Ladies and gentlemen, welcome to our virtual investor update. It's a pleasure to have you join us online. We are streaming this event live from our corporate headquarters in Ludwigshafen. A replay will later be available on our investor relations website. Allow me two organizational remarks before we get started. Today's presentation contains forward-looking statements that may not prove to be accurate. We do not assume any obligation to update these forward-looking statements above and beyond the legal requirements. Today, we will be using a chat tool you are familiar with already. During and after the presentation, analysts and investors are requested to use it to submit their questions via this chat tool below the live stream. I will then read out these questions to the Q&A participants.
Moving on to the keynote, Martin Brudermüller, Chairman of the Board of Executive Directors, will provide an update on the measures BASF is implementing to achieve its corporate emission reduction targets announced in March 2021. He will also explain how we are taking steps to reduce product-related emissions. During the subsequent Q&A, he will be joined by Hans-Ulrich Engel, Chief Financial Officer, and Lars Kissau, President of the Net Zero Accelerator. Now, without further ado, let's move to Martin Brudermüller's keynote. The stage is yours.
Thanks, Steffi. Ladies and gentlemen, thank you for joining our virtual investor update. Our world changed overnight on February 24 with Russia's invasion of Ukraine. There's a brutal war raging in Europe as we speak. Nevertheless, I believe it would be a mistake to lose sight of the greatest global challenge of our time, climate change. This is why we decided to go ahead with today's event as planned. In my keynote, I will update you on the measures we are implementing at our sites to reach our corporate climate targets, and I will also report on our progress in building our business with products that have net-zero or low- product carbon footprints. I want to start by reminding you of the commitments we made at our Capital Markets Day in March last year.
We want to reduce our absolute CO2 emissions by 25% by 2030, compared with 2018. We are committing to achieve net-zero emissions at BASF by 2050. In 2021, we reduced CO2 emissions by around 3% compared with 2020, despite significantly higher production volumes. This was due to the increased use of renewable energy and measures we took to improve energy efficiency and optimize our processes. Emissions were also lower because of produced less ammonia due to high natural gas prices. Let me first explain how we tackle emissions at BASF. We focus on two dimensions: our sites and our products. With technical measures at our production sites, we directly address our Scope 1 and Scope 2 emissions.
These are the direct emissions from our production processes and from the generation of steam and electricity, as well as indirect emissions from the purchase of energy. We are directly responsible for these emissions, and they are reflected in our corporate targets. We can address them by technical measures and by making investments at our sites. Our customers are not interested in our progress at site level. They want products with net-zero or low carbon footprints. Our product offerings to customers include Scope 3 emissions associated with the raw materials we purchase from our suppliers. We make these product-related emissions transparent from cradle to gate in the form of product carbon footprints that we calculate for our around 45,000 sales products. We are making progress in developing markets for net-zero and low PCF products.
A fast market buildup is an important precondition for maintaining competitiveness and economic efficiency during the energy transformation. We expect that demand for net-zero and low PCF products will exceed supply in the midterm, and that their market value will more than compensate for the higher production cost. That is why we want to be among the first companies to provide large volumes of as many products as possible with reduced carbon footprints. This will set us apart from our competitors and will enable us to grow faster than the market. Using a McKinsey methodology, BASF is in the process of finalizing a study into the cost impact of net-zero chemicals in consumer products such as diapers, mattresses, and shampoo. In most products investigated, raw material accounts for more than 50% of the CO2 footprint. The chemical industry can therefore significantly contribute to reducing the emissions of households.
According to the study, a 25%-50% rise in our production costs for the chemicals used would only lead to 5%-15% increase in prices for consumers. I will speak in more depth about the reduction plans at our sites in a moment and show what measures we are taking to reach our corporate emission targets. Before I do so, I want to take a quick look at where BASF is coming from and revisit some of our key facts that we presented in March last year. We have identified five levers to address and reduce the main sources of greenhouse gas emissions from our production. The gray to green and the power to steam levers focus on avoiding CO2 emissions from the production of electricity and steam. Emissions from our upstream and, to a lesser extent, downstream processes are being tackled by new technologies.
We will also use the lever bio-based feedstocks to reduce our emissions by increasingly replacing fossil feedstocks. Lastly, these levers are supported by a large number of operational excellence measures across the company that focus on efficiency and our CO2 emissions. This chart shows the contribution of each of the levers on our path to reduce our CO2 emissions by 25% by 2030 compared with the 2018 baseline. The contribution from bio-based feedstock might seem rather small, but you should bear in mind that we are only looking here on the impact of Scope 1 and 2 emissions and not at the impact at product level. Also, in terms of operational excellence, you should remember that we have already harvested the low-hanging fruits. Since 1990, we have almost halved our carbon emissions while simultaneously doubling sales volumes.
Together, the measures would result in a remarkable 50% reduction in emissions by 2030 compared with 2018, assuming that our business continues unchanged. Our challenge is that BASF intends to further grow. Our 25% reduction target is very ambitious in view of the additional CO2 emissions from this growth. Today, we are providing you with a trajectory for our CO2 emissions in the period up to 2030. The orange line indicates where our emissions would likely be without mitigation measures based on 2018 projections. Since 2021, as part of our outlook, we publish an annual CO2 emission forecast for BASF Group with a corridor of ±0.5 million metric tons, shown here shaded in green.
In the last few years, reductions have also been due to a number of special effects relating to the corona pandemic, as well as plant turnarounds and shutdowns. We expect to see a more pronounced impact of the levers from 2021 onwards. I will now provide you with an update on the progress we are making in each of the five levers. Offshore wind parks are the main contributor to the gray to green lever. Last year, BASF acquired a share in Vattenfall's wind farm Hollandse Kust Zuid. Once fully operational in 2023, it will be the largest offshore wind farm in the world with 140 wind turbines and a total installed capacity of 1.5 GW.
It is BASF's first major investment in facilities for renewable energy, and it is the first offshore wind farm in Europe ever to be built without subsidies for the power produced. Vattenfall will use HKZ to supply fossil-free electricity to its customers in the Netherlands, while BASF will support chemical production at its sites across Europe, mainly in Antwerp, Belgium. The replacement of gray to green energy will have the largest impact on reducing our emissions in the coming years. With increasing electrification of our processes, we expect our global power demand to at least double or even triple by 2040. In 2021, renewables account for 16% of BASF's global power demand.
