Category → Petrochemicals
I just came back from Buenos Aires, where I attended the annual petrochemical meeting put on by APLA, Latin America’s main chemical trade group. The meeting is a great place to connect with chemical executives from the region.
At the event, I ran into Pedro Wongtschowski, the CEO of Brazilian energy and chemical conglomerate Ultrapar. Oxiteno, the company’s chemical arm, makes ethylene oxide, ethylene glycol, ethoxylates, and specialty chemicals.
I have long wondered if the company would get involved in bio-based ethylene glycol. Since 2009, Coca Cola has been using the “Plant Bottle”, in which bio-based ethylene glycol is substituted for petroleum-derived ethylene glycol in the polymer backbone. The bio-based glycol is made from bio-based ethylene, made via the dehydration of ethanol. Coca Cola has been sourcing the ethylene glycol from a firm in India and its sugar has come from Brazil.
Obviously, the supply chain would be simplified considerably with a Brazilian glycol supplier. And Oxiteno, being the country’s main ethylene oxide/ethylene glycol maker, is in attractive position for such business.
So I asked Wongtschowski about this.
He told me that bio-based ethylene oxide and ethylene glycol has been under active consideration.
The company seems to have some options in front of it, such as whether it would feed bio-based ethylene into an existing ethylene oxide plant or build a new plant. The company also seems to be deciding on whether to construct an ethanol dehydration plant itself or buy ethylene from Braskem, which has been making polyethylene from bio-based ethylene since 2010 and recently agreed to supply bio-based ethylene to Lanxess for EPDM production. “We are talking with Braskem to determine the most attractive option for all parties involved,” he said.
Here’s an article from today’s Wall Street Journal on companies pulling back in Europe because of the financial crisis there.
It contains this passage:
Other U.S. companies retrenching because of weakness in Europe include Dow Chemical Co., which in the fourth quarter plans to idle about four million tons of production of naphtha, a material used in plastics manufacturing.
It apparently comes from this exchange in the conference call:
Brian Maguire – Goldman Sachs Group Inc., Research Division
This is actually Brian Maguire on for Bob this morning. I want to follow up on the previous couple of questions on idling in Europe and Asia. You mentioned a couple million pounds could be idled. Do you expect Dow or any of the JV partners to participate in that idling or do you think that it will come more from the competition?
Andrew N. Liveris
More from the competition. I did actually say a couple of million tons and actually, we’ve identified — you know us well when we do this, we’ve identified about 4 million tons of vulnerable production right now based on pure naphtha cracker plays mostly in Europe but also some in Asia.
There are a couple things wrong with the WSJ article:
1) Dow doesn’t make naphtha. Liveris was referring to naphtha-based ethylene production.
2) Liveris was speculating on what the broader industry might do, (at least in Europe and Asia) not on what Dow Chemical will do in the fourth quarter. (Dow doesn’t even have 4 million metric tons of ethylene capacity in Europe.)
Now the WSJ story comes with a correction:
Corrections & Amplifications
Dow Chemical Co. estimates other industry competitors will idle about four million tons of production of naphtha, a material used in plastics manufacturing, in the fourth quarter. A previous version of this article incorrectly said Dow Chemical plans to idle about four million tons of production of naphtha.
That’s half right. It corrects the bit that is most important for Dow: that it isn’t Dow capacity that would be idled. But it still implies that it is the raw material, naphtha, that is being idled, not the products, ethylene, propylene, etc. Close enough, I guess.
Yesterday Dow held its annual investor day. The main theme was that the pieces were in place for strong earnings growth. In an interview after his presentation, CEO Andrew Liveris complained that the company is still being pigeonholed unfairly as a commodity chemical company by Wall Street. The post-recession peak for Dow shares, early this past May, was more than $42. Now they are trading in the low 20s.
I am writing a feature story on the event for C&EN. I do have a couple of observations that I wanted to share on the blog right away.
- Dow is walking back plans to divest high-density polyethylene. About a year ago, Liveris floated a trial balloon about the sale of HDPE. The distinction the company has been making has been between its “specialty” solution process polyolefins and “commodity” Unipol-based, gas-phase polyolefins. Liveris told me yesterday that Dow now plans to convert gas-phase plants into solution-based plants at “integrated” facilities. He specifically mentioned Alberta. I would gather that this means swapping out the reactors and leaving the rest of the plant infrastructure in place.
