By Carlos David Mogollon, Managing Editor
PennWell editor Carlos David Mogollon had an opportunity in May to speak with Ian M. Barbour, general manager of Dow Water Solutions -- the water business group of The Dow Chemical Co. for columns that appear in Industrial WaterWorld ("Executive Corner," May/June 2008) and Water & Wastewater International ("Executive Watch," June/July 2008), respectively.
Below is the full text of the interview in Q&A format:
PennWell: We're here with Ian M. Barbour. He's general manager of Dow Water Solutions, which is based in Edina, Minnesota, in the USA. Ian, if you could, tell us a little bit about Dow Water Solutions as a recent creation under Dow Chemical to unite its various water treatment efforts as well as some of its goals now.
Barbour: Dow Water Solutions, as you said David, is a fairly recent launch. We were named in September 2006. Prior to that time, the business was known as Dow Liquid Separations. Up until 2006, Liquid Separations was primarily made up of two technologies, ion exchange resins and reverse osmosis membranes.
PennWell: Under the DOWEX™ and FILMTEC™ brands.
Barbour: Filmtec is the brand name for our RO membranes, but FilmTec Corp. is actually a wholly owned subsidiary of The Dow Chemical Co. and I am president of Filmtec Corp. But those two technologies, Dowex ion exchange resins and Filmtec reverse osmosis membranes, were the core of Liquid Separations business. And, in the beginning of 2006, we acquired a company in China called OMEX Environmental Engineering. With that acquisition, we added some new enabling components to our water purification portfolio, and those were ultrafiltration membranes and electrodeionization components. With that additional breadth of technologies to support water purification, we recast the business as Dow Water Solutions.
PennWell: Tell us the rationale behind the OMEX acquisition?
Barbour: The rationale was very straightforward. As you look at the world's worsening water crisis and the solutions that need to be deployed to solve it, we saw a fundamental gap in our technology offering, which was that we didn't have a low-pressure membrane offering. So, the fundamental driver of the acquisition of OMEX was to secure the ultrafiltration membrane technology.
PennWell: Does this include MBR?
Barbour: It does. The fundamental offering that we have today that we're selling outside of China is a pressurized UF offering. But, inside China, we are also selling submerged membranes and membrane bioreactors, although we recognize that those products are not yet ready for prime time and we've got a fundamental development effort going on in the submerged membrane/membrane bioreactor space before you'll see products from us outside of China.
PennWell: Tell us about China -- I mean, why China?
Barbour: Well, China for a number of reasons. We spent a lot of time looking at all the possible candidates to get into the ultrafiltration space. OMEX was a very nice choice for us. We picked it primarily because their technology is a good one. It's PVDF fiber, outside-in configuration. And we felt that the location in China was advantageous for two reasons: 1) we believe China is going to be probably the largest single country in the market for low-pressure membrane technology in the future, and 2) we also liked the cost position of having the manufacturing facility in China.
PennWell: Those are all things that I'm sure a score of other manufactures would highlight in their various industries. I recall at the time that there was some concern over whether this would put Dow in the position of being a systems manufacturer rather than a components manufacturer. How did you settle that with your client base?
Barbour: Clearly, you're up on the water industry and what's going on with Dow. You're absolutely correct because that was a concern. Our value proposition, quite frankly, is to provide enabling components to our OEM partners, and together with our OEM partners provide solutions to the ultimate water user. And, so, when we acquired OMEX, it became a bit schizophrenic in China in that in addition to buying the ultrafiltration technology -- which was the driver of the acquisition -- we also acquired a complete engineering capability in China. One of the reasons we were comfortable with that was that, prior to the acquisition of OMEX, in discussions with potential targets on ultrafiltration, one of the facets we kept hearing of was: You'll never be successful with an ultrafiltration offering unless you really understand the applications; and you can't divorce that from the systems side of things, like RO. It's a different market because you're dealing with raw water and you need to have the systems capability. We took that to heart and that application expertise and that systems capability has been very helpful in our product development around ultrafiltration. The way we've managed it with OEMs is by being very clear with all of them by saying, "Look, we are going to run the systems business in China, but we're only running it in China, and here's why we're running it in China." That's how we've done it and it's worked quite well. We have a more complex strategy implementation in China, but outside of China, it's pretty much the same as it was before.