By 2030, our projection is that this figure will rise to more than 60%, which would be equivalent to BASF Group's total power demand in 2021. To cover our demand for renewable energy, we are pursuing a make-and-buy strategy. In other words, we are selectively investing in own renewable power assets and purchasing green power from third parties over a long time horizon. We anticipate that our early investments in renewable power assets will offer advantageous economics as we are already seeing increasing demand and a corresponding rise in prices. BASF's share in the HKZ wind farm is one example of the make part of our strategy for securing renewable energy. BASF is also delivering on the buy part in the form of power purchasing agreements. For example, BASF signed such a 25-year PPA for renewable energy in Europe with ENGIE.
Under the agreement, which is effective since January 1, 2022, ENGIE will provide multiple European BASF sites with up to 20.7 TWh of fossil-free electricity in total throughout the term of the agreement. BASF has also concluded another 25-year agreement with Ørsted. We will offtake the output of 186 MW from Ørsted's Borkum Riffgrund 3 offshore wind park in the German North Sea. The offshore wind farm will have a total installed capacity of 900 MW and will go into full commercial operation in 2025. Ultimately, the percentage of green energy will to some extent depend on market and regulatory developments. You can nevertheless expect us to further deliver projects as part of our make and buy strategy in the coming years.
Let's now take a look on the other lever related to energy production, power-to-steam. Here, we will take a new approach to generate steam using electricity. We can produce electricity-based steam using technologies like e-boilers and special heat pumps. E-drives, electric motors that will replace existing steam turbines, will reduce our overall steam demand and thus allow us to replace steam directly with electricity. Selecting technologies like these that already exist today and that can be used on an industrial scale will help us move quickly towards achieving our goal of reducing CO2 emissions by 25% by 2030. Currently, about 50% of the steam demand at our Ludwigshafen site is based on steam generation processes that produce CO2 emissions.
We see a potential to replace up to 1,100 tons of fossil-generated steam per hour using the technologies I just mentioned. We launched various technical feasibility studies at our Ludwigshafen site in 2021 and are now taking concrete steps to introduce them. Our chemical plants produce a huge amount of waste heat that is currently unused and that we can use for heat pumps. At our Ludwigshafen site, we are working with Siemens Energy on a first project. It uses heat pumps and vapor recompression to upgrade waste heat such that it can be used as steam for the steam grid at the site. We are planning to take this complex in the acetylene plant into operation in the second quarter of 2024.
The integration of this heat pump project not only enables us to produce around 60 metric tons of steam per hour, but also avoids around 160,000 metric tons of CO2 per year and reduces the consumption of cooling water by more than 20 million cubic meters each year. Compared with an e-boiler, the heat pump technology is more energy efficient and thus allows more steam to be generated with the same amount of electricity. The system will be the first industrial heat pump of this kind and will generate steam at pressures of up to six bar. With this project in the acetylene plant, we will collect day-to-day and operational experience and standardize the way the heat pumps are installed. This will simplify the rollout to other sites in the future.
Another project we are pursuing at the Ludwigshafen site forms part of the new technology lever. Currently, cracker furnaces are heated with gas and produce about 1 metric ton of CO2 per metric ton of olefin. We have signed an agreement with SABIC and Linde to develop and pilot electrically heated steam cracker furnaces. Our eFurnace project for a multi-megawatt pilot plant in Ludwigshafen is progressing as planned and is on track to start up in 2023, subject to a positive public funding decision. We are also moving forward with developing other new technologies, for example, the methane pyrolysis process for the production of hydrogen that I presented in March last year. I would like to close this chapter by showing you the impact of our operational excellence measures that we are continuously implementing across the company.
Some projects are on a relatively small scale, but the cumulative impact is impressive. Between 2013 and 2021, such measures reduced the CO2 emissions of BASF Group by around 1 million metric tons. We are constantly challenging the organization and ensuring funding for projects that could potentially reduce greenhouse gas emissions. We have also set up a new process to foster their implementation. Having looked in general at the levers we are using to reduce emissions and a few examples that we are implementing in Ludwigshafen, I would like now to move on and explain in more depth what measures we are taking at other sites. BASF's Verbund site in Belgium is located in the northernmost part of the Port of Antwerp. Founded in 1964, it covers 6 sq km and employs around 3,500 people.
With its more than 50 plants, it's the largest chemical production site in Belgium and BASF's second largest Verbund site after Ludwigshafen. This chart shows the steps we plan to take in our efforts to reduce emissions at the site from 3.8 million metric tons in 2021 to close to net zero by 2030. Could I have the next chart, please? Due to its coastal location and with its specific Verbund setup, our Antwerp site is well suited to become the first petrochemical site to approach net zero in 2030. A combination of different levers from our energy transformation roadmap drives this ambition and could enable this pathway.
Let me state clearly that this is a challenge in this short period of time, and we require support from politics in setting the right framework conditions. I would like now to take you through the specific measures on the chart. The import of green power from offshore wind parks and other sources will replace gray power supply. The first phase of our CCS project, Kairos@C, together with Air Liquide, is on its way to collect and sequester the emissions from our ammonia and ethylene oxide production. A second phase of CCS will complement the application of new low-emission technologies that enable a beneficial adjustment of our Verbund integration. These new technologies include the use of hydrogen as fuel and potentially green ammonia imports, as well as the partial electrification of our steam grid using e-boilers.
Beyond the use of e-boilers, the power-to-steam options are less relevant than in Ludwigshafen because the overall site balance is almost neutral at the Antwerp site. Finally, there will be remaining emissions from several very dilute sources whose abatement is technically complex and extremely expensive. This final portion will likely have to be mitigated by compensating measures such as the use of bio-based feedstocks and verified emission reduction certificates. As shown on the previous slide, CCS is one of the key measures we are working on to cut emissions in Antwerp. The Port of Antwerp is a world-class port and at the same time the biggest European chemical cluster. Under the lead of the port authorities, a consortium named Antwerp@C was founded in 2019.
