This document is the final report from government assignment N2021/02658, “An in-depth mapping and analysis of the demand for cement in different sectors, the availability of limestone, clinker and cement, and the conditions for importing”.

As part of this project, Tillväxtanalys has collaborated with the Geological Survey of Sweden (SGU), Sweden’s National Board of Housing, Building and Planning, the Swedish Transport Administration, the Swedish Energy Agency and the Swedish Fortifications Agency. The background to the project is the ruling of Sweden’s Land and Environment Court of Appeal rejecting Cementa’s application for a permit in summer 2021, which brought the issue of the supply of cement in Sweden to the fore.

The assignment involves mapping out future demand and alternative sources as well as the logistical conditions for importing cement and alternative domestic sources of supply. Furthermore, the assignment analysed the impacts and additional costs related to replacing the production in Slite, as well as the measures the State could take to enable or facilitate a transition to importing, or to some other source of cement. Six sub-studies were carried out within the scope of the project, which ran from October 2021 until May 2022.

The supply solutions that are presented in this report are possible alternatives to a continued limestone quarrying or cement production in Slite. We do not advocate any of the presented alternatives and from a governmental perspective many of the proposed alternatives would require further investigation to ensure their suitability. Yet another source of uncertainty for several of the alternatives is that they require actions from private companies. Regarding the alternative domestic limestone quarries presented in this report there are several aspects that are not fully covered such as community protection, environmental protection, and other societal interests that may stand in conflict with limestone quarrying. Future discussions regarding the alternatives must pay attention to these aspects.

Demand at the same or higher level the coming years

In 2019, around 2.8 million tonnes of cement were used in Sweden, and usage increased by around 30 per cent between 2015 and 2019. In 2020, about 70 per cent of the cement was used for building construction and the remaining 30 per cent was used for different types of infrastructure. The National Board of Housing, Building and Planning estimates that another 600,000 new homes will be needed during the 10-year period of 2021-2030. Moreover, a range of sectors indicate that they will have an equivalent or greater need for concrete over the coming years, compared with today. This includes usage within transport infrastructure, mining industries, wind power, electricity power grids as well as protection and defense constructions.

The uncertain global situation resulting from the war in Ukraine along with the increase in the price of construction materials and rising interest rates may lead to a significant drop in housing construction (and other building construction) though, which will reduce the demand for cement. Demand may also go down due to greater usage of alternative binding agents and other construction materials, as well as more economic usage of cement and concrete. The need for cement for infrastructure construction projects may vary substantially from one year to the next depending on the projects that are carried out and finished. In summary, it is estimated that demand for cement will remain at the same level or be higher over the next ten years, but the forecasts are uncertain. Demand is likely to fluctuate during this period.

Alternative sources of limestone in Sweden

According to SGU, the most appropriate alternative source locations to Cementa's limestone quarry in Slite are the sedimentary bedrock areas of south-western Skåne, other parts of Gotland, Västergötland and Öland. Other areas in Sweden contain carbonate rock that is suitable for cement production, but these are deemed to be too small or not sufficiently chemically homogeneous.
This assessment is based on the following selection criteria for viable alternative sources: must be able to supply at least 2–3 million tonnes of limestone per year for at least 50 years; must be consistent in quality; and must not be buried under too many layers of soil or bedrock. According to SGU, it may take ten years to open a new limestone quarry including prospecting, assessments and securing permits. In the event that a factory is to be newly established in connection with the quarry, this may take additional time.

SGU has not taken into account community protection, environmental protection, or other conflicting interests, nor have they considered landowner aspects or settlements. These are fundamental aspects to take into account when considering an alternative location. Hence, the alternatives that SGU has pointed out should be regarded as theoretical opportunities based on the occurrence of limestone.

Domestic alternative sources require investment in infrastructure

Making the alternative sources of limestone available will require multi-million (SEK) investments in transportation infrastructure, a cost that would need to be shared between the State and private providers. According to the Swedish Transport Administration, the required measures could take eleven to thirteen years to implement. If Cementa chooses to continue to supply limestone from Storugns at Gotland, transportation logistics can be made more efficient through upgrading the road infrastructure or improving the conditions for maritime shipping between Storugns and Slite. More detailed analyses are required, however, to determine which measures would be most appropriate from a socio-economic perspective.

