Category → Miscellaneous
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.
Eurochem has responded, and they don’t seem inclined to back off either:
“EuroChem remains fully committed to establishing a presence in Louisiana,” a spokesperson tells The Chemical Notebook.
The company, and Indian polyethylene terephthalate producer, disclosed that it was putting the project “on hold” as part of its earnings back in August.
This is a far cry from the original announcement in September 2012, which took the form of a joint press release between JBF and Coca-Cola. JBF would have built a 500,000-metric-ton plant that would have derived ethylene glycol from cheap Brazilian ethanol. Coke would have used the glycol as part of its PlantBottle program, which incorporates bio-based glycol instead of synthetic glycol in the PET resins used in its soft drink bottles.
The Chemical Notebook learned about the JBF cancellation development at IHS’s recent Latin American Petrochemical Networking Meeting. Otávio Carvalho, principal of the consulting group MaxiQuim, listed the cancellation in a presentation slide.
I asked Coca-Cola whether the cancellation had broader implications for the PlantBottle program. The company denied that it did. Coke blamed the cancelled project on “unexpected construction costs an a challenging economic environment”. The company said further that it is in discussions with other firms on a new glycol project. The talks may proceed for several months. Coke doesn’t expect such a plant to come onstream before 2016, which would amount to a delay of about a year versus JBF’s plans.
Coke also said that it is still working with Virent, Gevo, and Avantium, on a route to a bio-based alternative to terephthalic acid.
The JBF project always seemed like a stretch. This is an Indian PET company, albeit with a good track record of building projects overseas, constructing a glycol plant in Brazil, a bio-based glycol plant at that. Braskem, Oxiteno, or Dow would have seemed like more likely candidates. I suspect a few such firms did sniff out the project two years ago and decided that the setup Coke had in mind wouldn’t earn the cost of capital. (Actually, I know that one of the companies did exactly that at the time.)
Momentive Performance Materials is threatening bankruptcy.
Moments ago the company filed an NT 10-K with the Securities and Exchange Commission. It is what a company files when it can’t file its 10-K annual report on time. The company says it is in negotiations with creditors and notes that a Chapter 11 filing is a strong possibility. Momentive Performance Materials is the former GE Silicones business, which the private equity firm Apollo Management bought for $3.8 billion in 2006. Momentive’s filing reads:
The management of Momentive Performance Materials Inc. (the “Company”), a wholly owned subsidiary of Momentive Performance Materials Holdings LLC, has determined that the Company is unable to file its Annual Report on Form 10-K for the period ended December 31, 2013 on March 31, 2014, without unreasonable effort or expense because, for the following reasons, management needs additional time to analyze and finalize the Company’s financial statements.
The Company is currently in active discussions with various stakeholders regarding alternatives to modify its capital structure and reduce the Company’s leverage. The Company has been required to devote key personnel and administrative resources, including the personnel and resources of its accounting and financial reporting organization, to matters relating to these discussions. The Company believes these discussions will be concluded shortly. As part of this process, a filing under Chapter 11 of the U.S. Bankruptcy Code may provide the most expeditious manner in which to effect a plan of reorganization that may be proposed by the Company. However, there can be no assurance that an agreement can be reached with the Company’s stakeholders or that any transaction with the Company’s stakeholders will be consummated.
Although the Company is currently in compliance with the indentures governing its outstanding notes and its credit agreements, the Company has concluded there is substantial doubt about its ability to continue as a going concern for the next twelve months and expects that the audit report by its independent public accounting firm, with respect to the financial statements to be included in the Annual Report on Form 10-K, will contain an explanatory paragraph expressing substantial doubt about the Company’s ability to continue as a going concern. The going concern issue has generated substantial additional disclosures and has required the Company to change certain assumptions related to balance sheet classifications, certain debt-related deferred costs and income taxes.
For these reasons, the Company has not been able to file its Annual Report on Form 10-K for the year ended December 31, 2013 within the prescribed time period. Management is diligently working to close its books and records and to complete preparation of the financial statements as soon as practicable.
For the first time, IHS put on a Technology Seminar as part of its World Petrochemical Conference activities last week. Don Bari and Jeff Plotkin, both formerly with Nexant, organized the gathering. At more than 100, the attendance was pretty good, especially for an inaugural event that is part of a larger conference.