It aims to halve CO2 emissions in the port by 2030 and will provide shared infrastructure for transporting and exporting CO2. This would make it possible to transport CO2 to offshore sinks such as depleted gas and oil fields in the North Sea. Using the Antwerp@C infrastructure, BASF and Air Liquide, two of the consortium's founding members, have set up the joint project Kairos@C and are planning to develop the world's largest CCS value chain. In addition to combining CO2 capture, liquefaction, transportation, and storage on a large scale in the North Sea, the project involves the use of BASF's Sorbead solution for drying the CO2. The project has been selected for funding from the European Commission's Innovation Fund and is planned to be operational in 2025.
In the first step, Kairos@C aims to reduce BASF's emissions at the Antwerp site by 1 million metric tons per year. Moving on to South China. The construction of our Verbund site in Zhanjiang in Guangdong Province is a milestone for BASF. When it is completed, it will be our third-largest Verbund site worldwide. It will be the foundation of our future growth in China and Southeast Asia, and we are implementing the latest and most innovative technologies and production processes here. From the very outset, we planned this Verbund site to be a frontrunner in terms of sustainability with significantly less carbon emissions compared with the conventional setup used by competitors. An advanced Verbund concept and the use of renewable energy will play the key role in significantly lowering the site's CO2 emissions. Replacing fossil fuel energy by electricity from renewable sources is a main lever.
A good example is driving the turbines for the compressors in the cracker with electricity instead of steam. Secondly, by balancing the heat surplus from Verbund production with the site's steam demand, we are able to reduce the overall energy demand and largely avoid on-purpose steam production and associated emissions. We will also deploy process innovations, for example, in the process of syngas production. CO2 off gas that is a by-product of the ethylene oxide process and excess hydrogen from cracker operations will be used to manufacture syngas. Furthermore, excess gases and other by-products will be used as raw materials for further steps in the production chain. Our plan for Zhanjiang is ambitious and guides the way for chemical production in China. Phase one, which will allow on from the initial phase, includes the heart of the Verbund site, the steam cracker, and some of the associated downstream plants.
These are expected to start up as of 2025. With the use of renewable electricity, we are a frontrunner in the process industry in China. With strong support from the Guangdong authorities, BASF was instrumental in triggering a policy change for renewable direct power purchase. We were thus the first company to be able to purchase renewable energy under the new pilot trading rules. We have secured 100% renewable power for the first downstream plants of the Performance Materials division that will come on stream in the initial phase. Now we are proud that we can take another step forward. We recently signed a second framework agreement over 25 years with the State Power Investment Corporation Limited, China's largest renewable energy company, and are exploring further cooperation opportunities in the renewable energy sector.
This agreement is the largest volume and longest green electricity purchase framework agreement that has been signed in China. Supported by this deal and partnerships with other energy suppliers, we are speeding up our efforts to run the entire Zhanjiang Verbund site with renewable electricity. By 2025, earlier than originally planned, we aim to power the site with 100% renewable electricity. Also, certain emission reduction measures are only possible at Verbund sites. Every BASF site has to deliver a site-specific plan to reduce CO2 emissions that takes account of local opportunities and framework conditions. A good example is the plan for the site Schwarzheide in Brandenburg, Germany, that offers approaches that can be rolled out elsewhere. Last month, BASF Schwarzheide and enviaM established a joint venture to build and operate a solar park.
With a total installed capacity of 24 MW peak and an expected electricity production of 25 GWh per year, the plant will be the first major solar power plant in which BASF is directly involved. BASF holds a 51% share in the joint venture. The majority of the electricity generated will be used to supply the BASF site via a long-term electricity supply contract. Startup is planned for Q2 2022. Once completed, the solar park will be able to provide on average about 10% of the site's current annual electricity demand. By installing a stationary battery in the solar park, we will also be able to buffer fluctuations in supplies of renewable energy. To achieve the highest possible energy yield with the lowest possible greenhouse gas emissions, BASF has also invested in its combined heat and power plant.
In Schwarzheide, our gas and steam turbine power plant is undergoing a EUR 73 million modernization. Once it is started up later in 2022, it will produce 10% more electricity with 16% lower CO2 emissions, thanks to higher fuel efficiency. Ladies and gentlemen, I would like to return to the trajectory of our CO2 emissions and the path to our 2030 emissions target. We know where we want to go, and we know how to get there. We have underpinned our journey with specific measures. As you can see here, we expect that measures related to the gray to green lever will dominate our reduction efforts in the next few years. This is not surprising since the technical hurdles in switching to renewable energy are relatively low.
From 2025 onwards, we will see an increase in contribution from the new technologies we are developing as we move from pilot phase to scale. Relative to 2021, we expect to avoid a total of 11 million metric tons of CO2 per year in 2030 compared with our path without avoidance measures. In the past weeks, EU ETS carbon prices fluctuating between approximately EUR 60 and EUR 90 per ton of carbon dioxide. If we were to assume that our avoided emissions were achieved in the EU, all in the EU and neglect any free allowances for a second, this would correspond to an undiscounted value of around EUR 0.7 billion-EUR 1 billion. That is annually. The sequence of our measures shown in the previous slide is also reflected in our CapEx spending.
This chart is divided into two sections. In the bottom half, you can see technologies that can be purchased and installed relatively quickly. The top half shows technologies that will take more time to develop and that will need first to be piloted before being scaled up. When deciding on which measure to implement, we evaluate them in terms of CO2 abatement cost and how the measures compare with each other. During the period of 2021-2025, we will need less than EUR 1 billion to develop the low emission technologies and scale them up into pilot plants. This is included in our CapEx budget. As indicated, public funding has already been granted for some projects. For others, a decision is expected shortly.
In the following five-year period from 2026- 2030, capital expenditure will increase to around EUR 2 billion-EUR 3 billion. In this timeframe, we plan to bring our first new carbon management technologies to scale and shift up a gear in our efforts to switch to renewable power. Significantly higher investments are then to be expected for the construction of world-scale production plants using the new technologies and to further scale up the use of renewable energy. We gave you a rough first estimate of more than EUR 10 billion for CapEx spending for the period beyond 2030. However, I would like to stress that this is only a very indicative figure because so many variables will play a role in deciding which technologies will be deployed and in what timeframe.
