Global Ethylene MarketOutlook: Low Cost

Feedstocks Fuel The NextWave Of Investments In NorthAmerica and China

Mark Eramo

Vice President, ChemicalInsights

IHS Chemical

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Ethylene MarketOutlook

Opening Session

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Chemical Industry Building Blocks

The Chemical Industry is a keyenabler of modern living:Medical, Transportation,Construction, Packaging, FoodProcessing, Water Distribution,Fuel, etc…

Investments driven by costadvantage and/or proximity todemand centers

Demand growth is acceleratingoutside of the developed regions

Strategy development requirescomplete understanding of thevalue-chain

Ethylene Propylene

BenzeneMethanol

Chlorine

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Consumers Retail ConsumerGoods

Energy DerivativesPetrochemical

s

Companies that have long term success inthe chemical industry are able to leverage

technology and low-cost supply strategies formeeting demand at the right cost with the

right products using for the rightgo-to-market strategies

Petrochemical Value-Chain From TheWellhead to Wal-Mart

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Energy &

Feedstocks

…make up 60-70% of the costs

of chemicalproduction.

Investments seeka competitive

advantage

DemandGrowth

Proximity todemand growthessential withoutdistinct cost or

technologyadvantage. Tradeaccess also key.

Technology

Technology toenable efficientand competitiveproduction costs

and highperformance

products. First tomarket isimportant

Chemical Investment Seek To Leverage AnAdvantage…

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Agenda

Chemical BuildingBlocks

Changing DemandTrends

Impact of Energy

Shift in New Capacity

Evolving TradePatterns

Profit Cycle is Mixed

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Ethylene, Methanol and PropyleneExpanding At A Rapid Pace

Ethylene is the largestof the basic chemicalbuilding blocks

Ethylene, propyleneand methanol areexpanding at a rapidpace…driven by shalein North America

Benzene and chlorineshowing more modestgrowth

0

25

50

75

100

125

150

175

200

225

2010 2015 2020Benzene ChlorinePropylene Methanol

Basic Chemical Capacity,Million Metric Tons

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Ethylene, Methanol and PropyleneExpanding At A Rapid Pace

2020 Global Capacity:

Ethylene:200 Million Tons

Methanol:160 Million Tons

Propylene:140 Million Tons

0

25

50

75

100

125

150

175

200

225

2010 2015 2020Benzene ChlorinePropylene Methanol

Basic Chemical Capacity,Million Metric Tons

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Demand for Basic Chemicals Driven ByDurable/Non-durable Goods

Strong economic growthsupports basic chemicaldemand growth

Modest growth in 2012/13suggesting lowerconsumer spending

Emerging markets aredriving tomorrows demandgrowth

China dynamics arechanging, but remainscritical to most markets

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The Rise of the Emerging Market Consumer

The share of Global GDPrelated to consumption isconverging in noted markets

Emerging market’s share willmatch that of U.S. & Europewithin the next 7 years

Message to producers isclear: do not ignore theabsolute size of U.S. andEuropean market, but forrapid growth you need to lookto the emerging world GDP

Ratio of Domestic Consumptionto Global

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0

100

200

300

400

500

600

90 95 00 05 10 15 20

Asia and India Basic Chemical and PlasticsProduction Change (1990 Base)

Million Metric Tons

0

100

200

300

400

500

600

Production growth continues to be supportedby rapid growth in real demand…

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West Europe Basic Chemicals and PlasticsProduction Change (1990 Base)

0

10

20

30

40

50

60

70

80

90 95 00 05 10 15 20

Million Metric Tons

0

10

20

30

40

50

60

70

80

Challenging economic conditions & threatsof imports continue to weaken outlook…

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North American Basic Chemicals and PlasticsProduction Change (1990 base)

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

90 95 00 05 10 15 20

Million Metric Tons

New capacity is necessary to return thisregion to historical production levels…

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Capacity Expansions' Driven By Low CostFeedstock & Integration Strategy

Cost of production isclosely tied to cost ofhydrocarbon feedstock's

Location of advantagedfeedstock's play key rolein capital investmentdecisions

North America preparesfor a surge in capacity

Asia and Middle Eastcontinue to build asplanned

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Natural Gas

CrudeOil

Hydrocarbon Feedstock Costs:Key Driver In Chemicals Manufacturing

Condensate

Propane

Ethane

Butane

PygasBenzeneToluene/XyleneHeavy AromaticsC5/C6 Non Aromatics

Fuel Oil

NaphthaGas Oil

Ethylene

Unit

Ethylene

Unit

GasProcessing

Unit

GasProcessing

Unit

REFORMER BTX Extraction

RaffinateFCC

RefineryRefinery

SteamReformer

MethanolSynthesis

SynGas

Propylene

Ethylene

ButadieneMixed Butylenes

Methane/Hydrogen

BenzeneTolueneXylene

Propylene

Methanol

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Brent Crude Oil and USGC Energy &Feedstock Prices

