Editorial: The trouble with offtake agreements

Last month, BASF, the world’s largest chemical company, made an announcement that became the latest example of what a cynic might call “the offtake agreement ruse.”

In a press release, the German firm says it has signed a deal to purchase benzene from the start-up Encina Development Group. Encina is commercializing a process to catalytically convert mixed plastic waste into benzene and other aromatic chemicals. These aromatics can then be turned into new plastics, such as BASF’s Ccycled line of polymers.

The agreement generated lofty statements from both partners. “The use of benzene derived from post-consumer plastics as raw material in BASF’s value chains underscores our ongoing commitment to transition towards non-fossil and circular alternatives,” Thomas Ohlinger, BASF’s vice president for traded products, says in the release.

And it’s hard to argue with replacing fossil fuels while reusing plastic waste, which otherwise could end up in a landfill or the ocean. But a close reader of the press release might conclude that BASF hasn’t committed to do all that much.

The chemical giant isn’t offering any financial support to Encina; rather, it merely says it will buy benzene from the young company, should any become available. And it isn’t declaring, at least publicly, that it will pay a premium for the benzene over the market price for fossil fuel–derived benzene—a commitment that might spur others to invest in Encina.

It’s not clear how much benzene Encina has available to sell to BASF. The company operates a development-scale plant in Texas where it makes an undisclosed amount of waste-derived aromatics. But Encina’s plan to build a much larger facility took a hit in April when the company canceled a $1.1 billion project in Pennsylvania that would have been able to turn 450,000 metric tons per year of waste into aromatics.

The firm has raised about $55 million from private investors, a far cry from what it will need to construct a commercial facility.

With their hopeful language about a circular economy that turns waste into new materials, offtake agreement announcements are popular in the chemical industry. Encina earlier published press releases about similar deals with Covestro, Braskem, and Americas Styrenics. Qore, which is building a biobased 1,4-butanediol plant in Iowa, has announced offtake agreements with BASF and the Lycra Company.

Such agreements have also proliferated in the sustainable aviation fuel sector, where, for example, the fuel developer Gevo has announced offtake deals with Delta Air Lines and Oneworld Alliance—which includes American Airlines, British Airways, and other airlines. If Gevo builds its plant, those firms will be happy to buy most or all of its output, though none of them announced any financial backing for the project.

An optimist would argue that offtake agreements are essential if start-ups are going to attract the investors needed to build large-scale plants like Encina’s Pennsylvania complex. The agreements also signal good intentions from both parties and might spur other companies to make their own deals for renewable raw materials.

A cynic would say that they are just window dressing allowing big chemical makers to appear mindful of environmental problems without spending real money to tackle them.

We don’t know the true intentions of BASF’s executives, or what support they are offering Encina in the fine print of the offtake deal. But optimists and cynics would both concur that pairing these agreements with investments—or public commitments to buy recycled products at a premium—would be a better demonstration of faith in such projects than press releases full of warm and fuzzy quotes.

This editorial is the result of collective deliberation in C&EN. For this week’s editorial, lead contributors is Michael McCoy

Views expressed on this page are not necessarily those of ACS.