PennWell: OK, tell me what's going on in the States with Dow.
Barbour: Well, the United States is still probably -- well it is -- the largest single country market for our RO water solutions products today. It's a key part of our business. We are obviously concerned about the financial crisis and the credit crisis here in the U.S. and are keeping a close eye on how that may impact demand for our products. We haven't seen anything too alarming. We've seen a little bit of softening over the last six months, specifically in the U.S. market. I think that's pretty understandable when you consider that our products are going into capital projects. That's not surprising. The good news is we are truly a global business. Our revenue is split pretty equally between the Americas, Europe and Asia. And so we are fortunate in that we have that diversity and we're continuing to see enormous growth in demand in large projects in various parts of the world, for example, Australia and China... There's plenty of business out there, David.
PennWell: Where do you see the particular growth markets, whether geographical or specific industry segments?
Barbour: Quite frankly, we see growth everywhere. It's typical to generalize about water because water is so regional in nature, but with that caveat I would say that we are seeing stronger growth in Asia than we are seeing in the U.S. and Europe. There's just so much opportunity. China is growing its economy at close to 10% annually. There's a huge demand for water for industrial applications there as they fill out their economy. We're seeing tremendous growth opportunities in India. We see opportunities in the large project space in the Middle East. The Middle East has been one area that has long looked at seawater desalination as the solution to their water issues. That has been historically predominantly a thermal distillation market vs. a membrane market, but we are starting to see increased acceptance of membranes in the Middle East and we see lots of huge projects coming along that will be membrane-based.
PennWell: I would imagine also that the fact that the sustained high oil prices have put a pretty good war chest for Middle Eastern countries to go ahead and invest in these solutions at this particular time.
Barbour: Absolutely. But people are also starting to look at the energy requirements for producing water a little bit differently, and you've got issues around increased cost of energy, you've got issues around greenhouse gas, sustainability...
PennWell: And thermal distillation is pretty wasteful on all those...
Barbour: Exactly. You see the membrane technology -- one of the nice things is it doesn't really care where the electricity comes from. You can use fossil fuel-generated electricity to run it, but you can also use sustainable sources to power the membranes. For membrane water purification systems, I think that's a positive. It's very inefficient to do that with a thermal process. And we also continue to work on trying to make our products as energy efficient as possible.
PennWell: How are you competing in the U.S. market? It's been a couple years since the OMEX acquisition. Has that improved or how do you see that panning out and what are bright spots in the U.S. market for you?
Barbour: Well, is your question specific to the OMEX acquisition?
PennWell: The second part may be, i.e., with respect to bright spots.
Barbour: Okay, with respect to the first part of your question, we are enormously pleased with how OMEX has gone for us. We acquired OMEX because we really liked their technology and we felt that Dow capabilities in material science and polymer chemistry and process automation could be brought to bear in a meaningful way with OMEX. Quite frankly, what we're trying to do with OMEX is what we did with FilmTec. Dow acquired FilmTec Corp. in 1985 and that's been a huge success story because we've been able to drive out a lot of the costs of membrane operations. And, as a result, we've had enormous growth in the marketplace for reverse osmosis. Quite frankly, we're hoping to do something similar with ultrafiltration. We think ultrafiltration is absolutely fundamental technology that will be increasingly deployed. We see the need to continue to improve the cost performance of those products so that they can compete very effectively with traditional technology.
PennWell: It's also a particular market that over the past several years has gotten extremely competitive.
Barbour: That's correct.
PennWell: If you look back say five years ago, for instance, everybody was saying we've got to get into MBR. Now, it looks as if everybody is into it and they're really putting their respective capabilities head to head with each other.
