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Singapore

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  1. Olefins Feedstock Demand… If You Build It, Will It Come? Singapore Shanghai Houston New York London Düsseldorf Dubai Prepared for: PFAA November 2008 Chuck Carr Director Propylene Studies ccarr@cmaiglobal.com

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

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

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

  6. Current Conditions

  7. U.S. Ethylene Cash Cost Trends

  8. United States Monthly Ethylene Net Equivalent Trade

  9. U.S. Ethylene Capacity Utilization

  10. Energy Impact on Regional Ethylene Economics

  11. High Energy Means Higher Cost In The Petrochemical Chain

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

  13. High Energy Means Distinct Advantage Middle East Dollars Per Metric Ton 2050 2008 110 (~18) 9.4 2003 31 (~5) 5.5 1850 WTI Crude Oil, $/Bbl ($/MMBtu) USGC Natural Gas, $/MMBtu 2008 1650 1450 NE Asia / W. Europe 1250 N. America 1050 850 Middle East 650 2003 450 N. America 250 NE Asia / W. Europe 50 0 20 40 60 80 100 120 140 160 Cumulative Ethylene Capacity (Million Metric Tons)

  14. OPEC spare capacity is increasing, concerns regarding adequate supply are rapidly diminishing . . . OPEC Production Versus Capacity, Million Barrels per Day Demand weakness will produce less speculation… Source: Purvin & Gertz

  15. Outlook calls for oil prices to decline as supply becomes a smaller and smaller concern . . . WTI Spot Price, U.S. Dollars per Barrel (Quarterly Average) 160 Economic Recession and Financial Market Issues 140 OPEC Cuts 120 Supply Problems 100 80 60 Demand Surge 40 Venezuela Crisis And Iraq War 20 Source: Purvin & Gertz 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

  16. Acceleration In Global Capacity Build-up

  17. 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

  18. World Ethylene Capacity Growth Trends Million Metric Tons 60 50 40 30 20 10 0 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

  19. The Immediate Threat... Nine Million Tons By Mid-2009 Capacity Add., MMT 1H '09 Q4 '08 Q3 '08 1H '08

  20. Middle East Takes Market Share

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

  22. United States Ethylene Net Equivalent Trade

  23. United States Ethylene Demand Forecast

  24. United States Ethylene Feedstock Consumption

  25. U.S. Steam Crackers Shift Lighter Is there room to shift even lighter?

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

  27. Light Olefins Margin Trough Expected By 2010

  28. Ethylene Oversupply To Follow Period Of Balanced Conditions

  29. How Bad Could It Get 2008-2010? Impact Of Current Economic Crisis Effective Global Chemicals & Plastics Operating Surplus 18% (90% Rule) Close about 35 Million MT more to return to base case 16% Base CMAI (4% AAGR) 14% 12% 50% Crisis (2% AAGR) 10% 25% Crisis (3% AAGR) 25 - 75 - 25 Crisis (2.3% AAGR) 8% 6% 4% 2% 0% 85 88 91 94 97 00 03 06 09 12 15

  30. U.S. Ethylene Supply & Demand

  31. The Olefins Business Cycle Continues… U.S. Integrated Olefins/PolyOlefins Cash Margins Dollars Per Metric Ton 800 700 600 500 400 300 200 100 0 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

  32. 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

  33. 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

  34. London New York Duesseldorf Shanghai Houston CHEMICAL MARKET ASSOCIATES, INC. Dubai Singapore THANK YOU ! Contact any CMAI location to assist in your petrochemicals market analysis