Politics versus economic sense: an example

In a previous post, I noted that following the Labour party election victory, a hidden ultra-right wing faction within it took economic control and introduced the economic policy of the party that won 2% of the votes. How did they get away with this? First, New Zealand has no upper house, so there was no procedural method available to stop them. Second, only too many of the regular Labour MPs had little or no interest in economics; they merely wanted to do good things, which is one of the problems with many Socialist governments. The third reason is more difficult to explain, but they also gave their supporters something that made such supporters accept their economic fate, and it was cash-free: they declared New Zealand “nuclear-free”. This created a serious problem with the United States, because their naval ships were forbidden entry unless they declared themselves “nuclear-free”, which, of course, went against (the perfectly reasonable) US policy of not declaring what their armaments were. Of course they never mentioned that New Zealand had a nuclear sciences institute, or that locally made short-lived isotopes had important medical uses. It was also notable that this policy had no purpose other than to shore up votes and keep the left wing part of the party shut up about economic matters. I suppose the policy also forked any discussion on nuclear power. While the policy was presented as the highly emotive “no nuclear bombs here”, it also forbade nuclear powered ships. All of this, in my opinion, shows one of the many failings of democracy, or at least what we call democracy. In my opinion, it is more a periodically elected autocracy. That, of course, does not mean we should go back to what we have previously had, but it does suggest we should not be complacent and simply accept our fates. One of the themes of my novels is this issue of governance. I freely admit I do not ahve the answers, but that should not prevent me from illustrating some of the problems.

However, the sell-off took considerable time, and the synthetic fuels plant was far down the queue. The reason for this, in my opinion, showed another ugly side of politics. The new government had more interest in shouting about the disaster that the previous government had imposed on them than on helping the country, and accordingly, they were running down the synfuels plant, making it seem the worst investment under the sun. This was helped by the so-called “huge cost over initial prediction”. This huge cost over-run, of course, arose because the initial cost was not for what had to be built. The real villains were the incompetent civil servants, but the previous governing politicians had to take the blame, because that is where the votes lay. All of this blame-throwing could only depress the value of the plant, so sale had to be deferred. Worse, anything that improved the value of the plant, such as this durene venture we were advocating, also had to be put off as long as possible.  Votes appear to be all a politician thinks of at times.

The questions were, what did  they have, and what could they have? What they had were two of the largest methanol making plants in the world, and being new, they would have been the most efficient then. Tacked to that was a plant that passed the methanol through zeolite, and if 32 units of methanol went through, no more than 14 units of hydrocarbon could come out, the other 18 being water. The methanol was wet, containing about 10% water. So, what could they do? First, look at what was made. A relatively high per centage of the hydrocarbons were in the lpg range, with a surprisingly high percentage of this could be converted to isobutylene. There were also a number of aromatic hydrocarbons that were worth considerably more as chemical feedstock, such as durene and 2,5-dimethylnaphthalene. Drying the methanol and selling it was obvious since they had twice as much of it, and the unit price was higher, but there were further things. At the time there was a great market for methyl tertiary butyl ether (MTBE), which was an octane enhancer. This market eventually collapsed, because retail petrol tanks in the US were constructed in a way where MTBE could leach out, but reacting methanol with isobutylene would have given a good return for several years, and there are other uses for isobutylene. My financiers asked me what could be done, and I presented them with a report that essentially said, leaving aside the durene, if a further hundred million dollars were invested, there would be an additional return of five hundred million per annum. I was told this was to be presented to the politicians, but I do not know whether it was. In this particular case, the financiers were also making a lot of money by being part of the asset-selling process, and taking fat fees from doing it. In any case, nothing was done to improve the economics of the plant. That my report was ignored is not important, but surely someone else could have done the same thing. It was almost as if the government preferred the synfuels plant to lose money! It was then that ICINZ did some charitable work: they offered to build a small plant to extract and sell durene for the government. The idea was to ensure that their design worked, and of course they would get further engineering data should they get the right to purchase, an they would get costing data to improve our bid.

Meanwhile, time passed and the government still refused to make up its mind whether it would sell the durene rich hydrocarbon stream. It was not until the next election was on the horizon that they finally decided that something had to be done. They had milked the “cost overrun” for every vote it was worth, while there was the possible risk that being unable to make a decision in a whole election cycle might play into the opposition’s hands.

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Chemicals from Durene (2)

In my previous post on the durene project, our small company needed a sizable partner, so the one remaining functional executive took a flight to the US, with the intention of trying to find one. In a rather remarkable piece of luck, he sat beside an executive of ICINZ, they discussed things, and when they got off the plane at LA, they had an agreement in principle. (I have used little incidents like this to provide background for my novels, thus in Red Gold, when David Gill sits on a plane at Denver and ends up with a contract, that is half inspired by that incident. The other half was when I once got on a plane at Denver, stared out the starboard window, and saw a hole the size of a football in the engine cowling. Fortunately, that motor was not started!)