Barbour: Absolutely, and I think the MBR market is going to be huge and there's room for several players to play there. We've had enormous success. Before Dow owned OMEX, OMEX did not have any success selling its components outside of China. All of them were basically going into their own home-built systems in the Chinese market. They had very, very limited success selling components outside of China. What's been so gratifying is that as soon as Dow integrated those products and our robust OEM channels to market globally, we have been welcomed and accepted and people are working with us and we've managed to grow our components business outside of China very quickly.
PennWell: Okay, what are bright spots in the States? I believe that was a question I asked before, but in particular I was thinking of the grand opening up in Minnesota of your new manufacturing facility. It may have been in the past couple of years. But you built it in the U.S. instead of overseas, which has been against the trend line of such facilities being built overseas, say in India or China.
Barbour: Correct. We're doing it again. Bright spots for us on the manufacturing front include that we've already outgrown that building. We've just signed an agreement to acquire another building next door. We continue to grow our footprint here in Minneapolis for reverse osmosis. That makes a lot of sense for us. Our technology resources are here. We have a high degree of automation here, which allows us to make the products here in Minneapolis and compete with manual operations in low-labor cost countries. So, from a cost perspective, we feel that we're competitive. The real advantage we get, of course, is quality. That's what I think has been our greatest success with Filmtec membranes over the last 20 years.
Other bright spots, you probably know that the Tampa Bay desalination plant finally started up in January. That facility is using Filmtec membranes, so we're delighted with that. The fundamentals of the water business, David, as you know, are sound. You look at the population growth that we expect to see over the next 50 years and you look at the aspirations that those people will have with respect to standard of living and the disposable income they're likely to have -- the implications of water demand are enormous. That's fundamentally driving the opportunity for businesses like ours.
PennWell: Okay. You brought up Tampa Bay and the desalination project there, but there are also some 20 desalination projects in various stages ongoing up and down the California coast alone.
Barbour: Correct.
PennWell: Do you want to talk about desalination in general and where you see it going?
Barbour: I think seawater desalination, David, is one of the solutions that will be deployed to solve water scarcity issues. It's not the only solution. Clearly, there needs to be greater education about water conservation.
PennWell: Water efficiency.
Barbour: But once you get beyond water conservation, you need to develop other water sources -- and seawater desalination is an obvious choice. As the water supply situation becomes more dire, I think there will be increasing acceptance of seawater desalination. And I think we, as an industry, need to do a better job about communicating the benefits of seawater desalination because there's still a public perception that it's really expensive. Well, yes, it's really expensive if you happen to have surface water right next door. However, when you consider that the state of California is using enormous amounts of energy to pump water huge distances, seawater desalination becomes much more cost competitive as the traditional water sources become tapped out, if you will. Somebody gave me an analogy which I really liked on the question of how expensive seawater desalination is. If you drove a Toyota Prius for five miles and took the energy equivalent of that and applied it to seawater desalination, you could make a ton of water. Well, we don't seem to think that driving a car five miles is exorbitantly expensive, so I think we just have to do a better job as an industry of making our case. It's not going to be the only solution. Water reuse is going to be another key solution and that's why we're so interested in the ultrafiltration technologies, because it enables us to play in the water reuse space in a broader way.
PennWell: Another point you might make is that, if you look at the cost of desalination or membrane separation in general and -- being pretty familiar with Dow -- look at how the manufacturing costs and engineering and production costs of the systems have dropped over the past decade or so, that's what's making membranes an option today where they might not have been as much before.
Barbour: That's correct.
PennWell: In addition, it's to the point where even in inland areas where you have, say, declining water tables, that typically mean you're dealing with brackish water issues (such as in the Southwest where I live), suddenly desalination technology becomes a solution for brackish water problems.
Barbour: Absolutely.
PennWell: We've been talking a lot about the membrane side. Why don't we talk a bit about the ion exchange side of Dow Water Solutions? Let's look at what's going on there.
Barbour: Ion exchange is a great business. It's a remarkably resilient and flexible technology for water purification. We see a couple of bright spots in the ion exchange arena, specifically around remediation. We have quite a lot of new activity going on in remediation of perchlorates, or nitrates, and the market for ion exchange resins into those applications is has grown consistently over the last five years or so. We are also seeing a lot of interest in ion exchange in the mining area, where it's now cost-effective to extract minerals because of increasing commodity prices.
