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July 2007 Headlines

This month, Terra Industries announced that it executed an agreement to give Eastman Chemical Company exclusive and irrevocable rights to purchase all the assets of the Beaumont, Texas facility. Under the terms of the pact, Eastman may exercise this right on or before 1 October 2007. The Beaumont unit has annual production capabilities of 225 million gallons of methanol (approximately 675,000 tonnes per year) and 255,000 tonnes of ammonia, as well as storage capacity for both products. The facility was mothballed on 1 December 2004 under terms of a 2003 agreement that Terra had with Methanex Corporation. With the Eastman agreement, Terra anticipates an estimated $27.0 million USD impairment charge to impact its Q3 2007 earnings.

Eastman Chemical Company recently announced developments in its two proposed petroleum coke/coal gasification projects in the United States. The first project, in Beaumont, Texas, will produce methanol, hydrogen and ammonia. Eastman will hold a 50% stake in the $1.6 billion USD project and be the developer, operator, co-investor and customer. The company expects to announce a financial equity investor for the project soon. Construction could begin in early 2009, with start-up targeted for 2011. The company noted it has secured options on several pieces of industrial property in Beaumont, including the Terra Beaumont methanol and ammonia facility. Company chairman and CEO Brian Ferguson commented, "We expect the Terra assets will fit in well with this project and the result will be reduced capital costs." Fluor Corporation will provide front-end engineering and design (FEED) and GE Energy the gasification technology, while Air Products and Chemicals will construct and operate air separation units at the site, as well as purchase hydrogen produced onsite under a long-term arrangement. For the second project, Eastman announced intentions to take a 25% stake in the Faustina Hydrogen Products LLC project in St. James Parish, Louisiana. Announced in June, the Faustina project will produce ammonia, carbon dioxide and methanol. Along with development funding, Eastman will provide operations and maintenance services, as well as purchase methanol under a long-term agreement. Start-up is slated for 2010.

Natural gas supply issues continue to plague Methanex's Chilean hub, with only one unit still running at the site. In their recent second quarter earnings release, the company provided further guidance on the situation, noting that their main supplier has been experiencing ongoing delivery and production issues, while another was undertaking repairs to its delivery infrastructure. In June, compressor problems at Tierra del Fuego, Argentina, compounded the situation. As a result, Methanex estimates it has suffered an approximate 170,000 MT loss in methanol production. The company noted that the Tierra del Fuego issues could soon be resolved, which would allow them to run two out of the four units at Puntas Arenas. Methanex hopes to bring the other two units up before the end of 2007. At the same time, the company has continued to contribute a significant share of the increased natural gas export tax duty ($2.25 per MMBtu).

In a move to combat the situation in Chile, Methanex has announced a cooperation agreement with Latin American oil and gas company GeoPark Holdings Limited and BASF oil and gas subsidiary Wintershall. The companies will conduct joint evaluation and bidding for upstream gas development concessions in Chile's upcoming Bidding Round. This includes ten blocks in the Magellan Basin, which are near the Methanex's Puntas Arenas methanol hub. The blocks are to be awarded by the end of 2007, with exploration to begin the following year.

On 28 June, the Office of the United States Trade Representative announced that, following the 2006 Annual Review of the Generalized System of Preferences (GSP), it would "terminate GSP eligibility for 21 products from specific beneficiary countries in order to advance a more targeted and effective program to promote economic development." Notably, GSP status will no longer apply to "Methanol other than imported only for use in producing synthetic natural gas (SNG) or for direct use as fuel" from Venezuela. Methanol imports to the United States from Venezuela in 2006 totaled approximately 1.058 million tonnes, with a customs value of about $263.233 million USD.

During his recent visit to Iran, Venezuelan President Hugo Chavez, along with Iranian President Mahmoud Ahmadinejad, attended a groundbreaking ceremony for a proposed joint project methanol plant (1.0 million mtpy) to be built in Assaluyeh. Iran's National Petrochemical Co. (NPC) will hold a 51% stake in the unit, while Pequiven will hold 49% in the venture. The countries also intend to construct a second joint venture 1.0 million mtpy methanol unit in Venezuela, a plan that was originally announced as being under study in November 2006. In the initial announcement, it was reported that NPC and Pequiven had formed a joint venture company, Veniran Petrochemical, for the project, with the methanol unit to be built in Güiria, Venezuela. The latest project cost is estimated at $650-700 million USD per plant, with a construction period of four years for each unit. The two presidents also signed a number of agreements, including one that would create a bi-national fund to promote joint projects.

