How Lower Natural Gas Prices Are Shaping the Chemical Industry

Impact on Cost Structures

Lower natural gas prices have significantly reduced raw material, global energy, and feedstock costs, leading to decreased cost of sales and lower product costs, as seen in Dow and DuPont's financials. This has helped offset other expenses, demonstrating a clear impact on cost structures in the chemical industry.

"COS for the three and six months ended June 30, 2024 decreased primarily due to lower raw material costs, lower global energy and feedstock costs and the impact of structural cost improvements, partially offset by increased planned maintenance turnaround spending." --- (DOW, sec filing, 2024/Q2)

"Operating EBITDA was $639 million for the six months ended June 30, 2024, down 10 percent from $712 million the six months ended June 30, 2023, driven by decreased sales volumes and higher variable compensation partially offset by the impact of lower product costs." --- (DD, sec filing, 2024/Q2)

"And so I'd say, overall, cost control is strong, and we are making targeted investments, and you can continue to expect us to manage costs well going forward." --- (LYB, earning call, 2024/Q1)

"2 clear examples of how we've done this are by lowering our cash commitments since spend by $1,000,000,000 and the $1,000,000,000 of targeted cost reductions that we took in 2023 in a very slow macro environment." --- (DOW, event transcript, 2024/05/16)

"Operating EBITDA for W&P during the quarter of $344 million was down 7% due to lower volumes and higher variable compensation, partially offset by the impact of lower product costs and savings from restructuring actions." --- (DD, earning call, 2024/Q2)

Adaptations in Production Processes

Dow is enhancing production processes by integrating advanced recycling technologies, commercializing low carbon silicon metal, and capturing emissions to create usable products, thereby improving efficiency and yields.

"And then together, we will have the ability to transform more waste and maximize value through a combination of mechanical and advanced recycling technologies, which will improve overall efficiency as well as production yields. We also recently announced the formation of a joint development agreement with P and G to invent a new proprietary dissolution recycling technology for polyethylene." --- (DOW, event transcript, 2024/05/16)

"And our low carbon silicon metal production in Brazil gives us carbon advantaged downstream products, which is a value proposition that we are commercializing in the left hand side of this page gives us relevance in the value chains and a seat at the design table that translates to a robust innovation pipeline that you see on the right hand side of the page." --- (DOW, event transcript, 2024/05/16)

"And more importantly, Dow's manufacturing process captures 90% of our Scope 1 and 2 emissions from the EO manufacturing process, combines that with the CO2 to make a usable product that will then enable the transition, I would say EV transition in the automotive segment." --- (DOW, event transcript, 2024/05/16)

Emerging Competitive Advantages

North American chemical companies like LYB and Dow are leveraging lower natural gas prices to gain competitive advantages through reduced production costs, higher profitability, and stronger market positions. This favorable oil-to-gas ratio and advantageous cost positions are driving growth and operational efficiency in the industry.

"The U.S. is set with a very competitive advantage to meet the demands of the world." --- (LYB, earning call, 2024/Q1)

"And the end result of all of this will be a business that is more profitable with higher earnings and market share and an even stronger competitive advantage as we deliver value growth for you." --- (DOW, event transcript, 2024/05/16)

"North American integrated polyolefin producers, including LYB, continue to benefit from a highly advantaged oil-to-gas ratio, leading to a significantly lower cost relative to oil-derived production. With the remainder of the U.S. polyethylene capacity now online, the" --- (LYB, earning call, 2024/Q1)

"So this trend creates more opportunities for Dow as our silicones dissipate heat and ensure stable performance of data centers, chips, devices, so much better than competing materials." --- (DOW, event transcript, 2024/05/16)

"volumes to be strong. We've got advantage cost positions and operating rates are strong for us." --- (DOW, earning call, 2024/Q2)

Downstream Industry Effects

Lower natural gas prices have enhanced the competitiveness of downstream solutions through upstream integration, driving above-GDP growth and creating opportunities. Increased demand and consumption downstream, particularly in Europe, are evident, with expectations of rising volumes in downstream derivatives due to improved economic conditions.

"And our downstream solutions are made even more competitive by our upstream integration in hydrocarbons and energy.And then importantly, there are a number of market drivers, some that you see here on the slide, that are leading to above GDP growth, which is creating opportunities. And to capture" --- (DOW, Investor Day, 2024/05/16)

"Having said that, we do not see yet in Europe that there is restocking. So, what Kim was alluding to is mainly based upon higher demand because of higher consumption downstream of products being produced. So, it's not yet restocking." --- (LYB, earning call, 2024/Q1)

"And our downstream solutions are made even more competitive by our upstream integration in hydrocarbons and energy.And then importantly, there are a number of market drivers, some that you see here on the slide, that are leading to above GDP growth, which is creating opportunities. And to capture these" --- (DOW, Investor Day, 2024/05/16)