The first speaker was Guido Radaelli, vice president of engineering at Siluria Technologies, which is working on the oxidative coupling of methane (OCM) into ethylene. The term Holy Grail is thrown about often in the chemical industry. But it is no exaggeration for this technology. If perfected, such a technology would bestride the chemical world like a colossus. One leg would be that methane is a cheaper and more plentiful raw material than ethane. The other leg would be the considerable energy savings over ethane steam cracking because methane conversion would be exothermic.
With such rewards, many have tried before and failed,notably Arco and Union Carbide, which both had serious programs along these lines in the 80s.
Things are going fairly well for Siluria. The company is partnering with Braskem to build a demonstration plant in Texas. It also unveiled an ethlylene-to-liquids technology that would convert ethylene into aromatics and transportation fuels. They’ll need some pretty cheap ethylene to make that work.
Which brings us back to Siluria’s progress on OCM. Radaelli said that the company has made more headway than any company ever has in methane conversion into ethylene. The activity of the catalyst is higher, he said. The operating conditions are “many hundreds of degrees lower”. (I think this is one of the main factors that killed previous efforts.) The Siluria catalysts last years, not days, unlike previous efforts. Conversion and selectivity are thus far the same as they had been in the past.
I was a little surprised to find out what actually happens in the process, as there is some ethane cracking occurring. It is powered by the heat of the conversion of methane into ethylene. I have included Siluria’s slide of the block diagram as well as one describing feedstock use.
Radaelli claims economic advantages over (conventional?) steam cracking. He said that, hypothetically, if a company were to build a 1,000,000 metric ton ethylene cracker and a 1,000,00 metric ton plant using Siluria’s technology, Siluria’s technology would have been more profitable to run in each of the four years beginning in 2009. Similarly, if a company would have built a 75,000-metric-ton plant using the Siluria technology in 2014, it would have by now saved more than $100 million in ethylene purchases. (The stand alone back-integration scenario seems to be a target for the technology.)
As you have may have heard, Dow Chemical plans to sell more businesses. Back in December, the company said it would get rid of its epoxy resins and chlorine-related business, which would make the bulk of $3.0 to $4.0 billion worth of divestitures. Mind you, these numbers here are a little funky. They refer to the pre-tax proceeds to Dow from transactions that aren’t necessarily even being negotiated yet. However, the company tends to get strong valuations when it sells businesses, so I would expect that the proceeds from deals would be within the range and even towards the top of it.
Last week, at an investor event in Saudi Arabia, the company announced it would put an additional $1.5 to $2.0 billion in businesses up for sale. CEO Andrew N. Liveris wouldn’t say what the businesses are, but he would certainly characterize them. They would be nice businesses, likely coming out of its Performance and Functional Materials units, and perhaps reasonably profitable. But they would be more meaningful to potential buyers than they currently are to Dow. They would be, Liveris promised, “Lots of small, little businesses that you never even track, that you never follow, and that you never even knew we had.”
He was addressing analysts, thus casting a wide net. They are only acquainted with the solid form of ethylene known as polyethylene and Dow AgroSciences.
The Chemical Notebook takes Liveris’ remarks as a challenge. What are the most obscure Dow businesses? Two that jumped out at me are are Dow Plastics Plastics Additives And Dow Oil & Gas. Dow put the plastics additives unit up for sale last year and then withdrew it from the market. Oil and Gas is tiny, about $270 million in annual sales. It is a market facing unit that sells chemicals for oil and gas exploration and extraction. This is a very marketable business, with companies such as Solvay and Ecolab plunging further in this area. My only reservation about Dow selling this business is that the chemistry on offer in oil and gas overlaps with other Dow businesses.
Additionally, I combed through Dow’s Product Safety Assessment Finder, which by the way, is a great source of information for many chemicals. I asked question “what are the real oddball businesses?” Here are few (Don’t take this as a list of possible sales, though. Some, as you will see, are likely keepers.):
Silicones and Feel Modifiers: These sound dirty. They’re not. They are used in leather finishing. They also sound like something Dow Corning would sell. With a tradename like ROSILK, I’ll guess these came from Rohm and Haas.
ADSORBIA Adsorbent Media: Did you know that Dow offers titanium dioxide based adsorbent media? Now you do. Dow has a market-facing water treatment businesses, so while Dow selling something made of TiO2 sounds strange, it does seem like this is part of a complementary market offering.
Stannous Fluoride: This is fluoride…for toothpaste. Take that, Cavity Creeps!
