“New Feedstock Sources? LNG and Renewables”

Agenda LNG Update – Then and Now Ethylene Feedstock from LNG Frontier Feedstocks – the Move to Renewables Conclusions

LNG – Then and Now

Regasifcation Projects Then and Now Project Assumptions Needs analysisBuild them and LNG will come Supply development needed to justify new terminals Construction CostsFalling - $300 to $500 million each High & rising - $800 to $1 billion each Gas Prices$3.00-$4.25/Mmbtu$6.00 and higher Project Cycle – MOU to Startup 3 to 5 years5 to 7 years Business model for owners Take or Pay throughputTerminals in multiple markets Environmental IssuesConcerns can be satisifed Some locations will be off limits

Regasification Outlook through 2010 Keeping Pace With Supply Regas capacity is adequate to handle expected supply Through 2010 without more new construction starts Bcf/daly

Liquefaction Projects Then and Now Project Assumptions Needs analysisMarket will be strong; abundant gas reserves available for export Strong export market, but domestic demand growing fast Construction Costs (greenfield) $250/Ton of capacity and falling due to scale $900/Ton and higher due to scarcity of materials & people Gas Prices$2.75-$4.00/Mmbtu delivered - fixed $6+/Mmbtu – formula based Project Cycle – MOU to Startup (greenfield) 4 to 5 years5 to 10+ years (Arctic projects take longer) Business model for owners Long term contracts some spot; project sponsor marketing agreements to move project forward Blend of baseload & more spot ; increased control by reserve owners Risks/IssuesWorking out commercial terms for offtake Having enough reserves; cost escalation

Global Gas Demand LNG Market Share Growing, Slowly 7%9% 11% % from LNG

Atlantic Basin Eurasia Pacific Basin Supply 10.6 Regas Capacity 15.3 Supply 6.3 Regas Capacity 1.2 Supply 9.8 Regas Capacity 17.2 Room for More Terminals In India? Bcf/day 2007 India is closest distance for Middle East shipments, but Japan and Korea have more developed markets and usually pay higher prices

Regasification Terminals N. America - Then and Now Number of terminals planned 60+ (includes “planned” and permitted) 40+ (approved, planned or permitted) Number of terminals Built 9 (new builds, including offshore) Estimated Cost (land based) $400-$500 millionActual $700 million to $1.1 billion Throughput fees for users $.27-$.32/Mmbtu? Risks/IssuesPermitting, pipeline capacity Supply

LNG Import Trend – USA High Seasonality Relatively flat last 4 years except for summer 2007 – new trend or temporary? Enough to boost storage to higher levels and put pressure on prices

LNG Import Trend – USA 2006 V BCF of “Swing” Volume Coming Here Lake Charles emerging as the “swing” location for summer surplus

LNG Import Outlook – USA We’ll Have Enough Capacity Bcf/day

Feedstock From LNG N. America Feedstock From LNG N. America

LNG Processing for Feedstock Supply Processing Capacity Will Be Available: –Existing – Lake Charles Processing Facility –Likely – Point Comfort (Calhoun LNG) –Possible – Freeport, others if volume is there –Some processing possible on East Coast but will be C3+ recovery Supply depends mostly on ethane frac spread and volume: –Potential for 25-50M BPD incremental volume next few years –Most likely seasonal when storage arbitrage is good –Could compete with Rockies supply for market share; extraction costs lower from LNG than domestic gas

Frontier Feedstocks

What’s On The Horizon Plants to Plastics – Here Now: –Archer Daniels Midland renewables to chemicals business unit launched this year –Biodegradable plastics from corn (Dow and DuPont) –“PGR” – propylene glycol renewable – glycerin byproduct from biodiesel replaces propylene oxide as feedstock in Dow process, can also be used to make raw material for epoxy resins –BASF/DOW HPPO process to make Propylene Oxide with no co-products or isobutane feedstock Steam Cracker Replacements – Next Decade: –R&D in progress on ethylene production via another process

Conclusions

LNG Supply/Demand Trends: –Terminal capacity is adequate; supply is the issue –Higher construction costs & stronger than expected domestic demand may slow development of liquefaction in some producing regions –More LNG traded on spot markets – volatility will increase –U.S. Gulf Coast will be the clearing market for seasonal surplus until more storage is developed elsewhere (U.K., Dubai) Feedstock Issues: –Renewables beginning to replace some hydrocarbon feedstocks in limited volumes –Ethane on ethane competition possible in the future if extraction from LNG remains profitable