Dow's Liveris Predicts `Rising Tide' of Higher Gas Prices in Middle East

Dow Chemical Co., the largest U.S. chemical maker, said its joint venture with Saudi Aramco may be among the last projects of such a size to benefit from cheaper energy and raw materials because Middle-East prices will rise.

Regional hydrocarbon prices may climb following the “inevitable” sale of Iran’s state-owned National Petrochemical Co., Dow’s Chief Executive Officer Andrew Liveris said today on a conference call with analysts. That would end up hurting the competiveness of exports from the area, he said.

“Competitive priced gas, and therefore ethane, in the Middle East has a very short time frame,” Liveris said. “Everyone is going to start having a rising tide on gas and ethane price.”

The chemical and plastics plants Dow is proposing to build with Aramco in Jubail on the Persian Gulf coast is among ventures Liveris is forming to cut capital spending, curb swings in earnings and access cheaper raw materials. The plant will use ethane, natural-gas liquids and naphtha to make commodities and higher-end products such as acrylic acid, a paint ingredient, Liveris said.

Higher hydrocarbon prices for newer projects in the region will make exports to Europe and Asia less competitive, he said.

“That is why our Aramco venture is so important,” Liveris said. “It’s really going to be one of the last large complexes.”

The company’s largest ventures in the Middle East are Equate Petrochemical Co. in Kuwait and Kuwait Olefins Co., which generated a combined $1.5 billion of revenue last year.

Plastics Partners

Liveris said he’s still trying to sell a stake in the basic-plastics business after a 50-50 venture with Kuwait collapsed in December 2008. Likely partners for a revised plastics venture include Kuwait and Saudi Arabia, he said. A deal may be struck after polyethylene markets rebound next year, Liveris said.

The Midland, Michigan-based company is still seeking partners to invest in its U.S. and European assets that make chlorine and caustic soda, known collectively as chlor-alkali, he said.

Dow today posted second-quarter profit excluding some items of 54 cents a share, trailing the 57-average estimate of 11 analysts in a Bloomberg survey, after adverse weather curbed crop-chemical demand and plants in Texas and Argentina unexpectedly shut.

The shares fell $2.83, or 10 percent, to $25.50 at 4:15 p.m. in New York trading, the biggest decline since March 9, 2009. They have dropped 7.7 percent this year.

Raised Dividend?

“I can’t stress enough how strong the impact was from these outages,” Liveris said. “We were firing on seven of our eight cylinders in the quarter.”

Dow’s polyethylene plant in Bahia Blanca, Argentina, the company’s largest in Latin America, was shut for a month during the last quarter because the site couldn’t get water, Liveris said. The company’s supply of coatings raw materials was hurt by a malfunctioning heat exchanger at a phenol plant at Oyster Creek, Texas, and by operating problems at an acrylics plant in Deer Park, Texas.

About 120 of Dow’s 600 plants were shut at some point during the quarter, Liveris said. There aren’t any maintenance shutdowns of substance planned for the third quarter, he said.

“We have got the issues behind us and we are looking into the second half with strength,” Liveris said.

Dow slashed its dividend 64 percent last year to help pay for the acquisition of Rohm & Haas Co. after Kuwait canceled the so-called K-Dow venture. The dividend “is top of mind” and may be raised in the next year or two, Liveris said.

“We are not where we need to be long term,” the CEO said.

To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net

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