Market Currents
Dow Chemical (DOW) severs ties with the National Association of Manufacturers over differing...
-
Friday, January 18, 4:53 PM ETDow Chemical (DOW) severs ties with the National Association of Manufacturers over differing opinions on whether the U.S. should export its newly abundant supplies of natural gas. Dow wants limits on gas exports, believing unchecked exports will raise domestic prices; NAM says gas sales to foreign buyers would create opportunities for U.S. businesses.
Other date
Latest Energy & Materials Articles
This news story has 43 comments:
DOW should be ashamed. If they think this is such a large potential business then they should invest their capital and earn profits.
What they are attempting to do is to bribe politicians and bureaucrats to artficially keep their input costs down and increase THEIR profits - while lessening opportunity for everyone else.
Big government plus Big business = screw all the little guys
Is making our chemical industry and other domestic industries that are consumers of natural gas competitive again (low cost producers) so bad?
Becoming once again competitive in the upstream products will make all the downstream products, i.e., added value products more competitive. Why not export these added value products and make more money, and employ more people here in the US than export the natural gas and benefit others?
Building new manufacturing facilities based on low cost gas and creating thousands of new jobs in the US is "screwing"people?
Isn't it elementary that when you start exporting large amounts of natural gas overseas you are making domestic gas more expensive? Since you like equations here is one for you:
Exporting natural gas = Higher domestic prices here in the US for EVERYONE
There was an experiment where a group of planners sat around a table and decided where resources should go..... it was called the USSR.
By keeping NG artificially low how much less investment will occur in solar or wind or batteries or whatever might be the next great thing in energy generation? Not to mention less investment in NG - which will lead to less production and eventually the higher prices anyways.
Much better to see more and more investments, more and more jobs, more exports, and to build actual competencies that we might then export (ie shale drilling technology and processes) to develop other shale plays around the world. Thats economic growth as opposed to some small group of companies earning another 100 million by having government stifle competition.
How many people will not have jobs in the NG fields, pipelines, steel mills, export facilities, etc, etc?
There are a lot of sources of energy. No reason that the owners and producers of NG should accept lower profits so bureaucrats can play God and enrich DOW.
There is no value to exporting a high demand product to subsidize foreign business at the expense of the domestic economy, domestic jobs, and domestic consumption, period.
There won't be more domestic jobs - there will be less. Its just that DOW will earn more money from its existing production.
Its called crony capitalism. And that is what is BS.
Expanding exports will drive up price to power producers, industrials, commercials, everyone.
That (LNG) needed to do something to be profitable and decided on this, is fine. There is absolutely room for -some- exports while demand situations domestically are still being processed. But further expansion of exports will drive up the cost of the product. To what benefit?
(LNG) has fixed price long term contracts, I didn't study the contracts closely and have no position but my skim through suggested that a dramatic rise in domestic price wold be hurtful to its model. In addition to which increasing costs for every single American industrial, commercial, or private interest by raising their energy costs won't contribute to productivity growth or a dynamic and robust economy.
What's your benefit? Other than some abstract political argument against the US magically becoming USSR because it restricts access to resources, which is common in international commerce regardless of your position, perhaps you have money in NG producers? So the American people should suffer to pad the bottom line of some producers and the pockets of their investors? Makes no sense.
----------------------...
Every single person in the USA eats.
Why should we export any food?
Food is more vital to life than NG.
You speak of - productivity growth or a dynamic and robust economy.
Thats done by people working hard and being creative and constantly creating and improving technology and processes.
It is NOT done through government shovelling money and subsidies to its favored entities. NG producers have been amazingly creative and productive. They are now able to produce many times more NG than just 5 years ago and at a much much lower cost. 5 years ago NG cost hit $12 and "experts" were declaring NG wasn't a viable alternative!
Now we have a flood of NG due to innovation, technology, risk taking, hard work. And NOW we want government to step in and declare who will get the profits of this innovation and risk taking.
Does that even sound logical??? Lets think about this. While the government is shovelling tens of billions to their preferred energy providers - those that are forced to operate on their own - are the ones that come up with the incredible breakthroughs and technologies to compete. Where is the similar breakthrough in solar panels, battery technology, wind power, nuclear power, etc, etc, etc???????