PennWell: Or oil for that matter.
Barbour: Exactly, we're seeing ion exchange used increasingly in mining operations to remove the valuable metals, etc.
PennWell: I will admit that as an editor, that's also a leading indicator because I've seen several articles in that arena whereas the previous few years have been pretty dry on the mining issue.
Barbour: Absolutely. So, those are a couple things that are exciting about the ion exchange business.
PennWell: We have also seen a number of price increases across the industry, not just Dow, with respect to ion exchange and water treatment chemicals in general. Sometimes I have to look up what the specific application is when I see a price increase notice, I do have to admit. What sort of challenges do you have as a result of that?
Barbour: It's actually amazing to me that we haven't seen more inflation. With a barrel of oil at $127, you're going to get impact on costs all the way from your raw materials to transportation. This makes the operation of a water plant more expensive. It's a challenge. The reason you're seeing so many increases announced in the ion exchange arena is directly a result of that. You've got inputs that are being affected by the hydrocarbons and energy prices.
PennWell: I also wanted to point out one thing I was recently made aware of, the cleaning products used in these markets also are getting more expensive. I was talking with a person this morning who wanted to write something up about alternatives to caustic as a cleaning product. He was saying he was looking at a notice of a $60 increase this summer and an additional $20 anticipated in the fall in raw expenses for caustic. Does that affect you in sort of an ancillary way?
Barbour: It does, David. When you use our products, whether they're membranes or resins, you need to regenerate the resins and clean the membranes at some point. And acid and caustic are key ingredients in those products. So, we do know there's a relationship between both the price of cleaning chemicals and demand for our products. If you've got low cleaning chemical costs, people will tend to try and get their membranes to last longer or their resins to last longer. And then there's some point where it just doesn't make sense and you wind up replacing these products. There is a relationship between the cost of cleaning chemicals and when people tend to replace vs. continue to clean.
PennWell: You had mentioned mining. Are there other industries where you're seeing specific gains? I'd mentioned oil, for instance.
Barbour: Oil and gas is growing incredibly. We have an offering into that space around membranes that's known as the sulfate removal membrane. You remove the salts before you inject the water down in the oil field. And, as oil exploration goes deeper and into new areas, wherever you've got barium in the substrate, you've got the risk of barium sulfate scale and sulfate removal membranes become a great solution for that. So, we are seeing some nice business in the oil and gas area for membranes. And I'm sure anybody who has stock in oil and gas understands this.
PennWell: I would imagine that refineries and chemical processing, which is a natural outgrowth of that, might be experiencing a boom as well. Is there any geographical strength in that? For instance, we've heard a lot about oil sands in Canada benefiting because it's a more worthwhile investment to extract it now.
Barbour: Yes, there's a lot of activity going on in Canada. A lot is going on in Europe with offshore deep, deep drilling. There's activity offshore in Angola. It's really all over.
PennWell: What's your take on say the issues over climate change and global warming, as well as some of the regulatory issues that may be coming to bear, either from a U.S. perspective or a global basis?
Barbour: With reverse osmosis, you need electricity, so clearly we continue to work in our R&D arena on trying to lower the cost of energy requirements of running RO processes. One of the key things that's really helped is energy recovery. The advances in this area have helped drive down the costs of seawater desalination.
PennWell: Are there any additional specifics you want to mention there?
Barbour: No, you probably know the key players there...
PennWell: Alfa Laval, etc.
Barbour: Yes, ERI, the isobaric energy recovery devices that are out there have really done a good job and are quite efficient. They've allowed us to grow this market quicker and faster. As it becomes less expensive, you're using less energy.
PennWell: Dow offered some related comments at the Global Water Intelligence conference in London in April discussing an outlook on "The Future of Water"...
Barbour: That's correct. And I think you're going to see more demand for sustainable energy. You can use wind power to run an RO system.
PennWell: I was at IFAT in Germany last week and one of the big things there was use of biogas and biosolids as a renewable energy resource to run water/wastewater systems.