You might wonder why ICI would be interested in partnering such a small company. The reason was, they had a submission in place. ICI had thought about this project, but decided against it. The exact reason why not is unknown, but one reason might have been, they did not want it as long as nobody got it. The reason was, while polyimide plastics are amongst the best heat resistant plastics that are still processable, at least to some extent, at that time ICI made two plastics that were good performance: polyether ether ketone, and polyether sulphone. If polyimides were made at a level that was possible from that plant, those two ICI plants would have been redundant, so as long as nobody developed this option, they would be fine. However, once it became apparent that a plant could be built, that reasoning would be false.

Anyway, an application was made to add ICINZ as the partner and operator. Unfortunately, then ICINZ wanted to add to the submission, to let everyone know how big ICI was, etc. This was manna from heaven for the new government, because they permitted the others to alter their submissions too. In effect it was a new contest, although no new players were permitted. Decision time was delayed. It took three years to get a decision made. In the intermediate time, it became obvious that my position as a government scientist would not continue, and prior to the final decision, I left and formed my own company. The people financing the small company also financed my laboratory, the purpose of which was to aid the durene project, but also to form spin-off ventures.

It was around this time that my self-published novel, Gemina came out. One of the conditions, however, of getting the lab finance and a carried interest in the durene venture, was that I stayed out of the media and did no promotion, including for the laboratory company. As you might imagine, selling books when you cannot advertize or promote them, and you have no real knowledge of the book trade, was hardly ideal. I lost money on that book, but not as much as I first feared.

Finally, this will be the last post for 2012. The southern hemisphere summer holiday season is upon us, so, I wish you all a very Merry Christmas and a prosperous New Year.

Chemicals from durene (1)

The next few posts will involve issues in my life that have been helpful in providing some background to my novels, particularly involving industrial startups, small business, and government. The posts might also convince some why governments should stay out of specific commercial enterprises. These incidents occurred at the same time as I was trying to find a place to publish Gemina. As I mentioned in the previous post, I had lobbied to persuade the New Zealand government to sell durene from the Motunui synthetic fuels plant. To develop the offshore Maui gas field, the government had entered into a “take or pay” agreement with the company that would construct and operate the platform, so, having paid for it, the government owned the gas. A simple thing would have been for the government to sell the gas to the company operating Motunui, but the simple approach seems to elude certain politicians. They decided they would retain ownership of the hydrocarbon stream, and pay a toll to get it converted. Reason: they saw oil as always increasing in price, and I suppose there was also the strategic element.

The reason why this project made sense was because durene had to be removed from the synthetic petrol, therefore the cost of making it was close to that of petrol, which made it an order of magnitude cheaper than durene from other sources. Durene could be converted by a known process to pyromellitic dianhydride, which could be used to make the very high quality polyimide plastics, and it was then being made at about 500 t/a. The competitive advantage was cost, and with the price of oil falling, nobody was going to construct a similar plant to Motunui.

One fruit from my lobbying was the approach of a small company. This company had no experience at chemicals or fuels, but it claimed to know how to raise money, and how the political system worked. As the only game in town, I supported them, at first without much hope, but strangely enough, they exceeded all expectations. I put together, in my spare time, a technical proposal, and the company began looking for joint venture partners. The first effort was with an American multinational, and it was embarrassing, as two of the “official presenters” merely demonstrated they knew nothing about chemicals. Neither did the third, but he had the sense not to pretend. After a somewhat blunt discussion, those two exited from further presentations, and I ended up attending presentations and was responsible for the technical issues. I was on somewhat uncertain grounds here, being employed by a government scientific department. My defence was that I was following the organization’s mission statement. What was impressive about this defence was that it appeared I was one of the very few that even knew such a statement existed, let alone had read it! Anyway, things started progressing at last. I had apparently made sufficient nuisance of myself that there was sufficient groundswell that at last the politicians could not ignore it.

Two events happened. The first was that the small company entered into an agreement with the state-owned entity, Petrocorp, and now there was a player that made sense. (Petrocorp owned a methanol plant and an ammonia-urea plant, each run by gas, and hence had a reasonable amount of brownfield development on which to add a further chemical plant.) The second was that the government announced a bidding process for the development of durene, the process to be run and judged by the Department of Energy. Now, suddenly, the officials asked me to join in the judging process. I refused, explaining that my role was to ensure that at least one sensible proposal was on the table. Then, Petrocorp sent one of their senior executives, an executive from the small company, and me to the headquarters of Fluor Corporation, in southern Los Angeles. (This gave me one scary moment; the driving was left to the small company man because he was a native of Los Angeles and had been in New Zealand for a few years. At one point he made a left turn and to my horror we were on the left side of a divided multilane street. Apart from that minor piece of forgetfulness, though, I appreciated his driving, because he knew where he was going.)

