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Natural Gas Price Hike Slams Chemical Industry

"The U.S. Chemical industry's long-term economic survival depends on having access to an abundant and affordable supply of natural gas," said Rohm and Haas Chairman and CEO Raj Gupta in testimony given during a recent hearing of the House Natural Resources Committee. "Current U. S. natural gas prices have turned the industry into the world's high-cost producer," he warned, adding: "It is not an exaggeration to say than an economic disaster is unfolding because of dangerously volatile prices in natural gas markets." Gupta is also the chairman of the American Chemistry Council's (ACC) executive committee.

In early March, the spot price of natural gas was as high as $19.00 per million British thermal units (mm Btu). Although the price had dropped some by mid-March, it was still three to four times higher than in past years, according to ACC. Because supplies of natural gas in storage are at an all-time low, ACC believes futures prices will not fall into a "tenable" range any time soon.

Supply and demand

In addition to the usual seasonal fluctuations that affect prices, the unintended consequences of public policy have complicated the issue. "We are in a crisis because Washington has failed to enact a sensible national energy policy," said ACC President Greg Lebedev.

According to a recent report in The Daily Oklahoman newspaper, falling prices in 1998 and 1999 caused at least a 50 percent drop in drilling for both oil and gas, helping to create the current shortage. Recent mild winters held gas prices low and caused a false sense of continued abundance. Meanwhile, the U.S. Environmental Protection Agency and other government bodies encouraged the substitution of natural gas for coal and nuclear power in electricity-generating plants. Natural gas became the "clean fuel" of choice.

In short, while the federal government was passing legislation and offering incentives to increase natural gas use, it was doing nothing to ensure an adequate supply.

A double whammy

Rising natural gas costs hit both chemical companies and other manufacturers with a double whammy ," higher operating costs and higher material prices. Adding to their burden is the fact that, according to ACC, the situation is one unique to North America. Natural gas is much cheaper in Europe and Asia, giving manufacturers there a competitive advantage.

The result has left chemical manufacturers scrambling.

"The biggest thing is the price of gas goes up," said David Hurder, president of McGean, an organic and inorganic chemical manufacturer based in Cleveland. "That reflects itself in two places ," their gas bills and raw materials. For batch plants, raw material costs sometimes can sometimes be a bigger killer than the price of gas going up."

Since the end of 2002, numerous companies, including fertilizer producer Terra Industries Inc., Kaiser Aluminum and many chlorine producers have cut back or ceased production entirely, citing high natural gas prices as the cause.

Companies that have avoided this kind of drastic action still are pressured to squeeze gas costs out of their operations at every level. "If your prime raw material doubles in cost, there's no way you can double the cost to your customers," said Hurder, describing the dilemma of the chemical plant that depends on natural gas as a feedstock.

His own challenge is a little different. McGean relies on natural gas as an energy source, but not as a raw material; however, its suppliers do. In the last few weeks, Hurder has been told by "a whole stack" of his suppliers that prices will be going up 10 percent to 15 percent, leaving the company with few options. "Our strategy is to absorb that cost or pass it on to customers," he said.

Four-point plan

In response to the situation, a group of chemical and energy-producing trade organizations has been lobbying Congress aggressively to address the issue with a four-point plan.

ACC is spearheading the initiative with support from the Synthetic Organic Chemical Manufacturers Association, the National Petrochemical & Refiners Association, the Industrial Energy Consumers of America, the National Association of Manufacturers and others.

Their four-point plan calls for Congress to:

Pass comprehensive legislation that addresses long-term structural problems and opens new domestic supplies of natural gas.

Order the immediate reduction of energy consumption in all civilian government agencies and appeal to Americans to save jobs by conserving electricity and energy.

Avoid regulations that motivate switching from coal to natural gas until adequate supplies are accrued.

Work with Canada and Mexico to increase the available supply of natural gas in North America.

The organizations are pushing for quick passage of an energy bill, which is expected to come before both houses of Congress during April.

Nancy Bartels

Dow Chemical Launches New Business

MIDLAND, Mich. - The Dow Chemical Co. announced the launch of Dow Dispersion Sciences (DDS), a business "dedicated to pioneering advancements in emulsions and dispersions technology that benefit the personal-care industry."

The first commercialized technology in the DDS portfolio, said Dow, is a proprietary mechanical dispersion technology that allows the production of highly concentrated oil-in-water emulsions with tightly controlled particle size and minimal surfactant.

CP Staff

 

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