- Polyolefins licensing is a keeper for Dow. Polypropylene licensing was left out of the sale of the polypropylene business to Braskem. Dow really intends to keep this. The same goes for its stake in Univation, which licenses Unipol polyethylene. Howard Ungerleider, who leads the Performance Plastics division for Dow, told me the polypropylene licensing unit is a pretty big earner for Dow and has been gaining market share.
- Dow AgroSciences is a keeper, too. When Dow was going through a crisis in early 2009 related to its purchase of Rohm and Haas, Liveris indicated that he might sell this unit. I asked him if the company is still on the fence about this. He said that the company is “Not on the fence and fully on the farm.” Though the unit is small compared to competitors like Monsanto, Liveris said that the unit is “punching above its weight.”
- Dow’s acquisition strategy will be modest. The company is steadily digesting the debt related to Rohm and Haas. One might think that the company would be planning acquisitions again. Not so. Liveris says the company is only considering smaller acquisitions to round out his existing portfolio. He mentioned IBM, where Liveris incidentally is a director, as a model.
- Andrew Liveris is a Michigan Wolverine fan. I talked football with him while arranging my stationary on the conference table. He is very excited about the 5-0 start. I am too. I warned him, as a Michigan alum, not to put too much faith in a good Michigan start. (I was there.) He said it was a new era with new head coach Brady Hoke. I hope Liveris is right. But I’ll believe it when we beat Ohio State.
Nova had its second quarter earnings conference call yesterday. I was interested in whether the company would give more details about its plans to build two new polyethylene plants–one in Alberta and another in Ontario. As announced last June, the project also involves an upgrade and an expansion of its Corunna, Ont., cracker. When Nova is finished, the cracker will only crack natural gas liquids, mostly ethane from the Marcellus shale in the Pennsylvania area.
There are a few new details, not many, though I think I understand the project a little better now. Here are the takeaways:
1) The company will have a decision “shortly” on what pipeline plan it is going with. CEO Randy Woelfel says the company is currently analyzing Sunoco Logistics’ “Project Mariner West”. This project involves a 25-mile pipeline being constructed between MarkWest Liberty’s Houston, Pa., plant and Sunoco Logistics’ pipeline grid in Vanport, Pa.
2) There is enough spare capacity in Alberta—the site runs at operating rates of about 85%–to accommodate a new polyethylene plant.
3) Nova says that the total capital needed for Nova 2020 could exceed $1.5 billion over the next seven years.
I’m writing about the economy this week for C&EN. Scouring the world for economists that specialize in chemicals to quote (There aren’t many), I called CMAI looking for chief economist Tim Hopper.
He is no longer there.
Hopper was hired last November to replace long-time CMAI economist Arved Teleki. Hopper gave the economics presentation at CMAI’s conference in March. I was told over the phone that Hopper left about a month ago. I wasn’t told why, though I was assured that CMAI is in the process of finding a replacement.
IHS acquired CMAI in May and has a number of economists of its own in house.
Teleki played an important role in CMAI. His forecasts were important in underpinning the assumptions for analysis of specific chemical markets, for example, polyethylene market growth, and so on.
Here’s a development I find interesting. BASF and Total Petrochemicals are taking over Shell Chemicals’ interest in their Sabina joint venture.
Sabina started up in 2004 in Port Arthur, Texas, to extract butadiene from C4 streams. Two-thirds of these streams came from Shell’s Deer Park cracker. The rest was supplied by a naphtha-based cracker Total (then briefly known as Atofina) and BASF had just completed at the time. It started up with a capacity for 400,000 metric tons of butadiene. Sabina also alkylates iso-butene into octane for gasoline blends. The n-butene cut goes to a metathesis unit, giving the cracker venture greater propylene yield.
Shell owned 60% of the venture, BASF had a 24% stake, and Total had a 16% interest. With the change in ownership, Sabina will have a 60% BASF and 40% Total ownership, like their cracker venture.
Shell hasn’t put out a press release on this. When I asked the company why it was exiting the venture, they sent me this statement:
“Shell has signed an agreement to exit the Sabina venture effective August 1, 2011. This action fits well with the Shell strategy to streamline and concentrate its downstream portfolio. Shell plans to continue supplying our customers with product and accepting supply from our feedstock suppliers without interruption.”
