Sometimes the impact of a sector may be missed because at individual level it seems smaller and fragmented, so one forgets that cumulatively the market for Chemicals and Petrochemicals in India is nearly $180 billion and expected to more than double to $300 billion by 2025.
With this huge potential and room for growth, this sector can have wide-ranging impact on how we decarbonise the world around us - both in terms of materials we use and in the process of using energy and feedstock in the sector.
However, this decarbonisation journey is not without its challenges as many of the new-technology chemicals and catalysts would have technology and supply constraints and in other cases addressing the inherent diversity of more than 80,000 commercial chemical compounds produced in the sector adds to the complexity.
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A catalyst to decarbonisation...
As we move into a brave new world of Solar PV, EV, Fuel cells, battery/power storage, biofuels etc., increasingly new-age chemicals will play a pivotal role.
India is endowed with vast solar energy potential and as per MNRE and Mordor Intelligence its PV market is projected to reach $29 billion by 2027 growing at a rapid CAGR of nearly 20 per cent.
This growth is also accelerated by low utility-scale solar PV installation cost at 817 USD/kw which is second lowest tariff after China.
However, chemical advancements in areas such as PV crystalline chemistry for better CUF, solar molten salts which increase thermal energy storage capability, will play a crucial role in sustaining the cost efficiencies and growth rate in future.
Further, if we look forward to the automotive fuel cell system market in India, driven by high growth in mobility Mordor Intelligence expects it to reach $65+ million by 2026, at an expected CAGR of 120+ per cent.
This rapid surge will also fuel growth of chemicals for both electrolyte substance as well as for storage requirements.
Apart from these, biochemicals like biofertilisers and biopesticides for agricultural use, bio-surfactants like rhamnolipids, lipopeptides for use in detergents, moisturisers, shampoos, soaps etc. are registering high double-digit growths due to changes in cropping patterns, consumer lifestyle and government push.
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… and decarbonisation in chemicals
The chemicals sector itself is an energy intensive sector, with significant usage of natural gas in fertiliser production, power usage in chlor-alkali and leaving aside the usage of natural gas as feedstock in key processes like Haber-Bosch for ammonia production.
India has 20+ fertiliser plants, with urea as the main nitrogenous fertiliser being produced and various grades of complex fertiliser having different nitrogen content.
Hydrogen is used in the production of Ammonia, which is the main intermediary for providing nitrogen in all nitrogen containing fertilisers such as Urea, Diammonium phosphate (DAP) etc.
With the government target of reducing import of natural gas and ramping up domestic fertiliser production, green hydrogen can play a role in addressing the import bill and domestic self-reliance.
DAP is the most commonly used complex fertiliser in India and has a significant potential for drop-in replacement with green ammonia and hence correspondingly green hydrogen.
However, decarbonisation of fertiliser sector, requires policy push from the government for incentivising alternate route of ammonia production through RE, electrolysers, carbon capture, utilisation, and storage (CCUS), which can aid in production of green fertilisers.
According to KPMG estimates, nearly 11 GW of electrolyser capacity and around 22.5 GW of RE capacity is required to produce 1 million ton of green hydrogen.
Hence, it is expected that to decarbonise most of DAP capacity by 2030, 45-50 GW of electrolyser and 130-140 GW of additional RE capacity will be required.
Now, if we look at the economic impact side, 10 per cent green hydrogen blending in DAP production cost is expected to increase costs by 1.5 to 2 per cent. Although, the impact on DAP production cost will be less, it would be higher on Urea production as the ammonia content is higher and so is the additional CO2 requirement.
It is fairly imminent that green ammonia/green hydrogen could be initiated gradually into the process with some blending to decarbonise the sector with limited impact.
So, while the potential exists, we believe there is a two-fold focus required to make decarbonisation a tangible reality in the chemical domain.
First, put in enablers for having an eco-system of producers and refiners as well as equitable regulatory framework that ensures global access to precious metals and elements necessary for processes as we replace carbon and oxidation chemistry with electro-chemistry.
And second, we need to have a comprehensive and structured framework for the sector (and its segments - petrochemicals & plastics, bulk & specialty chemicals, agri-chemicals) to enumerate the carbon quotient and dependence for feedstock and energy in chemicals and phase-wise approach (with regulatory incentives) to substitute fossil fuels with low/ no carbon alternatives in the chemical production process.
These steps will not only ensure that decarbonisation in other sectors is maintained through presence of low-carbon chemicals/synthetics but also that the chemical sector's own low-carbon future is sustained.
(The author is Partner & Lead, Chemicals and Oil & Gas, KPMG India.)
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