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

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

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

4. 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

5. 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

7. Current Conditions

8. U.S. Ethylene Cash Cost Trends

9. Monthly Ethylene Net Equivalent Trade
United States
Monthly Ethylene Net Equivalent Trade

10. U.S. Ethylene Capacity Utilization

11. Energy Impact on Regional Ethylene Economics

12. High Energy Means Higher Cost In The Petrochemical Chain

13. North America Energy Price Trends
Source: Purvin & Gertz

14. 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)

15. Acceleration In Global Capacity Build-up

16. 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

17. 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

18. 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

19. Middle East Takes Market Share

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

21. Ethylene Net Equivalent Trade
United States
Ethylene Net Equivalent Trade

22. Ethylene Demand Forecast
United States
Ethylene Demand Forecast

23. Ethylene Feedstock Consumption
United States
Ethylene Feedstock Consumption

24. U.S. Steam Crackers Shift Lighter

25. Feedstock Impact on U.S. Steam Cracker Propylene Production

26. Light Olefins Margin Trough Expected By 2010

27. Ethylene Oversupply To Follow Period Of Balanced Conditions

28. U.S. Ethylene Supply & Demand

29. 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

30. 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

31. 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

32. Say it ain’t so Joe!

33. THANK YOU !
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