November 20, 2006

Volume 84, Number 47

p. 23

Better Energy Through Chemistry

By supporting new energy creation techniques, specialty chemical companies are turning the oil and gas price run-up into a business opportunity

Michael McCoy

Oil and gas are the lifeblood of the chemical enterprise. Most of the thousands of organic chemicals that leave the world's laboratories and manufacturing plants are the result of a chain of chemical reactions starting with crude oil or natural gas. Inorganic chemistry also requires oil or gas, not as raw material but as an energy source.

So when oil and gas prices spike, the chemical world feels it. As recently as 2002, oil prices were below $25 per barrel, a comfortable level for companies and consumers alike. Prices started rising in 2003, and they increased steadily for four years until peaking at close to $70 per bbl just three months ago.

The bigger the company, the more the run-up is felt. At Dow Chemical, one of the world's largest companies, feedstock and energy costs rose by a sobering $4 billion in 2005.

Gasoline prices may now be falling for the American consumer, but companies are still smarting. Dow's chief financial officer, Geoffery E. Merszei, told stock analysts late last month that "despite all the talk of lower oil and gas prices, feedstock and energy costs in the third quarter were significantly higher than in the second—in Dow's case, up by over $300 million." And no one believes the world will ever see $25 per bbl oil again.

While rising oil and gas prices are a challenge for all companies, some are finding an opportunity as well. Growing consumer and government interest is spurring demand for alternative energy such as electricity from the sun and biofuels from agricultural and other renewable raw materials. These relatively immature fields are in need of the chemical industry's product innovations and process-engineering expertise.

Oil companies, meanwhile, are revisiting oil fields that were unprofitable at $25 per bbl. These fields may be profitable at $60 per bbl, but only with the help of specialized chemicals that improve the economics of pulling hard-to-reach oil out of the ground.

In the pages to follow, C&EN explores three growing energy markets and the specialty chemical companies that are profiting from them.

Gross domestic product figures, which measure total economic activity within U.S. borders, were released by the Department of Commerce late last month. They indicate that the U.S. economy grew in the third quarter at an annualized rate of 1.6%—the slowest rate in three years. Much of the slowdown is attributable to a slump in the housing market. And U.S. voters, increasingly discontented with many issues, high among them the economy, will cast their ballots in congressional elections. The Republicans may lose their majority in Congress. Who knows what effect this would have on the economy or the chemical industry?

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