Markers and Dyes: These are markers and dyes used to color fuel. Why would you color fuel? So you can easily tell different kinds of fuels apart. For instance, diesel and number 2 oil are taxed at different rates. Home heating oil is taxed at the lower rate. It gets a red dye to prevent and detect its illegal use as a transportation fuel. I know this because heating oil was the Tullo family businesses. Also, we drove diesel cars, including that terrible Oldsmobile, in the late 70s. This seems to be another one that came from Rohm and Haas (Morton to be precise), as the brand name MORTRACE is associated with this business.
Nickel-plating process products: I never knew Dow did this. However, don’t think trophies and baby shoes. This business primarily serves the electronics industry.
Infrared Materials: These are zinc selenide and other specialty glass materials. Dow sells them as shapes that are pressed into lenses for infrared sensors, night vision goggles and so forth. These don’t strike me as particularly dangerous materials unless the Marines are after you at night.
Powerhouse Solar Shingles: These are photovoltaic cells that are easier to install and more inconspicuous than conventional polysilicon solar cells. This is a good business and addresses a need. However, I never fully understood why Dow is in this business. It has kind of a pet project feel, so it could be a keeper for a while. But I think that Dow will sell this business eventually.
Borohydride and other boron based compounds: These are used as chemical intermediates, largely in fine chemicals. Similarly, Dow also supplies trimethyl borate. My boss, Mike McCoy, swears that this business, another Rohm and Haas joint, is sizable, with perhaps tens-of-million-of-dollars in revenues. I don’t doubt that. It does seem like a vestige, one that doesn’t seem difficult to carve out.
Back in March 2011, I jotted down on my notebook a ranking of companies most likely to build a U.S. ethylene cracker. It was to be a post for this very blog. But before I got around to posting it, Chevron Phillips announced a cracker project, stealing my thunder. I didn’t end up putting it up.
And thank goodness for that. It was a pretty cruddy list. I can’t find it now, but I am pretty sure that Shintech, SABIC, and LyondellBasell were on top. None of these has formally announced a project.
That said, now that we are approaching the construction phase for the projects that have been announced over the last three (three!) years, it might be worthwhile to compile a ranking of how likely it is that the projects will be built (at something resembling their appointed schedules and without major modifications).
Welcome Plastics News readers! And thanks, Don, for the kind words.
1) Chevron Phillips: The company is building a cracker in Baytown, Texas, and a pair of polyethylene plants in Sweeny (Old Ocean), Texas.
Probability: nearly 100%. Only meteors or aliens could stop this one. I just interviewed Ron Corn, who has been in charge of these projects for the last couple of years. The sites have been prepared. The equipment, and even the structural steel and pipe, have been ordered. The contracts and the air permits are in hand. Construction is set to begin in earnest within months.
2) Dow Chemical: The company is building a cracker in Freeport, the keystone of a program that is also seeing the company build a propane dehydrogenation plant and reopening a cracker in Louisiana. The dehydrogenation plant is already under construction.
Probability: 90%. Like Chevron Phillips, it seems that equipment and contracts are in place. A draft permit from EPA came for the facility this month. That said, Dow has an unrivaled capacity to change its mind on capital expenditure decisions. (Remember the crackers in Oman, Russia, and India? The Michigan battery plant? Ethanol-based polyethylene in Brazil? The Canadian wheat straw composites plant?) However, what Dow is doing on the Gulf Coast is much less risky than any of those things. The company did originally promise a second PDH plant, which I would say is a little less probable than its other builds in the region.
3) ExxonMobil: The company is building a cracker in Baytown and polyethylene capacity in Mont Belvieu.
Probability: 85% There have been challenges to the environmental permitting here. I doubt that would be enough to sideline the project.
4) Formosa Chemicals and Plastics: A medium-sized ethylene cracker and propane dehydrogenation unit as well as a polyethylene plant at its Point Comfort, Texas, plant.
Probability: 80%. The company hasn’t said a lot about the project since it was announced in February 2012. Having built a cracker in Point Comfort a little more than a decade ago, the company has a proven track record. Plus the project is more modest than some of the other plans companies have for U.S. petrochemical capacity.
5) Occidental Chemical/Mexichem. A smallish cracker in Ingleside, Texas. The cracker will feed an Oxy vinyl chloride monomer plant. Mexichem has an offtake for the VCM, which it will export to integrate its polyvinyl chloride operations.