How about the government performs its proper role of having regulations that protect the environment and enforcing them. And letting the market determine what the price of NG is and where it will end up. Creating LNG is actually a "value added" process. You can't just pump NG into the ship and away it goes. And its not cheap.
Currently rigs aren't being worked. We got sub-$3 NG because the drillers had to drill just to maintain land leases. Once they do that, they won't continue to produce at sub $3 prices. They will wait. That will raise the price of NG. Going to force them to drill?
If NG producers want to risk billions to export LNG (and thats what it takes just to build one export facility), thats their choice. Domestic producers and consumers will still have a price advantage - and a substantial one at that.
If DOW wants $3 NG they can go out and lease land, drill wells, build pipelines and run them to their plants. That is their choice.
Funny how DOW was announcing layoffs this year in the USA - with $3 NG. Seems the rent seekers aren't all that good at innovating and creating all those "value added" products.
And all the other industries you mention - well if there aren't any profits for the NG producers and pipeline builders..... then they won't be able to continue to change their sources of energy towards NG..... as the NG producers will simply not drill.
Not to mention, NG producers are already looking around the world for similar opportunities. Are you going to restrict them from doing business in Poland or France - oops you mean there are French and Polish companies that will then seize the opportunities? What are you going to do when another deposit is found in Timbuktoo and the price of NG drops even lower somewhere else in the world - going to mandate NG producers produce and sell for $2 to protect what you think needs protecting?
American consumers are BENEFITTING from the risk taking, innovation, new technology, and hard work of the NG producers. And they will continue to do so - IF the government stays out of the way and allows them to further develop the market - and if that includes LNG to Europe and Japan then so be it.
Effectively, your comment is pure politics and wishful thinking. You start from the point wherein you specify you have no interest in protecting US business interests at any level and effectively advocate for a pure laissez faire environment, which is such a far-fetched idea that it has no basis in reality.
There are millions of ways to prove laissez faire is a bad idea so I won't bother. Personally, I'm not a fan of unilaterally 'disarming' and hoping my adversaries won't come take my lunch. I honestly fail to see any value in your argument.
As a general rule when NG production declines - then NGL prices increase and vice versa
Thats much of what the fertilizer companies use.
Anyone use Propane to heat their house?
So you mean that if you restrict the market and produce less then some people will pay more..... while DOW pays less???
So your really choosing DOW over the fertilizer companies? Over those that use propane? So your are going to pick the winners and losers!
Thats called the USSR, or I guess today's USA.
Effectively, your comment is pure politics and wishful thinking. You start from the point wherein you specify you have no interest in protecting US business interests at any level and effectively advocate for a pure laissez faire environment, which is such a far-fetched idea that it has no basis in reality.
There are millions of ways to prove laissez faire is a bad idea so I won't bother. Personally, I'm not a fan of unilaterally 'disarming' and hoping my adversaries won't come take my lunch. I honestly fail to see any value in your argument.
----------------------...
There you go - the old - I don't even need to reply because your obviously an idiot.
Thats fine. And if you 'don't see any value in what I say then there is no need to reply to any comments I make.
Your entire comment is a mis-characterization of what I've written. And it allow you to not have to explain anything.
We didn't get to $3 NG through government action. And you haven't shared with me why we should be exporting food. After all eating food would certainly be something the US government would want to "protect".
The truth is you can't explain it - and that why you won't even bother.
No, I didn't say that, nor did I mean to imply that. I believe you are a very intelligent and thoughtful person. However I believe this specific argument can not have a basis in the reality of the world. It's interesting from a purely theoretical perspective but I'm not interested in addressing the issue from that angle, so I withdraw.
And I didn't address your food point because I honestly thought you were using excessive exaggeration to make the point; a device that has no value in that used in any example an absurd extremism results.
Food is not Nat Gas, and simply doesn't reflect any of the economic realities of the global energy trade. It's generally priced appropriately to its target market, and arable land is relatively abundant, so scarcity, in the developed world, and its resulting price spikes - rarely occur. It's just... completely different, I thought that was obvious.
We would not be subsidizing certain industries or artificially controlling prices as you suggest, but we would protect this commodity as a strategic natural resource for the benefit of the US, big and little consumers. Just like countries protect their offshore oil deposits, not much different than protecting an endangered species.
