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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Notes On Dow’s Investor Day

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...

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Dow CEO Talks Manufacturing On CNN

Dow CEO Andrew N. Liveris appeared on a CNN special Sunday night hosted by Fareed Zakara titled “Restoring the American Dream, Getting Back to Work.” The segment with Liveris can be found here. As previously noted by The Chemical Notebook, and in C&EN, Liveris wrote a book on rejuvenating American manufacturing called Make It In America: The Case for Re-Inventing the Economy” . (My review was blurbed in the editorial review section of the Amazon listing!) I transcribed some of the interesting quotes from the CNN piece: Zakaria: The manufacturing jobs of the future are high-tech and high paying, but isn’t it impossible to lure those jobs to America since our labor is more expensive than other countries’? Absolutely not, says Liveris, labor accounts for only 8% of his total costs. Liveris: I do not make a decision on where to site my factories based on labor costs. I make it based on—totally–around the policies to encourage me to invest there and the human capital to support. And that’s why, at the end of the day, we still have a chance in this country. It should be noted that chemical operations are capital intensive, not labor intensive.  Here’s a link to some data from the Census Bureau’s 2002 Economic Survey. For chemicals, the value of shipments per paid employee is more than twice the average for the entire manufacturing sector. And the chemical industry’s average ratio of shipments to payrolls stood at 10.33. Only the petroleum and coal (35.00) and the beverage and tobacco (15.27) industries have higher ratios. At chemical plants, you see a lot of plumbing and reaction vessels, but not many people. The human activity typically occurs a) in the control room, (b) at the loading and packaging area, and c) at the guard shack. So when Liveris says the cost of labor isn’t a big factor in his decision making, we can’t necessarily assume that this applies to other manufacturers, making other kinds of products. Liveris made another point in the interview, one he makes often, which I think is very important to C&EN readers. This is that research and development will follow manufacturing overseas. Liveris: When you make stuff, you don’t realize that when you move the making somewhere else, then the people who know how to make it have the intellectual knowhow to make the next one. Zakaria: But now they are in China. Liveris: They’re in China. So you have lost the supply chain as well, and your creativity has created huge jobs elsewhere of the continuous kind. It’s not just the job of the first Kindle, it is the job of...

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Notes Dow/Aramco’s Massive Saudi Project

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...

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Liveris On The Debt Ceiling

Dow CEO Andrew N. Liveris put out a press release on July 14 regarding the debt ceiling negotiations in Washington. Here it is in its entirety: MIDLAND, Mich.–(BUSINESS WIRE)–Andrew N. Liveris, Dow’s chairman and CEO, stated today, with reference to the bi-partisan impasse on raising the debt ceiling: “Business doesn’t have a seat at the table in these talks, but we sure have a stake in the outcome. All Americans do – we are all in this together. There’s huge opportunity for our nation if both parties reach a meaningful agreement, and huge consequences if they do not. We need a resolution as soon as possible and urge all involved in the negotiations to continue to work towards a solution that eliminates uncertainty and puts stability into our economy.” Whenever anyone uses the phrase “We are all in this together”, you can rest assured that the speaker isn’t saying much and is relying on someone else to get down to the business of hammering out the particulars. This is surprising from someone who wrote an entire book about about corporate taxes, bureaucracy, many other topics directly related to what is being negotiated in Washington. Liveris isn’t alone, GE’s came out with a dramatic pronouncements before the U.S. Chamber of Commerce last week where he didn’t say very much at all either. Via a WSJ Blog: “I just think we need certainty about the debt ceiling and we need it now. That really can only happen here. Let’s do it now.” Do what, Jeff? But a little perspective might make for a more fair assessment of these two executives. Both are involved with the Obama Administration. Liveris last month was named co-chairman of President Obama’s Advanced Manufacturing Partnership. Immelt is the chairman of The President’s Council on Jobs and Competitiveness. It might be significant that Immelt and Liveris aren’t backing particular Obama proposals. And probably more than anything else, these executives could be worried that the far-left and far-right activists in Congress will scuttle an agreement should it be made. If that sounds crazy, remember in September 2008 when the House of Representatives rejected TARP and the Dow Jones Industrial Average dropped 700 points? So what Liveris and Immelt said is probably better than saying nothing at...

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