Probability: 70%. This one is a little less likely than the others, though it is somewhat out of the gate. Mexichem is already expanding VCM capacity in Mexico. Maybe it needs more, maybe not. Oxy is back integrated into upstream oil and gas and needs an outlet for natural gas liquids. It is building fractionation capacity in Ingleside. However, Oxy already owned a cracker in Corpus Christi. It contributed it to Equistar. Now Lyondell owns it and is presumably a major Oxy ethylene supplier. I would be shocked if the Oxy and Lyondell haven’t discussed an NGL supply agreement with an ethylene offtake for Oxy. I would be surprised if such a low capital approach wasn’t still an option today.
6) Sasol: A cracker and derivatives in Westlake, La.
Probability: 65%. This is the aperitif to Sasol’s $16 billion gas to liquids project. Sasol tells me that a final investment decision hasn’t been made. So, at the very least, I would look for a delay beyond the 2017 startup. However, the community has invested a lot in this plant. Sasol has also divested an Iranian joint venture to prevent a regulatory holdup to its plans in Louisiana. Some 80% of property owners surrounding the plant have signed on to Sasol’s land acquisition plan.
7) Axiall/Lotte: An ethylene cracker and downstream derivatives somewhere in Louisiana.
Probability: 50%. On the one hand, I am under the impression that having the heft to pursue a project like this is one of the reasons that PPG’s chlor-alkali unit and Georgia Gulf merged. However, the project is new and not defined yet.
8) Shell: An ethylene cracker along with polyethylene and other derivatives in Monaco, Pa.
Probability 30%. This project is not on the Gulf Coast, so lack of connectivity with the rest of the chemical world is a big disadvantage. Shell would have to reenter the polyethylene business. Shell did cancel a gas-to-liquids project, making it a little more likely that the company will allocate capital for the chemical plants. But that is like a turkey concluding he’ll never be eaten because he wasn’t the one dragged to the stump on Thanksgiving morning. The best that can be said that is that Shell really loves chemicals now because it compares favorably to refining.
9) Odebrecht: A cracker in Parkersburg, W.Va, and polyethylene plants. Odebrecht affiliate Braskem would market the output.
Probability: 29%. Just slightly less likely than the Shell project. It should be noted that Braskem and Idesa are already building an ethylene cracker in Mexico that is well underway. So my only real reservation about this project, other than the same isolation issues for Shell, is that another Braskem project in the NAFTA region will be like another trip to the smorgasbord. (Or leaving the rodizio card greenside up?) However, investing in petrochemicals in South America isn’t a great option for the foreseeable future. Braskem would be wise to invest in North America while there is an opportunity to do so.
10) Total Petrochemicals: The company is contemplating a cracker in Port Arthur.
Probability 25%. Lowest on the list only because the project isn’t clearly defined.
Last week, the Chemical Notebook headed to New York City to attend the 2012 IHS Chemical Financial Forum. Nice event, attended by 60 or so. It was emceed by Robert Westervelt, editor-in-chief of IHS Chemical Week. My dear longtime frenemy did a masterful job moving the conference along and asking good questions, as he usually does.
It was a day packed with a lot of good speakers. Curt Espeland, chief financial officer of Eastman Chemical, gave the keynote, which was an overview of his company’s merger and acquisition strategy. This is a pretty timely topic given that Eastman is set to complete its $4.7 billion acquisition of Solutia next month.
Eastman’s current M&A strategy is rooted in the turnaround that former CEO Brian Ferguson led a decade ago. Eastman had been a serial acquirer. It made expensive purchases of publicly traded firms like McWhorter Technologies and Lawter International to build up its coatings, adhesives, specialty polymers, and inks (CASPI) business. The acquired business didn’t congeal as planned.
When Brian Ferguson took over in 2002, he initiated a three-part strategy for the company, Espeland says. The first part: Shrink before you grow. Eastman sold off $3.2 billion worth of business since 2002. This includes the sale of a large chunk of the CASPI-related businesses it had bought. Momentive now has those units. Eastman sold its polyethylene business to Westlake.
A series of divestitures got Eastman out of polyethylene terephthalate. “Before we started this journey, we were the largest PET producer in the world,” Espeland told the audience. “Today we don’t even make the product in any meaningful way.” Worth noting here is that while it got out of commodity packaging polymers, Eastman kept specialty polyesters, leaving intact a core chemistry capability. This seems to be paying off with its Tritan polymer.
The next part of Eastman’s strategy: Earn the right to grow. This entailed improving the profitability of the business that it kept.