You must be really happy that crude is again approaching $100/bbl? Or maybe $100 is not high enough? Maybe we should be paying $7/gal for gasoline because that will encourage investment in wind and solar. We have been there with bio fuels, ethanol, wind, etc. with not much success. These alternative sources will not be available for decades to replace hydrocarbon based energy sources. What do you think will happen to our economy with $150/barrel crude? We have enough natural gas to last for decades. Why not convert utilities, truck fleets to natural gas and end dependence on the OPEC cartel?
I don't understand why limiting exports would reduce production of natural gas. There is plenty of demand for all the natural gas that can be produced here in the US. Incremental amounts could be exported, but incremental amounts only.
By the way, Dow is doing great things in the alternative energy field, stop knocking it down.
the disconnect in your comment is that you don't acknowledge that exports will increase domestic price when, as you say, "There is plenty of demand for all the natural gas that can be produced here in the US. "
By the way, NG and oil are different markets with different end users, and very little overlap, comparing them is truly apples and oranges.
I think you should take a reading comprehension course. My point was exactly that exports would increase domestic prices and take away our competitive advantage. I also wrote that it is better to export added value products like polyethylene rather than exporting natural gas.
I am fully aware that oil and gas are different animals, however there is a lot of opportunity for substitution.
Read my comments again and maybe you will realize we are on the same side.
After all there is plenty of demand for food here in the USA. Prices would be much less.
No beef exports, no wheat, no corn, no nothing. Just lower prices in the USA.
Hey lets just scrap the whole market thing - lets just make everything cheap.
We'll just have the government set low prices. The government will decide how much to produce. No problem. Life will be great.
Obviously you don't understand the petrochemical industry's dynamics and how it affects the economy and trade. The chemical industry used to be the highest exporter of products in dollar terms for the US. The US chemical manufacturers are now disadvantaged when compared with Middle Eastern producers who value their natural gas at $.75-$1.00/mmbtu, and our cost advantage was considerably reduced relative to our European and Asian competitors when natural gas in the US more than tripled. Plants were shut down and people lost their jobs. Now with this new found natural gas we are finally able to become competitive again. Companies, domestic and foreign are planning to built facilities on the Gulf Coast, PA and WV, they will need to hire people, and you want to give it all away.
As I said in a previous comment, I would rather export added value products than export a cheap commodity. This would improve our balance of trade and increase investment and employment in the US.
Don't worry we won't become a centralized economy if we restrict exports of a strategic commodity that could make us energy self-sufficient.
47 million of them receive food stamps.
How many more should need government assistance before we ban exports for all food from the USA?
YOU would rather export chemicals than NG. Glad you should be the determining factor as to who captures profits. NG producers should earn zero. Chemical producers should earn a lot. All based on your opinion.
Thats exactly what the USSR tried.
Why are rig counts falling? Oh, because firms aren't going to continue to drill and transport NG at prices that don't earn them money. Depending on the part of the country, somewhere around $4.50-$5 is needed to really be economically viable. So perhaps we'll need some martial law along with the export restrictions to ensure the NG keeps flowing.
The reason we have access to so much gas is that people pursued new technology and techniques to try to capture profits when NG prices were much higher. If we depress NG prices then all the other potential sources of energy will be uneconomical and people won't be investing in new technologies and techniques in those sources of energy. Other countries will - they will take the lead and then export those technologies and products to us.
Much better for us to earn as much as we can from our NG. DOW will have a competitive advantage in the US as the shipping cost and processing costs will be much lower in Louisiana and Pennsylvania than those producers sitting in Hong Kong or Amsterdam.
Government is already involved improperly in many of our markets. More crony capitalism isn't the answer to anything.
Not very alpha.
This is my favorite statement of this thread. Thumbs up.
That's exactly what we did after the 1950s for decades. And it's exactly why we are the richest nation in the world. Buying commodities for cents on the dollar and exporting complex industrial and technological equipment at multiples of the commodity cost. Now China does it to us.
----------------------...
Unfortunately its simply incorrect.
You can't have it both ways. Either NG is cheap or its expensive. If people in Europe are willing to pay $10 for NG and DOW is only willing to pay $3, and If processing and shipping LNG costs $2, Then there is $5 in profits for the USA in selling to Europe.
Dow buying at $3 and adding $2 in value added whatever and selling - just creates $2 in profits for the USA. And there is no guarantee that its being exported!
I'll take $5 of profit over $2 of profit. You can add whatever fancy vocabulary you want to your $2. Your just applying your own judgement that some type of DOW factory job is preferable to rig workers and LNG processing plants.
