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

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System in crisis an industrial end user s perspective

SysteminCrisisAn Industrial End User’s Perspective

Gordon Slack

Business Director – Energy

October 27, 2004

*

*Trademark of The Dow Chemical Company


About dow

About Dow

  • Leader in Chemicals, Plastics and Ag Products

  • Annual sales of $33 billion

  • Serve customers in 180 countries

  • 46,000 employees

  • 10essential markets:

  • Food

  • Building and Construction

  • Transportation

  • Furniture and Furnishings

  • Paper and Publishing

  • Home Care and Improvement

  • Personal and Household Care

  • Health and Medicine

  • Water Purification

  • Electronics and Entertainment

  • Committed to Sustainable Development


System in crisis an industrial end user s perspective

Chemicals & Plastics enablegrowthin manufacturing


U s energy appetite

Other

(Residential, Commercial,

Raw Materials

Industrial Heating)

33.1%

Electric Power

39.2%

2004

% Change 1995 - 2004

Electric Power+ 17.0%

Transport+ 15.6%

Other- 2.0%

Transportation

27.7%

U.S. Energy Appetite

“Electric power is the key energy sector in the U.S. - largest and fastest growing…”

  • Electric power is largest

  • Electric power is fastest growing

Source: EIA

The Dow Chemical Company


Projected growth in u s power production

Power consumption grows relentlessly --

Projected Growth in U.S.Power Production

Source: EEI


U s natural gas consumption by sector

U.S. Natural GasConsumption by Sector

“Consumption in most sectors flat but demand in electric sector strong…”


U s dry natural gas production

2004

1994

U.S. Dry Natural Gas Production

“Domestic production has done nothing …

and peaked back in 1972.”

Source: EIA


The power debacle

ThePower Debacle

The new 200,000 MW of GT power - -

  • 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.


Power facts

Power Facts

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.


System in crisis an industrial end user s perspective

Industry and Utilities Battle Over Gas Supply

  • Industry competes in global marketplace.

  • US reluctant to burn coal – so jobs go to China and they burn coal ? ? ?

  • Environmental groups prefer natural gas

  • Utilities can automatically pass through high costs and volatility


System in crisis an industrial end user s perspective

Russia

$0.80

W. Europe

$3.70

Ukraine

$1.50

U. S.

$6.00

China

$4.00-5.00

N.

Africa

$0.40

Trinidad

$1.60

Middle East

$0.60

Venezuela

$0.70

Indonesia

$1.20

Argentina

$1.25

Result is that U.S. now has highest natural gas prices in the world !

World Natural Gas Costs

$U.S./MMbtu


System in crisis an industrial end user s perspective

16% 2003

Basic industrial chemical imports

Chemical industry transition:

net exporter net importer


System in crisis an industrial end user s perspective

How is Dow reacting?

Positioning to capture 4% per year global growth --- prefer to capture from the U.S.


System in crisis an industrial end user s perspective

Why?

  • Are we seeking lower labor costs?No.

  • Are weavoiding taxes?No.

  • Are we seeking competitive energy?Yes Yes & Yes!


What is dow doing

What is Dow Doing?

All we can!

End Result: Becoming a Smaller NA Natural Gas Customer


System in crisis an industrial end user s perspective

Becoming a Smaller Customer

  • New investment in gas rich areas

  • Shutdown U.S. facilities

  • New LNG terminal for US gas requirements

  • Energy efficiency and conservation

  • Renewable/alternative sources of energy


System in crisis an industrial end user s perspective

Becoming a Smaller Customer

  • New investment in gas rich areas

  • 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


System in crisis an industrial end user s perspective

Becoming a Smaller Customer

  • Shutdown U.S. facilities

  • 2002

    • 1.5B lbs Chlor-Alkali in U.S. Gulf

  • 2003

    • 1.1 MM tons UCC ethylene in Texas


System in crisis an industrial end user s perspective

Becoming a Smaller Customer

  • New LNG terminal for US gas requirements

  • Location ideally suited for LNG receiving terminal

  • Project defined and FERC approved

  • Dow 1/3 of 1.5B SCFD

  • $650 MM project


System in crisis an industrial end user s perspective

21%

22%

1990 - 1994

1995 – mid 04

Becoming a Smaller Customer

  • Energy efficiency and conservation

Energy Intensity - The Dow Chemical Company

EH&S Goal: 20% Improvement in Btu/lb from 1994 Baseline in 2005

6,500

6,000

5882

5,500

Btu/lb

5,000

4705

4,500

4,000

3,500

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2nd Qtr

Year


System in crisis an industrial end user s perspective

Becoming a Smaller Customer

  • Renewable/alternative sources of energy

GM Fuel Cell Project


System in crisis an industrial end user s perspective

Plus Advocacy

Active effort to solve problem where problem began…

Government

  • Advocate balanced energy policy: Congress, Administration

  • Joined forces: ACC, NAM, IECA, CAANG

  • Publicly outspoken: Congressional testimony, media interviews, speaking engagements


System in crisis an industrial end user s perspective

NPCReport

Reactive Path

Balanced Future

  • Efficiency & Conservation

  • Major new LNG

  • Exploration and drilling

  • Alternative fuels

  • Expedited permitting

  • Transparent price reporting

  • Alaska NG pipeline

  • Lift offshore moratoria

  • New coal

  • Sit back and watch


System in crisis an industrial end user s perspective

*

Living.Improved Daily.

*Trademark of The Dow Chemical Company


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