Moving on to the third chapter of today's keynote, I would like to talk about how we see BASF deriving profitable growth from net zero and low PCF products. Based on our technology portfolio to reduce our CO2 emissions, BASF will be able to offer more and more net zero and low PCF products to our customers over time. As an integrated company with base chemical production, we are a key enabler in helping our customers to decarbonize their value chains. Let me give you some background on how we are doing this. Ultimately, end consumers will drive the transformation towards net- zero and low PCF consumer products. They are increasingly requesting alternatives to conventional consumer products and want to make a personal contribution to reducing emissions.
For a product like shampoo, for example, more than 90% of the PCF comes from the chemical raw material used to make it. By using green power, low carbon steam, bio-based feedstock, and highly efficient processes at our sites, we are able to offer our customers net- zero and low PCF chemicals. Product carbon footprints are an important tool for steering emissions in the value chain. The PCFs we calculate for our sales products include Scope 1 and 2 emissions, and also the Scope 3 emissions of the raw material we purchase and use to produce them. For most of our sales products, Scope 3 emissions account for the largest share of the PCF. Today, we have to use industrial averages and values from commercial databases as the basis for calculating these upstream Scope 3 emissions.
We are taking a structured approach to change this to specific data that come directly from our suppliers. In 2021, we introduced a global supplier CO2 management program. The goal is to first create transparency and then over time, agree with our suppliers on reduction targets for upstream emissions. In the first step, we ask our suppliers to provide PCFs for the raw materials we purchase from them. Last year, we approached more than 700 key suppliers who account for about 50% of BASF's greenhouse gas emissions from the purchase of raw materials. We support suppliers by sharing our knowledge of evaluation and calculation methods. In this way, we are contributing to the standardization of PCF calculations, which is a major challenge in our industry. In addition, we are supporting various initiatives such as the Together for Sustainability to drive the development of workable standards.
In a second step, we want to work with our suppliers on solutions to reduce product-related emissions and establish a PCF as criterion for our purchasing decisions. We are encouraged to see that first suppliers have already given commitments to reduce emissions. BASF fully acknowledges the importance of reducing upstream Scope 3 emissions. We are willing to commit to targets once the necessary level of standardization has been reached and our suppliers are able to provide reliable figures. Only then will it be possible to steer target achievements effectively. In our experience, the majority of our suppliers are still not in a position to provide robust data and must invest in building up capabilities. With our supplier CO2 management program, we are taking steps to improve the situation.
From the discussions we have with our customers, we know that more and more market leaders in important BASF customer industries are committing to reducing their Scope 3 emissions. Studies have shown that more than 70% of the top 20 companies in relevant customer industries had committed to CO2 emissions reduction targets by 2021. Almost half had defined Scope 3 emission targets. The first movers in terms of decarbonization are set to profit from a strong market pull for net zero and low PCF products, and our customers are looking to us for support. To reach their emission goals, many of our customers are eager to reduce the carbon footprint of their products. To support them, a new level of transparency is required. We therefore use an in-house digital solution to calculate the product carbon footprints of our own products.
In 2021, this was recognized by organizations such as the German Chemical Industry Association, VCI, with the Responsible Care Award for Digitalization. The methodology follows general standards for life cycle analysis such as the ISO 14044 and ISO 14067, as well as the Greenhouse Gas Protocol product standard. Furthermore, it has been certified by TÜV Rheinland. We use the method to calculate PCFs for our around 45,000 sales products. With this transparency, we can target our CO2 reduction measures to those areas where our customers can later achieve the greatest value added from lower CO2 emissions in the value chain. Keep in mind that our products are the Scope 3 emissions of our customers. In 2021, we were able to offer the first products with a certified reduced carbon footprint via the use of renewable energy.
We also started to make the automated PCF calculation approach available to interested industry players by way of partnerships. In a first step, IT companies will be able to use BASF's methodology and in-house solution throughout licensing agreements. Our businesses are using this competitive advantage now and are making the huge amount of data transparent and digestible for our customers. Here you see a tool that BASF's Intermediates division will be rolling out to selected customers in the second quarter of 2022. Customers can see the emissions currently associated with the portfolio of products they purchase from BASF's Intermediates division. On average, industry Scope 3 reduction targets are somewhere between 20%-30%. Where available, customers can select the different versions of products from the drop-down menu.
The tool shows what impact a switch to a net- zero or low PCF biomass balance or bio-based product would have on their Scope 3 emissions. The tool provides a level of transparency to our customers that has not existed until now. For example, it could be that the largest volume product is not necessarily responsible for the largest amount of CO2 emissions. Additionally, customers get an overview of what products are available based on alternative feedstocks like biomass. In this way, we enable a structured discussion with our customers about reducing their Scope 3 emissions and increasing their share of alternative feedstocks. A tangible customer example is from our Care Chemicals division, where BASF and Henkel are now joining forces to substitute fossil feedstock in Henkel's laundry and home care and beauty care products.
Major brand owner Henkel will soon offer consumer products with reduced emissions in multiple product lines and has chosen BASF as the partner that can help them achieve their ambitious sustainability goals. Over the next four years, Henkel will substitute fossil with renewable carbon feedstock for most of its laundry and home care and beauty care ingredients in Europe. Last year, BASF already supported Henkel with a successful biomass balance pilot for its cleaning and detergent brand Love Nature. We are now going big with Henkel's core brands like Persil, Pril, Schauma and Fa. Ultimately, around 110,000 tons of ingredients per year will be substituted with renewable carbon sources using BASF's biomass balance approach. The program will ramp up quickly and will avoid around 200,000 tons of Henkel's Scope 3 CO2 emissions over the period of four years.
I am very proud that Carsten Knobel, CEO of Henkel, honors the efforts that BASF is making in providing Henkel with low PCF products. We are also proud to support such an innovative brand owner that is a first mover in offering end consumers more sustainable solutions on such a large scale. The project underlines the commitment of both companies to creating a sustainable future. Ladies and gentlemen, in addition to our efforts to deploy new technologies and the positive signals from the market, we need a supportive and enabling regulatory framework if the transformation is to succeed. This is paramount to maintaining international competitiveness in the level playing field. BASF will gradually build its own renewable energy capacity with a strong focus on offshore wind due to the high potential full load hours and competitive production costs.