International supply for limestone, clinker, and cement

There is a lot of limestone in the world. However, most trade occurs on a regional level. The Baltic sea is a region where there is a lot of limestone that, from geological point of view, is similar to the limestone formations on Gotland. According to SGU, limestone formations that are different from the ones that currently are being quarried in Slite will require a more extensive characterization in order to ensure that they can be used for cement production.

In 2020, there was an idle manufacturing capacity of more than 100 million tonnes of cement within European cement factories. In other parts of the world there were also many cement factories with excess capacity. This indicates that, in the possible event of a stop in Slite, there are factories in other countries that can produce the corresponding volume of clinker or cement. However, the excess capacity within the EU will probably be reduced in the coming years, since many factories that are not carbon-dioxide efficient will be closed.
Moreover, it is not certain how much of this theoretical excess capacity that constitutes realistic import alternatives. This is partly dependent on whether the factories are located where exporting to Sweden is logistically feasible. The excess capacity also differs between different countries and seasons. Depending on how a potential stop in Slite would take place several alternative sources may be needed.

In recent years it has become more expensive for cement manufacturers in the EU to emit greenhouse gases, which has increased the cost of producing surplus volumes. This means that it may be cheaper to import cement or clinker from non-EU countries. If the EU commission’s proposal for a Carbon Border Adjustment Mechanism (CBAM) is implemented it may affect the relative price for cement produced within EU in relation to cement produced outside EU.

Existing supply chains are well functioning

Efficient supply chains and their associated logistics systems are vital to the ability of construction and civil engineering companies to meet the Swedish market’s demand for construction and engineering cement at a reasonable cost. Limestone quarrying and cement manufacturing in Slite and Skövde, combined with imports from neighbouring Baltic Sea countries, represent a well functioning logistics and transportation solution.

The Swedish Transport Administration deems that unless specific efforts are made to promote alternative supplies of cement, infrastructure investments are currently limited, from a Swedish perspective, to maintaining and making only minor improvements to present logistics and distribution systems. Such improvements include minor deepening of fairways and ensuring and gradually developing terminal and depot capacity.

Logistical prerequisites and potential barriers to import

There are logistical prerequisites to, at least partially, replace the limestone quarrying in Slite the coming years by importing limestone or clinker to Slite, and through cement imports. Such logistical solutions that may need to be applied in the short term are unlikely to be the most cost-effective. The depth of the port in Slite as well as the access to ship capacity may present barriers to importing. Moreover, we have not assessed Cementa’s capabilities to switch to and process alternative supplies of limestone or clinker. At present, 15 per cent of the Portland cement used in Sweden is imported. The import companies have stated that they could increase their import volumes slightly from one year to the next.

Over the longer term, it is possible from a logistical perspective to replace the production in Slite with different import alternatives. Investments on a multi-million or billion scale may be required to develop alternative, cost-effective logistics solutions, in Sweden and possibly also in exporting countries. In many cases these investments must be shared between the State and private companies. Different measures are on different time scales. However, it is unlikely that there are any substantial arrangements in place within four years. Several of the alternative supply solutions that are presented in this report would take more than ten years to implement.

Greater levels of imports may require investments in testing capacity

There is currently no major excess capacity for testing concrete, neither in Sweden nor in neighbouring Nordic countries. Swedish laboratories would be able to handle a smaller increase in the testing capacity (about 20 per cent) using their own resources. If just a few new types of CE-certified cement are introduced onto the Swedish market, the increased costs for certifying and evaluating these types of cement would be relatively limited and is not expected to require any new investments in laboratory capacity.

However, if further new types of cement are introduced onto the Swedish market it may mean that capacity for testing concrete mixtures would need to increase. This mainly applies to concrete to be used in engineering projects for which laboratory testing is required. It is estimated that it will take at least one year to increase the testing capacity and yet another one and a half year to carry out the required testing. This requires however that both the current and new cement supplies are concurrently available during this time. Otherwise there is a risk of absent quality controls and disturbances in concrete supply and ultimately delays in engineering projects.

Investments in testing capacity in the multi-million SEK range may be required to meet this greater demand. As the laboratory market consists of both public and private suppliers, it would be important for capacity to be developed in a controlled manner to avoid distorting the competition between laboratories.

Varying impacts depending how termination takes place

The impacts of a termination of production in Slite mainly depend on how the termination takes place and how different parties act before and after such termination.
Our reasoning is therefore built around three different scenarios.

