Don Stone, Delta Western, and the capital plan to shorten the methanol supply chain to Alaska
By Hilary Reeves
Don Stone moved to Seattle from California in 2006 in search of a new adventure. After years as a tax consultant, first with PricewaterhouseCoopers and then the accounting software company Sage Software – Stone joined Seattle biodiesel startup Imperium Renewables where he began researching methanol, a commodity market he continued to pursue after joining Delta Western in 2008. Now Vice President of Supply and Logistics, Stone has spent the better part of a decade helping the company grow its share of the methanol marketplace, culminating with the May groundbreaking of a terminal at the Port of Anchorage. The facility is the largest new terminal Delta Western has built since it was purchased by Saltchuk Resources fifteen years ago.
Stone grew up in Chino, Calif. After graduating from nearby University of California, Riverside with a Bachelor’s Degree in Business Administration, he moved west. “When you grow up inland, all you want to do is live on the coast,” he said.
Stone, whose father is an accountant, enrolled in graduate school and earned a Masters of Business Taxation from the University of Southern California. He moved to Newport Beach and began work at PricewaterhouseCoopers in Irvine, where he had interned while in graduate school.
“There’s a misconception out there that tax professionals just sit around and do people’s taxes,” he explained. “I came into PricewaterhouseCoopers as a federal tax consultant, creating corporate structures to limit tax liabilities. It was really interesting work, and I was definitely on the partner track, but then I got an offer from my client I could not refuse.”
The offer, he explained, was from The Sage Group, also known as Sage Software, one of his clients. He left for Sage in 2003. At the time, the company was growing at a rapid pace.
“Sage was acquiring companies at a pace of about one a quarter,” he said. “I was involved in all the tax structuring of those acquisitions, doing Mergers & Acquisitions work and finding Research & Development tax credits.”
Stone said he loved the job, but his wife wanted to move to the Seattle area where she grew up. He visited the city for the first time during the summer of 2006. “We did downtown Seattle, Chelan, and the Oregon Coast, all in a two-week span. I thought it was beautiful; it was actually a really warm summer. But as soon as we moved up here it turned into the worst weather. That December, I think the power was out for about 17 days. I was totally tricked,” he laughed. “It’s taken me about eight years to get used to it, but I like it now. I don’t think I’d move back to California.”
Imperium Renewables
Stone left Sage and moved to Seattle in September of 2006, without a set career path in mind. He wanted to get into a new field, somewhere he could take calculated risks and reap the rewards. He was among the first wave hired at Imperium Renewables, then a new biodiesel startup that was run, Stone said, like a tech company. “We were like a bunch of tech guys trying to do fuel.” In the biodiesel industry, Stone explained, the creation of production facilities is largely dependent on the tax incentives available, and finding them was one of Stone’s responsibilities. The company built the largest biodiesel facility in the country, one that could produce 100 million gallons, in the Port of Grays Harbor, Washington. The company also proposed similar facilities in Hawaii, Argentina, and Philadelphia. The company prepped for an IPO. It was 2008.
“Just like any tech startup, we were in a bubble,” he said. “No bad news could get in. I think I was still hopeful up until the very first layoff. Even in the months leading up to the collapse, we were doing a lot of great things, a lot of very strategic things. I rode it up and then I rode it back down.” After the company’s downturn, Stone started looking for another opportunity. “It was a really good experience,” he said. “I met a lot of interesting contacts in the petroleum industry.”
While with Imperium, Stone had worked on a plan to build a multi-product terminal next to the biodiesel facility in Hoquiam, Washington. “We were hoping to develop a market for methanol, sodium methylate, and a few other chemicals that no one really thinks about, but that are heavily used across all different industries,” he said. “We were pitching to raise some money to build this terminal, and we set up a meeting with Vince Godfrey (former Vice President of Global Services for Foss Maritime). He invited two other people to the meeting: Mark Tabbutt (Chairman of Saltchuk) and Brian Bogen (President and CEO of North Star Petroleum). I was able to present this terminal project and the chemical marine import concept to those three guys.” After the failed IPO process, Stone called Godfrey, who put him in contact with Bogen, and let him know there was a finance position open at Delta Western. He interviewed with Kirk Payne, President of Delta Western and was named VP of Finance in June of 2008.
