The Urethane Blog

Dow Urethane Comments & Sadara Update


Howard Ungerleider

On slide 9, Performance Materials & Chemicals had several moving parts in the quarter. Equity earnings were over $100 million lower, consistent with our modeling guidance, due to the change in ownership of MEGlobal coupled with lower MEG prices and Sadara startup costs. When you take into account these two items, the core polyurethanes business performed well, as it continued to increasingly tilt toward its higher value specialty portfolio.

The business delivered double digit volume growth in its systems houses on strong consumer demand, particularly in Asia Pacific, enabled by our new polyols plant in Thailand. This benefit, however, was offset by margin compression in the upstream portion of the business, where supply balances have loosened and turnaround and maintenance costs were higher due to a planned outage in Europe and a short unplanned outage in Brazil. In Industrial Solutions, putting the impacts on equity earnings to one side, our core business delivered flat earnings as disciplined self-help actions offset challenging industrial end market conditions.

Aleksey Yefremov

Good morning. Thank you. Turning back to Sadara. Could you tell us what is the current plan for having the entire project be up and running, and also what do you expect the net equity contribution for Sadara to be next year. Is it going to be a tailwind or a headwind?

Andrew Liveris

I’ll let Jim pile on. I just wanted to just – he said something earlier which gives me opportunity to repeat what he said and then double down on it. So, Howard and I made a trip out there just this last weekend and we had a thorough review with the project team. Jim’s on the board and he’s the lead for Dow on that board.

The new energy minister, Khalid Al-Falih, the previous CEO of Aramco, was present for a whole day. We are into the granular detail of starting up 25 units all in parallel and many of them, there’s over 500 Dow people on the site to assist the local Saudis in getting it all up and running. Very impressed with the quality of the Saudi workforce, by the way. It’s first class. We train them around the world, they’re great. And we’ve got the human resources on the ground and, of course, we’re now working on the most important one of them all which is getting the mix feed cracker up and running. And then Jim may comment on that.

Actually they fed ethane in while we were there for the first time. And not often that you want to see a ground flare burning ethylene, but everyone was celebrating the burning of ethylene through the ground flare. That’s just a little piece of detail for you to let you know there’s real things happening on that site.

Now the handoffs, the multistage handoffs, the fact that we’re allowing most of this year and all of next year to get these handoffs before we’re all the way done. There’s going to be a lot of those handoffs on the interfaces. And, Jim, you may want to comment on the complexity and what we expect.

James Fitterling

Right. So as soon as this cracker comes up, we’ve got the two PE plants ready to run. And then a third PE plant will be ready to run before the end of the year. So that will consume quite a bit of ethylene. And then EO and PO derivatives come on next, and they’re going to be complete in the end of third quarter beginning of fourth quarter. They have a start-up phase to go through, and so you can expect to see them in the first quarter of 2017.

And then as we go down the aromatics chain, you’ll start to see isocyanates and some of the other derivatives come on by mid next year. So, throughout the end of this year and through most of next year, we’re going to be sequentially starting up these units in this big integrated complex to bring the whole thing up and running. Right now, construction is 99.5% complete. So mechanical completions, every week we’re handing over units to the project team and the operations team. So we look in good shape to get it up and running. The point on tailwind, our view is still you’re going to see equity earnings out of Sadara of $400 million to $500 million in that timeframe when they’re all up and running.

Howard Ungerleider

Yeah, I would just say, in terms of – Jim’s guidance was a long-term point on earnings, so we still feel really good about Sadara. If you want to talk about this year punctually, year-on-year 2016 versus 2015, it’s likely to be about a $250 million enterprise level headwind for us sequentially, and probably about a $400 million cash flow headwind for us, just as we fund the completion and start-up costs associated with the whole integrated site.