BP oil spill puts Nalco Holdings, oil dispersants in spotlight
BP has acquired Nalco Holding's entire inventory of its Corexit oil dispersant as the oil giant tries to fight a spill in the Gulf of Mexico. The move has put Nalco, a leading water treatment company, in the spotlight.
BP has acquired Nalco Holding's entire inventory of its Corexit oil dispersant as the oil giant tries to fight a spill in the Gulf of Mexico.
Nalco, based in Naperville, Ill., is a leader in water treatment and process improvement applications. The company focuses on water treatment, wastewater and chemicals for various industries. The company's aim is to make industrial water use more efficient, cut environmental impact and boost customers' bottom line.
Nalco's CEO Erik Fyrwald said on CNBC that the company was out of inventory for its Corexit chemical, which is proprietary. Corexit disperses the oil so it can later be eaten as food by bacteria. BP said the chemical is helping at the spill site. Dispersants break oil down into little droplets that are then further broken down by natural processes.
CBS News notes that dispersants are part of the solution, but BP is trying a bevy of things to control the spill, which looks uncontrollable for at least another week.
BP PLC was preparing a system never tried before at such depths to siphon away the geyser of crude from a blown-out well a mile under Gulf of Mexico waters. However, the plan to lower 74-ton, concrete-and-metal boxes being built to capture the oil and siphon it to a barge waiting at the surface will need at least another six to eight days to get it in place.
Crews continued to lay boom in what increasingly feels like a futile effort to slow down the spill, with all ideas to contain the flow failing so far.
Shares of Nalco surged about 10 percent Monday. Jefferies analyst Laurence Alexander put the dispersants in context. Alexander noted that there are a bevy of dispersant manufacturers, which are all probably selling out.
According to Alexander, other producers of dispersants include BP, Croda, Dasic International, NEOS Chemical, Shell, Taiho, Total and U.S. Polychemical along with others.
Alexander said in a research note:
Corexit is typically applied at a ratio of 2-10 gal/acre or 1 gal for every 10-50 gal of oil; while pricing data is limited, Corexit was priced at roughly $17/gal in 2002, which might equate to $40-$60/gal now depending on the correlation with oil prices; and the spill is currently characterized at generating 200,000 gal/day.
Nalco's potential daily market for Corexit is probably $200,000 to $1.2 million per day, said the analyst.
Although the oil slick in the Gulf of Mexico has put the spotlight on Nalco, the company is more than a dispersant chemical maker. Its largest business is water treatment followed by energy services and then products for the paper industry.
Fyrwald summed up the company's market and how it lines up with Nalco's sweet spot on an earnings conference call last week:
Several market trends continued to line up with our business strategy. First, stressed water resources in many parts of the world will be further strained as industrial demand recovers. Our world-leading water expertise makes us a focal point in helping industry increase water recycle rates, a key capability since the most water-stressed regions of the world are now delivering the fastest economic growth. As energy costs rise, Nalco's able to support oil and gas production increases in value as energy customers pursue harder to reach resources. We expect continued good growth in deep water oil sands and other difficult oil and gas production.
Now, other environmental challenges, such as climate change and water quality will return to the forefront in the coming years as economies turn up increased attention to quality of life concerns.