Dow Bets $6 Billion That U.S. Fracking Boom Will Last Another Decade

Dow Chemical is investing $6 billion to enlarge its manufacturing facilities in the United States by 40 percent, based on a wager that low natural gas prices here will persist into the middle of the next decade, a Dow executive said in Chicago this week.
The investment reverses Dow's vocal exodus from manufacturing in the United States, said Doug May, Dow's business president of olefins, aromatics, and alternatives, during the Kellogg School of Management Energy Conference Wednesday at Northwestern University.
"We're putting $6 billion here in the U.S. Gulf Coast, betting that the gas advantage maintains for us to get a suitable return on that investment, which is into the next decade," May told about 125 people, mostly graduate students, assembled at the management school.
Firms like Dow are emboldened by the news that U.S. natural gas production increased by 4 percent last year, even during a glut that caused low prices that discourage new drilling.
"I think those trends are going to last at least into the early or middle part of the next decade," May said.
The Michigan Chemical Company's U.S. expansion remains dwarfed, however, by its $20 billion investment in Saudi Arabia.
"Back in the 2005-2008 time frame, we could not be competitive with our assets here in the U.S., which was the majority of our asset base," May said. "We had to go find other locations, and we tend to partner with sovereign nations who use their energy resources as leverage to create whole economies. So we've got significant assets in Kuwait, Saudi Arabia, and we're building out a very large one in Saudi Arabia right now."
In the U.S., Dow is banking on cheap oil and natural-gas derivatives from shale gas operations to support massive plant expansions in Texas and Louisiana.
"This U-Turn that occurred here in the U.S. has encouraged us to put $6 billion back into the U.S., restarting a cracker we had shut down, to produce ethylene, to build a brand new ethylene cracker in Texas, we've also invested in an all-purpose propylene facility, and then we've built a host of derivatives around it that serve the packaging industry primarily, for food safety and the consumer durables and automotive industry."
May also said manufacturers are following Dow's return to the U.S. to take advantage of the products its produces, an outlook somewhat at odds with a less optimistic prediction made by analysts at A.T. Kearney.
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