Now with new CEO Jim Rogers, Eastman has switched to its third phase: growth. “Joint ventures and acquisitions has become the primary tool we’re using to pursue that strategic shift,” Espeland said.
Curiously, the pre-Ferguson era fomented queasiness over acquisitions at Eastman. “In fact, we had a negative bias against acquisition because of our history in the late 90s,” he said.
Management had to reverse that. The company started out small, focusing on small “bolt-on” acquisitions. Through purchases such as Genovique Specialties and Sterling Chemicals, Eastman has quietly doubled the size of its non-phthalate plasticizer business, to $600 million.
These acquisitions helped Eastman build capability and confidence—enough to attempt the purchase of Solutia, a deal about 30 times larger any purchase it has contemplated in the current era.
Espeland says the strategic fit between Eastman and Solutia justifies the scaleup. The two firms, he said, are similar in profile. Following its 2003 bankruptcy, Solutia also went through a shrinking phase, getting rid of businesses such as nylon.
Moreover, Solutia is built around strong market positions in business like its Saflex polyvinyl butyral glass interlayer sheet and its insoluble sulfur tire vulcanizing agent. Eastman sees synergies with these businesses. For instance, the company hopes to introduce cellulose-based specialty polymers into tires.
Additionally, and this isn’t something that Espeland highlighted in the talk, there seem to be manufacturing synergies as well. Eastman makes or buys eight of Solutia’s 10 most important raw materials. For instance, Eastman is the largest U.S. producer of n-butyraldehyde, used to make PVB. It’s interesting that Eastman is contemplating building metathesis in Longview, Texas, which would give it more propylene and further enhance the back-integration of its oxo-business.
To listen to Espeland, it doesn’t seem that Eastman is done making acquisitions, though it will pause at it digests Solutia. “After we get through a period of deleveraging, Eastman will be in a position of strength and have the cash to continue to do joint ventures and acquisitions,” he said. When asked about the M&A environment, he joked that while landscape was rife with acquisition targets “no one should look at chemical deals for the next year as we deleverage.”
Shell Chemical has selected the Pittsburgh area town of Monaca, Pa., as the site of its new ethylene cracker complex. Actually it will be in Potter and Center Townships, which are near Monaca, Pa. (Pop. 6,286, according to Wikipedia). But that narrows it down a lot more than what Shell was previously saying: “I don’t know, Appalachia somewhere or something.”
Monaca is a bit of a chemical town. It is host to a Nova complex that makes Arcel polystyrene resins for foams and expandable polystyrene. Nova calls this the Beaver Valley site. (If that name conjures an image of a valley teaming with beavers felling trees willy nilly, I know the feeling.)
This doesn’t mean that the plant is a done deal. As its press release explains:
“The next steps for this project include additional environmental analysis of the preferred Pennsylvania site, further engineering design studies, assessment of the local ethane supply, and continued evaluation of the economic viability of the project.”
The company isn’t saying much more about the project. It will feature an ethylene cracker and downstream polyethylene and ethylene glycol plants. We already knew about that. There’s nothing new about the size or the timing.
I do have a couple of thoughts about the project:
1) Isolated ethylene and derivatives complexes never work out. If the ethylene cracker goes down, how do you run the derivatives plants and where does the ethane feedstock go? If one of your derivatives complexes goes down, do you run the cracker at reduced rates? It would be nice to see another cracker complex built in the neighborhood that would be connected to the Shell site. I suspect that we’ll probably hear from another company with cracker plans in the region before long.
2) I doubt Shell will build its own polyethylene plant. It hasn’t had any skin in the polyolefins game since it sold its stake in Basell to Access Industries in 2005. I am expecting a partner of some kind on the polyethylene unit. If it does go it alone, I would think that the plant would spew out commodity grades of polyethylene. One example of such a product would be high-density polyethylene for extrusion blow molding—used to make milk jugs. Shell would need something that is relatively easy to sell. Also, the company wouldn’t want to do a lot of switching of grades at the plant because of potential problems with excess ethylene, as I mentioned above.
All this aside, it is great to see such a big chemical plant being contemplated for the region.
Warren Buffett’s annual letter to Berkshire Hathaway shareholders is out this week. Normally, the annual letter of one of the most widely read documents in the business world. This year, given that Warren Buffett has been in the news so much recently with the Buffett Rule and all, it is probably being perused more closely than usual.
