system in crisis an industrial end user’s perspective
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System in Crisis An Industrial End User’s Perspective. Gordon Slack Business Director – Energy October 27, 2004. *. *Trademark of The Dow Chemical Company. About Dow. Leader in Chemicals, Plastics and Ag Products Annual sales of $33 billion Serve customers in 180 countries - PowerPoint PPT PresentationTRANSCRIPT
System in CrisisAn Industrial End User’s
Perspective
Gordon SlackBusiness Director – Energy
October 27, 2004
*
*Trademark of The Dow Chemical Company
The Dow Chemical Company
About DowAbout Dow
• Committed to Sustainable Development
• Leader in Chemicals, Plastics and Ag Products
• Annual sales of $33 billion
• Serve customers in 180 countries
• 46,000 employees
• 10 essential markets:• FoodFood• Building and ConstructionBuilding and Construction• TransportationTransportation• Furniture and FurnishingsFurniture and Furnishings• Paper and PublishingPaper and Publishing
• Home Care and ImprovementHome Care and Improvement• Personal and Household CarePersonal and Household Care• Health and MedicineHealth and Medicine• Water PurificationWater Purification• Electronics and EntertainmentElectronics and Entertainment
The Dow Chemical Company
Chemicals & Plastics enable
growth in manufacturing
% Change 1995 - 2004% Change 1995 - 2004
Electric PowerElectric Power + 17.0%+ 17.0%
TransportTransport + 15.6%+ 15.6%
OtherOther - 2.0%- 2.0%
• Electric power is largestElectric power is largest
• Electric power is fastest growingElectric power is fastest growing
• Electric power is largestElectric power is largest
• Electric power is fastest growingElectric power is fastest growing
Electric PowerElectric Power39.2%39.2%
OtherOther(Residential, Commercial,(Residential, Commercial,
Raw MaterialsRaw MaterialsIndustrial Heating)Industrial Heating)
33.1%33.1%
TransportationTransportation27.7%27.7%
U.S. Energy U.S. Energy AppetiteAppetite““Electric power is the key energy sector in the U.S. - largest and fastest growing…”Electric power is the key energy sector in the U.S. - largest and fastest growing…”
Source: EIA The Dow Chemical Company
The Dow Chemical Company
Projected Growth Projected Growth in U.S.in U.S. PowerPower ProductionProduction
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
1981 1986 1991 1996 2001 2006 2011 2016 2021
GWh per year
Source: EEI
Power consumption grows relentlessly --Power consumption grows relentlessly --
The Dow Chemical Company
U.S. Natural GasU.S. Natural Gas Consumption by SectorConsumption by Sector ““Consumption in most sectors flat but demand in electric sector strong…”Consumption in most sectors flat but demand in electric sector strong…”
0
1
2
3
4
5
6
7
8
9
10
1973 1977 1981 1985 1989 1993 1997 2001
T F
t3
Industrial Consumption Residential ConsumptionElectic Power Consumption Commercial Consumption
The Dow Chemical Company
0
5
10
15
20
25
1970 1975 1980 1985 1990 1995 2000
T F
t3U.S. U.S. Dry Natural GasDry Natural Gas Production Production
““Domestic production has done nothing … Domestic production has done nothing … and peaked back in 1972.”and peaked back in 1972.”
Source: EIA
19941994 20042004
The Dow Chemical Company
The Power Debacle- power only growing segment of gas demand.
- causes unattainable 2005-2007 U.S. gas demand except by having a factory shutdown.
- requires 62% of all U.S. gas production to run all 200,000 MW at the same time.
- operated at 40% of capacity in 2003.
- consumed over $100 Billion in new investment which is severely impaired or bankrupt.
The new 200,000 MW of GT power - -The new 200,000 MW of GT power - -
The Dow Chemical Company
Power FactsThe new 200,000 MW of GT power - -The new 200,000 MW of GT power - -
- battles it’s customers for fuel.
- is the high incremental cost power ($40/MWH vs $15 and $4 for coal and nuclear).
- has capital charges at a 40% operating rate similar to new coal at 85% and new nuclear at 90%.
