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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
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

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.
slide10

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
slide11

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

slide12

16% 2003

Basic industrial chemical imports

Chemical industry transition:

net exporter net importer

slide13

How is Dow reacting?

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

slide14
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

slide16

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
slide17

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
slide18

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
slide19

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
slide20

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

slide21

Becoming a Smaller Customer

  • Renewable/alternative sources of energy

GM Fuel Cell Project

slide22

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
slide23

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
slide24

*

Living.Improved Daily.

*Trademark of The Dow Chemical Company

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