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By Margaret Kriz, National Journal
© National Journal Group Inc.
Friday, July 6, 2007

In early June, Energy Secretary Sam Bodman traveled to eastern Tennessee for the grand opening of an innovative plant that may herald the dawning of a new, greener era for the American chemical industry.

The plant, a joint venture of DuPont and the corn refiner Tate & Lyle, will make a versatile, biodegradable chemical from corn sugar. DuPont will use the newfangled product to manufacture what it calls Sorona polymers, which will have a host of uses and advantages, including making softer, more stain-resistant, and more-durable carpets. Manufacturing carpets from Sorona will reduce carbon dioxide emissions by 55 percent and use 30 percent less energy than making them with nylon, according to company officials.

At the opening ceremony in the little town of Loudon, Bodman praised DuPont and Tate & Lyle for their "incredible advances in bio-based technology," which he said will "reduce our reliance on imported oil, aggressively confront climate change, and help maintain our nation's competitive edge in the global marketplace."

U.S. chemical companies use natural gas as the primary raw material in two-thirds of the chemical products they manufacture domestically; oil is the main ingredient in the other third. Both of these "feed stocks" produce greenhouse-gas emissions. High fuel prices and the threat of global-warming regulations are spurring some companies to look for ways to make their products from vegetation rather than fossil fuels.

In the decades to come, that research could revolutionize the chemical industry, says Michael Arne, assistant director at SRI Consulting, a business research group based in Menlo, Calif. "If we were to fast-forward 20 years, I wouldn't be surprised to see significant biorefinery capability in the United States," he said.

DuPont officials view Sorona and similar products as the long-term future of their company. That's a major shift for a company that started in 1802 as a manufacturer of black powder for explosives and that has relied on fossil fuels for more than a century. Today, "we're putting strong bets on biotechnology," said Dawn Rittenhouse, DuPont's director of sustainable development.

Products made from fossil fuels will remain the company's bread and butter for the foreseeable future, however. "We certainly are not going to be turning over a majority of our products that we currently make with fossil fuels to biomaterials," Rittenhouse said. "We see this as really early in the development stage. We're trying to figure out what are the opportunities."

Major chemical companies recognize that the public's concern about global warming is expanding the market for environmentally friendly products. Dow, the world's second-largest chemical company, has invested $100 million in research and development on solar products; the company recently received a $20 million grant from the Energy Department to continue that work.

"We need to develop the breakthrough technologies so that our economy can grow without worrying about increasing greenhouse-gas emissions," said Rich Wells, Dow's vice president of energy. "Our view is that chemistry is going to solve this problem."

Prodded By High Prices
Long before the global-warming debate hit Capitol Hill, American chemical companies were investing in energy efficiency and alternative fuels. In 1999, DuPont unveiled a set of ambitious long-term goals to cut its greenhouse-gas emissions, reduce its total energy usage, and switch to energy from renewable sources. The company says it has exceeded most of its original targets. The American Chemistry Council, an industry lobbying group, says that its 124 member companies have reduced their greenhouse-gas emissions by 12.5 percent below their 1990 levels.

Chemical companies have had to cut their energy use more aggressively than many other industrial sectors just to keep their prices in line with those of foreign chemical manufacturers, noted Douglas Hileman, a director with PricewaterhouseCoopers. The costs of electricity and fossil-fuel feed stocks have risen more dramatically in the United States than in many other developed countries. "This is a sector that is fairly energy-intensive," he said. "They've been focusing on reducing energy to reduce production costs and stay competitive." One side benefit: As chemical firms have curbed their energy use -- especially electricity generated from coal -- they have also been reducing their greenhouse-gas emissions.

For many chemical manufacturers, natural gas remains a top expense. For most of the 1990s, the U.S. price hovered around $2 per thousand cubic feet. In recent years, however, domestic supplies of natural gas have dwindled, and electric utilities have responded to federal air-pollution controls by building more natural-gas-powered generating plants, which discharge less pollution than coal-fired ones. As a result, natural-gas prices have more than tripled -- to $6.77 per TCF.

Business experts say that high natural-gas prices are transforming the U.S. chemical industry. Many companies are shifting some or all of their operations to developing nations that have cheap, abundant natural gas. According to a recent report from the National Association of Manufacturers, chemical firms around the world are considering constructing at least 80 large-scale chemical facilities that would cost $1 billion or more apiece. None of those facilities is expected to be built in the United States. Dow has announced new chemical projects in Kuwait, Oman, and Saudi Arabia, where the price of natural gas is under $1 per TCF. "We're going there because of the cheap feed stocks," Dow's Wells acknowledged.

U.S. industry officials say they fear that congressional proposals to control greenhouse-gas emissions could make matters worse, even though top executives at Dow and DuPont are helping to spearhead the push for such controls. The two companies view the growing alarm about global warming as an opportunity to capture new markets, introduce new products, and burnish their public images.