For this strategy, we need a framework that allows own investments in renewable energy generation at economic conditions, but without governmental support for electricity production. In terms of storage and grid expansion, we must start in making progress both in Germany and across Europe. We cannot afford not to exploit Europe's potential. In particular, this includes the need to expand cross-border networks so that electricity from high-yield locations can flow between countries. In the future, grid expansion must be derived from a long-term climate target instead of today's bottom-up approach. It is also important that we get the green attribute of the electricity, even if the renewable energy is not directly generated at our sites. New technologies like the electrically heated cracker or electric steam generation also need funding to support the market ramp-up. This requires fast decision-making processes that are as unbureaucratic as possible.
The draft carbon contracts for difference must be introduced promptly to kickstart the deployment of innovative technologies. However, long-term subsidies for such investments should not be provided. CO2-free hydrogen is a critical raw material to make chemical products emission-free. We encourage policymakers to prioritize the use of green hydrogen as a raw material for industrial consumers, rather than incentivizing the inefficient use of hydrogen for electricity generation or residential heating. Those sectors have a broad range of alternative technologies, and valuable hydrogen should not be wasted. Carbon capture and storage is developing into an important pillar of European climate protection, for example, at our Antwerp site. In this area, we want to see fair market principles that ensure open access infrastructure and competition between different transport and storage providers.
We also encourage clear progress in the international framework for CO2 transport, including the underlying bilateral agreements between the various EU member states involved. Overall, we require technology openness and openness for all innovative approaches to accelerate and support the energy transformation. Ladies and gentlemen, let me summarize. BASF is making significant progress on its path to achieving its emission reduction targets, and we are ready for the next level in our transformation, achieving sustainable growth through products with reduced carbon footprints. We are convinced that the market for such products will grow strongly in the coming years. Few companies will be able to provide what we can, and this is why we are preparing to offer net zero products at scale, since we believe that this market will be short by 2030.
As I have shown you today, absolute CO2 emissions at BASF's integrated sites can be reduced significantly with a limited number of measures. Moreover, the scale of our Verbund sites allow CO2 reductions with lower specific CapEx. This will translate into a higher number of affordable net zero and low PCF products to meet increasing customer demand. As shown by the example with our customer, Henkel, BASF aims to fulfill net- zero and low PCF requirements for both selected products and customer product lines, thus supporting our customers' roadmaps towards net- zero. With that, I would like to thank you for your attention. Hans, Lars, and Stephanie will now join me on stage, and we are looking forward to your questions.
Thank you, Martin, for your presentation. Before we move on to the Q&A, let me introduce Lars Kissau to you. Lars studied chemistry in Freiburg and business administration in Hagen, Germany. He received his PhD from the Max Planck Institute in Dortmund, Germany in 2002. In 2003, he joined BASF as marketing manager in the Performance Chemicals Division. Since then, he has held various strategic planning and business management positions in Germany, Singapore, and Shanghai. Before becoming President of the Net Zero Accelerator unit, he was a Senior Vice President in the Petrochemicals Division for Global Strategic Business Development. Lars, could you briefly explain which activities are bundled and accelerated in the unit you have been leading since January of this year?
Sure. Be happy to do that. The Net Zero Accelerator unit combines four activities. One, the renewable power. Here, we execute our make-and-buy strategy for wind farms and photovoltaic power. Second, infrastructure technologies. This team focuses on scaling solutions like heat pumps and e-drives. Third, the new CO2-free technologies. These teams look at scaling the solutions like CO2-free hydrogen from methane pyrolysis and water electrolysis and our eFurnace technology. The fourth are the circular raw materials. Here, we have combined activities around ChemCycling as well as renewable raw materials.
Moving on to the Q&A now. Given the fact that the quiet period begins on April 1, we will take very few questions on current trading, but would like to ask you to then focus on the topics presented today. Please use the opportunity to ask all the questions you have in this regard. As I indicated, there is already one first question on current trading. I would take that at the beginning. It's from Christian Faitz, Kepler Cheuvreux. The usual question when management presents so late in a quarter, would you mind providing us an operational update for BASF Group? So that might be Hans in this case.
Yeah. Hello, Christian. Happy to do that. What have we seen so far in Q1? We had a very strong start to the year. Both months, January and February, good, solid, robust business, good earnings. Month of March, not yet concluded, but based on what we can see in the daily sales, it continues to be a strong month. Order book is well-filled. So from that perspective, I'd say overall, we're looking at a good quarter for BASF.
Now we have a first question on today's presentation. It's from Andrew Stott, UBS. Can you explain how the PPA contracts with ENGIE and Ørsted work? This is volume commitment, but I assume not price. Perhaps Lars can-
No, it's again for Hans.
it's Hans.
Well, happy to take that one too. Both contracts are long-term contracts. Yes, they include a volume element, but then also obviously, a price element, which is to a certain extent market-based and to a certain extent cost-based. I guess, Andrew, even I may want to say more, due to the terms and conditions and the confidentiality clause in the agreement, I can't say more.
Okay, now we have another question from Charlie Webb, Morgan Stanley. Can you help us understand how we should think about the implications of structurally higher energy prices in Europe as Europe tackles this energy transition and reduces its reliance on Russia? What does this mean for BASF through cycle margins and returns from its chemical plants in Europe? Is there a risk that European chemical production will become less competitive over the next five years?
One more time for Hans.
Okay. Also, happy to take that one. Now we're obviously operating in an environment where energy cost and to a certain extent, raw material costs are very high. We've shown you for Q4 of last year what the energy bill was overall for that three-month period of time, EUR 800 million higher than in the prior year quarter. If you look at Q1 now, we're operating more or less on these high levels that we've experienced in particular in the month of December. We are due to strong demand in a position to pass most of this on. What does this all mean structurally? Personally, I think it is too early to tell.
Obviously, if you look at natural gas prices, very volatile today, floating between 94-110, and you compare that to the U.S., if you take, let's say, around about 100, you are at 35. This is 100 EUR/MWh. Sorry. You are around $35 per million BTU, which compares currently to $5-$6 per million BTU in the U.S. If it continues that way, that will be certainly a challenge for European producers, which are gas dependent. It remains to be seen also there, from my point of view. It is too early to say how this will develop actually going forward.
