Summertime in the northern hemisphere typically begins the annual strategic planning process for most companies. I have led these activities at chemical and energy companies in past years and am reminded about the critical steps: agree on assumptions, define targets, identify gaps and devise implementation steps.
No matter where your organization is in its annual planning process, the effort this year will likely include sustainability targets, as this global initiative has become a keen focus over the past year. Digitalization strategies have also become embedded in planning as well as companies looking to accelerate time-to-value for both profitability and sustainability projects. All of these activities must now be integrated to enable business success for companies in the process industries.
“It's not okay to have sustainability as an activity, it has to be a strategic part of your business thinking,” said SABIC CTO Bob Maughon during a recent Chemical Week Executive Conversations: Challenges and Opportunities of the Circular Economy with AspenTech President and CEO Antonio Pietri. Bob shared several digitalization success stories — including process optimization using hybrid modeling and emissions dashboards — from AspenTech’s work with the leading global chemical company. This dialogue, moderated by Lyn Tattum, Vice President, IHS Markit highlights the challenges and successes of chemical companies in their journey toward a more sustainable and profitable future.
“It's not okay to have sustainability as an activity, it has to be a strategic part of your business thinking.”
- Bob Maughon, SABIC CTO
Antonio highlighted the fact that many chemical producers have been accelerating their activity along that digitalization journey “since Industrie 4.0 in Germany, there was an inflection point for the chemical industry and we've seen an acceleration in the adoption of digital capabilities in operations, in manufacturing and across the supply chain.”
And today, more than ever, the integration of digitalization — and sustainability — into business strategies is an essential component in each step of the planning process.
Key assumptions: market volatility makes this harder than before
I remember a time when a planning team could agree on rough market assumptions to develop the five-year company plan, confirming crude prices, product values and critical margins for most product sets. That static approach is less common in today’s volatile markets. Instead, planning teams now build scenarios to help guide the business in understanding the exposure and risk to their business decisions. The ability to quickly evaluate alternatives and integrate that insight into immediate- and long-term business decisions is expanding across business, but especially in supply chains, as highlighted recently in a blog by my colleague Roch Gauthier.
This point was reinforced by BASF earlier this month when it announced a much rosier outlook for 2021 than previous and full revisions of annual market assumptions.
Targets: new challenges for the circular economy and energy transition
Chemical and energy companies around the world are stating their commitment to Net-Zero CO2 emissions by 2050. This is an ambitious goal, particularly when most organizations admit they do not have a clear pathway to achieve this reduction and are still working to develop the technology breakthroughs needed. At the same time, businesses are eager to seize the opportunity presented by growing consumer demand with aggressive revenue and profit growth targets.
Antonio calls this the “dual challenge," which acknowledges the resource pressure on organizations, stemming from a growing population that is demanding an increase in the standards of living, while also addressing climate change and decarbonization.
This challenge underpins the circular economy concept for chemicals companies, ultimately decoupling economic growth from resource depletion. In most cases, this approach demands a complete redesign of existing processes and products to integrate by-products and waste and to source alternative feedstocks and energies. Innovation is at the core of this activity.
The European Union has moved first with its Green Deal and now China has announced a significant new national plan to drive circularity as part of its fourteenth Five-Year Plan (2021-2025). The plan sets aggressive new targets to cut energy and water consumption per unit GDP by 13.5% and 16% respectively, while also setting up a resource recycling system across the country. Specific policies to drive cleaner production processes in petrochemicals and chemicals are forthcoming. These efforts support national targets to peak CO2 emissions by 2030 and become carbon neutral by 2060.
Gaps: metrics to chart progress
To remain competitive, companies must develop new levels of operational excellence, specifically gaining agility, flexibility and insight through the use of digital capabilities. And most importantly, not forcing a trade-off with profitability.
Agility in operations requires that processes are monitored and controlled using advanced process control (APC) with dynamic optimization. This ensures efficient use of resources and avoidance of unexpected upsets and quality issues. Flexibility is enabled by better visibility across the enterprise to consider alternate scenarios and make better business decisions. And these capabilities are built upon insights gained from data integration and management that are fundamental to reflect current operations, define future targets and chart progress.
The importance and value of this data is further emphasized by proposed ESG reporting requirements emerging in all regions. Investor and consumer pressures are driving companies to disclose new metrics and KPI’s that must be built upon captured operational data.
Implementation: Digitalization is the enabler
Digital capabilities have been broadly highlighted as an important enabler in making progress toward sustainability challenges. The International Energy Agency and the European Union, for example, both highlight the importance of integrating digital capabilities to achieve their aggressive targets.
SABIC has integrated this approach in its sustainability activities, as Maughon noted in the Executive Conversation “…a critical journey in our digitalization was taking a holistic approach across manufacturing, supply chain, technology, marketing and sales, and . . . looking at how we can leverage the data that we have, how can we leverage new tools for using that data and transitioning that data into greater knowledge to accelerate all of those functional areas.” Maughon specifically highlighted several projects, including use of:
- Hybrid models, which combine first principle simulation with AI, to improve process technologies
- Emissions dashboard to track release of emissions like CO2 and NOx and target actions for reduction
- Utility planning to manage steam and utility balances to improve efficiencies
The breadth of capability enabled by digitalization is captured in the AspenTech Vision as explained by Antonio, “Embedding digital capabilities means that assets are safer to operate because that's priority number one, absolutely. They'll be more sustainable from a standpoint of emissions and waste, they will be more reliable because the fact is that improved reliability does lead to greater sustainability and safety, and they will be more efficient and more productive and therefore more profitable, resulting in a plant that is well-equipped to maximize and sustain value.”
For most companies, annual planning processes are much more challenging in the volatile and complex markets of 2021. Integrating digital capabilities helps to make the current aggressive targets more attainable and to prepare companies for the long-term innovation that will be necessary to achieve global climate goals.
To learn more, watch our on-demand webinar Chemical Week Executive Conversations: Challenges and Opportunities of the Circular Economy.