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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.

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Presentation on theme: "System in Crisis An Industrial End User’s Perspective Gordon Slack Business Director – Energy October 27, 2004 * *Trademark of The Dow Chemical Company."— Presentation transcript:

1 System in Crisis An Industrial End User’s Perspective Gordon Slack Business Director – Energy October 27, 2004 * *Trademark of The Dow Chemical Company

2 The Dow Chemical Company About 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

3 The Dow Chemical Company Chemicals & Plastics enable growth in manufacturing

4 % Change Electric Power+ 17.0% Transport+ 15.6% Other- 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 Power 39.2%Other (Residential, Commercial, Raw Materials Industrial Heating) 33.1%Transportation27.7% U.S. Energy Appetite “Electric power is the key energy sector in the U.S. - largest and fastest growing…” Source: EIA The Dow Chemical Company

5 Projected Growth in U.S. Power Production Source: EEI Power consumption grows relentlessly --

6 The Dow Chemical Company U.S. Natural Gas Consumption by Sector “Consumption in most sectors flat but demand in electric sector strong…”

7 The Dow Chemical Company U.S. Dry Natural Gas Production “Domestic production has done nothing … and peaked back in 1972.” Source: EIA

8 The Dow Chemical Company The Power Debacle - power only growing segment of gas demand. - causes unattainable 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 consumed over $100 Billion in new investment which is severely impaired or bankrupt. The new 200,000 MW of GT power - -

9 The Dow Chemical Company 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.

10 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

11 The Dow Chemical Company World Natural Gas Costs U. S. $6.00 Trinidad$1.60 N.Africa$0.40Russia$0.80Indonesia$1.20 Middle East $0.60 Venezuela$0.70 W. Europe $3.70 Argentina$1.25 Ukraine$1.50 China$ $U.S./MMbtu Result is that U.S. now has highest natural gas prices in the world !

12 The Dow Chemical Company Chemical industry transition: net exporter net importer Basic industrial chemical imports 16% 2003

13 The Dow Chemical Company How is Dow reacting? Positioning to capture 4% per year global growth --- prefer to capture from the U.S.

14 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!

15 The Dow Chemical Company What is Dow Doing? All we can! End Result: Becoming a Smaller NA Natural Gas Customer

16 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

17 The Dow Chemical Company New investment in gas rich areas Becoming a Smaller Customer May 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

18 The Dow Chemical Company Shutdown U.S. facilities Becoming a Smaller Customer B lbs Chlor-Alkali in U.S. Gulf MM tons UCC ethylene in Texas

19 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

20 The Dow Chemical Company Energy efficiency and conservation Becoming a Smaller Customer22% 1995 – mid 04 21% Energy Intensity - The Dow Chemical Company EH&S Goal: 20% Improvement in Btu/lb from 1994 Baseline in ,500 4,000 4,500 5,000 5,500 6,000 6, nd Qtr 2005 Year Btu/lb

21 The Dow Chemical Company Renewable/alternative sources of energy Becoming a Smaller Customer GM Fuel Cell Project

22 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

23 The Dow Chemical Company Balanced Future Reactive 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

24 Living. Improved Daily. * *Trademark of The Dow Chemical Company


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