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Dow CEO Blames Energy Costs for Job Loss
Associated Press
October 30, 2006
DETROIT (AP) - Even more than high labor costs, runaway energy prices are pushing manufacturing jobs in the chemical industry overseas, the head of the world's second-largest chemical company says.
Andrew Liveris, chairman and chief executive of Dow Chemical Co., says the U.S. needs a new energy policy that allows better access to natural gas reserves, greater use of coal and nuclear power and more conservation. Otherwise, Dow and other manufacturers will be forced to move even more jobs overseas, Liveris planned to tell the Detroit Economic Club on Monday.
In prepared remarks, Liveris also blamed high corporate taxes, high health care and pension costs, government regulation and the civil justice system for the exodus of manufacturing jobs from the United States. But he focused on energy, which is particularly important to Dow.
"Clearly, energy has overwhelmed all of our issues," he told The Associated Press in a telephone interview Friday.
While all manufacturers need energy to run their plants, for Dow, hydrocarbons are also raw materials for the plastics and chemicals it produces. The increase in natural gas prices in the U.S. over the last several years has caused the company's energy and raw materials costs to go from $8 billion in 2002 to more than $20 billion this year, Liveris said.
Unlike oil, there is no global market for natural gas because it is transported primarily in pipelines that don't cross oceans, so the price of gas depends on regional supply.
Liveris said the changes don't threaten Dow in the long term, but they do threaten Dow's U.S. jobs.
Midland-based Dow has shut down more than 30 factories in North America over the last several years, Liveris said.
"My U.S. business has been deteriorating," he said. "In fact, my American business used to be my most profitable and now it's my least profitable."
In addition to moving production overseas, Dow has also responded to high U.S. energy prices by increasing its prices and investing more heavily in "downstream" products like personal care products and paint ingredients, which don't create as many jobs as the bulk plastic and chemical businesses, Liveris said.
Dow's most recent quarterly earnings, announced Thursday, included a $579 million pretax charge related to plant closings. But without that charge, the company beat Wall Street forecasts, and, in a sign of financial health, it said it would spend up to $2 billion for a new stock-buyback effort. Overall, Dow reported net income of $512 million, or 53 cents per share, in the July-September period.
To address the energy prices, Liveris and others in the chemical industry have been lobbying for legislation that would expand offshore drilling in the Gulf of Mexico. The House and the Senate passed differing bills on the issue and have yet to reconcile them.
An improved energy policy would also encourage greater use of coal and nuclear energy to run power plants and greater conservation, including stricter building, appliance and automotive standards, Liveris said. Such measures would leave more natural gas for his industry, he said.
Athan Manuel, director of lands protection for the Sierra Club in Washington, said he agreed that conservation measures could help the U.S. "mine efficiency." But he said opening up new areas for drilling is not worth the environmental costs because there is not enough natural gas in the U.S. to sustain the chemical industry for the long term.
"Drilling our way out of this mess is not going to be possible," Manuel said.
...Liveris argued that the U.S. needs to address high energy prices and other costs if it wants to stay competitive.
"If one does not have a manufacturing economy, then there is no such thing as U.S. leadership," he said. "You can't just be a service sector. I hope people understand that intuitively."
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On the Net:
Dow Chemical Co.: http://www.dow.com