- will be faced with major push for new coal capacity and revival of nuclear.
The Dow Chemical Company
• Environmental groups prefer natural gas
• Utilities can automatically pass through high costs and volatility
• Industry competes in global marketplace.
• US reluctant to burn coal – so jobs go to China and they burn coal ? ? ?
Industry and Utilities Battle Over Gas Supply
The Dow Chemical Company
World World Natural GasNatural Gas Costs Costs
U. S.$6.00
TrinidadTrinidad$1.60$1.60
N.N.AfricaAfrica$0.40$0.40
RussiaRussia$0.80$0.80
IndonesiaIndonesia$1.20$1.20
Middle EastMiddle East$0.60$0.60
VenezuelaVenezuela$0.70$0.70
W. EuropeW. Europe$3.70$3.70
ArgentinaArgentina$1.25$1.25
UkraineUkraine$1.50$1.50 ChinaChina
$4.00-5.00$4.00-5.00
$U.S./MMbtu$U.S./MMbtu
Result is that U.S. now has highest natural gas prices in the world !Result is that U.S. now has highest natural gas prices in the world !
The Dow Chemical Company
Chemical industry transition:
net exporter net importer
Basic industrial chemical imports
16% 2003
The Dow Chemical Company
How is Dow reacting?
Positioning to capture 4% per year global growth
--- prefer to capture from the U.S.
The Dow Chemical Company
Why?
• Are we seeking lower labor costs? No.
• Are we avoiding taxes? No.
• Are we seeking competitive energy? Yes Yes & Yes!
The Dow Chemical Company
What is Dow Doing?
All we can!
End Result: Becoming a Smaller NA Natural Gas Customer
The Dow Chemical Company
• Energy efficiency and conservation
• Renewable/alternative sources of energy
• New investment in gas rich areas
• Shutdown U.S. facilities
• New LNG terminal for US gas requirements
Becoming a Smaller Customer
The Dow Chemical Company
• New investment in gas rich areas
Becoming a Smaller Customer
May 2003 - Kuwait Expansion• Ethylene gas cracker• EO/EG plant• Polyethylene expansion• EB/Styrene unit• JV with PIC June 2004
July 2004 – Oman new site• JV with OOC and government• Ethylene gas cracker• 3 Polyethylene units• Downstream production
The Dow Chemical Company
• Shutdown U.S. facilities
Becoming a Smaller Customer
2002
• 1.5B lbs Chlor-Alkali in U.S. Gulf
2003
• 1.1 MM tons UCC ethylene in Texas
The Dow Chemical Company
• New LNG terminal for US gas requirements
Becoming a Smaller Customer
• Location ideally suited for LNG receiving terminal
• Project defined and FERC approved
• Dow 1/3 of 1.5B SCFD
• $650 MM project
The Dow Chemical Company
• Energy efficiency and conservation
Becoming a Smaller Customer
22%22%
1995 – mid 041995 – mid 04
21%21%
1990 - 1994
Energy Intensity - The Dow Chemical CompanyEH&S Goal: 20% Improvement in Btu/lb from 1994 Baseline in 2005
4705
5882
3,500
4,000
4,500
5,000
5,500
6,000
6,500
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20042nd Qtr
2005
Year
Btu
/lb
The Dow Chemical Company
• Renewable/alternative sources of energy
Becoming a Smaller Customer
GM Fuel Cell Project
The Dow Chemical Company
Active effort to solve problem where problem began…
Government
Plus Advocacy
• Advocate balanced energy policy: Congress, Administration
• Joined forces: ACC, NAM, IECA, CAANG
• Publicly outspoken: Congressional testimony, media interviews, speaking engagements
The Dow Chemical Company
Balanced FutureBalanced FutureReactive Path
NPC Report
• Sit back and watch • Efficiency & Conservation
• Major new LNG
• Exploration and drilling
• Alternative fuels
• Expedited permitting
• Transparent price reporting
• Alaska NG pipeline
• Lift offshore moratoria
• New coal
Living.Living.
Improved Daily.Improved Daily.
*
*Trademark of The Dow Chemical Company