1. An unforeseen and definitive termination of production at Slite. This scenario could have very severe consequences on the Swedish economy and entail an imminent risk of projects that are vital to society not being implemented as planned. The extent of the negative consequences would depend on how quickly any alternative source of supply could replace the Slite production. It is estimated that it would take years to fully replace the volumes that are produced in Slite with an alternative source of supply.
2. An uncertain production in Slite from mid-2023 with a termination within a few years. This scenario could have negative consequences for the Swedish economy and the development of Swedish society. The extent of the negative consequences would largely depend on the degree to which Cementa could replace the limestone from Slite with an alternative supply of limestone or clinker, and whether other import of clinker or cement is getting started.
3. A planned termination of production at Slite in four years. In this scenario, the worst of the consequences would likely not materialise. However, this assumes that the necessary infrastructure measures can be taken without any obstacles. An opportunity in this scenario is the establishment of clinker grinders along the coasts, which would open up for clinker import. Disruptions, for example in the construction and engineering industries, cannot be ruled out in connection with a transition to alternative sources of supply in this scenario.

Effects on transportation and logistics systems

The alternative import solutions presented in this report would imply higher logistical costs. Moreover, for those alternatives where the limestone quarrying and the cement production is separated the transport costs will increase. In the “Skövde option” however, the logistics and distribution costs would decrease since having one central location in Sweden would enable a high percentage of time-efficient road and rail transportation. Using one central terminal at the coast would increase terminal costs. This solution would result in logistics with relatively low levels of vulnerability and good flexibility in the distribution. It would enable frequent shipments of smaller shipping volumes.

The logistics and transport costs of cement manufacturing currently account for some 20–30 per cent of the value of the final cement product. If the price of cement were to go up in the next few years, the proportion of the logistics and transport costs would be smaller compared to the value of the goods, but storage costs would be higher. Higher storage costs make flexible transport solutions that allow frequent shipping of smaller shipments more attractive. To achieve this, all modes of transport would need to be used to a greater extent than presently.

Effects on the environment and climate

Replacing the volumes that Cementa currently excavates in Slite with imported limestone or limestone transported from another location in Sweden would increase greenhouse gas emissions. Increased transportation would also lead to more air pollution, for instance in the form of nitrogen oxide and particles.

In terms of importing clinker or cement, we cannot be completely certain whether greenhouse gas emissions would be higher or lower compared to continued production at Slite. The reason for this is that greenhouse gas emissions can vary substantially between different cement factories depending on the fossil fuels used to heat up the cement kiln. Differences in how much clinker different cement contains also affect the quantity of emissions.

Furthermore, emissions from factories in the EU are regulated by the emissions cap within the EU emissions trading system. This means that total emissions from the importing of alternative supplies can only increases by additional transports and non-EU production. The size of these emissions from the import of alternative sources of cement or clinker therefore depends on:

• the proportion of imports from non-EU countries
• the quantity of emissions from the alternative suppliers’ manufacturing of clinker or cement
• the distances of the alternative transportation
• whether the termination takes place after the EU’s 55% package3 has come into force
  
• the proportion of limestone that replaces current production.

Since the Swedish climate goal only consider emissions that occur within Sweden's borders, a stop of the production in Slite would mean that Sweden has better conditions to reach the goal, as the emissions from the factory disappear. The higher greenhouse gas emissions from additional transportation would however increase the cost for the EU to reach the Union’s climate goals. As stated above, alternative supply emissions from non-EU countries and additional transports may also increase the total emissions.

Alternative coastal locations in Sweden would mean that emissions from transport would remain at about the same levels as today. An alternative inland location would probably lead to increased emissions, due to increased use of road transportation. In addition there are also additional emissions related to the establishment of a new cement factory.

If Cementa is not granted a new permit for limestone quarrying, there is a risk that Sweden will miss out on high-tech CCS investments, i.e. carbon capture and storage technology. From an EU perspective, it would also be unfortunate to delay investments in CCS technologies, as these technologies are deemed to be an important element in the Union's climate transition. At the same time, there is some uncertainty about the level of maturity of the technology and whether an alternative investment will be made if Cementa is not granted an extension to its permit in Slite. Our assessment is therefore that it is difficult to make conclusions about the effects on total greenhouse gas emissions of a cancelled investment at the Slite site.

Beside greenhouse gas emissions, an alternative source of supply may also lead to more air pollution from transportation, for instance in the form of nitrogen oxide and particles. For several of the potential alternative limestone areas in Sweden, it cannot be ruled out that they may be situated close to areas of national interest for nature conservation, or to Natura 2000 areas. Importing from other countries means that their local environments would be affected when limestone is quarried and cement produced.