"Please proceed with your question. Steve Byrne: Yes, thank you. I'm interested in the level of demand that you're hearing from your downstream polyethylene customers for your renewable [Technical Difficulty] cost plus given how hydrogen requirements [Technical Difficulty] would be cost plus?" --- (LYB, earning call, 2024/Q1)

"So, I think with the volume that we're seeing on the downstream derivatives with the improved economic business and the consumer still being strong, I think you're going to see it move up in the second quarter." --- (DOW, earning call, 2024/Q1)

Investment Strategies and Capital Expenditures

Chemical industry leaders like DuPont, LyondellBasell, and Dow Inc. are strategically reducing capital expenditures to manage cash flows and fund other financial needs, including debt service and dividends. This shift reflects a cautious approach to investment amid fluctuating economic conditions.

"The increase in cash used for investing activities of continuing operations is primarily attributable to the absence of proceeds from sales and maturity of investments partially offset by reduction in capital expenditures and purchases of investments." --- (DD, sec filing, 2024/Q2)

"Liquidity and Capital Resources Overview We plan to fund our working capital, capital expenditures, debt service, dividends and other cash requirements with our current available liquidity and cash from operations, which could be affected by general economic, financial, competitive, legislative, regulatory, business and other factors, many of which are beyond our control." --- (LYB, sec filing, 2024/Q2)

"Cash Flows from Investing Activities Cash used for investing activities in the first three months of 2024 and 2023 were primarily for capital expenditures and purchases of investments, which were partially offset by proceeds from sales and maturities of investments." --- (DOW, sec filing, 2024/Q1)

"The decrease in cash used for investing activities of continuing operations is primarily attributable to the reduction in capital expenditures and purchases of investments." --- (DD, sec filing, 2024/Q1)

"During the first quarter of 2024 we used $114 million of cash for operating activities, invested $483 million in capital expenditures and returned $408 million to shareholders through dividend payments." --- (LYB, sec filing, 2024/Q1)

Technological Innovations

Chemical industry leaders like LyondellBasell, Dow, and DuPont are driving technological innovations through strategic forums, materials science expertise, and advanced engineering solutions. These efforts are recognized by industry awards and highlight their commitment to breakthrough innovations and high-performance products.

"LYB Procurement hosted the 2024 Advancing Strategic Potential (ASP) Forum. The annual forum of supplier executives gathered top minds in our industry to discuss innovation, foster collaboration and band together to solve some of the world's biggest challenges. https://t.co/39sBfMidEK" --- (LYB, Twitter, 2024/05/15)

"It's an honor to be recognized for how we #ThinkForward using our materials science expertise to deliver breakthrough innovations for our customers. #Top100Innovators https://t.co/zKgBJOgNei" --- (DOW, Twitter, 2024/04/04)

"In addition, the segment produces innovative engineering polymer solutions, high performance parts, flexible packaging products, plastic and silicone extrusions, medical silicones, specialty lubricants and critical polymer-based components and devices for medical and other industrial markets." --- (DD, sec filing, 2024/Q1)

"The Ringier Technology Innovation Awards, by @RingierTradeHK recently honored LyondellBasell as an innovator in the industry." --- (LYB, Twitter, 2024/04/11)

"We have deep innovation capabilities across our businesses and vehicle types, and we have the local know how to meet the highly demanding quality and just in time needs. Check out this video to see examples of DAO Mobility Science in action." --- (DOW, Investor Day, 2024/05/16)

Long-term Industry Outlook

Lower natural gas prices are expected to benefit margins and support a positive long-term outlook for the chemical industry, as highlighted by LYB and DOW. This cost advantage is anticipated to enhance production efficiency and competitiveness, particularly in North America and the Middle East.

"During today's call, we will focus on first quarter results, current market dynamics, our near-term outlook, and our long-term" --- (LYB, earning call, 2024/Q1)

"I think we still feel that long-term and the two-thirds of our volume is expected to be the best in [Technical Difficulty]." --- (DOW, earning call, 2024/Q2)

"Derivatives; and Torkel Rhenman, our EVP of Advanced Polymer Solutions. During today's call, we will focus on first quarter results, current market dynamics, our near-term outlook, and our long-term strategy. With that being said, I would now like to turn the call over to Peter." --- (LYB, earning call, 2024/Q1)

"But the long term trends on plastics are there, they're desirable. And if we can capture the 3,000,000 metric tons of post consumer recycle, I think you'll start to see things pick up on the circular part of the market. And that I think" --- (DOW, event transcript, 2024/05/16)

"CURRENT BUSINESS OUTLOOK In the third quarter of 2024 we expect margins to continue to benefit from low costs for natural gas and natural gas liquids utilized in our North American and Middle East production relative to higher oil-based costs in other regions." --- (LYB, sec filing, 2024/Q2)