0

5

10

15

20

25

2000 2005 2010 2015 2020

Brent CrudeUSGC Light NaphthaHenry Hub Gas

Constant 2012 US Dollars Per Million Btu

Forecast

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0

200

400

600

800

1000

1200

1400

MDEEthane

U.S.Ethane

CanadaEthane

EuropeNaphtha

MDENaphtha

Asia LPG MDE LPG U.S.Naphtha

NEANaphtha

SEANaphtha

US Dollars Per Metric

World Ethylene Cash Costs – 2013 Forecast

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Ethane cracking advantageforecast to exceed $600 per ton

0

200

400

600

800

1,000

1,200

1,400

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

U.S. Ethane WEP Naphtha SEA Naphtha

US Dollars Per Ton, Ethylene

Ethane Cash Cost Advantage Is Significantand Sustainable

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Energy Dynamics In North America AreChanging The Global Landscape

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• Abundance of New Hydrocarbons: Shale gasand unconventional oil has ushered in a new eraof hydrocarbon production in North America.

• Additional Natural Gas Liquids (NGLs):Ethane, propane, and butane production toincrease sharply in conjunction with rapid growthin gas production.

New Competitive Chemical Investments:To leverage the supply of advantagedfeedstocks, chemical producers haveinitiated plans to invest over $20 billion innew chemical assets and infrastructure

China: Scarce in Oil and Gas Reserves, ButPlentiful in Coal

China has limitedcrude and naturalgas reserves, but alarge coal reserve

Majority coalreserves are in thewest region

Logistic bottleneckleads to “Stranded”coal

Crude Oil2%

Natural Gas3%

Coal95%

Source: China National Bureau of Statistics

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Coal Chemical Product Chains

Syn GasCalciumCarbide

MTO/MTP

Ethylene

Propylene

Methanol MEGEthanol

Methanol

Acetyl

Acetylene

PVC

OxalateIntermediate

COAL

CrudeMethanol

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China Coal Chemicals Projects –A “Black Gold” Rush Opportunity

CTO/MTO

CT MEG

CT Ethanol

State owned, private andforeign companies allparticipating

Numerous projects wereannounced however fewerwill be actually built due to:

Tight governmentcontrol

High capital cost

Water availability

Carbon emissions andwaste disposal issues

CT Methanol

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Global Chemicals Investment Focused In ThreeRegions With Varying Strategies

Strategies & Advantages Will Vary By RegionOr By Country

North America

Surge in new investment driven byshale oil & gas

Stagnant domestic growth shiftsfocus to exports

Middle East

Moderated investment pace

Seeking domestics/regional supplyoptions along with exports

China

Strong domestic investmentfocused on reducing importdependencies as domesticdemand evolves from “re-exports”to domestic needs

Strategies & Advantages Will Vary By RegionOr By Country

Brazil Surge in demand near term as Brazil

prepares for World Cup and OlympicGames

Pause in the COMPERJ investment asthey assess Americas landscape

Europe Defensive assessment of assets and

future position.

Seeking to add competitive feedstocks,idle high-cost capacity

India Domestic focus, with investments at

Jamnagar. High energy is an issue.

Remain short of key products like PVC

Consistent And Strong Growth In Asia SeenIn Ethylene Investments

0.0

5.0

10.0

15.0

20.0

25.0

30.0

NorthAmerica

Europe Middle East Asia Pacific Others

1980 - 1990 1990 - 2000 2000 - 2010 2010 - 2020

Million Metric Tons, Ethylene Regional Ethylene Capacity Growth

Percent of Total Capacity Growth Regional Ethylene Capacity Growth

Consistent And Strong Growth In Asia Seenin Ethylene Investments

0%

10%

20%

30%

40%

50%

1980 - 1990 1990 - 2000 2000 - 2010 2010 - 2020

North America Europe Middle East Asia Pacific Others

North America Ethylene CapacityExpansions From 2012 through 2020

Company Location -000- Metric Tons

BASF/Total Port Arthur. TX 170

ChevronPhillips Cedar Bayou, TX 1,500

Dow Chemical Taft & Freeport 1886

Equistar All Locations 862

ExxonMobil Baytown, TX 1,500

Formosa Point Comfort, TX 1,150

Ineos Chocolate Bayou 120

Sasol Lake Charles, LA 1,400

Westlake All Locations 280

Williams Geismar, LA 300

Braskem Idesa Mexico 1,000

Nova Sarnia 250

OxyChem Ingleside, TX 550

Shell Chemical Monaca, PA 1,000

Total ~ 12,000

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Announced but not firm First new unit to start-up

0

5

10

15

20

25

30

35

40

45

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Million Metric Tons,

North America Ethylene CapacityForecast To Reach 45 Million Metric Tons

After declining to 33 million tons in2010, ethylene capacity in NorthAmerica could reach 45 million tons bythe year 2020