Lars, maybe to add to this, I think this is a fair comment because we also don't know yet what the strategy is to actually reduce the dependency of, on gas. There is certainly one element, which is the acceleration of renewable energy here in Europe. We have to expect that we have a much faster pace of capacities. If they go along with infrastructure measures and also an overhaul of the whole duty and taxation, system, that could be actually something that goes in the right direction, combining lower competitive energy pricing with also the low PCF and zero PCF, which allows us for higher margins.
I think the mechanisms are clear, but to say now a few weeks after that conflict started and the war started, now to say this is the effect long term, I think is not fair. I think if we have a good political support in really changing the strategy and going the steps fast, it could actually have a very positive element on Europe.
We have a question from Chetan Udeshi, JP Morgan, that is a bit related to what you just said. How should we think about any structural competitive cost disadvantage for BASF as it switches more to renewable power in the future? One can argue the cost of green energy production will be even cheaper in some regions like China due to a more favorable climate.
Well, I think, Chetan, this is not easy to say. If you just take the energy of, let's say, a 35- to 40-year wind park, then this is at the beginning, certainly also has to carry the capital on it. Once it, for example, depreciated, you don't have any variable cost because there you don't have any fuel costs, and then you have the so-called golden tail, which is, as the last part of the lifetime, which is actually only EUR 0.01 or EUR 0.02 partially for maintenance of such a wind park. If you take, I think, the average cost over the lifetime, and then you have stack-up projects, which gives you this kind of average cost in the long term, I think it's very, very competitive.
It depends then also on the infrastructural development and how much cost we have actually to bring the energy in, because there's one new element for us. We have now within the sites our coal-fired or our gas-fired co-gen plants, which are deeply integrated. In future, as we don't have the wind at site, we have actually to decouple the consumption of the electricity and the production. For this additional part, for using this is cost. I think it very, very strongly depends on how also politics and the society is taking measures to support the transformation of its own industry, and that will be key.
If it's the only part of production cost from, for example, offshore, we are not so worried, comparing this to our cost we have in today's setup, and particularly if you take higher CO2 costs into consideration. Let me also say, there is higher operating costs, even if you go to the lowest possible electricity price. That's the other element I showed you, where actually finally, ultimately, our consumer and then at the very end of the chain, the final consumer has also to pay higher prices. I think it depends on these two measures, how actually you can decide later on the competitiveness. We stay certainly still very favorable in this direction for our European sites.
The next question is from Jaideep Pandya, On Field Research. What is the current cost disadvantage for BASF on large products, such as cracker products, compared to coal-based assets in China or crude to chemical assets with coal-based power generation in China?
That's something for Lars.
Coming from the petrol guy. I can repeat if you like or is it-
Sure, yeah.
What is the current cost disadvantage for BASF on large products, such as cracker products, compared to coal-based assets in China? First part. Crude to chemical assets with coal-based power generation in China.
Okay. If you leave out all the costs for CO2 emissions, I would guess it's probably in a range about 20% on the coal base. The crude to chemical, I think, is a bit different because it has a very large capital CapEx part to it, so it's probably not such a big difference.
Another question from Andrew Stott, UBS: Is there a reason, the Antwerp CCS project is in two phases? A practical one, or is it just to ensure a smoothing of the financial costs?
No, Andrew, I think this is also a little bit organizational because the Port Authority of Antwerp is very much driving this, and they certainly bundle and have a part of the infrastructure then. Then you have a second part, which is actually the joining forces between Air Liquide and BASF to actually deliver our CO2 preconditioned, dried, compressed to then the hub actually in the Port of Antwerp. The port participants or founding members of this consortium are many more in the case of the BASF-owned part that is only Air Liquide. It isn't. It's only this, the reason that you have the different responsibilities and the respective deliveries to actually connect the chain.
Now, another non-trading question from Christian Faitz, Kepler Cheuvreux: What is the cost CapEx of a world-scale eFurnace versus a conventional furnace using natural gas? I think we are now talking about a pilot furnace, rather.
Well, again, I mean, maybe it starts to be the standard answer about 20%. I think on the actual, in building the cracker, of course, you have a slightly higher cost. I think what's then key in the operation time is the cost of electricity, which is why we're pushing our renewable power project so much. This will really be key to make this a competitive technology when you're operating it.
We have a question from a Dutch investor, MN, Christiaan ter Braak, and it's a question regarding the lever gray to green. You talked about make or buy. Can you advise what the exact strategy is for the Verbund sites and those smaller facilities? On the second part, I assume that buy PPA would be the quickest way to reduce emissions. What is the biggest advantage to proceed with the make strategy?
I can also start on this.
Mm-hmm.
I mean, at the very end, I think, and I mentioned that in my presentation, one of the most critical issues for our strategy is the access and the fast access to renewable capacity, and that is certainly competitive prices. Simply looking also into the auction processes of now, offshore wind parks currently running and indicated, that will be more and more competitive, there will be more and more going for this project. You have also to calculate a certain probability, and you have to participate in these projects and try to differentiate, but you cannot expect that you win all of them. That's the first element, this is the make. We have most probably a restricted access, and let's see how good we are.
The second part is then to take off the electricity from others who build parks. There I think it has also become clear in the past, there are not so many, let's say, potent and also financially strong customers who can actually take a large share of that electricity for a time horizon of 25 years. That makes also BASF, as such a financially strong corporation or company, a very interesting partner. At the very end, this is then also balancing out the market risk, which is certainly for the producer, a clear target to reduce. On our side then getting access, a calculable access at a certain price, also competitive price in the long run.
I think given the fact that we will at least double and then most probably up to triple our electricity demand in Europe until 2040, we need really a huge amount of electricity given the fact that also Antwerp, Ludwigshafen is such a large site. I think simply we need both levers to ensure that we have the access to renewable energy. At the very end, I think, and this gives that then also the certain security in pricing, you need a portfolio where different wind sources, different wind availability, a little bit of photovoltaic in there, different components between make and buy this a robust, predictable scheme of our electricity prices in the future. This is why we have the two legs.
We have another question from Jaideep Pandya, On Field Research. Have you changed your carbon price expectations in the long run due to significant rise in energy costs and short-term use of coal?
