In Hot Pursuit

IF EVER A LARGE research and development organization received a formidable command, it's the one that Dow Chemical's chief executive officer, Andrew N. Liveris, has delivered to his firm's R&D troops: solve the energy crisis. It's a demanding order, but Dow can commit more than 5,700 researchers to the battle and has a leader, Chief Technology Officer William F. Banholzer, eager to lead the charge.

The high cost of energy and feedstocks for the thousands of chemical products in its portfolio has been a particularly troubling issue for Dow. The memory of 2001 and 2002 still looms large for the corporation. It was a time when Dow's earnings dropped precipitously because energy costs had significantly outpaced the firm's ability to raise prices charged for its products. Earnings have since recovered, reaching near-record levels in 2006.

Concern over energy and feedstock costs is the reason Liveris told a congressional hearing in the fall of 2005 that the high cost of natural gas had forced Dow to shut a score of U.S. plants and look to other countries both as sources of feedstock and as locations to produce many of its petrochemical products.

It's also the reason why Liveris told shareholders at the company's annual meeting in May that Dow is positioning itself to "gain access to low-cost feedstocks and energy so as to be the world's most efficient producer."

Many U.S. chemical firms have been hurt because of high energy and feedstock costs. Consider Huntsman Corp. After complaining loudly about soaring U.S. costs, the company sold its commodity chemicals business to Koch Industries and ultimately agreed to be bought by Hexion Specialty Chemicals, a business controlled by private equity firm Apollo Management.

For his part, Liveris has a survival plan. It relies in part on joint ventures that give Dow access to low-cost energy and feedstocks in places like Oman, Kuwait, and Libya. But as he told investors attending Credit Suisse's annual chemical conference last month, Liveris will also rely heavily on Dow's technology and R&D to bolster production efficiencies and cultivate alternative energy sources, all the while developing high-margin performance products.

Banholzer, 50, is happy to oblige. A chemical engineer with a Ph.D. from the University of Illinois, Urbana-Champaign, he joined Dow in 2005 from General Electric, where he was vice president of global technology for advanced materials.

"I came to Dow because I knew I would have a chance to work on energy and feedstock problems. And I came here because size matters," Banholzer tells C&EN. "You cannot address these things unless you are big. The costs to work on these problems are large. The skills you have to assemble and the capital bill that goes with them are so big that if you don't have the scale, you can't afford it."

Dow's position as the single largest U.S.-based chemical maker explains why it has such a vested interest in lowering energy and feedstock costs. In 2002, when Dow's sales were $28 billion, the company's hydrocarbon costs were about $8 billion, Banholzer notes. Last year's sales were $49 billion, not quite double what they were four years earlier, but hydrocarbon costs more than tripled to $26 billion.

HISTORICALLY, energy costs were not a paramount concern, Banholzer says. "When I got out of school as a design engineer, energy was in your calculations, but it was a secondary concern. Today, you have to look at energy costs and not just take them for granted."

Dow certainly has the wherewithal to take on the energy challenge. This year the firm will spend nearly $1.3 billion, all of which Banholzer controls, on an army of researchers who cooperate on 600 research projects across more than 41 major sites worldwide. And Banholzer is very clear about the role he intends for R&D to play at the largest U.S. chemical maker: "Our job in R&D is to make money. Anybody who is confused about that has to understand what companies do."

Reducing energy costs to save money is a road Dow has been traveling for a while. Between 1995 and 2005, Banholzer points out, the firm reduced its energy use per pound of product produced by more than 20%, in the process saving a total of 900 trillion Btu-enough to power all the homes in California for a year. But Dow still uses 600 trillion Btu of energy annually.

After tweaking its process technologies to wring out energy and feedstock savings, Dow is now turning its attention to alternative feedstocks and fuels. "We are intimately linked to fuels, because they are our feedstocks," Banholzer notes. And just as chemists and chemical engineers in the early and mid-20th century perfected the refining processes that turn oil into petrochemical feedstocks, Banholzer sees a role for chemists to take coal and sugar-derived ethanol and turn them into chemical raw materials.

Traditionally, chemical firms have very little leverage when it comes to controlling the cost of fuels and feedstocks, notes L. Louis Hegedus, the recently retired senior vice president of R&D at Arkema's U.S. operations. Oil and gas are commodities used mostly to heat homes and offices, provide electrical power, make industrial products, and transport people and goods, he says. According to U.S. government figures, only 3% of crude oil and petroleum products refined in the U.S. go to make petrochemicals. As oil and gas prices keep on increasing, it is important to look for economical and sustainable feedstock alternatives, Hegedus says.

Which is what Dow is doing. In July, the company announced a novel project with Brazilian sugarcane and ethanol company Crystalsev. The two will partner on producing sugar-derived ethanol as a feedstock for ethylene in place of oil or natural gas. By 2011, the partners hope the ethanol will yield 300,000 metric tons per year of ethylene, which in turn will become the raw material for 350,000 metric tons of linear low-density polyethylene, widely used to make films and food packaging.