It was reported this month that the Algerian government has granted a contract to international consortium Almet, which includes Mitsui (Japan), Lurgi (Germany), Qurain (Kuwait), and Sotraco (Algeria), to build a joint venture methanol unit with Algeria's Sonatrach. The proposed 1.0 million mtpy facility will be located at Sonatrach's Arzew site. Algerian officials quoted the project cost at $1.0 billion USD. Almet will hold a majority 51%, with Sonatrach taking 49%.

Following its aborted Huntsman deal, Basell rebounded quickly, announcing on 17 July that it had secured a definitive agreement to acquire Lyondell Chemical Company's outstanding shares for $48 USD/share. The total transaction value is approximately $19.0 billion USD, including the assumption of debt. In its statement on the agreement, Basell noted that the price per share "represents a 45% premium to Lyondell's closing share price on May 10, 2007, the day prior to the disclosure by Access Industries, the industrial group that owns Basell, of its potential interest in Lyondell." The boards of Lyondell and Basell have accepted the agreement, which now awaits the approval of Lyondell's shareholders and regulatory authorities. Basell estimates that the deal could be finalized within the next several months.

On 11 July, Huntsman Corporation announced that it has accepted Hexion Specialty Chemicals' merger proposal, as well as terminated a previous agreement with another company. Hexion initially submitted its offer on 4 July, proposing to acquire Huntsman's outstanding shares for $10.4 billion USD (including the assumption of debt) or $27.25 per share. Hexion's offer came just a week after Huntsman had entered into an agreement with Basell AF, with Basell offering to pay $25.25 per share. Under the terms of the Basell pact, Huntsman could terminate the agreement if a superior offer was received, however the company was required to submit advance notice to Basell and pay a $200 million USD termination fee. As part of its proposal, Hexion agreed to directly contribute $100 million USD toward this fee. A few days after their first offer, Hexion increased its offer on 9 July by 75 cents per share, bringing the total value of the transaction to $10.5 billion USD. In Huntsman's announcement, the company noted the total value of the transaction at $10.6 billion USD, with Hexion paying $28 USD per share. The agreement also provides that the cash price per share to be paid by Hexion will increase at the rate of 8% per annum, beginning 270 days from 12 July 2007. The boards of both companies have approved the agreement, which now awaits regulatory approval in both the US and Europe, as well as from Huntsman's shareholders.

On 19 July, Celanese issued a brief update on the status of its Clear Lake acetic acid unit, which has been down since the middle of May. According to their statement, the company's attempt to restart the unit this month was unsuccessful. As a result, the plant remains shut down and force Majeure is still in place. Celanese provided more detailed information during its second quarter 2007 earnings conference call on 27 July, with President and CEO Dave Weidman attributing the latest setback to the discovery of another small leak in the Clear Lake unit's reactor. Contradicting the rumors circulating in the market, Mr. Weidman stressed that the reactor does not need to be replaced. As such, the company expects it to be able to restart Clear Lake "within weeks, not months or quarters." Celanese also noted that the successful early start of their acetic acid unit in Nanjing, PR China "helped mitigate the impact" from the Clear Lake outage. During the conference call question and answer session, mention was made of a potential "spare" reactor due to be delivered to the company in spring 2008. Mr. John Gallagher III, Executive Vice President and President of Acetyls and Celanese Asia, would not comment on whether this spare reactor would serve as a replacement for the one at Clear Lake or be designated for a different location.

Early this month, private equity firm CVC Capital Partners (CVC) announced that it has agreed to acquire Taminco (Ghent, Belgium) from AlpInvest Partners for a reported €0.8 billion. Taminco, the world's largest methylamines company, was founded in 2003 after being spun off from UCB. The company owns and operates the old UCB methylamine plants in Ghent, Belgium and Leuna, Germany, as well as the European and North American methylamines and derivatives businesses they purchased from Air Products in 2004 and 2006, respectively. CVC will have a 75% equity stake in Taminco, with the remaining 25% being held by existing management. The deal is subject to regulatory approval. Less than a week after the Taminco announcement, CVC announced it has agreed to purchase Dutch chemical distributor Univar NV for €1.52 billion.