Loeb To Dow: You’re No LyondellBasell
May01

Loeb To Dow: You’re No LyondellBasell

In an investor letter, Daniel Loeb, who heads the hedge fund Third Point, a major Dow Chemical shareholder, gave his constructive critique of Dow’s strategy. Dow, he says, should be earning $2.5 billion more than it currently does. The letter was by no means scathing. He praised Dow’s share buyback program. He acknowledged that Dow has pledged more transparency, but he wants to see more. Specifically, he wants Dow to disclose its transfer pricing methodology between its petrochemical units and its downstream derivatives businesses. Without this, it is impossible to tell whether the Eeedstocks and Energy segment is subsidizing the Performance Plastics segment. In other words, where is the company really adding value? And overall, Loeb says, Dow isn’t adding enough value. And whom does he compare Dow to? LyondellBasell: “Dow has ~30% more North American ethylene capacity, triple the Middle Eastern ethylene capacity, and more North American derivatives capacity than Lyondell, yet the two companies generate the same amount of EBITDA in their respective petrochemical businesses,” Loeb wrote. (Both first have about $6 billion.) Loeb also analyzed Dow’s capacity against industry average margins and probable feedstock slates to get at the $2.5 billion figure. (LyondellBasell was close to being right where it should be.) Loeb isn’t a big fan of Dow’s strategy of integrating its petrochemicals might with downstream derivatives. This means Dow needs more people, administrative expenses, R&D, facilities, etc. “Dow’s headcount is ~2.5 times more than Lyondell’s, which is not a reflection on poor efficiency, but rather that Dow is engaged in numerous downstream derivatives that Lyondell is not,” he wrote. He wasn’t finished. “Given Dow’s decision to exit chlor-alkali, it appears that Dow believes that its Ag Chemicals and Ag Biology businesses do not derive value-add differentiation from chlorine integration. We take this one step further and question whether Dow’s specialty segments need ethylene or propylene integration.” Loeb makes some good arguments. The transfer pricing point to me is most intriguing. I wonder if the company squanders value by dipping into its presumed feedstock subsidies by underselling rivals. The ability to do that would strike me as a temptation that’s hard to resist. I also wonder if a possible solution is for Dow to throw its U.S. crackers into an master limited partnership, like Westlake is doing. Problem solved.    ...

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Amusing News Aliquots
Apr25

Amusing News Aliquots

Silly samplings from this week’s science news, compiled by Sophia Cai, Bethany Halford, and Jeff Huber. If you’re going to catch an 800-lb shark and hope to keep it quiet, best to have a full tank of gas. [Grind TV] The powdered alcohol saga continues to confuse the Newscripts gang. [Time] It took thousands of years of chopping to design this physics-exploiting, high-tech wood ax. How many more before we don’t have to manually chop wood? [Geek] Detroit’s airport has just added an indoor dog bathroom to one of its terminals, because if there’s one thing that takes away from the stress of having to catch a connecting flight, it’s the smell of dog urine. [Gizmodo] The dress code at this giant panda research center in China was not exactly what we expected. [Guardian] Yeah, yeah, correlation doesn’t equal causation. But chocolate consumption clearly doesn’t hurt your chances of winning a Nobel Prize. [Business Insider] This week, a Boston couple gave birth to the second-biggest baby ever born at Massachusetts General Hospital: 14 lb, 8 oz. The prodigious size of the infant’s feet means that the child is already a huge Sox fan. [Boston Globe] There are vegetable gardens. There are flower gardens. And then there are boozy cocktail gardens. [WTOP] Bird couples are all over the map in terms of divorce rates. Flamingos? An laughable 99%. But albatrosses? 0%. Danggg, ‘trosses. [NPR] The owner of an pet duck is being sued for $275,000 after a neighbor sustained injuries during a violent encounter with the animal. Representatives for the duck’s owner say the level of compensation demanded is unfounded and that they hope to negotiate down to a smaller bill....

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The Enterprise Ethane Terminal Is Quite Large (UPDATED)
Apr24

The Enterprise Ethane Terminal Is Quite Large (UPDATED)

As you may have heard, Enterprise Products Partners plans to build an ethane export terminal in Texas. It will have a capacity of 240,000 barrels of ethane per day. Let’s convert that number from the oil perspective into the petrochemical one. According to John Stekla, formally the olefins guru at IHS and now with Williams Cos., 1 million metric tons of ethylene production consumes about 63,000 barrels per day of ethane. So that means that the Williams facility, IF it ran at full capacity would export enough ethane to feed 3.8 million metric tons of ethylene production. That is more than two new world scale ethylene plants. You may be wondering why I have CAPITALIZED, italicized, and bolded the word if in the preceding paragraph. Dow CEO Andrew N. Liveris, at least, is criticizing the project and doesn’t seem to think it would run at full capacity. Dow reflexively complains about every development that could mean petrochemical feedstocks leaving the U.S. They have been fighting hard to block Department of Energy approval of LNG export facilities to non Free Trade Agreement countries. Bloomberg reporter Jack Kaskey knows all this and asked Liveris for his take on the ethane export terminal. Upon hearing an utterance that ends in a question mark, Liveris started talking. “It’s high risk, because the oil-gas arbitrage that we have baked into our assumptions for our investments is half of what it is today.” In other words, oil prices will decline relative to gas prices, which would make the export terminal less attractive. “There is nothing that we see as concerning about that announcement,” he added. (Every time “concerning” is said when “disconcerting” is meant, a kitten falls down a well.) Chemical Notebooks take: If the arbitrage is so fleeting, why is Dow building so much ethylene and propylene capacity on the premise of an enduring advantage? Moreover, if Enterprise truly intends to build the terminal then Enterprise believes that the project will earn its cost of capital. For that matter, companies such as Ineos seem to think that importing ethane from the U.S. also earns the cost of capital of building receiving facilities. What we have here is a mere difference of opinion. Either that, or Liveris isn’t being serious in his assessment or Enterprise isn’t really considering building the terminal. I would add that the premise of the investment is a big glut of ethane. The petrochemical industry isn’t building capacity fast enough to soak it all up. The Enterprise project is timed for 2016, a little in advance of the flood of new ethane capacity. It could be that Enterprise needs to export...

