Nucor Corporation (NUE), Alcoa Inc (AA), The Dow Chemical Company (DOW): This Company Wants Natural Gas All to Itself

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The debate over natural gas exportation has created some unfamiliar enemies and even more unfamiliar friends. While it’s pretty obvious who the supporters are, some of the largest opponents are not who you would expect: manufacturers. Leading the charge is a group known as America’s Energy Advantage, and they have a wide range of supporters including stalwarts of manufacturing. The largest and most vocal opponent being The Dow Chemical Company (NYSE:DOW).

Let’s look at why The Dow Chemical Company (NYSE:DOW) wants to keep natural gas on U.S. shores and what it’s doing to keep it here:

Keep the gas, keep the profits
The one simple reason that The Dow Chemical Company (NYSE:DOW) and its partners in America’s Energy Advantage are advocating for not exporting LNG is to keep the gas here to power energy-intensive manufacturing. Industries like steel and chemicals demand large amounts of energy, and cheap gas in the U.S. gives these companies incentive to produce here.

Nucor Corporation (NYSE:NUE)Steel giant Nucor Corporation (NYSE:NUE) will be opening a direct-reduced iron (DRI) plant in Louisiana. This plant was built in large part because of favorable energy prices due to cheap natural gas and will be the only one of its kind in the U.S. Alcoa Inc (NYSE:AA) is another proponent of keeping the energy source within our borders. The aluminum giant has joined up with America’s Energy Advantage group to protect a cheap source of energy.  In the case of The Dow Chemical Company (NYSE:DOW), though, there is so much more than energy behind this move.

Even though The Dow Chemical Company (NYSE:DOW) creates a wide variety of products, most of them are derived from fossil fuels. Ethylene, one of the principal building blocks for these chemicals, is derived from two feedstocks: ethane (a natural gas product) and naptha (a petroleum-based product). With the large boom in natural gas production, the price for its feedstocks has fallen drastically, and now the U.S. is one of the cheapest sources for ethylene.

Source: Enterprise Products Partners investor presentation

This cheap feedstock has sent production up over one-third in the past five years, and has given a nice pad to chemical company earnings. LyondellBassell Industries NV (NYSE:LYB) reported that 2012 was a record year in terms of earnings despite a 6% drop in revenue. These kinds of results have resulted in a mad rush to increase capacity. The entire industry has plans to spend about $30 billion in new plants to take advantage of cheap feedstock. The Dow Chemical Company (NYSE:DOW) personally is looking to invest $1.7 billion to build what would be the company’s largest ethylene facility and would increase the company’s ethylene capacity by 1.5 million tons per year. With so much invested in cheap natural gas, it should come as no surprise that the company will look to protect that position for as long as possible.

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