Olefins Feedstock Demand… If You Build It, Will It Come? Prepared for: Gas Processors Association October 2008 Mike Kelly Consultant – Light Olefins mkelly@cmaiglobal.com Singapore Shanghai Houston New York London Düsseldorf Dubai

Trends in Light Olefins Olefins Value Chain Current Conditions Near Term Strategic Issues: Shifting Energy and Regional Competition Capacity Overbuild Olefins Profitability Wrap Up

Olefins Supply-Chain Dynamics Energy Olefins Production Derivatives Durable / Non-Durable Consumers Retail Sector

Olefins Flow Diagram Energy Feedstocks Petrochemicals Naphtha Gas Oil Field Condensates Ethane Propane Butanes Propylene Ethylene Pygas Benzene Toluene/Xylene Heavy Aromatics C5/C6 Non Aromatics Crude C4 Butadiene Mixed Butylenes Fuel Oil Methane/Hydrogen Natural Gas Crude Oil Refinery Gas Separation Unit Olefins Flow Diagram

Propylene Has Multiple Sources Alkylation Unit High Octane Alkylate Gasoline Refinery FCC Unit Gas Oil Isobutane Refinery Grade 60% purity Non-Chemical Cumene, Oligomers, Isopropanol Chemical Purification Splitter Polymer Grade (99.5%) Chemical Grade (93%) Propane Naphtha/NGL Cracker On Purpose Propane Dehydrogenation (PDH) Propane On Purpose Ethylene/Butylene Metathesis

Current Conditions

U.S. Ethylene Cash Cost Trends

Monthly Ethylene Net Equivalent Trade United States Monthly Ethylene Net Equivalent Trade

U.S. Ethylene Capacity Utilization

Energy Impact on Regional Ethylene Economics

High Energy Means Higher Cost In The Petrochemical Chain

North America Energy Price Trends Source: Purvin & Gertz

High Energy Means Distinct Advantage Middle East Dollars Per Metric Ton 2050 WTI Crude Oil, $/Bbl ($/MMBtu) USGC Natural Gas, $/MMBtu N. America Middle East 2003 NE Asia / W. Europe 31 (~5) 5.5 N. America NE Asia / W. Europe 2008 110 (~18) 9.4 1850 1650 1450 1250 1050 850 650 450 250 50 20 40 60 80 100 120 140 160 Cumulative Ethylene Capacity (Million Metric Tons)

Acceleration In Global Capacity Build-up

Middle East & Asia Dominate Current Wave Of New Capacity Middle East adding major portion of new additions, driven by incentives for industrial development Asia additions driven by higher self-sufficiency and industrial development India, South America, Africa, all adding capacity driven by industrial development Limited to no new capacity in North America and Europe Yanpet Ethylene – Saudi Arabia

Ethylene Capacity Growth Trends World Ethylene Capacity Growth Trends Million Metric Tons 60 50 40 30 20 10 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Japan Korea China Taiwan Singapore Thailand India Other Asia North America Middle East

The Immediate Threat... Nine Million Tons By Mid-2009 Capacity Add., MMT Company Country Capacity (kT) Time Arya Sasol Iran 1000 Q1 08 Jam PC 1340 Q2 08 Jubail ChevPhil Saudi Arabia 300 Q3 08 SEPC Yansab 1300 Q4 08 Petro-Rabigh 1250 TKOC Kuwait 850 SHARQ 1200 1H 09 RLOC Qatar Q2 09 1H '09 Q4 '08 Q3 '08 1H '08

Middle East Takes Market Share

Capacity Build-up Impact on the U.S. Olefins Industry

Ethylene Net Equivalent Trade United States Ethylene Net Equivalent Trade

Ethylene Demand Forecast United States Ethylene Demand Forecast

Ethylene Feedstock Consumption United States Ethylene Feedstock Consumption

U.S. Steam Crackers Shift Lighter

Feedstock Impact on U.S. Steam Cracker Propylene Production

Light Olefins Margin Trough Expected By 2010

Ethylene Oversupply To Follow Period Of Balanced Conditions

U.S. Ethylene Supply & Demand

The Olefins Business Cycle Continues… U.S. Integrated Olefins/PolyOlefins Cash Margins Dollars Per Metric Ton 800 700 600 500 400 300 200 100 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Conclusions Volatile energy markets continue to challenge producer economics Oversupply due to acceleration in new olefins capacity and slowing demand growth Olefins markets transitioning from peak to trough cycle conditions…trough margins most severe for naphtha crackers NGL consumption in US market depends on Gas-to-Crude ratio and investment in light feed capability

Will It Come? Forecast assumes capacity build-up will result in lower U.S. steam cracker operating rates Current energy dynamics have supported max light feed cracking…we’ve seen the peak Increased NGL consumption by U.S. steam crackers is not expected to come without investment in light feed capability Empty Field of Dreams

Say it ain’t so Joe!

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