So, welcome to another edition of Ask Jim. We're recording this in London on the 20th of July to put the answers into context. So, Jim, thank you very much for coming. So, the first question around chemicals and industry. And this comes from Tina Mahrez in Houston and Anna Laws in Hull. Both similar questions. As we continue to develop, what do you think are the key priorities for Inos at the moment and over the next year or so?
We're obviously living in a world that is uncertain at the moment given what's been happening in Iran. Life's been a bit better for the last quarter or so, but we don't know how long that will last because things are calming down a bit. So that sort of has occupied our minds for the last few months. But fundamentally you have to almost look at it region by region. But if you take Europe which is historically the largest part of our business, then we've had difficult market conditions now for a little while. And so we need to get our businesses in the best shape that we can which means low cost. We have to reduce our capex. We have to spend every pound carefully and manage our businesses well. We can only do what we can do in terms of our ability to manage those businesses well. But you've got lots of external issues which are more government related which are things like carbon tax and energy and tariffs. So on top of managing the businesses well, we then have to work on the environment to the extent that we can, which is to persuade the ruling members of Europe to improve the tariff situation, improve the energy situation, improve the carbon tax situation so that we're operating in a more competitive landscape because the trading conditions have been super difficult in Europe as we all know. And we're seeing at the moment the closure of the chemicals industry in your I think 200 facilities have closed or something like that. So where Inos needs to get to is less man standing. And we need to get Europe to protect its marketplace because it's fundamentally important for national security. The products that we make. You can't feed people and you can't run hospitals without or you can't make weapons for that matter if you haven't got the products that we fundamentally make. So if we're last man standing and we get Europe to focus on protecting a very important industry then we'll have a very decent business in Europe.
If you look at America then that's in a very different... I mean it's fundamentally advantaged with feed stock and energy costs. It's got a marketplace which is quite vibrant and you've got relatively high grace rates. One of the issues in America is that you've got sustained high interest rates relative to what we used to. So the mortgage rates are up over 6% in America which sort of suppresses consumer and domestic expenditure. So it sort of dampens the markets a little bit and of course the whole Iran thing has created some uncertainty. It sort of erodes confidence a little bit when you're not absolutely sure what's going to happen in the Straits of Hamas. So the US is in good shape and I think long term we'll remain in good shape. But if there's a degree of uncertainty over there, it'll be nice if the interest rates come down. Because obviously banging the... Trump obviously banged all the tariffs up that creates a bit of inflation because you're increasing the cost of products. And China... well China is just a difficult place to do business at the moment because they've overbuilt as we all know and that's had its impact on the rest of the world.
Yeah. I mean I was going to ask a question about China. I mean, we've changed strategy to a degree in China.
Uh what how do you think that's going to play out in the long run? What's our long-term strategy for China and the rest of Asia?
Well, we've got a good partner in China, Capeek. I mean, they are the leading chemical producer and they're good people and clever people. And we have quite a decent footprint now in China. We won't increase that footprint in terms of physical assets. I think we can do more on the trading front. Yeah, that with raw materials into China. But we sort of have to wait and see how China stabilizes because it's overbuilt for its domestic requirements.
Um, and I'm not sure if that's just because the enthusiasm of building things which the state implemented 20 years ago when they weren't basic in their sort of raw material requirements, that enthusiasm is just run on. Or they're thinking that if they overbuild and produce massive amounts of capacity that they can then erode the American and European producers to the extent that they can be replaced by Chinese capacity imported.
And I'm not sure which of those two things is causing the root cause of the overbuild. Yeah. I mean, if it's the latter, then that will create long-term issues with Europe and America because they won't tolerate dumping, which destroys domestic businesses and they get replaced by imports and the price of the imports go up ultimately, which is what would happen. But if it's the former then, naturally it will sort of come back into equilibrium and then China's a big market. There's growth in that marketplace because they still have five or six percent growth per annum then we'll have a business which does quite well I think.
Yeah, and leading on from that, I've been a question from Carla Gonzalez in battleground. How do you see North American assets competing against Chinese and indeed Middle Eastern producers going forward?
Well the US is fundamentally advantaged with low cost energy and low cost raw materials because a lot of it's cracker base which is obviously fundamentals for the chemicals pyramid is gas-based crackers rather than liquid crackers. And ethane is the cheapest raw material in the world for... and particularly when oil is at high price at the moment. America is fundamentally in a good... but it's sort of a ditto with the Middle East. There'll always be a bit of uncertainty now with what's happened with the Straits of Heralds because it's sort of tainted their reliability. So I think people will be a bit more wary about becoming dependent on imported product from the Middle East.