IN CHINA, Dow is working with the Chinese coal mining company Shenhua Group. They have launched a two-year study of a plant in Shaanxi province that would convert coal into methanol, which in turn would be used to make ethylene, propylene, and other petrochemicals. The complex would include a chlorine unit and plants to make many other products.

"The Brazil project makes a lot of sense, but it is not scalable to the rest of the world," Banholzer says. The plant needs a land mass of 400 sq miles—about seven times the size of Washington, D.C.—to supply enough sugarcane for the ethanol plant. Supplying ethanol to all of Dow's polyethylene plants would require a land mass the size of Connecticut. Not only is that impractical, Banholzer says, but the economics don't work anywhere but in Brazil.

What he likes about the proposed Brazil plant is that Dow and Crystalsev will control all parameters: from sugarcane to finished polyethylene pellets, everything will be produced at one site. The two partners won't be buffeted by the vagaries of commodity price fluctuations.

The Chinese coal project offers different challenges, Banholzer acknowledges. "It costs a whole lot more to build a coal plant than to build an ethanol plant," he says. "But once you've built the plant, coal is a dirt-cheap feedstock." Still to be considered is the carbon dioxide a coal-burning plant would produce. If, as Banholzer puts it, "the world decides" to put severe limits on CO₂ production, then making chemicals from coal becomes more capital intensive and the economics change.

Dow R&D leaders who work for Banholzer are committed to the energy projects, too. A. Sreeram, vice president of core R&D, says scientists in his unit have developed proprietary high-throughput experimentation techniques to speed up the process of developing catalysts that efficiently convert coal and other sources of syngas to mixed alcohols.

Other uses of high-throughput equipment, some of it obtained in an agreement with Symyx, include the development of next-generation surfactants and coatings.

Dan Kittle, vice president of R&D for Dow AgroSciences, says he is convinced that the Brazilian venture is a good foundation for future opportunities. He oversees teams of agricultural scientists working on ways to genetically engineer crops, including sugarcane, to, for example, have a higher sugar content, which would render the cane a better feedstock for ethanol.

Charles T. Kresge, vice president of R&D responsible for hydrocarbons and energy, says he is "thrilled" that Dow will be involved in the Brazil project. He is devoting "tens of millions of dollars" to developing alternative fuels. And now members of his staff are working on catalysts, chemical engineering, and processing techniques to increase the yield of ethanol from sugar.

AN EVEN MORE challenging problem is finding a way to convert methane, a component of natural gas, directly into olefins and olefin precursors, Kresge says. Finding a successful solution would improve the economics of the Chinese coal-to-chemicals project, because methane can also be produced through coal gasification. Like the conversion of sugarcane to ethanol, methane conversion could open new sources of raw materials, Kresge adds.

Methane sells for half the cost of ethane, a common ethylene precursor. Though scientists have been working on the methane conversion problem for years, "we don't know how to take methane and turn it easily into what we want," Banholzer says. While Kresge's scientists are working on the problem, he and Banholzer have invited others to work on a solution.

In March, they issued a challenge to scientists and offered research grants of up to $6 million over three years to any investigator or consortium with a viable solution to this long-vexing problem. They set up a special website inviting proposals.

By the May 31 deadline, Dow received 80 credible responses from academic and private entities all over the world, according to Mark Jones, the alternative feedstock research scientist who is supervising the award process. Entries from 10 finalists are now being examined by three outside reviewers, one of whom is a former Dow employee. Jones says Dow expects to name the finalists in December.

DOW ALSO hopes to tackle the energy problem through work on photovoltaics. In March, the Department of Energy chose a Dow-led consortium to receive funding to help develop a solar energy system that can be integrated into buildings. "Photovoltaics are a materials play, and we are a materials company," Banholzer says. "There is no reason why we can't offer the world a shingle or roofing membrane that makes electricity."

Using the firm's expertise in thin-film production methods, Dow is working on copper indium gallium selenide-based semiconductor films and ultimately hopes to manufacture such films and??beat smaller start-up firms that are also working on solar roofing shingles. "Little firms are very nimble, and that is what scares me," Banholzer admits. "But they would love to be able to throw the type of analytical capability and process engineering at this problem that Dow can."

Unlike sugarcane and corn, which convert less than 3% of the energy that hits them into plant mass, solar cells can convert as much as 46% of the sun's energy into electricity, Banholzer says. What's more, "photovoltaics don't generate CO₂," he points out. "So I think photovoltaics are a huge opportunity for Dow."

Of course, Banholzer oversees numerous Dow R&D initiatives into everything from automotive parts to water filters to building insulation. These performance businesses have the potential to become larger and more important parts of Dow, and the R&D investments are down payments on that future. "But today," he says, "nothing I do can make as big a difference as ethylene and polyethylene."