INSIGHT: Dow sees 'virtual' integration with K-Dow

02 December 2008 17:45  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--“We are now virtually back-integrated,” Dow Chemical CEO Andrew Liveris said on Monday following the announcement of the signing in London on Friday of the pivotal K-Dow joint venture agreement with Kuwait's Petrochemicals Industries Co (PIC).

This joint venture will change the way in which Dow operates and should provide a host of opportunities for the chemicals giant and for Kuwait.

US chemicals major Dow wants to push close to the market with its so-called market-facing businesses. The performance products side will be boosted by the Rohm and Haas acquisition which Dow expects to complete in the first quarter next year.

But upstream at the cracker and the polyolefins plants Dow is undergoing real change. The K-Dow venture ends 30 years of stand-alone petrochemicals economics.

Liveris says Dow will get access to advantaged feedstocks for its crackers - remember, it is only putting three, the gas crackers in Argentina and Canada and the liquids-fed plant in Spain, into K-Dow.

Over the longer term, there is the possibility of Kuwait Petroleum taking a wider interest in the other parts of the world in which Dow is active upstream, including Germany, in Europe, and on the US Gulf Coast. Liveris says that potential opportunities will “play out over time”.

In the shorter term there is a lot to be going on with. PIC parent Kuwait Petroleum Corp (KPC) is already involved with Dow, Sinopec and Shell in Nansha mega-refinery project in China.

Other projects could be pursued in India and southeast Asia, particularly Vietnam, Liveris says. There are natural gas/ethane plays in North Africa - Egypt and Libya - and gas extraction in Russia has been considered.

Dow has three big upstream “anchor” projects now according to the CEO: K-Dow, the Ras Tanura project in Saudi Arabia and its China plans.

A great deal of speculation has surrounded the giant Ras Tanura refinery and chemicals project that Dow is pursuing with Saudi Aramco but Liveris remains upbeat as he visits the kingdom to help Aramco celebrate its 75th anniversary.

“By the end of next year we will have the final on this project,” he told financial analysts on Monday.

The partners are putting together a final study in 2009 which will look into ways key parts of the project can be accelerated at possibly reduced costs.

Engineering, procurement and construction costs are coming down so the project could start to look better. This is a long-term venture for both parties - and one of the biggest ever for the chemicals maker.

Dow has negotiated a deal with KPC that provides net proceeds of $9bn (€7.1bn): not too far different from those first planned. Not surprisingly, Liveris called the deal “a terrific win for us”.

The joint venture places Dow in a much stronger position in upstream petrochemicals and polymers and distances it from the vagaries of the (petro)chemical commodities cycle.

The important next step is to complete the Rohm and Haas acquisition and merge the business most effectively at lowest cost.

Dow is expected to talk further soon about enhanced synergy savings that will have to be made concommitant with that deal to accommodate deteriorating market conditions.

($1 = €0.79)

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By: Nigel Davis
+44 20 8652 3214



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