Dow Throws Cold Water On Coal

The talk of the chemical town this week was Dow Chemical’s Q2 earnings. The company’s 54 cents per share—excluding unusual items—fell a little short of the 56 cents that Wall Street was hoping for. Wall Street doesn’t like being disappointed, especially in a good earnings season when other chemical companies are overshooting forecasts. Investors chased Dow’s shares down Exchange Place and beat them up with tire thumpers. On August 3, the day of Dow’s announcement, shares closed down 11% versus August 2, to $25.50. With the earnings, Dow officially admitted it is moving its project with Saudi Aramco from Ras Tanura to Al Jubail. Rumors saying as much have been around since early spring. Dow says it will wrap up front end engineering in 2011. It seems like the company would rather use existing infrastructure in Al Jubail rather than start from scratch in Ras Tanura. I wonder if it is being scaled down with the change in venue. Back in 2007, estimates for the construction were running as high as $20 billion and Andrew Liveris was promising it would be the “The Freeport, Texas, of the emerging world.” In the conference call, Liveris said propylene oxide and epichlorohydrin were part of the project slate. Dow was saying as much back in 2007. During the conference call he also mentioned acrylic acid. That might be a sign that its acquisition of Rohm and Haas is influencing the scope of the project. One Liveris statement from the conference call worth parsing is this:
“We’ll get the Aramco project, the Jubail project, up and running in the mid-part of the decade, and the China project will come in the latter part of the decade.”
There is nothing surprising about the Aramco project timing. Four to five years after engineering is completed is a reasonable timeframe for a project of its magnitude in Saudi Arabia, which has a good track record for getting energy and chemical projects done. Dow has been talking about the Aramco complex since about 2006. One can call a mulligan on the delays. A little birdie once told me that the Saudi's weren't particularly enthusiastic about Dow’s proposed—and subsequently failed—attempt to sell the half of its commodity chemicals business to the Kuwaitis. That might have slowed the project a little. And Rohm and Haas and the financial downturn certainly did as well. If Dow does get the project off in less than ten years after it first talked about the project publically, that would be a solid accomplishment. The other part of Liveris' remark was about its proposed coal-to-chemicals project with Shenhua in Shaanxi Province, China. He was basically telling analysts not to expect that project before 2020. It’s 2010. That’s a long time to have a project cryogenically frozen.

Author: Alex Tullo

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