Name: Dow Chemical's shale economy
Uploaded: 2014-04-09
Duration: 11 min 8 s
Description: CEO Andrew Liveris says the company's increased reliance on ethane, derived from shale, will lead to partnerships and policy changes.

Were joined by Andrew Liberius who is the chairman and CEO of Dow Chemical, Andrew, thanks very much for sitting down with us. Happy to be with you Andy. So Dow Chemical stock has been on the upswing lately, how is the company doing? Recovering at this point? Yeah, it's a good word. I think the acquisition of Roman House that we closed early last year, if you look at it now, 15 months later, we've fully integrated that great company into Dow. Not only have we integrated in the context of delivering the cost energies, but we've actually integrated the technology side and the market orientation of that company so one of the reasons for that acquisition. Was to transform our company into more of a specialty house, less of a commodity company, and that achievement 15 months later is very apparent. And I think reflected in the stock price movement. Of course, the earnings results that have rebounded strongly all beat off a low, a low low in 09. 10 has been a year of consolidation of the gains. And 11 foreshadows great improvement. And the thing I like most about it Andy, or the thing I really get my kicks out of is watching the people's side of it. At the end of the day, all of our businesses are people businesses and the integration on the people's side has been, I think, nothing short of spectacular. You must have a good read on the global economy or the economy in the United States and the global economy. Can you tell me what is your assessment of, of both of those? TImely question because I've actually the last ten weeks been in 15 countries outside of the United States. I went on a very large tour, not to just get a State of the Union. Feel but also really for this integration point I made to see how we were integrating Roman House around the world. So whether it was in Brazil, or Turkey, or China, or Thailand, and all the other countries that I won't mention for the sake of time, it's very apparent that the growth that's going on, especially in the emerging world is very strong. To the point of over heating, which of course, is a whole other topic. But the growth is strong. And I would tell you that as a consequence of that, the emerging world is starting to pull the developed world with it to different degrees. Certainly an economy like Germany is very strong, and some other European economies, cuz they're export economies. And as a consequence of that, they're also doing fairly well. I would say Germany as a case in point is benefitting not just from exports to the far east. But also because right next door it has the eastern Europe Russia, in particular Russia oil and gas money to be spent. So they're taking advantage of the new consumers in that part of the world. But you know the developed world, if I can kind of keep that bucket intact, is a slow recovery and I think it's, the good news is that it's recovery. But it's slow and I think you know, of course here in the United States, we have a jobless recovery which of course creates all sorts of consternation. We believe we're way past the double dip threat but we certainly need to do what needs to in all of us collectively to get more certainty in, into this recovery. Well let's talk about that jobless problem because it is stubborn right now corporate profits are very high, productivity is very high which means that. CEOs and leaders are getting a lot out of their workforce. Yes. Have you been reluctant to hire more workers? Well, we are hiring in the United States, and we're increasing capital spending, but it's not as fast as elsewhere. And I think, so, it's that delta that I think everyone's noticing. Not just our company, but other companies, so how do we get the US to go back to what it used to look like? Some would say, well, we don't want it exactly like that because that was a bubble created by the housing mortgage, da da da, false consumption, if you like. So what's new consumption look like? How do we put in place new consumption so it's more reliable, maybe a little more steady, that can cause investments such as capital and of course hiring people? Sorts of hiring we're doing, is in the new economy in an alternative energy field for example. Here, the Obama administration, not, not just with us but with many companies in the first stimulus did a bunch of awards in energy storage. Batteries in particular. Solar, etc. So we're hiring in those new fields. Now, in the traditional business though. Most of that hiring is going on overseas. But so you are hiring people in the United States this year? We are, we are. And certainly as I said, in alternative energy projects in particular. Andrew, over 60 % of your sales come from overseas, and yet 60 % of your manufacturing is here in the United States. So you export a great deal. Well, you know we, starting to get at with your jobless question, I think what we have is after a financial crisis of that proportion, a lot of policies are in the, what I call the uncertainty category and business hates uncertainty, capital is a coward and so as the end of the day. Investment will not come until we get a little more certainty on very important policies to business. And you know, I can pick a variety of different ones. But one very near and dear to the heart of Dow is energy policy. You know, there's been several attempts at a holistic energy policy in this country. We still don't have one. So, if I don't know what my price on my inputs is going to be, if I don't know my cost of energy. Or, the cost of power, then. I'm gonna hold back. And, I'm not going to invest until I see more certainty in policies. Now, tax reform is another one. I think, until we keep extending these temporary tax provisions. But it's temporary and so until I get more certainty on tax reform for example that stops me from being an investor. Then in the mean time, I have existing assets here I need to protect. What's happened in particular in my