Kemira Sees Oil, Gas Regulations Boosting Water Treatment Market

02.05.2013 -

Finnish chemicals group Kemira believes stricter environmental regulation of its customers in the oil and gas industry will create a big new market for its water treatment chemicals, its chief executive told Reuters.

Kemira, one of the world's largest makers of chemicals for the paper industry, is a relatively small supplier of chemicals for fossil fuels extraction and mining, competing with BASF, Clariant and SNF Flomin.

But it is keen to bolster the business with takeovers, and it is expecting a booming shale gas industry in particular will soon be required to clean more contaminated flowback water from hydraulic fracturing, for which it would need water treatment chemicals.

"Our water re-use business is active on many fronts. In the paper industry, water re-use is now well established and we have a presence there thanks to our know-how in municipal water treatment. The paper industry is operating under certain environmental regulations, other industries may soon also be subject to such regulations," CEO Wolfgang Buechele said.

The German national, who took the top job in early 2012, said he expects the North American oil and gas industry to be held to stricter clean-water standards in 2-3 years, while peers in emerging markets could see such changes in about 4 years.

"This could be quite a sizable growth business," he added, declining to provide figures.

Similar considerations have prompted rival BASF earlier this year to combine its water solutions and oilfield and mining solutions businesses.

Buechele has embraced his predecessor's strategic focus on serving water-intensive industries and earlier this year sold Kemira's stake in titanium dioxide maker Sachtleben to its joint venture partner Rockwood.

Kemira's ChemSolutions division, a maker of animal feed additives and chemicals for treating leather which like Sachtleben is not water related, could also be put on the block, Buechele said.

"A sale cannot be ruled out if there is an attractive offer."

The oil, gas, mining and paper chemicals units, meanwhile, could be strengthened by takeovers, though some targets in the energy chemicals sectors are offered at prohibitive premiums, he said.

"My psychological barrier would be 10 times EBITDA (earnings before interest, taxes, depreciation and amortisation)," he said, adding that some asking prices in oil and gas are currently well above that level.

Kemira derived 14% of its €2.24 billion ($2.95 billion) in 2012 group sales from chemicals for the oil and mining industry, with paper chemicals accounting for 45% and the waste water treatment unit accounting for 31%.

Kemira said earlier this month it was cutting more jobs and aiming for higher growth ahead, after cost cuts helped boost its first-quarter profit.