The important context here is that like many other chemical makers, Shell has been moving to lighter feedstocks because of ethane from natural gas shale. Shell has even undertaken capital projects in Deer Park and Norco, La., to enable it to crack lighter feeds. As a result, Shell probably has less C4’s in its system now and likely can’t or doesn’t want to be tied up with the commitments to Sabina. If that is the case, I wonder if Sabina is now struggling to find C4s.
There has been about as much news this week about Dow Chemical as there has been about the debt ceiling. (These two stories have even converged). I almost want to rename this blog The (Dow) Chemical Notebook.
In addition to building a ethanol-based polymers plant in Brazil, a massive $20 billion complex in Saudi Arabia, and a strong beat on earnings, Dow is also selling its polypropylene business to Braskem for $340 million–6.7x EBITDA for you deal nerds out there.
I do have a few observations:
1) This is the least surprising deal ever. Dow has been vocal about selling the business; Braskem has been public about wanting to make another North American acquisition to follow its purchase of Sunoco’s polypropylene business.
2) Dow’s polypropylene catalyst and licensing business isn’t included in the transaction. Since it bought Union Carbide in 2001, Dow has done some really nice work in advanced donors for polypropylene catalysts, which have given the Unipol PP platform a shot in the arm. I am very curious to see what Dow does with that business. And for that matter, I am curious to see what the future has in store for Dow’s HDPE business—which it has indicated it might divest—and its stake in the Unipol polyethylene licensing firm Univation.
3) Dow’s release implies a sequel. “The two companies will continue to evaluate potential future collaborations on growth opportunities in connection with their strategies,” it said.
4) Nowadays, propylene is hard to come by in North America. I wonder what Braskem is doing about sources of it.
As you may have heard, Dow and Saudi Aramco are moving forward with their new, $20 billion project for the Kingdom of Saudi Arabia. If you haven’t heard, the news story I wrote yesterday has all the relevant details.
Here are a few more observations:
1) The joint venture will be called Sadara Chemical: “SA” stands for “Saudi Aramco”, “D” stands for “Dow”, “ARA” stands for “Arabia”. Dow CEO Andrew N. Liveris says “the word Sadara stands for progressive leadership, enhanced performance, and a status derived from quantifiable talent and proven mastery”. Um, OK.
2) The joint venture, ironically, is a major step forward in Dow’s transformation to more value-added chemicals. The idea here is similar to the one behind its major petrochemical investments in the U.S.: To back-integrate performance chemicals, such propylene derivatives and “solution polyethylene”. Also, there is a strong developing word orientation to the project. Dow projects that 70% of the output of this project will be marketed in Asia (~45%) and the Middle East (~25%). Dow operations downstream, such as a polyurethane systems house, at a newly established industrial park will be a large customer of the joint venture.
3) I don’t expect much creep upward in the cost of this project. The $20 billion figure is being billed as an upper limit. Engineering, procurement, and construction comprise $12 billion of the cost. Another $8 billion is financing, startup, and stuff. Liveris noted that about half of the costs of the major elements of the project, such as the ethylene cracker, are already locked in. That said, other projects in the Middle East over the last business cycle busted budgets considerably. My suspicion, however, is that Dow built that into the number it is putting out.
4) The venture is really ready to roll. “We have bulldozers moving to the site in two weeks,” Liveris said during a conference call. That said, I have heard chemical engineers chuckle at the notion of site preparation being a sign of progress.
5) This is one of Dow’s last major loose strategic ends. Dow has been kicking this project around since 2007. Originally it was supposed to go up in Ras Tanura, but the partners changed venue last year. Considering all Dow went through during the financial crisis, that is a very minor hiccup in such a major project. Many other companies might have just walked away.
6) Another Dow loose end involves PIC of Kuwait. Dow is seeking $2.5 billion in arbitration hearings from PIC because of the failure of the proposed K-Dow petrochemical joint venture back during the financial crisis. It was the government of Kuwait that scuttled the deal, not PIC. And given that PIC has been a good partner for Dow’s Equate joint ventures in Kuwait (as well as MEGlobal), I would imagine that Liveris is interested in finding a mutually beneficial, and I’m sure creative, solution to the problem. I personally think it involves the purchase of Dow assets, either through buying Dow out of existing joint venture(s) or by the formation of a new HDPE/PP joint venture around Dow’s existing assets.
7) SABIC has indicated an interest in building isocyanates and polyols plants in Saudi Arabia. I wonder if that will still happen now that an existing polyurethanes player is investing.