No new cracker planned for new Dow in 2nd wave of expansions

NEW YORK (ICIS)–The new Dow will not build a new cracker in its “Wave 2” of planned expansions, in line with its renewed focus on capital discipline, its CEO said on Wednesday.

“Wave 2 will not have a new cracker. We will be adding capacity at existing sites, including debottlenecking ethylene. For example, in Terneuzen [the Netherlands] and Freeport [Texas, US], we have room to expand,” said Jim Fitterling, CEO of Dow, at a media briefing at its investor day in New York.

Wave 2, which will take place from 2021-2023 in Dow’s packaging & specialty plastics segment, will add around 1.4m tonnes/year of capacity and involve a range of products, including swing polyethylene (PE) units in the US and Europe, as well as higher alpha olefins and elastomers in the US, he noted.

Specifically on the PE side, this includes 600,000 tonnes/year on the US Gulf Coast, 450,000 tonnes/year in Europe and 350,000 tonnes/year of global PE debottlenecks, according to slides from Dow’s investor day.

Dow sees a potential incremental $600m-1.1bn in annual earnings before interest, tax, depreciation and amortisation (EBITDA) from its Wave 2 investments.

The company also sees a potential EBITDA uplift of $400m-750m from its incremental Wave 1 investments on the US Gulf Coast through 2020 which will add an additional 1m tonnes/year of capacity.

This includes a 500,000 tonne/year ethylene expansion at Freeport, Texas by 2020 but excludes its MEGlobal joint venture expansion in Freeport which is slated to start up in 2019.

Dow also plans silicones, polyurethanes, and ethylene oxide (EO) derivatives investments in the next three years, which could add another $200m-400m in annual EBITDA.

This includes debottnecking in siloxanes over the next 18-24 months, as well as an EO derivatives expansion over the next 24-36 months, said Fitterling.

On its investor day slides, Dow lists upcoming expansions in alkoxylates and glycol ethers, siloxane resin and silicones, polyurethane (PU) systems and Sabine ethylene copolymers.

On a potential new cracker or expansion in Argentina, Dow continues to monitor developments on natural gas feedstocks, but there is nothing planned.

“It must compete with [projects on] the US Gulf Coast, Canada and the Middle East,” said Fitterling.

One major theme for the new Dow was capital discipline. It plans capital expenditures (capex) to be at or below depreciation and amortisation (D&A).

Compared to the “Old Dow” from 2014-2016 where annual capex was around $4bn, the new Dow plans annual capex of around $2.8bn comprising incremental growth capex, and maintenance, regulatory and turnaround capex.

The new Dow will aim for projects with an internal rate of return (IRR) of over 13%, with a faster payback.

These types of projects tend to be incremental growth investments rather than mega projects which have had lower IRRs of 10-13% in the past.

Fitterling calls this disciplined capital approach a profound shift in thinking.

“The things hitting my desk have numbers around 20% [for IRR]. If we continue this methodical growth we will keep driving IRR higher,” said Fitterling.

(updates with certain PE capacities and product expansions from Dow’s investor day slides)

Photo: Dow started up a cracker in Freeport, Texas in 2017.