In an exclusive interview with Pravin Prashant, Editor, Indian Chemical News, Dr. Vikas Dhole, General Manager, Sustainability Industry Business Unit, Aspen Technology (AspenTech) and Manish Chawla, SVP, Chief Customer Officer, AspenTech share insights on current challenges faced by chemical industry, sustainability investments, co-innovations, role of DeepTech, and balancing sustainability and innovations to be profitable.
What are the current challenges faced by the chemical industry globally?
Dr. Vikas Dhole: First, there is a growing demand for chemicals while the chemical industry goes through ups and downs. In general, the trend is up most of the time whilst now it is facing challenges globally. Second, sustainability is a big challenge and opportunity for the chemical industry because of aggressive targets that companies have set in terms of decarbonisation. Majority of large chemical players have pledged to go net zero by 2050, maybe 50% by 2030 but again the question is how to be profitable and achieve the net zero goals simultaneously. Again, there is an additional challenge in the form of circularity.
You mentioned energy and chemical companies are investing US $876 billion on sustainability projects from 2020 which is inclusive of carbon capture, green hydrogen and bio-feedstocks? Of this, what percentage is from the chemical vertical?
Manish Chawla: We roughly estimate that about a quarter of the sustainability investments are headed for chemicals, which includes both bulk and speciality chemicals. The remaining amount breaks down to about 70% for the oil and gas-related sector. The balance 5% comes from metals and mining industries.
Dr. Vikas Dhole: The sustainability investment is divided into two parts. One is operational investment which is not captured here as this is mainly Capex investment which is strategic initiatives like carbon capture, green hydrogen, and bio-feedstocks. There is a significant investment happening from an operational point of view for improving energy efficiency, monitoring emissions, reducing emissions, and reducing plastic waste. From a Capex point of view, 25% makes sense for the chemical industry, whereas oil and gas hold a major share. In oil & gas investment, there is a split between major players. Not just companies but clusters, as there are groups of companies which in a collaborative way are bringing the investments in these Capex areas.
The chemical industry is playing a collaborative role in carbon capture. They may not be a key player in clusters but they play an important part in carbon capture and green hydrogen. The chemical industry has a role to play in carbon capture, utilisation of CO2 towards newer chemicals such as methanol.
Bio-feedstocks, in terms of what you can do from a green point of view, starting from green feedstocks into chemicals but operationally long-term investments in the chemical industry, are resulting in energy efficiency and emission reduction.
What is your estimate for the operational investment compared to Capex?
Dr. Vikas Dhole: While Capex investments happen over a long period, the operational investments are done annually. Out of the annual operational budget, investment in sustainability would be 30-40% of the budget for improving efficiency and it varies from country to country and nature of chemical business but it is definitely increasing.
How has AspenTech India performed? How do we look at Capex numbers from India perspective?
Dr. Vikas Dhole: In terms of country Capex in India, about 5% of the USD 43.8B in the overall investment is focused on this country and it is projected to be rising sharply for both private and public sector companies. A lot of strategic private investment is going into green energy. If you add up the private investments made by companies, such as Reliance and Adani, it is tens of billions in USD, in addition to the government investments. This number will further increase in future as it is just the beginning.
There is investment happening in the Middle East, North America, Southeast Asia, and Australia. There is a law passed called IRS (Inflation Reduction Act) in the USA that encourages companies to invest and all that is driving a lot of Capex in overall spend.
What will be AspenTech's market share?
Dr. Vikas Dhole: Let me clarify that these numbers are based on the announcements and not actually spent. It is a long-term commitment. Majority of these projects on carbon capture are in an early feasibility design stage. I would say that we have a substantial market share in carbon capture globally. Large multinationals, technology companies, engineering and procurement companies are using our software due to modelling of these systems, doing techno analysis, and early designs.
Our unique strength is our ability to help clients quickly with accurate modelling of these systems, carbon capture, helping them in balancing of Opex and Capex.
Also, accelerating designs as there are so many proposals coming through in various parts of the world. The engineering companies are finding it difficult to cope up with the workload. We are helping these companies to become more efficient while executing these projects.
Manish Chawla: In terms of quantification, a large number of these projects are in the designing stage by engineering players. Our engineering or simulation software is a marketing software. 99% of the time we wouldn’t even know how our software is being used but we were one of the first to launch what we call the sustainability models that made it easier for these engineering companies to use our software with starting models and later they can adopt them.