Actually, Jaideep, we have not. Something we are tracking on an ongoing basis over the years. We've certainly built higher prices in. I mean, if you think about today's market price, which is at $80, you go back less than 18 months, we were at prices below $20, so certainly a significant cost that we're looking at, but something also that we need to track on an ongoing basis and then build into our respective CapEx projects.
Another question, this is more in the direction again of procurement. It's from Florentine van den Eerenbeemt from NNIP. As you are preparing to offer low carbon products to your customers, you mentioned you will make PCFs a buying criterion to ensure carbon reduction of sales products. What would be the specific criterion that you will uphold, and as of when does this apply to both new and existing suppliers?
A very specific question. Maybe I go back to what Martin explained earlier. First quarter of last year, we started to talk to our supplier base about their respective product carbon footprints. We've covered in the meantime about 50% of our Scope 3. Intend to do the remaining 50% by the end of this year.
The request that we have for our suppliers is pretty obvious. It is the request to lower the respective product carbon footprint on an ongoing basis, and through that allow us to lower our incoming Scope 3s. There is actually not a whole lot more that I can say at this point in time.
Another question from Christian Faitz, Kepler Cheuvreux. "BASF once was musing about building an MTO, methanol to olefin plant, with Lurgi technology. Plans were shelved when oil got cheaper. Could those plans again be revived?"
Can I answer?
I can add that it's okay.
I would clearly say no, because in the moment we have proceeded with other plans. I think, given the situation where we are and also where the Henry Hub price is today, this is not the raw material base anymore, which gives us the cost advantage or the competitive advantage we would have had with this plan. We shelved it, but I would say there is almost zero probability that we will revitalize that.
We have a retail investor question coming from Germany, might be for Lars. "You didn't say much about the status of your hydrogen projects. Can you please give an update on this topic?"
Yeah.
Sure. Be happy to. Well, first of all, the funding for the methane pyrolysis pilot reactor in Ludwigshafen was granted by the Federal Ministry of Education and Research, and the pilot reactor actually was started up successfully in the second quarter of 2021. We still expect the startup of the first commercial unit before 2030. Now, with regards to the water electrolysis unit in Ludwigshafen, we target the startup for 2024. You may remember the project involves the production of 8,000 tons of hydrogen, of green hydrogen per year. This project is conducted together with Siemens Energy, and it has been shortlisted for public funding by the German Federal Ministry for Economic Affairs and Climate Action.
Mm-hmm. Another long question from Chetan Udeshi, JP Morgan. "Management of a leading coating company recently on their CMD said they will not pay a premium for low-carbon products. Is BASF hearing different messages from other customers in terms of willingness to pay a premium? Is BASF banking on premium pricing in terms of planning for returns on the decarbonization investments? Also, should we see it as a requirement for a company like BASF to invest to stay relevant, even if it means lower returns in the future?"5
Chetan, I can only say to this customer, good luck. If you find the source not to pay more, go for it. I cannot imagine that this is the case because I think we made this now very transparent. There is additional cost. There is additional OpEx. There is additional CapEx that has to give a return. I always told you that at the very end, if you scale up for meaningful volumes for customers, we have to get a return on our investments. I always assured you when we come to the scaling that we will take care for the business cases. In that respect, certainly. Tell me one customer who would like to pay more for anything.
It's a question also of negotiation, and I think, as I said earlier, we expect that over time there will be more customers asking and demanding for these products than there is actually capacity. It's also a question as always of pricing power. If you have these products to offer, then we will offer them to a price that covers these additional costs. You have all kinds of customers. We have customers, you start a big discussion about sustainability, and once they realize it's a few cents more, they actually withdraw from their ideas. You have also innovative customers in all the segments who actually do not only volunteer and talk, but really go for the first steps.
I think this is why it was important to me, and I'm very happy that Henkel allowed us today also to talk about this joint product. We are both happy that there are serious players who actually start to position themselves and to differentiate with these kind of products. I think you have to start with the innovative, with the courageous, with the front runner in every industry. I expect that over time others will follow. I think that it will only be possible to have these products in scale if finally and ultimately also the costs are paid for.
We have another retail investor question from Germany: "How many of your plants are subject to regulation under the EU Emissions Trading System?" Might be something you can-
An easy one.
Yeah.
Yes. We have 100 plants in Europe that are subject to the ETS scheme. They cover about 12 million tons of CO2 Scope 1 emissions out of the 18 million tons in total.
Mm-hmm.
What we should say that these certificates actually they are also stable until 2025.
Yes.
The free allocations only from 25 on, we have then to expect that they melt down, and this is exactly why we ramp up the measures to actually compensate for this additional cost.
Now we have a bit of a longer question from Georgina Fraser, Goldman Sachs: The European chemical industry has been lobbying against implementations of energy sanctions on Russia. How do you see the political appetite for these measures evolving? Is BASF taking any steps to prepare for this possible outcome, given Russia is requesting gas payments in rubles? It is outside of contract terms.
Maybe I start, and then Hans can also add. I mean, I think it's very clear if you look on the numbers of the share of Russian gas for European supply, particularly, but then also even more for Germany with an even higher share, there is no way of a short-term substitute. There have to be plans and there will be plans to substitute the dependency on Russian gas step by step, but it's nothing that can happen overnight. We need a certain time, and this is, I think, why this is important, that we continue with that.
On the other hand, there is a huge amount of political activity now going on to take all the measures, and that starts with companies reducing actually their consumption of natural gas, but finding also other substitutes to build LNG terminals to substitute overall that. We have to live with a certain transition period, I would say, to bring that demand down. With respect to paying, maybe, Hans, you can-
Yeah. Georgina, what's important to understand is that as BASF, we do not buy from Russian sources. We buy from Western European suppliers. On our end, these are euro transactions. We are in contact with our suppliers to understand what they intend to do. If in fact they have to pay in rubles, that is not yet clear at this point in time. At least we have not yet gotten any type of clear and reliable answers to our questions.
We have another question from an MN, but from Bas Bijleveld in this case: I noticed that the second largest Verbund site, Antwerp, can become Net Zero in 2030, although with some compensation measures. I was wondering what BASF's target is for the largest Verbund site, Ludwigshafen, and would a similar target, net zero 2030, be feasible?
I almost expected if we give you two targets on site level.
Aspirations, we called it.
