Bloomberg News

Dow Chemical Disavows Texas LNG Export Project It Co-Owns

January 24, 2013

Dow Chemical Co. (DOW:US), the largest U.S. chemical maker by revenue, said it won’t invest in a proposed $6.5 billion natural gas export project at a Texas terminal it partly owns.

Dow, which uses gas to make components for everything from hair spray to cat food to vehicle upholstery, doesn’t have an “active role” and “has no interest in” the Freeport LNG export venture in which the chemical company holds limited partner status, said George Biltz, Dow’s vice president of energy and climate change.

Dow Chairman and Chief Executive Officer Andrew Liveris has been a vocal opponent of shipping unlimited amounts of domestic gas to overseas markets, warning of higher prices at home that would discourage construction of new chemical plants and factories. Dow is listed as a limited partner in Freeport’s federal permit applications by virtue of its ownership stake in an adjacent gas-import facility built during the last decade.

“Dow is not going to be part of the new investment,” Biltz said during a telephone interview. “We have taken no role and haven’t worked with them at all” on the export proposal.

Freeport LNG is seeking federal permission to chill 1.4 billion cubic feet of gas a day to liquid form for shipment via tankers to foreign markets such as Japan and Spain.

Import Plants

The closely held partnership wants to install refrigeration units, storage tanks and other equipment alongside its existing gas-import terminal on Quintana Island about 65 miles (105 kilometers) south of Houston. Freeport plans to complete financing during the fourth quarter for the first phase of construction, and commence production in 2017, General Counsel John Tobola said in a phone interview.

North American energy producers are scrambling to build export terminals for liquefied natural gas, or LNG, as growing supplies of the fuel from shale formations have overwhelmed homegrown demand and collapsed prices. Like Freeport, many of the proposed export ventures are slated to be built adjacent to LNG import facilities constructed in the mid-2000s when luminaries such as then-Federal Reserve Chairman Alan Greenspan were warning of an imminent gas shortage that would create the need for massive inflows of foreign supplies.

Those gas shortages never materialized, thanks to advances in horizontal drilling and hydraulic fracturing that unleashed previously untouchable reserves and boosted U.S. production of the fuel to a record. With most of the LNG import projects remaining largely idle, the new proposals transform erstwhile importers into would-be exporters.

‘Indiscriminate’ Exports

Freeport’s Tobola declined to comment on Dow’s role in the export venture. The company’s efforts to obtain financing and government approvals wouldn’t be affected by any potential change in the ownership structure, he said.

Dow rose 1 percent to $34.43 at the close in New York. The stock has increased 6.5 percent this year.

Dow executives have been warning since March 2011 that “indiscriminately” exporting gas may derail billions of dollars in U.S. industrial investments that are predicated on the availability of cheap gas.

The company, based in Midland, Michigan, has $4 billion in planned expansions along the U.S. Gulf Coast that would feed off streams of gas and gas byproducts from shale wells. Makers of chemicals, plastics, steel and other energy-intensive products have proposed investing $95 billion in new capacity through 2020, Biltz said.

Lobbying Group

To press the anti-export case, Dow last month formed America’s Energy Advantage with three other chemical makers, as well as aluminum producer Alcoa Inc. (AA:US), steelmaker Nucor Corp. (NUE:US) and the American Public Gas Association. Liveris, Dow’s CEO, also has the ability to promote his message through his co- chairmanship of U.S. President Barack Obama’s Advanced Manufacturing Partnership and his membership in the President’s Export Council.

Liveris is concerned that unfettered gas exports may consume domestic supplies faster than new wells can be drilled, leading to the type of price spikes that prompted Dow and its competitors in the last decade to build factories outside the U.S. For its part, Dow opted to build new plants in lower-cost gas markets such as Kuwait and Saudi Arabia through joint ventures.

Liveris’s lobbying for a cap on gas exports drew the ire of Exxon Mobil Corp. (XOM:US), the largest U.S. gas producer. In a Jan. 17 post on Exxon’s website, Vice President of Public and Government Affairs Ken Cohen characterized America’s Energy Advantage as “a small gaggle of companies” that was “playing a weak hand.”

Exxon’s Ire

“Unfortunately for AEA -- but fortunately for U.S. consumers -- expert after expert has shown that the economic benefits to the country from LNG exports are significant and outweigh any potential domestic natural gas price increases,” Cohen wrote. Exxon’s Golden Pass project is among the 16 awaiting Energy Department assent to export gas to non-free trade nations.

Biltz declined to comment on Exxon’s remarks.

Freeport Chief Financial Officer Hugh Urbantke estimated the cost of the project at about $6.5 billion during a December 2011 interview. Other limited partners in Freeport include Osaka Gas Co. (9532), Zachry American Infrastructure LLC and Freeport LNG Investments LLP, according to the venture’s website.

Freeport Chairman and CEO Michael S. Smith founded the partnership in 2002, a year after selling Basin Exploration Inc. to Stone Energy Corp. (SGY:US), a Lafayette, Louisiana-based oil and gas explorer, for about $430 million.

The slew of permits and licenses Freeport is required to obtain includes clearance from the Energy Department to sell gas to nations that don’t have free-trade agreements, or FTAs, with the U.S. Freeport’s application is next in line for review, according to the Energy Department in Washington.

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net; Jack Kaskey in Houston at jkaskey@bloomberg.net; Edward Klump in Houston at eklump@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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Companies Mentioned

  • DOW
    (Dow Chemical Co/The)
    • $53.3 USD
    • 0.22
    • 0.41%
  • AA
    (Alcoa Inc)
    • $16.5 USD
    • 0.07
    • 0.42%
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