automotive,
Dave Smith, Business Director, Mexichem Fluor
aerospace and construction industry.
14important role to play, connecting industry 7. Ensure chemistry-intensive SMEs 8. Encourage major chemical and
and local authorities to agree priorities for fully leverage business support chemistry-using companies to
investment in local roads, buildings and available from initiatives such strengthen business relationships
facilities. For SMEs especially, this is a as the Advanced Manufacturing with UK suppliers and customers, as
significant lever to stimulate growth and Supply Chain initiative, the new well as exploring new foreign direct
maximise business effectiveness. national Manufacturing Advisory investment opportunities.
The CGP will work with Government Service, and the established Scottish
and industry stakeholders to: Manufacturing Advisory Service.
Example:
GlaxoSmithKline (GSK): on-shoring strengthens GSK’s success to date has been built on increasing demand
UK content in supply chains for healthcare around the world, a continuous improvement
GSK is a global healthcare company. The mission is to improve mindset, a strong base of intellectual property, and the
the quality of human life by enabling people to do more, feel availability of highly skilled life science staff.
better and live longer. GSK has three primary areas of business Looking forward to 2020, GSK has announced a series of
– Pharmaceuticals, Vaccines and Consumer Healthcare. Within investments of more than £500 million in the UK, creating up
the Supply Chain and Global Manufacturing, GSK has 87 sites to 1,000 new jobs, plus wider construction and supply chain
in 34 countries manufacturing pharmaceuticals, vaccines and benefits. This has been made possible by the introduction
consumer healthcare products. Seventy four of these sites are of new patent box rules in the UK (10% corporation tax) and
the responsibility of Global Manufacturing and Supply (GMS) transformed the way in which GSK views the UK as a location
with more than 27,000 people involved in the manufacture for new investment. Medicines of the future will be not only
and supply of our pharmaceutical and healthcare products. A discovered but also made in the UK.
further 13 Sites are operated by our vaccines business.
Each year, the company manufactures more than 4 billion
‘The support provided through the Patent Box has
packs of medicines which are sold in more than 150 countries; transformed how the world views the UK in terms of a
1 billion tubes of toothpaste; and 1 billion servings of Horlicks, location to not only discover but subsequently manufacture
Lucozade and Ribena. new innovative medicines, creating fantastic investment
More than £1 billion is spent each year on global opportunities for the whole of the pharmaceutical industry.
manufacturing procurement – sourcing more than 5,000 This is an exciting time for the pharmaceutical supply chain
raw materials and packaging components and active in the UK.’
pharmaceutical ingredients (APIs) from a global supply base. Dave Tudor, Vice President, Primary Supply Chain,
More than £40 million is spent on chemicals from the UK GlaxoSmithKline
supply chains.
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