The Chemical World This Week
m SUPPLIES ADEQUATE m CHEMICALS
NATURAI
Chemical users of natural gas so far this fall are finding supplies of gas adequate to meet their needs. Spot checks in the chemical industry further indicate that company managements expect no special problems later this winter unless the weather becomes much more severe than usual. Despite this optimistic outlook by chemical producers, difficulties remain for industry in general. Curtailment of gas deliveries will grow, as has been forecast even with average winter weather. And industrial users will continue to look for new supplies of gas that they can buy
cal intrastate gas being sold under new contracts in Texas costs about $2.00 per million Btu. These current prices are up from about $1.50 a few months ago when demand had fallen as operations were reduced because of the recession. Future price trends will be upward, many observers believe, even with conservation efforts and with continued price controls. Demand continues to expand along the Gulf Coast. It likely will increase further as shipments to other areas grow following the FPC precedent of allowing direct gas sales with interstate movement of the gas. These direct sales are small so far. They are expected to jump next year as companies review experience gained this winter. Among recent FPC approvals is one allowing Vistron Corp., a unit of Standard Oil (Ohio), to get up to 40 million cu ft a day of natural gas for an ammonia plant at Lima, Ohio (C&EN, Nov. 17, page 10). This and other purchases are costing $1.90 per million Btu. This contrasts with wellhead prices of about 50 cents per million Btu for gas moved interstate with prices regulated by FPC. Currently, the wellhead price of gas accounts for about 20% of the consumer's burnerAmmonia plants can get enough gas tip cost, according to the American Petroleum Institute. The remainder and have transported to their con- of the retail price for gas is for transsuming plants. mission and distribution. G Curtailments of gas moved by interstate pipelines will increase by a third during the year ending August 1976, according to Federal Power Commission estimates, to reach about 3.2 trillion cu ft. The growth in projected curtail- Attendees at the Manufacturing ments of gas by interstate pipe- Chemists Association meeting in line companies for the year ending New York City last week spent a August 1976 will be smaller than morning probing into the outlook the growth in the preceding year. for capital formation in the U.S.— Curtailments for September 1974 something of vital importance to the through August 1975 were up more capital-intensive chemical industry. than 1 trillion cu ft, or nearly 80%, What they heard was not good. over curtailments of 1.4 trillion cu The consensus was that capital ft during the August 1973 through will continue to be short and expenSeptember 1974 year. sive. Its lack may well inhibit indusChemical plant operators along trial growth. And for some wouldthe Gulf Coast expect to get the gas be borrowers there will be no money they need for both energy and feed- available at any price. The net result may be that the stock this winter. But they will have to contend with higher prices. Typi- rich companies will get relatively
Capital to remain short and expensïwe
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C&EN Dec. 1, 1975
richer as they will still be able to borrow money. Also, there likely will be a surge in takeover bids, especially by foreign firms trying to enlarge their stake in the U.S. Dr. Charles Moeller of Metropolitan Life Insurance Co. told the meeting that some of the factors behind the massive demands for capital over the next decade will be the high level of investment needed to meet industrial growth demands, continued high rates of inflation, and continued heavy borrowing by governments—federal, state, and local. On the other hand, a decrease in the rate of personal saving will tend to lower capital supplies. As he puts it, "Large investors will be operating in a supplier's market." Robert H. B. Baldwin, who is president and managing director of Morgan Stanley & Co., explained to the meeting that in the past the demand for capital has determined the supply of capital. But in the years ahead this will be reversed, and the amount of capital that can be raised will be the determining factor. Brenton W. Harries, president of Standard & Poor's, told the meeting that during the past four years gross corporate debt in the U.S. has risen about 50% to about $1.5 trillion, slightly more than the current gross national product. With more than $40 of debt for each $100 of equity, this debt ratio is probably moving close to its prudent limit, according to Harries. The growing dependence of longterm debt is not the only matter of concern. Another is the even faster growth in the use of short-term debt—up 275% in the past five years. The inability to borrow to meet maturing short-term debt is what has brought New York City to the brink of default. And, Harries points out, short-term debt has been the cause of every credit collapse in recent times, including Penn Central and W. T. Grant Co. What can the chemical industry do about all this? Dow Chemical financial vice president G. James Williams told the meeting that the industry must try to raise most, if not all, of its capital internally. Hence, according to Williams, the industry must improve its operating profits by, among other things, avoiding the business practices that triggered the sharp decline in profitability during the 1960's. α