You ask for the third one. I think Ludwigshafen is by far the most difficult one. I mean, simply by the sheer size and by the broad portfolios, you need more distinct measures. You need also a longer time horizon. What we normally don't do is that we give something beyond the group targets. I think this is already now very much detailed down, and we just gave you these two examples of Antwerp and Zhanjiang. I think Zhanjiang is interesting because you already put it into the blueprint all the opportunities, whereas all the other measures in the sites are actually drop-in solution where you have to change a setup. As I said, this is why we took the Antwerp example, BASF, is actually that it shows that you have some measures where you can reduce.
At the very end, there's also a lot of small streams, highly diluted, many sources where it's actually very, very difficult to collect all them. Then you have to basically increase the amount of CO2, then you have to clean it, and then you have to sequester it. That is a huge amount of cost, which is, I think, never economic. This is at this very high end of the abatement cost curve. This is why you need other measures. That could, for example, be, as I mentioned earlier, with the biomass approach, that you actually go in with negative footprints into the production and then with this basically compensate this part which the overall then let's say burden for the nature will also be zero.
I think this will be then the most economic situation. This example, you see that actually each and every site has its own footprint, and this is also why each and every site in BASF has to deliver such a plan. We do not intend to go in the target setting, at least, to give you more on that beyond the group level. Be sure that within BASF Group, we certainly also follow up in a much more detailed level.
We are moving to China again with Jaideep Pandya's question On Field Investment Research: What is the sourcing of power in the new China cracker? What is your view on Chinese electricity prices, especially for renewables versus coal-based pricing?
You want to start, Hans?
Yeah, I can start. I think we already concluded one direct power purchase agreement last year to ensure that the initial phase of the project is 100% powered by renewable power. Very recently, also concluded a 25-year agreement with the State Power Investment Company for another long-term green power sourcing agreement. We're on a good way to also make this Site One 100% on renewable power.
It's also fair to say that this first agreement is actually onshore wind and photovoltaic. It's a mixture out of that. Believing, as I said earlier, I mean, at the very end, the consumers have to pay for that. We would also not do that if that would not be an approach then to price the products on the market that would have a favorable economics. Otherwise, we wouldn't do it. I can only say China is very dynamic on that, not only on actually adapting legislation to make such 100% green purchasing powers possible. It's also a huge dynamic going on with products, and we have plenty of discussions also for offshore in China and all these things.
It is actually just evolving in China, and it's again, like in many other things, fascinating how fast they move.
Another question from Georgina Fraser, Goldman Sachs. She says, "A question to Lars, perhaps because you explained what you're responsible for. How much of BASF's raw material inputs today qualify as circular? What proportion is required to deliver BASF sustainability targets in the long term? What are the major hurdles to switching to circular, and what proportion there is today, and what is required?"
Maybe I start with the second one. I think what's obviously required for the availability is two things. One is the actual capacity buildup on the supply side, because of the rather slow demand in the last couple decades. Obviously, capacity still have to be built up for circular raw materials, on the renewable side and on the ChemCycling, on the recycling side as well. The second thing that's essential is also that the regulation has to keep pace.
In many markets we still have a regulation that is favoring the fuel use of recycled or circular materials instead of the material use, and obviously that would be tremendously helpful if that bias towards the fuel use was removed and we actually can have more material use of circular carbon.
We have another question in the context of the war in Ukraine, so might be for Hans. Does BASF have any reliable plan B if Russian gas supplies to Germany, Europe were to stop, or as you mentioned, that it will be difficult to substitute the Russian gas for German and Europe as a whole?
Now, when you look at the supply share of Russian gas, you're talking about something order of magnitude 40% of the gas that's consumed in the European Union and 55% of the natural gas that is consumed in Germany. As Martin has explained already, there are no quick solutions. There are smaller solutions in place. There is the offer that the U.S. made, talking here about 15 BCM additional supply to the European market. Put the 15 BCM additional supply in the form of LNG from the U.S. in perspective to Russian pipeline gas. You're talking Russian pipeline gas supply, 150 BCM-200 BCM per year. That's the order of magnitude.
If from one day to the next Russian supply falls away, I think in Europe as well as in Germany we will be in a situation where curtailment will take place. We will be in a situation where allocation schemes will have to be run because in the short term, as we said, there is no way to replace these significant volumes. Over the longer run, yes, there could be additional LNG terminals as Martin has alluded to, maybe on the way there. First of all, floating regasification and storage units. I mean, there are lots of ideas there, but it will simply take some time.
Yeah. Maybe, Hans, to add on that there is also a make part because certainly we're not waiting whether this now is going to happen or not. We have an intensive program where we're looking into how we can reduce our own gas consumption. Just to give you an idea, Ludwigshafen, this is about 60% for energy production, about 40% is raw material. When it comes to raw material, it is actually two-three big products which consume most of the gas. One of the big one is certainly ammonia. You could and also, for example, have the opportunity that you might reduce or shut down an ammonia plant and ship ammonia for a certain period of time.
As I said also, the faster we can replace with renewable energy, we can actually take down our co-gen plants and reduce also the demand here. We have also some opportunities which we take definitely until the next winter comes, can we replace anywhere the gas by other feedstocks? Light feedstocks, for example, that are similar in properties like natural gas or even can go to oil-based products. A good example is actually the new co-gen plant, which I mentioned on the Schwarzheide side, which is basically 100% operable on one hand with gas, but also with light feedstock on oil base.
That gives you as also the opportunity that we do the utmost also to reduce our possible consumption and then in a case of allocation, then actually proactively can work on that. Be assured that we all use that. It's a similar example like we had at that time when there was low water in the Rhine, when we had then this EUR 250 million EBIT impact. That would not happen anymore today because we have taken so many measures in terms of what we do with cooling waters and how we operate, and I think this is a similar comparison to what we do now in lowering our own dependency on gas.
We have, I think we will have a final question from a retail investor also referring to Schwarzheide. How large is the solar park in Schwarzheide in relation to the area of the site? Perhaps Lars can take it?
It's between 8% and 9%.
Yes.
Yes.
We have enough space still to build plants and to produce solar energy.
With that, ladies and gentlemen, we have come to the end of today's virtual investor update. I hope you gained valuable insights and enjoyed it. We thank you very much for joining us today and wish you all the best and say goodbye for today.