Long-term effects of an alternative supply

Provided that the necessary investments are made in infrastructure it is possible to eventually have an alternative supply based on imported clinker or cement to Sweden. An alternative supply that relies upon importing would however be different in nature to today’s supply. There are both advantages and disadvantages to increased importing.

One of the advantages of importing from several sources is that risks get distributed across different supply flows. Another potential advantage of import is increased competition which may imply that companies become more efficient and that cement prices fall. Some of the disadvantages include potentially worse reliability of delivery and higher transportation costs. Consequently, the effect of increased import on the cement prices is not clear since there are possible effects that can both increase and decrease the price. Imports could also mean that companies have less control of their supply chains. This can make it more difficult to establish a national supply preparedness for cement.

Setting up an alternative production facility in Sweden would require significant investments and it is not clear whether there is a commercial interest for such endeavors. However, if a new factory is established it would imply that Sweden continues to be dependent on one or a few sources. This is especially pertinent in light of the fact that the quarry in Skövde will most probably be exhausted within two decades. This is a potential vulnerability. However, even a small number of domestic sources may for example improve the conditions for establishing a national supply preparedness.
One of the likely consequences of the EU’s more ambitious climate policy is that the number of cement production facilities in Europe will fall. Stricter regulations will also mean that previously profitable excess volumes will disappear and that it will become more expensive to import clinker or cement from other EU countries. The introduction of CBAM will mean that the possibility of importing cheap clinker or cement, whose production has generated large emissions, will disappear. The price of climate-neutral cement will likely be relatively high. Consequently, the price of clinker and cement will increase regardless of where or how it is produced. However, according to the National Board of Housing, Building and Planning, significant price increases will not necessarily have a major impact on construction as cement is often only a minor part of the total cost of construction.

The war in Ukraine may affect both the demand for cement in Sweden as well as the supply for limestone, clinker, or cement. There is a risk that countries that export to Sweden may be affected by the conflict in a way so that deliveries become difficult. There is also a risk that alternative suppliers are dependent on Russian sources of energy for their cement manufacturing. If the provision of energy ceases, the conditions will deteriorate for the suppliers to export clinker or cement to Sweden. However, it not likely that imports of alternative supplies would make Sweden reliant on imports from Russia or Belarus since there are other alternatives.

Proposed measures

Below we present several proposed measures that may enable or ease imports or domestic alternative supply solutions.

Remove obstacles to importing

The market is currently making adaptations to prepare itself for a situation wherein Cementa is not granted an extended permit for limestone quarrying at Slite. It is important that the State is responsive to Cementa and other suppliers in the Swedish binding agents market and that there is a readiness to take measures if barriers to import arise. This may for example include prompt processing of different permits to facilitate imports.

Avoid amendments to law that may restrain import

One thing that may restrain investments in import is if the government states that in the future it may once again be appropriate to make specific amendments to laws that gives Cementa or other companies exclusive rights to limestone quarrying. This creates uncertainty about the terms of business for the Swedish binding agents market and a sense that the risks related to import investments are too high.

Consider investing in increased testing capacity

In order to respond to the potential increase in imports of cement, we believe that the State would be justified in investing in increased testing capacity as a kind of insurance. Any investment should however take place in discussion with the laboratories to devise a solution that does not create unfair competition between the laboratories.

Consider national supply preparedness

Several of the alternatives presented in this report implies that Sweden still will be dependent on one or a few sources for cement. One way to enhance the resilience is therefore to include cement within the national supply preparedness. This measure can also be justified because of a changed national security situation.

Promote alternatives to cement

Other measures that can be taken by the State is to promote the development and usage of alternative binding agents and alternative materials, and more efficient usage of cement. This can be done for instance through requirements in public procurement or through support for research and innovation within these areas.

Look over the quarrying permission process

An additional way for the State to improve the conditions for an alternative limestone quarrying is to look over and possibly develop the national quarrying permission process for limestone. Two potential areas of improvement are predictability and transparency of the permission processes. This may also improve the conditions for new establishments of climate-neutral cement factories in Sweden.

Continued discussions and investigation regarding logistics solutions

The State should continue to discuss future logistics solutions with Cementa. If the company wishes to make more long-term investments in supplying limestone from Storugns for instance, the State may justifiably invest in infrastructure for transportation to Slite. If any company shows an interest in investing in an alternative supply within Sweden or from abroad, the State should engage in discussions regarding potential investments in transportation infrastructure.