Delta Western, and the methanol marketplace
While Stone was working in finance for Delta Western (and during a subsequent four year stint at North Star Petroleum), he continued to explore ways he could connect the methanol suppliers he knew to the marketplace. “Ultimately, one of those suppliers, Mitsubishi Gas Chemical (MGC), built the multi-product terminal we had envisioned at the Port of Grays Harbor,” he said. “Even though I was working for Delta Western, I was still connected to the chemical industry. When MGC built the terminal, they asked if (Delta Western) would like to market methanol to customers in the Pacific Northwest.”
Methanol is a colorless liquid most commonly synthesized from natural gas. The majority of methanol production is consumed as a building block chemical in the manufacturing of formaldehyde, plastics, paints, antifreeze, solvents, and biodiesel. In 2009, Delta Western was granted a limited exclusive agreement to market MGC methanol supply out of the new methanol terminal in Hoquiam, in which they shipped to customers via truck and rail car.
“That’s how Delta Western got into the methanol business,” he said. “Methanol is used in quite a few things: formaldehyde preservative, fracking, window wash, freeze protect – there’s actually a huge market for methanol.”
Stone came back to his finance role at Delta Western from North Star in the fall of 2012, but in order to continue to grow within the company, he needed more operational experience. In the later months of 2014, he was named Vice President of Supply and Logistics. He’s currently responsible for the refined product supply of all Delta Western terminals, and managing inventory, inventory cost, and logistics. “The best way for someone like me to get operational experience is through supply and logistics,” he explained. “But I’m still heavily finance-based.
Connecting Alaska
According to Stone, it was only a matter of time before Delta Western’s methanol business extended to the Alaskan marketplace. “There’s a huge market in Alaska for methanol,” he said. “It’s mostly used as freeze protect on the slope. If there’s no crude oil in the pipes, they fill them with methanol – the cheapest commodity there is up there – to fill the pipe so it won’t freeze and break.”
Methanol is derivative of natural gas, and is a room temperature liquid that dissipates in water, and unlike LNG, does not require pressurization. Stone said methanol is typically refined in the Far East, or Middle East, and is brought to the United States via marine transport, and then sent to Alaska via rail car from the lower 48. A new marine terminal in Alaska would allow methanol to be brought directly to Alaska via tanker vessels over the water, eliminating the need for rail transport, thus shortening the supply chain and making it less expensive for the customer.
Kirk Payne also agreed with Stone on the potential for a future methanol business line at Delta Western and three years ago, set about securing a land lease at the Port of Anchorage. Partnering with the Port, they were able to pursue large methanol sales contracts in the Alaska marketplace. “In order to win these huge contracts, you have to present something novel and new. No one wants to switch something that’s already steady and works fine, unless it’s you can provide a safer and more efficient solution.” said Stone.
In Alaska, there are two major methanol customers, ConocoPhilips Alaska (COPA) and British Petroleum Exploration Alaska (BPXA). Together, they represent 85 percent of the current demand, and both companies have communicated that demand for the product will increase as a result of their projected investments in the North Slope region.
“In 2010, ConocoPhillips put their methanol contract out to a bid,” Stone said. “We didn’t win, we didn’t even have a lease at the time, but last year, we went to them and said, ‘We have our plan solidified now. Here’s what we can offer.” Delta Western was awarded ConocoPhillips’ methanol contract in 2014 with commencement in 2015. It took about seven months to negotiate the sales contract.
“It makes a lot of sense for them,” Stone explained. “Instead of planning out a six to eight week supply chain, we’re shortening that chain, providing a safer, just-in-time inventory environment to the customer. They can just pull up a truck, fill it, and take it to the slope. We’re also reducing the carbon footprint of the whole organization.”
In May of 2015, Delta Western broke ground on a Marine Methanol Terminal in the Port of Anchorage, the only one of its kind in the state, with plans to be operational before year-end. The terminal will initially feature one 50,000 barrel methanol tank, but will eventually expand to six tanks total and may offer additional products.
Stone said he hopes to make methanol a part of Delta Western’s core business for years to come.
“It’s organic growth,” he concluded. “We didn’t have to acquire something. We built it internally; we built a business that we’d not been in before. We have it all there. Now we just have to grow it into what we want it to be.”