Barbour: Yes, it's everywhere. Some of it's real and some of it, quite frankly, is fictitious. I do worry about the increasing use of ethanol from the perspective of driving up food costs and also on the amount of water that requires. I don't know if that's a real economy or a false economy, but when you start using your agricultural capabilities for food and feed for animals and for fuel as well, you're going to see an impact as we are seeing now in an increase in food prices globally. That also has a huge impact on water.
PennWell: Worldwide.
Barbour: Yes. I'm not sure I fully understand that issue.
PennWell: The other issue is that it does raise prices for agricultural areas in the Third World that may have been saying they needed higher prices to make their agricultural markets more viable. It's kind of almost a Catch-22 in that sense.
Barbour: Exactly.
PennWell: Also, with respect to oil sands, there's a similar issue that's been raised with respect to the impact on boreal forests in Canada as a result of water requirements for steam to extract the oil.
Barbour: Yes.
PennWell: What's your outlook on all this? How do you see things playing out over the next several months, the way the economy has been going, as well as long term?
Barbour: I think the outlook for our water business is excellent, David. We've got great technologies and, despite all of the issues that we have around water scarcity -- and it's a huge problem that's only going to get worse -- technology is going to be brought to bear to try to solve it. I really feel good about the outlook for this business. Clearly, we would like our business to be bigger and we continue to work to that end. And we've experienced tremendous growth over the last 10 years. Dow brings tremendous capability to the water business in terms of science and technology.
PennWell: And I noticed that -- while your accent doesn't reveal it -- you bring quite a bit more to the business in terms of global perspective in that you're a native of South Africa.
Barbour: I am. I was born in Pinetown, South Africa. I'm a naturalized U.S. citizen. I became a U.S. citizen in 1988, I believe it was. I was born in South Africa, went to a boarding school in England and then I went to the university in Scotland.
PennWell: How exactly did you beat back the accent?
Barbour: Well, you know, if you put me in Scotland, I'll be talking as if I'm a Scot. And if you put me in France for six months, I'll be talking like I'm a Frenchman. And I don't do it on purpose.
PennWell: How long have you lived in the States?
Barbour: I've lived here continuously since 1980.
PennWell: What brought you here?
Barbour: Well, my parents were moving all around the world. They happened to be living in the United States at that particular point, so after I graduated from college, I came over. I just felt the U.S. had more opportunity and I enjoyed it here and I ended up staying here.
PennWell: What did your parents do that had them moving around the globe?
Barbour: My dad was in the ag business -- agricultural chemicals, actually. He moved around a bit. I've lived here since 1980 and joined Dow in 1982. I've been with Dow ever since. I've been eight years in this part of it.
PennWell: What did you do at Dow prior to 2000?
Barbour: Basically, I grew up in the inorganic and organic chemicals area, through sales, marketing, product management, sales management... supply chain -- all in the chemicals arena. So, I was brand new to the water business when I took this job in 2000. And I've just fallen in love with the water business. Quite frankly, I think I've got the best job in the entire company, but don't put that in your article.
PennWell: Oh, I'm afraid it's going to have to be, but we'll try not to trumpet it too loudly. Is there anything you wanted to say in closing?
Barbour: Well, we covered a lot of issues about water in our conversation. Let me just wrap up by reinforcing our commitment at Dow Water Solutions to be a key global player in providing clean, affordable drinking water for everyone who needs it. Water is becoming a growing, international priority. At Dow, we believe that virtually all of the global water issues are solvable with technology, but technology alone will not solve the water crisis. Ultimate success will come from a cooperative approach from government, business and humanitarian organizations working together. Together, we can build awareness of the challenges, create the appropriate plans and priorities to address them while engaging useful economic incentives and develop even more innovative technologies to create and deliver clean, safe, affordable water. It's a goal that we must accomplish, because at the end of the day there is nothing more basic to human life than clean, fresh water.
PennWell: Alright, well I appreciate you taking the time to speak with us. Thanks very much.
For more information, see: www.dow.com/liquidseps/
###