Secondly, engineering companies are seeing a lift due to use of these Capex projects. They are coming back to us to say that they want a broader partnership, end to end solutions for green hydrogen or carbon capture etc. This gives us confidence. Moreover, the feedback from users and customers shows that our brand is getting strongly associated with sustainability. If I intersect all of them together, our goal of being a leading player in this space is surely going to be fulfilled. Now as we are moving towards that, we are also looking at operation solutions because these facilities will also go towards the operations. They will become a core part of operating system architecture.
Dr. Vikas Dhole: It is the entire life cycle of these assets. You design first, prepare for operations, and then you go into operations. We have solutions, from design to operations and maintenance. The ability to reuse models and information across the life cycle is a critical factor. We are winning in the majority of cases. Undoubtedly, we are a market leader in engineering solutions, four times bigger than the next player. Hence, the probability of clients coming back to us for operations and other downstream activities is very high. It is an excellent opportunity for us.
The world's largest facility for testing and improving carbon capture technologies, Technology Centre Mongstad (TCM) uses our software for modelling and optimisation of carbon capturing facilities. There are other areas such as biofuels and EVs where a lot of companies are using our software for designing batteries.
Large IT companies are moving towards net zero data centres and using innovatively the energy that comes out to do carbon capture and separation. So, this expands our footprint. Again, a lot of automobile companies are using our software to test fuel cells. There is a lot of drive to use hydrogen for large locomotive solutions. We have been serving this industry for the last two decades and have served many companies in Japan.
Sustainability is not only driving the core verticals of oil & gas and chemicals but also the adjacent industries. And then hard to abate industries like steel and cement are looking into what they can do to the CO2 emissions from their flow gases. Carbon capture plays an important role here. So that’s moving into other industries that we haven’t traditionally served in the past.
Coming back to the numbers, how do you see this market panning out in 2030? What would be the chemical percentage moving forward?
Dr. Vikas Dhole: There is going to be pretty aggressive investment by the chemical industry over the next ten years or so because the majority of these large players have committed to 50% reduction in greenhouse gas emissions by 2030. This is significant because they have factored in that they are going to grow over the next ten years and simultaneously reduce the 50% reduction in emissions. It means not just doing energy efficiency and emission reduction but making fundamental improvements in their Capex and process technology improvements. For example, ethylene manufacturers are looking into electrification of their furnaces to move from energy or heat-based fuel to renewable power. And, this changes the whole game. Hence, there are tremendous amounts of innovations happening in new process technologies in chemicals.
Manish Chawla: With the Emerson transactions that occurred a year ago, we now also have the Digital Grid Management software in our portfolio. Besides four big industrial verticals like chemicals, they will invest in micro grids as well. So, our ability to serve them not only with these three plays but also micro grid and electrification also become a key part.
Dr. Vikas Dhole: The proportion of investment into renewable power by the large chemical players is significant because it helps them to drive down CO2 and optimize the cost. But as soon as you increase the proportion of renewable power, you need to balance it with grid power. And if everybody goes for renewable power, how do you manage the large-scale electrical grid and variability of renewable power? This is where our Digital Grid Management solution plays an important role.
In India, there are six to seven power cuts every month and the chemical industry suffers badly? How does your software support smooth flow of power for continuous and efficient working of processes?
Dr. Vikas Dhole: Our software solution helps in managing the large power systems, taking into account the weather effects. It has the ability to predict what the demand is going to be based on weather forecasts - wind and solar. Based on that it can run the production. These capabilities are very important. On the customer side, we have the capabilities to optimize their utility system because there is heat and power being produced inside, for example steam in the chemical plants. So, we have optimized such systems and increasingly blurring the boundaries between captive heating power systems and the digital grid. This is where our Digital Grid Management solution plays an important role.
You talked about carbon capture, hydrogen, and bio-feedstock. Is AspenTech focusing on all these simultaneously or is it a phase wise approach?
Dr. Vikas Dhole: You can achieve the 30% of your net zero goal by investing both in Opex and Capex through energy efficiency. Electrification is a big one and that can be additional 10-15%. So, there are technologies already in India where you could go up to 45% depending on where you are in terms of efficiency today.
The next set of strategic technologies that is emerging rapidly, in terms of Capex, is the introduction of bio-feedstocks; carbon capture, utilization and storage (CCUS); green hydrogen and fundamental process improvements, which can help in achieving another 50%. This is the strategy our customers are following. If you look at the investment pattern, energy efficiency investment gives you returns and then you go for strategic investments to achieve the net zero target. Thirdly, the new innovations that are coming up such as the use of CO2 to manufacture new chemicals. Because if you just keep storing, it costs a lot of money but utilization offers a return on the CO2 investments. So, menthol processes or new types of chemicals are just a few examples.