I was fairly pleased with myself for a while, because here I was discussing a venture with engineers who knew how to build chemical plant, and they were validating most of what I had said. They agreed with me that a certain amount of development work was needed, but they were convinced this was doable. Then a spanner in the works. On the last day, with about an hour left, the Petrocorp executive produced a critical blow: Petrocorp would not be part of the bid. Why not? What I was told was that at the Petrocorp Board meeting, the Secretary of Energy, who was also a Petrocorp Board member, had said there was no need to reach a decision at that meeting, and everything could be delayed until the next. With no need to do something, they did nothing. The problem was, the next Board meeting would be after submissions closed, and that Secretary knew that, or should have, after all, his Department was running the process. Whether I was told the truth is another matter, but that borders on the irrelevant. The small company no longer had a joint venture partner, and it was not big enough to be credible. Forked? Whatever, the small company put in its submission, stating that if it won, the win would be dependent on its finding a suitable partner. More will follow!

The first steps towards self-publishing

In my last post, the bloghop post, I gave a brief answer to the question, how did I start writing “Red Gold”? Some of what happened that was left out might also be of some interest, because it introduced me to self-publishing, even back then. As I wrote previously, my first book, “Gemina” was written as a response to a bet, and after I sent it off, I got, I think, four rejections. I gave up on that, but the writing bug must have stuck because next summer I tried another. This, I decided, would be more literary, with as much as anything, the objective of which was to record experiences of a young student during the early 1960s. That too ended up in the trunk, and I gave up, as my career, aka day job, took over. About fifteen years later, I reopened the scripts. The first one, I felt, was genuine trash at the start, but half-way through I was reasonably pleased with it. The book was written in four parts, so I totally rewrote Part 1, made some significant changes to Part 2, I left Part 3 totally untouched, and Part 4 was rewritten only to accommodate necessary changes made earlier. Now what? I sent it off to one publisher and got the standard rejection. However, about this time I was reaching a crisis in my life.

I had been employed as a scientist at the Department of Scientific and Industrial Research in New Zealand, and in response to the first oil crisis, I was involved with energy-related matters. This climaxed when I was asked to a meeting to decide the government’s response to a proposal to build a synthetic fuels plant. As part of the background, New Zealand had found a massive field of natural gas offshore and by previous contracts, the government had a “take or pay” agreement to consume the gas. There were two major proposals for synthetic fuel on the table: a German group offered to build a Fischer-Tropsch plant for something like $800 million, plus site development, while Mobil Corporation offered to build their methanol to petrol process for $290 million, plus site development. (The reason for “plus site development” was that nobody knew where the plant was to be constructed.) A meeting was called, at which I was by far the most junior, and I advocated the German plant, because it was cheaper. I was asked what I meant, and I said the Mobil proposal would cost at a minimum, $1100 million plus site development. I was ridiculed, after all, how would I know better than Mobil Corporation, and never asked to come back. I became persona non gratia with the officials who recommended the plant, and who promptly received very significant roles in it. Motunui was built, using the Mobil process, and I gather it cost something around $1300 million. You might ask, how did that happen? The answer was deploringly simple: Mobil corporation gave a perfectly good quote, but it was for a process to convert methanol to petrol; you still had to build the plant to convert gas to methanol. My estimate was based on adding the cost of the methanol plants to the Mobil quote.

There was one further point about the Mobil process: the petrol it made had a component in it called durene, which, unlike other petrol components, is a solid, so it could crystallize out from petrol on a cold day and block a carburetor. On the other hand, since it crystallized out, it could be separated, and if it were, it would be a raw material for a class of chemicals called dianhydrides, from which you can make fire-resistant plastics. Since the official role for DSIR was to assist and promote industrial development in New Zealand, I set out to promote the use of durene, which in principle could be made in this plant ten times cheaper than anywhere else. Such efforts started with proper channels, and got immediate rebuff from the same certain officials who had been promoting the Mobil process. Why? Who knows. It could have been rank incompetence, or it could have been to protect their positions. However, I took what opportunities that were available, and one turned up in the form of an invitation to go on a nationwide TV program to discuss the flammability of plastics. I had mentioned to the producer that it as possible to make flame-resistant plastics, so I was invited to make some and bring them along. I did, and found myself on the set facing one of the leading interviewers in the country, and a small gas torch. At the end, I was asked to prove what I had made was flame resistant, so the gas torch was lit, I placed this slab of home-made foam in the palm of my hand, fired it up, and hoped this would work. It did; the plastic became yellow hot, but apart from minor ablation, remained more or less the same. I held it there for thirty seconds, until the interviewer decided that this had some similarity to drying paint and cut the flame.

As the plastic cooled down, he remarked something like, “Yes, but it still gives off obnoxious gas doesn’t it?”

We had already discussed the poisonous fumes given off by burning polyurethane, so I knew where this was going. So I held my nose over it and gave a huge sniff, and held my face and said something like, “Nothing too bad.”

The interviewer gave a wry smile. He knew I had acted, but he also knew there was nothing to be gained by his calling me.

The relevance of all this is, of course, I was starting to build up something of a public image. I had to get that novel out! I decided to self-publish, because there was no time to lose, or so I thought.