So it'll definitely affect their marketplaces a bit. But America is not disadvantaged. I mean Europe is disadvantaged against the Middle East because Middle East has got cheap energy and cheap raw materials. But America isn't because America's been so successful with its energy strategy. I mean, the only other issue is that obviously if there are trade battles between China and America and all that sort of thing and it affects demand. America is always profitable. It always battles through and does well, and it's got good fundamentals.
And I mean our answer to that problem of competitiveness with Europe versus America of course is project one.
Using US feed stock. And the question from Jakamo Salamone Rosenano: do you think project one on its own will be sufficient to drive us forward, particularly in Olaf's polymers business, or do you think we need more investments outside of Europe to make that long-term work?
Well, I think it will have a huge impact on our European footprint. I mean, it's obviously the first major investment in chemicals in well over a generation in Europe. And it will have fundamentally great economics. Nobody will get anywhere near close to competing with project one. I mean bear in mind we have Raphnes in Norway which is also a gas cracker which is half the size of Cologne but makes four times the amount of money that Cologne does because it just has this fundamental cost advantage using ethane as a raw material and even Grains now is showing better and better economics now we've got the new furnace F10 working. And it sits on a good reliable feed stock of ethane from the USA. So we will with project one have with now F10 operational the big furnace we'll have the first, second, and third most economic crackers in Europe with project one, Raphnes, and then Grains. So that should underpin quite solidly our European business.
But in terms of do we need further investment around the world, I mean just at the moment until we get project one finished which is up five billion, we're certainly not thinking about any other investments. We need to get this one finished. It's not been the easiest of projects. We've I think we're on permit number six.
And then we had our last two modules stuck in the straits of the Mus. It's been quite stressful getting them out. Fortunately, we've got them out before hostilities were resumed.
Yeah. And that answers Will Heldson's question. He says, 'What's happening with the module?' So, we know now.
Yeah. They're almost there.
Yeah. But I won't believe it until they've docked and someone's rolled them into position, you know.
Yeah.
Um I've got an asset related question here. As Inos looks ahead, this is from Joel Evans in Pasadena. As Inos looks ahead to the next five years, how will the company support sites in maintaining asset reliability and executing major turnarounds given that we've got aging infrastructure and cost pressures?
Well, I think the same way we've done in the past. I think the key thing is that you have to make every pound or every dollar count because whether you like it or not, the chemical industry has been suffering in many parts of the world because of high energy prices, carbon taxes, product dumping, Straits of a Mos, and unfortunately money doesn't grow on trees so we can only spend what we've got. We've got an extraordinarily good safety record in Inos. And we've got, it's high safety is highly correlated with reliability. We've got extremely good reliability numbers. So we need to make it work, but you got to make every pound count.
And I've got a sustainability question that sort of rolls on from that really from Elena Leon in Resino. We've delayed some of our sustainability investments because of the cost pressures. What level of delay do you think would be acceptable to safeguard our economics without compromising our long-term environmental integrity?
Well, there's always environmental stuff going on because we're always looking at ways of running things more efficiently energy-wise because obviously it reduces our costs and it reduces our carbon footprint. So there's always stuff going on, but if you look philosophically behind that question, then the most important thing to do is protect the assets that we've got in Europe and the USA because they generally have a much lower carbon footprint than a lot of their competitors in the Far East, which is where the product would come from if these assets were shut down.
So irrespective of what we do on those assets to improve them, if they're substituted for an asset in the Far East, then the carbon footprint for the planet is going to be higher most likely. You have to start with the economics of keeping those assets in a healthy economic place so we can sustainably maintain them, keep them operating well and surviving in a very difficult environment. That's number one. So I'm afraid at the moment, the carbon footprint is not our priority. Our priority is staying in business in some very difficult markets.
Switch focus for a minute to energy. A couple of questions on energy. If the UK were to remove the windfall tax tomorrow, would we be bullish on investing in the North Sea or has our trust with UK policy makers been broken for good?
That's a good question. Trust is not high I would have to say given our experiences over the last 10 or 15 years in the UK. I mean bear in mind we've had seven prime ministers in 10 years and they all come in with a new idea of how best to run our energy policy in the UK.
Including a new one today.
And we've got a new one and heaven knows what direction we're going to turn in now. So I think confidence in the government maintaining a new approach in the North Sea would be low from everybody. So we would need some form of assurance that if they remove the windfall tax, they're not going to put it back again in a year or two years because if you invest in the North Sea on the basis that there is no windfall tax, it's a long-term investment. It takes three years and it takes two years before you get the oil out of the ground. So there's no point going down that road and then finding we get our ninth prime minister and he decides to windfall tax a really good idea. So he's going to bang it back in again. So that'll be the biggest... unfortunately, the UK has eroded confidence for investment in the North Sea now.
I mean, it's a very good basin. There's still lots of oil and gas left in it. But it's been extremely poorly managed by the government.