The market will decide the proper allocation of resources and drive further innovation. Government will destroy value, steal off the top, and suppress innovation.
------------------------
Josh,
How much of a subsidy does DOW need to create all these "value added" jobs? They will still have a subsidy as its not cheap to create and ship LNG.
And I'd note that in October DOW just announced layoffs here in the good old USA - and thats on $3 NG. So exactly why are they doing that????? Do they need $2 NG?? $1 NG???
Or is the truth they will simply use the cheaper NG to increase their profits - produce the same.
Crony capitalism and rent seeking is not very alpha.
Centrally planned economies simply don't last. We already have enough corruption. Allowing DOW to legislate cheap resources for themselves, in exchange for hiring a bunch of cronies and family members of Congress as consultants isn't in our best interest as a country - nor is it capitalism in any way, shape or form.
Besides, its not like we have a trade deficit or anything.
Creating subsidies for Dow will simply ensure more money is spent on continuing and enlarging the subsidy.
Get your facts straight. Just to give you an idea, the trade deficit in the month of November 2012 was about $49 Billion.
A minimum degree of control over a strategic scarce resource won't turn us into a controlled economy. If it does, then we, and most free countries are already there. The Federal Reserves controls the amount of money that flows through the economy. The Exxon/Florio act controls the sale of sensitive technologies to unfriendly nations. The Department of Energy controls where companies can drill offshore. The anti-dumping laws control the sale of products at prices below their manufacturing cost. There are many more such examples, and in no way do they resemble a USSR type controlled economy.
Why should we continue to be dependent on OPEC, a bunch of mostly unfriendly nations who control production of oil and fix its price? What is wrong with taking some actions to determine our own destiny?
Finally, increased supply of NG caused its price to drop, renewable sources of energy had nothing to do with it.
And I fully understand that the nirvana you desire simpy doesn't exist.
1. Natural Gas isn't a scare resource.
2. How well is the FED doing?
3. Anti-Dumping laws - yeah, exactly what dumping has ever been prevented?
Seems to me you need to get your history straight.
Centrally planned economies fail.
Dow isn't going to do anything other than increase their own profits at the expense of everyone involved in producing NG. Nothing more.
And I have zero idea what your last statement is - you obviously don't understand why and how people invest their time and effort into creating new technologies. No profits available and they won't be working on it.
And frankly the USA resembles the USSR more every single day. Yesterday I read that serious proposals to track every vehicle via GPS to enact taxes, Health Care run by the state, all your emails captured and scanned by secret intelligence agencies, all your financial transactions traced, you can be arrested and held without charge, your phone can be tapped without warrant, your car monitored without warrant, Trillions of dollars promised to the bureaucrats, cronyism rampant, politicians for life.
Hey why not throw a centrally planned economy on top - Thats about the only thing missing.
NG producers should earn as much money as they can. All those involved in the process should earn and benefit. And DOW and others should improve their own competitiveness to earn as much as they can. They will have a domestic price advantage.
Under your scenario DOW will simply use the lower cost of NG and wring every dollar of profit out of it - other country's producers will wring every dollar of cost out of their processes and create new processes and technologies and in the long run will crush DOW as the sit and count their rent seeking profits. Dow will just keep on lobbying for cheaper and cheaper input prices while others will create the next generation of technology and processes.
Still haven't addressed why we shouldn't stop exporting food under your centrally planned nirvana.
The only centrally planned economy is the one in your head.
I haven't even addressed the environmental risks that such LNG terminals would present to the people, flora, and fauna that live in those locations, and that is probably one of the main concerns of the Department of Energy and EPA.
But hey, keep believing in your USSR nirvana.
And now your worried about floral and fauna - but you want to support paper and pulp, non-ferrous mineral production, and commercial property developement. Yeah, thats pretty consistent.
I think the real issue is that NG producers and pipeline operators have done it on their own - while your big brother supported energy sources have all failed to produce similar breakthroughs - and you'd rather support rent seekers (who glad support more government since its what ensures their profits) than those that actually create wealth.
What your supporting is a centrally planned economy. Which entails by definition a loss of freedom, and will soon be overrun by rent seekers as opposed to wealth creation. And we are well on the way to that in this country.
$12 NG to $3 NG without government involvement.