Coal Chemicals Will Play A Bigger Roles inChina’s Chemical Supply

Million Metric Tons Percent, Coal-Based

0%

10%

20%

30%

0

20

40

60

80

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Olefins (Non-coal) Olefins (Coal) Olefins (Coal) %

Coal-based andNon Coal-based Capacity

Investment In Capacity Away From DemandCenters Will Drive Exports Higher

North America returns as acompetitive supplier with increasingcapacity

Accelerating demand growth indeveloping regions outpacecapacity growth requiringincreasing imports

Assume low cost Middle East andNorth America suppliers growmarket share

Logistics infrastructure investmentmust keep pace to supportexpanding trade patternsBy 2020, as much as 40% of low cost

ethylene capacity will be based inNorth America and the Middle East

0%

10%

20%

30%

40%

50%

60%% Exported, 2020

Tomorrow’s Global Chemical Market is moreGlobally Interconnected

Trade will continue toaccelerate, connectingresource-richgeographies with highgrowth markets

Supply-chain expertiseand well-crafted go-to-market strategies willincrease in importance

Pressure on high-costproducers servicinghigh-growth markets willbe especially intense

2020 % of Global Productionas Exports

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

00 02 04 06 08 10 12 14 16 18 20

N. America West Europe Middle East

Net Exports

Net Imports

Million Metric Tons

World Ethylene Equivalent Trade

Ethylene Derivatives From Ethane CrackingWill Dominate International Trade

2010 2015 2020 2025

Singapore Thailand Malaysia

2010 2015 2020 2025

S. Korea Japan Taiwan

2010 2015 2020 2025

USA Canada

2010 2015 2020 2025

Saudi Arabia Iran

Qatar Kuwait

Ethylene NetEquivalentExports (millionmetric tons)

16.516.5

6.26.2

2727

14.514.5

5.05.0

3.03.0

5.15.1

7.67.6

Profit Cycle Dynamics Vary By Feedstock& Region

Overall market recoverydelayed on slower demand andacceleration of capacity

“Gas-based” producers seesteady high margins and no“downturn”

Market fundamentals suggesthigh-cost producer margins willstruggle; shutdowns likely

Capacity additions likely to bemoderated versus currentforecast; influenced by capitalcosts, resource limitations

-$50

-$25

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

85 90 95 00 05 10 15 20

Dollars Per Metric Ton

Cyclicality In The Market Makes InvestmentTiming Critical To Sustainable Returns

Global Base Chemicals & PlasticsWeighted Average EBIT

0

110

220

331

441

551

661

772

882

992

1,102

0

5

10

15

20

25

30

35

40

45

50

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

US Ethane to PE Chain Margin

Cents Per Pound Polyethylene Dollars Per Ton

U.S. & West EuropeIntegrated Polyethylene Cash Margins

Trends In Ethylene Are Impacting ThePropylene Supply Scenario

Propylene

On-Purpose production willcontinue to rise

Technology related to regionand feedstock

Propane Dehydro increasing

Steam cracker and FCCsupply trends also vary byregion

Demand growth trendingtowards ethylene (GDP) dueto higher price relative toethylene

BTX Supply In Transition And Impacted ByMany Factors

Benzene

Supply trends complicatedby ethylene, gasoline, andparaxylene and shiftingenvironmental regulation

Refinery operations andrenewable fuel trends arecritical to supply

Shale crude oil results inlower benzene yield

Growth in demand andcapacity migrating to Asia

Conclusions

Improving economicfundamentals are expected toenhance pace of demandgrowth

Economic Megatrends shiftdemand to developing worldat an ever-increasing pace

Unconventional feedstocksplay a larger role in shapingthe global industry

High-cost supply reacts tomore competitive pressure bystepping uprationalization/conversion

Conclusions

Supply & demand dislocationincreases need for soundsupply-chain strategies

New competitors slowlyemerge as markets expandwest in China in distinctproducts

Unconventional resourceowners enter the stage forcertain product offerings

Level of success defined byright cost for the right productfor the right market strategies

The material appearing in this presentation is for general information purposes only. Technip S.A. and its affiliated companies("Technip") assume no responsibility for any errors or omissions in these materials. TECHNIP MAKES NO, AND EXPRESSLYDISCLAIMS ANY, REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE MATERIALSCONTAINED IN THE PRESENTATION, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR APARTICULAR PURPOSE. Under no circumstances shall Technip, the other sponsors, presenters and any of their respectivepartners, officers, directors, employees, agents or representatives be liable for any damages, whether direct, indirect, special orconsequential, arising from or in connection with the use of materials and information contained in the presentation. The materialscontained in this presentation may not be reproduced, republished, distributed, or otherwise exploited in any manner without theexpress prior written permission of Technip.

Thank you!

Mark Eramo

Vice President, ChemicalInsights

IHS Chemical

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