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Updated: Louisiana Still Backs Project Planned By Russia’s EuroChem
Apr18

Updated: Louisiana Still Backs Project Planned By Russia’s EuroChem

Back in July 2013, the Russian fertilizer maker EuroChem, in a joint press release with Louisiana governor Bobby Jindal, announced it was planning to build a $1.5 billion ammonia and urea complex in Louisiana. At the time, the announcement was just one in a long line of chemical and fertilizer projects meant to take advantage of shale. The project seemed plausible enough. There have been plenty of foreign companies planning large U.S. projects–for example, South Africa’s Sasol, which is working on an ethylene cracker and gas-to-liquids plants in Louisiana. At the time of the announcement, EuroChem had just completed its purchase of BASF’s European fertilizer business. Certainly, like Braskem and SABIC before it, EuroChem is one of those companies outgrowing the cradle of its home market. Louisiana offered good incentives to EuroChem. It sold a tract in Iberville Parish to the company for $12 million. In the original announcement, the state also said it would give EuroChem an $8 million grant as well as other incentives. So what has happened since the announcement? Russia has annexed Crimea. And Vladimir Putin appears ready and willing to salami slice more of Ukraine. (We’ll see if the agreement between Russia and the U.S. to deescalate matters will, in the long run, be a turning point or merely an intermission.) Will the State of Louisiana still support the project under such circumstances? Would EuroChem still want to go through with it? Sasol, we should remember, divested from a complex in Iran when protests over it seemed to jeopardize its Louisiana projects. It isn’t outrageous to suppose that the EuroChem plant might be one of Russia’s costs of taking over parts of a sovereign nation. I put the question to both the State of Louisiana and EuroChem. EuroChem didn’t get back to me. I am not surprised. Louisiana Economic Development, the state agency that promotes investment, did comment with a quote attributable to Stephen Moret, Secretary of Economic Development, State of Louisiana: “LED remains in full support of the project.” Not exactly William Henry Harrison’s inauguration speech, but it gets the job done. It might also be the smartest answer. Foreign policy is the responsibility of the Federal government, not a state’s. And should a state decide to pull support for an investment because it didn’t like the foreign policy of a company’s home country, it would send the message that the state conducts its business arbitrarily. That could have a chilling effect on investments from China, Saudi Arabia, and any other country that could one day butt heads with the U.S. government or run afoul of American populist sentiment. UPDATE: Eurochem has responded,...

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Amusing News Aliquots
Apr17

Amusing News Aliquots

Silly samplings from this week’s science news, compiled by Sophia Cai and Bethany Halford. Veggie view: MRI of broccoli. Credit: Inside Insides via OffBeat Finally, the all-important medical techniques being used to create awesome Internet posts. Observe: MRIs of fruits and vegetables. [OffBeat] How chemists help Cadbury create those crazy crème eggs and other Easter goodies. [Guardian] Bad news, nappers. Not only are you missing out on life while snoozing, you’re also going to die young. [Gawker] In a risky experiment involving voodoo dolls, snack deprivation, and couples therapy, researchers show that “hanger” (hunger-induced anger) exists. [NPR] One way to avoid hangry prom dates? KFC corsages, of course. [NBC News] Not really science news, but this Nebraska toddler who found his way into one of those claw machine things is some sort of genius, right? [Huffington Post] Macro lens meets photogenic molluscs. These snail pictures almost make us want to invite these guys into our gardens. [Bored Panda] When seeking treatment for rare genetic disorder, researchers go through the trouble of cloning goats. Why? “It is cheaper to feed goats than to feed cell lines,” they say. [Digital...

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Chemical safety tidbits and papers, from OPRD
Apr09

Chemical safety tidbits and papers, from OPRD

A tweet from Chemjobber that Organic Process Research & Development editor Trevor Laird is retiring at the end of the year made me realize that I forgot to highlight OPRD’s annual “Safety of Chemical Processes” section at the end of last year. Making up for the omission: Laird’s editorial: “There is a long way to go to educate and train to a high standard all chemists working in laboratories and chemical plants and to minimize the number of these incidents, which lead to damage to buildings and loss of profits, as well as loss of life. Companies always measure the cost of doing something (e.g., training) but never measure the cost of not doing something; there is a cost of not training staff, however, just as there is a cost associated with not complying with regulations (e.g., FDA regulations).” Safety Notables: Information from the Literature, including notes about Togni’s reagent, dimethylsulfoxide, hydroxylamine, peroxides, dimethyldioxirane, nitro-explosives, and safer reagents for a number of reactions Hydrazine and Aqueous Hydrazine Solutions: Evaluating Safety in Chemical Processes, from Lilly Research Laboratories Safer Preparation of m-CPBA/DMF Solution in Pilot Plant, from Suzhou Novartis Pharma Technology Process Safety Evaluation To Identify the Inherent Hazards of a Highly Exothermic Ritter Reaction Using Adiabatic and Isothermal Calorimeters, from Mylan Laboratories Safe Scale-Up of a Hydrazine Condensation by the Addition of a Base, from AbbVie Merck’s Reaction Review Policy: An Exercise in Process Safety, from...

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