One on One with Dow Chemical CEO Andrew Liveris
Monday, June 02, 2008
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SUSIE GHARIB: One company that could be impacted by that cap-and-trade proposal is Dow Chemical. The giant chemical company has felt the pressure of rising energy prices in a big way. Just last week, Dow raised its prices on all products by 20 percent to offset soaring energy costs. Earlier today, I talked with Dow Chemical CEO Andrew Liveris and asked him how customers are reacting to the sharp price hike.
ANDREW LIVERIS, CEO, DOW CHEMICAL: Their reaction has been that they're not surprised. They're not surprised. They have basically in the main come across and said we understand. And I think that's pretty powerful statement. You've got to understand we've actually had price increases now for the better part of four years since oil is down to $40 and natural gas is at $6. They've been seeing price increases as we see now hydrocarbon and energy costs can escalate in essence. As you know, we've had a quadrupling of our input costs, but this latest increase has been to meet the surge that we saw in the last several months on oil in particular. It's gotten to the point where unless we did these price increases, many many many more of our manufacturing facilities would have to be shut down.
GHARIB: Mr. Liveris, besides price increases, what else can Dow Chemical do to deal with high oil prices?
LIVERIS: One of the most significant has been these joint ventures we've established overseas with countries and nation states that own oil and gas that have understood the power of petro chemistry and chemistry in job creation. 120,000 jobs have been lost in the chemical industry the last four years here in the United States. Multiply that by five and you take indirect jobs, Susie, that's over 600,000 jobs. Those jobs are being recreated in nation states that have access to oil and gas resources that are saying come and joint venture with me. I'll give you a discount, a subsidy off the world price so I can bring those jobs to my country. That has earned us over a billion dollars of new income in the last several years that we didn't have four years ago.
GHARIB: Do you think that now that you've made this move today that other chemical companies are going to follow suit?
LIVERIS: We'll watch it. I mean we're not going to go out there and just hang ourselves out to dry. We'll work with our customers, different markets, different end segments have different competitors. We will obviously watch it very closely. We're having everyday meetings right now to (INAUDIBLE) these price increases against volume loss. Of course we'll watch it very closely. We expect some competitors who have already announced (INAUDIBLE) in fact do more than what we've announced.
GHARIB: Now you've been very critical of Washington policy makers for creating what you call a true energy crisis. What would you like to see Washington do?
LIVERIS: Well, I'd start firstly by putting in place all the enactments of the energy act of 2005. Over 70 of those provisions have not been put into place. Some of them have just lapsed due to a lack of funding. These are efficiency measures like building standards. These are actually funding of renewables, funding of clean coal technology. We keep talking about all this but putting in place in '05, none of that is being done. How about increasing supply of natural gas and oil locally? We're sitting on 15 years of oil and 30 years of gas. We can't drill. Eighty five percent of it is off limits because it's on Federal land or OCS. I would do those two things straight away. And (INAUDIBLE) about funding clean coal technology and (INAUDIBLE) biofuels and biorenewables, all the alternatives as well as nuclear. I'd put them all on the table from a Federal funding point of view. In fact, I'd increase oil and gas supply locally, use that as tax revenues to fund these programs. Those three things alone will solve this crisis within two or three years.
GHARIB: As you know, Congress is debating the Climate Security Act. Do you favor that?
LIVERIS: Well, we're members of (INAUDIBLE) yes, we do. We do believe cap and trade. This is a very important problem for humankind. It needs to be solved, needs to be solved with a balance of economics and environment. Clearly cap-and-trade is a good way to incent us all to do it. The devil's in the detail. The Lieberman-Warner bill is mostly (INAUDIBLE) cost containment wise. U.S. cap (ph) supports it. We see the issues that this first five or six years if that bill was to go through in how to make it affordable. You can't just add a new cost burden own the American consumer.
GHARIB: Mr. Liveris, I understand that Dow Chemical is going to be selling its plastics business for $9.5 billion to a Kuwaiti joint venture. What are you going to do with all of that cash when you get it?
LIVERIS: Well, that deal with close later this year and we as you indicated, cashed up (ph). We have a strong balance sheet. When that cash arrives, we'll have no debt. Obviously we won't leave that be the case. Right now we're very, very oriented to a large share buy-back program short of any acquisition targets. We're been looking for acquisitions for the better part of three or four years. None fit us. All the criteria we have out there both financial and strategic. So the likelihood is that we'll just deploy it and invest it in the best chemical company out there, ourselves.
GHARIB: Mr. Liveris, thank you so much for talking to NIGHTLY BUSINESS REPORT. We really appreciate your time.
LIVERIS: Thank you, Susie. Appreciate being with you.