Plastic circularity is a very active area of research across the globe. Many companies in India are a part of the alliance looking at ways to bring the recycled plastic back and strategies to decarbonize.
They are also trying to innovate new materials that can help carbon capture. We are very active in all these areas. A lot of small to medium companies in India and abroad are using our software to innovate in these areas.
Your presentation talked about co-innovation. Areas where you are co-innovating with customers and partners globally? Areas where you are looking to co-innovate from an India perspective?
Dr. Vikas Dhole: There are a number of areas where we are co-innovating today with our customers such as grid management, electrification, emerging areas like hydrogen and carbon capture.
As we develop models for the new technologies, we also want to validate these models. The newer solutions that are coming up, we want to quickly develop the models to cover those and that can happen only if we work together with our customers.
So, we started establishing advisory groups and co-innovation partnerships with customers in the Middle East as well as in Europe. In India, we are looking towards partnerships in core areas because there is a lot of investment happening in emissions and electrification.
We believe we can really give value to the investments our customers have already made in modelling solutions related to planning and supply chain solutions. To give them a much more coherent approach on their investments and collaborate with them on carbon capture, hydrogen etc. so that it improves their reliability on the investments they are making.
Manish Chawla: In a few examples, the announcements of our collaboration with Microsoft and Emerson on hydrogen has been made. Another one has been made with Saudi Aramco on carbon capture. We are working with several of these companies such as McKinsey as well. We are constantly co-innovating and have moved to Europe also for many projects. We are helping customers on utilities and grid management.
Presently, sustainability is one business unit of AspenTech. How do you see it performing presently and what would be its contribution moving forward?
Dr. Vikas Dhole: We are not reporting the revenue of the sustainability business unit as of now as it is at the early stage. The profitability and sustainability are intertwined. Our customers might provide the percentage breakup. In one of surveys, few customers have revealed that 30% of the activities around sustainability business has been using our tools. Part of our business unit’s focus is to really bring together the power of AspenTech’s portfolio.
We have market driven solutions around supply chain, engineering solutions, and asset performance management that offer much more coherent digital pathways so that it drives efficiency and innovation acceleration for our customers. Hence, we win the majority of these Capex and Opex investments. We have been serving our customers for the last 40 years. In the longer run, we hope that we grow our percentage from 35% to 70%.
Balancing sustainability and innovation lead to profitability. How is AspenTech doing the balancing act on sustainability and profitability while offering solutions to the chemical industry?
Fundamentally, what works in our favour is that these models are helping our customers to constantly optimise and when it comes to optimization, the same model that can be used for quantifying profitability can also be used for quantification of sustainability.
So, our models have the capability to quantify the CO2, Scope 1, and Scope 2. As the optimization has become broader and now customers are also looking at Scope 1, Scope 2, carbon emissions, and all other contaminants, resulting in bigger collaborations. We initially developed modelling solutions for European customers but now it is available globally. We are increasingly moving towards collaborative models. The more complex it becomes, the more profitable it becomes for us because the modelling drives the best optimum decisions.
How do you see the current DeepTech companies helping the industry to achieve the net zero?
Dr Vikas Dhole: Artificial Intelligence (AI) is already playing a big role in our business. We can use industrial AI because the chemical industry has tremendous complexities with respect to safety and reliability of the assets and this is where our modelling and optimisation solution plays an important role.
We can accurately model these compounds and equipment as it has delivered the results over the last several decades. There are plants that are operating and so we don’t want to get rid of that first principal foundational base heritage.
Our strategy is to use AI and some of the new technologies to scale the capabilities to reach larger user communities and new generations of users. We would like to make it easier for them and help solve bigger problems across enterprises, accelerate innovation etc. The ChatGPT kind of models are going to play an important role and depth of knowledge and expertise we have in our tools. So, imagine having a digital helper that sets the solution for you in face of any immediate challenge. We are looking at such models and quantum will play a huge role in this chemical industry in terms of search for new chemicals and technologies. This could create billions of dollars’ worth of value.
The foundational strength in terms of the number of Engineers India has been transformative for the country. The number of patents, talent pool and innovation centres have increased. Every large chemical company is investing in India. The resource that the country is churning will make sure that India achieves the renewable targets and energy efficiency. India surely is poised to create a huge impact.
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