Nevertheless, they and other chemical companies are nervously watching to gauge the impact of global-warming legislation on their natural-gas supplies. Executives say that if Congress clamps down on greenhouse-gas emissions from coal-fired power plants, the nation's electric utility companies are likely to shift more heavily toward natural-gas facilities. The increased demand for natural gas could further inflate U.S. prices and drive more chemical production abroad, industry officials warn.

"Our concern would be that Congress would rush to put through some global-warming legislation that would have some unintended consequences," said Joseph Acker, president of the Synthetic Organic Chemical Manufacturers Association, which represents small, so-called downstream companies that turn chemicals into products. "That could hurt tens of thousands of manufacturing jobs in the U.S."

Hoping to bring down the price of domestic natural gas, U.S. chemical company officials are lobbying Congress to lift restrictions on domestic oil and natural-gas exploration off the East and West coasts and in parts of the Rocky Mountains. That proposal is unlikely, however, to make headway with the environmentally sensitive Democrats controlling Congress.

New Options For Coal
Biotechnology is not the only industrial process that could redefine the U.S. chemical industry. Eastman, a chemical firm in Kingsport, Tenn., uses coal as a building block for its products. Eastman built the nation's first commercial coal-based chemical plant in the early 1980s, when skyrocketing oil prices sparked heavy investment in synthetic-fuel plants. The company now makes 20 percent of its products by converting coal into a synthetic gas that has many of the same chemical characteristics as natural gas.

In early June, Eastman officials announced plans to expand their synthetic-gas production and make half of the firm's products from coal-based chemicals. "We think gasification will help us increase our ability to use abundant domestic resources in a way that allows us to keep our industry and jobs in the United States," said David Denton, business development director for Eastman's gasification service company.

Denton predicts that Eastman's synthetic-gas production process will advance the technical know-how involved in equipping coal-fired power plants to capture their carbon dioxide emissions and permanently sequester those global-warming pollutants underground. Environmental groups have joined coal companies in pushing for federal money to perfect carbon dioxide sequestration for coal-fired electric facilities. But the greens recently blocked efforts in the Senate to dedicate taxpayer dollars to converting coal into an oil-like transportation fuel. They argue that powering vehicles with liquid coal would result in twice the greenhouse-gas emissions as running them on conventional gasoline.

Eastman and other chemical-industry executives want Congress to subsidize plants to convert coal into chemical products. "We have to learn to use coal in an intelligent way," said Peter Molinaro, leader of Dow's Global Climate Change Team. "Why stop at using it as a fuel that you burn when you can make chemicals, plastics, carpet, fibers?"

Creating uses for coal that don't emit huge amounts of greenhouse gases could make it easier for Congress to regulate such emissions, because coal-state lawmakers would no longer fear that the federal government is trying to put the coal-mining industry out of business. The technology is available to make a natural-gas-like "syngas" from a wide variety of materials -- ranging from crop waste to industrial waste to ordinary garbage. "You can gasify almost anything with carbon in it," Molinaro said. But there's a significant catch: Biotechnology and gasification projects require huge capital investments. "Maybe the second or third project will cost less than $6 billion," Molinaro said.

So, industry officials are looking to the federal government for financial assistance and guidance. "We're in an evolutionary state where we're quickly ramping up additional R&D dollars, looking at those potential opportunities," said Jack Gerard, president of the American Chemistry Council. "But there is a delay between proving a technology and actually commercializing the technology. That's where we think there's an important role for the government as we look forward."

The nation's smaller chemical companies see a more difficult path toward the future. For starters, these firms can't easily move to countries with cheap natural gas, and they frequently don't have the money to invest in cutting-edge technologies.

"It's a double-edged sword for our companies," said Acker of the Synthetic Organic Chemical Manufacturers Association. "Because they are smaller, they tend to be more flexible and innovative than the big companies. But they don't have the resources. They can't say, 'OK, we're moving to Saudi Arabia where Exxon is building their next humongous refinery.' So then they have to ask, 'Where are we going to get our raw materials? What other sources? Or what other businesses should we be in?' "

Meanwhile, a sword of Damocles hangs over the chemical company CEOs who are making massive investments in new technologies. If today's high oil prices suddenly plummet, as they did in the 1970s, the experimental technologies would likely be scrapped as too expensive. If that happened, only federal intervention could prevent companies from switching from environmentally friendly fuels back to cheaper petroleum-based feed stocks.

In the meantime, many chemical firms are looking for direction and biding their time, said Arne of SRI Consulting. "The biorefinery concept is seen as, 'It might happen, but it might not happen until 2018 or 2025,' " he said. "I wouldn't be surprised if a lot of companies are looking at it. They're kicking the tires, and saying, 'Well, this car isn't going anywhere for the next 10 years.' "