world with shale gas being discovered is those assets have become more competitive so at least I can export off of current assets. But until I see more certainty in policies, I won't rush to build new assets. But, what you're talking about is something that some Americans maybe would have a problem with, which is closer cooperation between business and government. And they will point to you and say, Andrew, isn't that the Chinese model? Do we really want to be like China? Well, as you can tell from my accent, I'm an Australian. So, I'm a guest to your great country. I think your country is great for many reasons and you haven't lost those reasons last time I checked. The freedom model. Mm- hm The ability for anyone to succeed here no matter where they come from. Witness say an Australian from the Outback. And, and this this education approach, especially the tertiary level, creates a competitive advantage. I think immigration is the other point I was trying to make just now. So, put all those two together and say, that's still in the plus column. So what's in, what's in the minus column? Well, I get. Piecemeal policies, I don't get a whole approach to the manufacturing sector, that other countries do. So it's not a level playing field. Other countries actually act like countries. And you can use China as an example where, you don't have to, you might say China being Communist has a certain model and probably is, but go to a democracy like Brazil, or go to a democracy like India, go to you know, other democracies around, Germany. They actually support their manufacturing sector as a country. They have, in fact, public- private partnerships. The government working with industry, working with business, comes up with holistic approaches to policies that encourage exports, that encourage investment in their country. We at Dow call that an advanced manufacturing plan. We've actually published that at Dow. We believe that if the government here in the United States put all that together as a holistic law, manufacturing we have a renaissance in this country. Instead of being 11 % of the economy and continuing to decline, and almost becoming sub scale, you might argue it's approached that point already. We can reverse that decline and start getting the manufacturing sector to be the engine of the American economy again, thus creating new consumption that I implied earlier has disappeared with the lack of the consumer having confidence to spend. So you're talking about a partnership rather than not being adversarial with regard to government? I, I think, look, it's pre, you know, another p- word, pragmatic. I mean. Look. We, we all get here by talking to each other and listening to each other. And, I think partnership models are great, you know? I'm a free- market capitalist, CEO running a great American enterprise. I need engagement with governments so I can get more certainty of policy. As a chemical manufacturer you count obviously on your, your primary components being shale gas as you, as you discussed. And there's a great debate in the United States about exactly how much we have. Can you give us your read on that? Well the numbers are just incredible and astonishing. And probably will go down as one of those great signature moments in US energy history. That you know new technology, new drilling techniques, you know, entrepreneurs, you know, the small guys went out there and found ways to get to the source rock. You know, natural gas occurs in pools but it comes from a source. The source is shale. And, so, what the did is they developed the technology to break loose the, the gas from the source rocks. As it turns out, you know, that's almost a, not just a doubling, not just a tripling, not just a quadrupling, but almost a five times amount of proven reserves of natural gas. And, in face, on shore, even, even better. So, this will go down as a major shift and now how we use this precious resource, how it gets developed what sorts of uses favored versus the other is energy policy. Now, we're for a lot of this gas going into power and going into petro chemical feed stocks. If those two things happen, happen logically. We can then start, you know, with the electricity grid we have. Get to hybrid vehicles and electric vehicles as a different source of transportation off an indigenous resource. Clean burning fuel like natural gas, which is really what shale gas is, is better than the alternative until we develop the alternatives. We're pro- nuclear, because that's an alternative that is here today, and coal obviously has the emission issue, so over time we have to find ways to develop clean coal. But in the meantime. Shale gas at a minimum is a great bridge to that point. Mm- hm. And at a maximum and an optimum, for as far as the eye can see, can be a source of competitive advantage, not just for US power, but for US producers like Dow and other energy intensive producers so we can invest in this country. Is there a problem developing shale gas? Well, no problem that isn't surmontable by great minds and great companies that the US is full of and I think a lot of the big oil companies of course are making their plays and buying up some of these companies. The independents that are out there, like Chesapeake and Southwest and others. Are working actively to bring theirs to market, working with companies like ours to try to find ways to value add it. Remember $ 1 of gas, shale gas, I add $ 6 of value to. So rather than burning the dollar, how about multiplying it by six? And for every job in the upstream, I can create six to ten jobs in the downstream that are high paying jobs. Now, that sounds like a national energy strategy. And that sounds like a national advanced manufacturing plant, which is what other countries do. In fact, other countries attract me, with giving me certainty of inputs. So if shale gas can provide that by working with independents, and other alternative energy producers, then that'll be good for the US.

CEO Andrew Liveris says the company's increased reliance on ethane, derived from shale, will lead to partnerships and policy changes.