The Department of Energy could disappear tomorrow and it wouldn't matter one iota - in fact its been the main conduit of tens of billions of dollars handed out to politically connected people to produce and sell subsidized inefficent sources of energy - and all those subsidized producers have come up with what incredible breakthrough????? Oh, you mean they just keep lining their pockets at the government trough!!! And you just want to expand that universe.
What is a reasonable gas price that you reference?????
Who will determine that??????
Was it reasonable at $12? Was it reasonable at $2.50? Was it reasonable at $4?
Enlighten us as to what the proper price of NG is.
And perhaps in the long run all those folks will benefit more if NG prices rise to $5 and other people look and say - hey we can improve solar panel efficiency and provide the same energy for $3 equivalent - and they will create technological breakthroughs to make things even cheaper and protect even more of your floral and fauna!!! And then someone later will say, hey I can improve windmills and provide that energy at a $2 equivalent.... and then someone will say, hey I can produce energy from grass at a $1 equivalent......and on and on. Only when government stands in the way and decides the winners and losers does the march of technology and innovation stop - replaced by rent seekers.
None of those things will ever happen while we're living "back in the USSR"!
I was reading your earlier comments. You are so ignorant it is pathetic. First of all, everyone knows that if you reduce production, prices will increase. No one is advocating for NG producers to cut back production. We are talking about existing production or even increased production that instead of going for domestic consumption would be exported, creating a tighter supply demand balance in the US and therefore increasing prices to domestic users.
Chemical producers don't want to limit production of NG or NGLs, they want more of it. They use NG as fuel, and crack NGLs (ethane, propane and butanes) as feedstocks to make ethylene and its by-products (propylene, butadiene, etc.) They, as well as fertilizer manufacturers and households, which you mentioned earlier, all benefit by lower prices of these NGL's. By the way, propylene is not an NGL as you stated earlier.
You think you are an expert in NG refining, chemistry, politics, the USSR, US trade, yet by your comments you sound very ignorant and superficial in your knowledge. You don't even understand the subject that is being discussed here. I am done debating with you.
You haven't replied to a single question asked. You just deign yourself lord and master.
You say chemical manufacturers want more NG produced - and then ignore how more will get produced. Higher prices.
NG producers are already cutting back production - NG rig count down over 30% over last year.
You are talking about centrally planned economies - where corruption is rife - where innovation stops - and YOU - the enlightened will determine who should earn profit and who shouldn't.
Back in the USSR.
And you can call me whatever insulting terms you want. You haven't answered a single question asked - you claim a vast resource is scarce when it isn't and instead of offering any type of rational explanation why banning exports will improve the economy - you call me names.
And I'm ignorant?????
Back in the USSR
Like those of us that believe a resource with known reserves of 6,675 Trillion cubic feet isn't a scare resource.
Like those of us that realize that producing LNG is a "value added" process - no different than the "value added" process that DOW uses to create chemicals. Did a little digging and it costs about $2.15 Mcf do turn NG into LNG. So about a 50% increase in cost at today's prices - and yeah, of course DOW needs more of an advantage - how else will they ever make money.
Like those of us that realize that while we sit on our NG and restrict commerce, that others will continue to improve and innovate and likely create the next big breakthrough in energy and all the jobs and opportunities that go with it. Heck they might even develop something that leads NG to be no longer needed!
Like those of us that understand artifically keeping prices low will result in less supply.
Like those of us that recognize that $12 NG prices attracted lots of creative people to develop new technologies and processes that resulted in tripling our proven reserves and LOWER the cost to $3. And that allowing them to pursue additional profits by exporting will lead to even more technology improvement and likely further increasing productivity in the pursuit of profit.
And like those of us that recognize that many of our large businesses are now simply rent seekers. Looking to bribe our politicians to create market barriers to allow them to profit. As opposed to creativity, new technology, new processes, R&D, etc. And that leads to less jobs and opportunities for all.
Yeah, us dumb, ignorant business owners that keep trying to find new ways to earn money.
I know, I know, better I ask which government line I"m supposed to stand in. Oh Comrade, Please tell me what I should do today, how much should I make, what is the price, and to whom shall I sell. Praise the Motherland!
Dasvidania
Western Europe's centralized genius went "green." Now, in the dead of winter, their windmills are static and they're on their knees before "King Putin..." Watch. Listen. Learn.