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Movin’ Out

From the May/June 2007 Issue

An Australian dedicated to American values, Andrew Liveris, the CEO of Dow Chemical, has been shifting plants overseas as U.S. natural gas prices make domestic manufacturing uncompetitive.

Liveris (small)Since 2004, Andrew Liveris has been chief execu­tive officer of the Dow Chemical Company, the giant chemicals and plastics manufacturer with $49 bil­lion in revenues and 43,000 employees around the world. Dow, founded in 1897 in Midland, Michigan, and still headquartered there, seems the quintessen­tially Middle-American company, but Liveris is the fifth of the past six Dow CEOs to be born outside the United States—in his case, in Darwin, in Australia’s remote Northern Territory. He received his engi­neering degree from the University of Queensland, joined Dow in Melbourne in 1976, and spent much of his career in Asia. He and his wife Paula have three children.

Under his stewardship, Dow has moved vast manufacturing operations overseas—a develop­ment about which Liveris is not entirely sanguine.

The American: Andrew, will the chemical indus­try continue to be a vital part of the American economy?

Andrew Liveris: Petrochemistry, which is an indus­try based on chemicals that are made from oil and gas, will increasingly diminish its footprint because of America’s lack of competitiveness in natural gas, particularly. Our industry used to be the second-largest exporter of American goods outside aviation and aerospace. But that disappeared, and U.S. petrochemistry as an export sector will not exist again, unless natural gas goes below what is notionally the world price.

Why have gas prices gone up so much? Is there something that public policy can do to change that?

Natural gas has gone up because of the deregula­tion of the electricity sector in the Clinton era. The law of unintended consequences took over. With an Environmental Protection Agency that was fairly aggressive on coal, and with nuclear becom­ing taboo, fundamentally all new power stations were built with natural gas firing the boilers and turbines. At the same time, domestic natural gas production in the United States was limited. Most of the new areas that were promising in terms of natural gas were in so-called environmentally sen­sitive areas such as the northwest shelf of Alaska, the Colorado Rockies, and, in particular, the Outer Continental Shelf.

What policy changes could help? Clearly, allow­ing states to opt in and allow drilling in their waters on the Outer Continental Shelf and to find a mecha­nism to share revenue with the federal government. That is really the policy of choice. If we can make available the natural gas reserves that the country already has, it will impact not only American chem­istry but the American manufacturing economy in a very positive way.

So, with these domestic prices, the chemi­cal industry is not building new plants in the United States?

We are not building the plants that have the biggest economic impact and the most jobs. We are build­ing small, specialty plants. A good example is a plant mak­ing water purification units in Minneapolis. That is a $25 million investment. We are also building a plant that makes the precursor for paint in Louisiana for $50 million.

But the plants you are refer­ring to are multibillion-dollar plants. There are over 80 of these under construc­tion around the world right now, and only one, and maybe not even that one—it is not a sure thing—is being built in the U.S.

‘If we can make available the natural gas reserves that this country already has, it will impact not only American chemistry but the American manufacturing economy in a very positive way.’

How much does Dow spend today on natural gas compared to a few years ago?

In 2002, we spent $8 billion for our hydrocarbon purchases. That number in 2006 was $22 billion.

Your costs have nearly tripled even though you are moving some of your operations outside the United States?

Yes. We are moving into joint ventures that now do the buying on long-term fixed-price contracts at fractions of the price that we, the 100-percent company, buy them for in the United States. So, the hydrocarbons bought by the joint ventures we create—we have a massive one in Kuwait called EQUATE—are not included in that $22 billion.

We have shut down over 60 assets in the U.S. We have dropped our employee headcount from the year 2002 to the year 2007 by over 7,000 jobs. Despite that, our number went from $8 to $22 billion.

Give us an idea of some of these joint ventures.

The Kuwaiti one is operating. We are doubling its size, and it is our oldest. We have another one in Malaysia, which is up and running and working off low-cost feedstocks and natural gas. We are build­ing one in Oman, and just recently, we announced the building of a mega-complex in Ras Tanura, Saudi Arabia.

Two companies, the world’s largest oil and gas company, Saudi Aramco, and the world’s largest chemical company, Dow Chemical, will put in place in Ras Tanura what we currently have in place in Freeport, Texas: the world’s largest industrial petrochemical complex. We are working on at least three others, of which the most visible one is with Gazprom in Russia. And you can see our strat­egy: we are going into low-cost feedstock locations.

Your decision to move these operations into other countries is not the result of lower labor costs?

Absolutely not. We would not be doing this if the energy economy in the United States were balanced to include not only the increased natural gas we have talked about but also diversity of supply. Why is electricity not generated by nuclear and clean coal in this country? Why is that not at the table to take the pressure off our oil and gas resources? Also, we need efficiency of use—not just in the industrial sec­tor but clearly in the transportation sector.

You said in a speech that America’s “self-imposed structural costs put U.S. manufac­turers at a disadvantage... even with compet­itors in mature economies” like Europe and Japan. Besides energy, what are some of those costs?

America has not changed its corporate tax policy; other countries have in the last decade. There is the cost of healthcare and the cost of federal regula­tions. Then, there is the civil justice system, which is neither civil nor just nor a system. Companies like mine are constantly litigating in judicial hellholes and having to settle. This is a cost that other coun­tries do not have to put up with.

Sound science does not enter the debate. Whether it be the compliance domain or the civil justice domain, why are we ignoring the science that makes this country great? Are we truly becoming a society that rests its laurels on service, politics, and finan­cial systems alone? Is that our role in the world today, to be the thought leader on policy without the industrial base that underpins policy?

You are an Australian, Andrew. You run a very large U.S.-based global enterprise. Is your pref­erence to invest in the United States?

That’s a great question. I am going to answer it from my heart, O.K.? As a global businessman, I should be divorced and distant from the notion of country in my role. But I will not allow myself to be. I think the American education system, the American business model, and the American enterprise model are massive enablers of the human spirit. And the human reaction to this model says, “I can come in from the ground floor and be who I can be based on my skills, my abil­ity, my entrepreneurship, my freedoms that I’m allowed.”

So it is one of my roles to defend American enter­prise, to ensure we globalize and we do all the things we just talked about. The foundation of what we do is embedded in the American enterprise model—integrity, ethics, the approach to humanity—and I will not let that go.

Photograph by Roy Ritchie

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