There is something for the chemical industry in the letter:
On September 16th we acquired Lubrizol, a worldwide producer of additives and other specialty chemicals. The company has had an outstanding record since James Hambrick became CEO in 2004, with pre-tax profits increasing from $147 million to $1,085 million. Lubrizol will have many opportunities for “bolt-on” acquisitions in the specialty chemical field. Indeed, we’ve already agreed to three, costing $493 million. James is a disciplined buyer and a superb operator. Charlie and I are eager to expand his managerial domain.
I wrote up a small story in C&EN based on this passage. The idea being that Lubrizol is on the hunt for more small acquisitions. My boss, assistant managing editor Mike McCoy, had an even more interesting interpretation of the line “eager to expand his managerial domain.”
Mike suggested that maybe “managerial domain” would extend to the whole of Berkshire Hathaway. In other words, perhaps Buffett has Hambrick in mind as a successor.
I snickered at first. It seems like a crazy idea because it would have Buffett giving the keys to the kingdom to someone who has only been with the company since September. And Hambrick would go, in relatively short order, from running a mid-sized specialty chemical maker to heading all of Berkshire-friggin’-Hathaway.
BUT…Mike isn’t the only one to so speculate. This well-reasoned article by Harry Wallop in the Telegraph puts Hambrick as one of four possible candidates along with BNSF CEO Matthew Rose, reinsurance chief Ajit Jain, and Geico boss Tony Nicely.
The “eager to expand his managerial domain” appears in paragraph following the revelation that he has come up with an unnamed successor and two backup candidates. Why was James Hambrick the next thought to come to mind?
The phrase “eager to expand his managerial domain” is a cutesy way of hinting at a successor. Warren Buffett is fully capable of cute. Here he is playing the ukulele on television.
Another line from the letter that I would like to overanalyze is this: “James is a disciplined buyer and a superb operator.”
That is an enormous compliment coming from Warren Buffett. Picking stocks and buying companies is what Warren Buffett does. Go to any business section of any book store and you’ll oodles of books on Buffett’s methods. (One in this genre, The Intelligent Investor by Buffett’s mentor Ben Graham, is essential business reading.) Buffett calling Hambrick a disciplined buyer is kind of like John Elway saying “nice pass” to a kid tossing a football around on the beach.
Lubrizol’s track record of acquisitions is pretty good. The Noveon acquisition back in 2004 diversified the company away from lubes and additives. A couple of years ago it did lose a bidding war to BASF for Cognis. Backing off might have taken some discipline.
Another interesting deal was its purchase of Dow’s thermoplastic polyurethanes business for $61.4 million at the end of 2008. The business generated $74 million in revenues in 2008. The deal occurred right when Dow’s JV with PIC of Kuwait broke up and the company was left struggling to finance its purchase of Rohm and Haas.
Last year I was talking about that period in Dow’s history with Dow CEO Andrew Liveris. “One of the assets, I won’t tell you which one, I think we sold in a rush,” he said. “It was a small sale so it didn’t matter.” I suspect, but obviously don’t know, that he meant the thermoplastic polyurethanes unit. If that is the case, I wonder if Buffett, who holds billions of dollars worth of Dow preferred stock, noticed.
Let’s not forget that Buffett isn’t planning to step down while he is still able to function and wow us with mean uke solos. He’ll have plenty of time to groom a successor.
I am working on C&EN’s annual world outlook piece. I put together this table for that package. These are all the formal announcements of new ethylene capacity in the U.S. It doesn’t count companies, such as Formosa, which have been studying new capacity but haven’t put out anything official. It also doesn’t include Nova’s expansion plans in Canada.
The grand total is nearly 7 million metric tons of new capacity. That is about 5% to 6% or the present world total. Moreover, all of this capacity has been announced only since late March.
Also, it doesn’t include Ineos, which is studying a 115,000-metric-ton expansion at its Chocolate Bayou cracker.
|U.S. expansions can total nearly 7 million metric tons by 2017|
|(’000s METRIC TONS PER YEAR)|
|NEW CRACKER COMPLEX|
|ChevronPhillips||Cedar Bayou, Texas||2017||1500|
|Sasol^b||Lake Charles, La.||TBD||1400|
|EXPANSIONS OF EXISTING FACILITIES|
|LyondellBasell||La Porte, Texas||2014||400|
|Westlake||Lake Charles, La.||2012||100|
|a Capacity figures for Dow Chemical include a new steam cracker, incremental expansions, and the restart of a cracker in Louisiana.|
|b Capacity figures for Sasol is the upper range of an estimate.|
|TBD=To be determined|