The Game Has Changed The Influence Of Shale Development On The Global Petrochemical Industry

The Game Has Changed The Influence Of Shale Development On The Global Petrochemical Industry Bill Hyde, Senior Director Olefins and Elastomers Foro Pemex Petroquimica June 7, 2012

Presentation Agenda Outlook for Natural Gas Liquids Influence of Shale Development Chemical Market Themes Conclusions and Concerns 2

Presentation Agenda Outlook for Natural Gas Liquids Influence of Shale Development Chemical Market Themes Conclusions and Concerns 3

Outlook for Natural Gas Liquids Contributing fundamental factors Increasing supply of natural gas as a result of wells previously drilled in the Barnett, Fayetteville & Haynesville The resulting disparity between oil and natural gas prices increasing domestic NGL production through the development of liquids-rich gas & oil plays such as the Eagle Ford, Marcellus, Bakken and Permian Thus, prompting a wave of investment to support the resource development with midstream players adding pipeline, processing & fractionation to bring the liquids to market 4

Outlook for Natural Gas Liquids Increasing NGL supplies within North America Thousand Barrels Per Day 3,500 3,000 2,500 North American NGL Production Outlook Prior year forecast upside expected given the rapid pace of development 2,000 Ethane 1,500 1,000 Propane n-butane 500 i-butane Natural Gasoline 0 2005 2010 2015 2020 2025 2030 Source: IHS Purvin & Gertz

Outlook for Natural Gas Liquids Infrastructure increases to maximize the value of the liquids PADD IV Rockies PADD II Midwest 10% Increase in Fractionation With 75% of the consumption of NGLs, most roads will lead to the USGC by 2014 PADD III USGC >30% Increase in Fractionation & 3+ LPG Export Terminals PADD I USEC Nearly 400% Increase In Fractionation Steam Cracker Locations 6

Outlook for Natural Gas Liquids Oil & gas disparity persists, motivating increased liquids development Mont Belvieu NGLs Price Playing Field - Global Redesign 25 USGC Light Naphtha Forecast Brent Crude 20 WTI Crude Henry Hub Gas Constant 2011 Dollars per MMBtu 15 10 5 Playing Field Range of prices for ethane, propane and butane 0 1995 2000 2005 2010 2015 2020 2025 2030 Sources: IHS CERA; Platt's 7

Outlook for Natural Gas Liquids NGL prices will be dispersed within the wide playing field Cts/gal, US NGL Feedstocks (2011 Constant Dollars) 250 200 150 US Ethane US Propane US Butane NatGasoline 100 50 0 1995 2000 2005 2010 2015 2020 2025 2030 8

Presentation Agenda Outlook for Natural Gas Liquids Influence of Shale Development Chemical Market Themes Conclusions and Concerns 9

Influence of Shale Development Ethylene production cost evolution Ethylene Manufacturing Cash Costs By Plant (dollars per ton) 950 850 2003: WTI Crude = $31 per barrel; US. Natural Gas = $5.50 per MMBtu 2009: WTI Crude = $62 per barrel; US Natural Gas = $4.00 per MMBtu 2009 750 650 550 2003 450 350 250 150 50 0 25 50 75 100 125 150 Source: IHS Chemical Asia Middle East West Europe North America 2003 Global Demand Cumulative Ethylene Capacity (million tons) 2009 Global Demand 10

Influence of Shale Development North American ethylene advantage 1102 882 661 441 220 0 World Ethylene Cash Cost Comparison U.S. Dollars Per Metric Ton 1543 Ethylene Cash Costs From 1323 Ethane in Saudi Arabia Western Canada U.S. Ethane U.S. Weighted Average U.S. Coprod. Int. Light Naphtha U.S. Light Naphtha West Europe Naphtha May 2012 April 2012 U.S. Cents Per Pound 70 Northeast Asia Naphtha Southeast Asia Naphtha 60 50 40 30 20 10 0 Producers in the U.S. & Canada are among the lowest cost producers in the world Cost position affords export flexibility in times of lower demand Energy intensive derivatives, such as PVC, get an additional boost from low natural gas prices

Influence of Shale Development U.S. feedslates trending lighter Wt% Produced From Feedstock 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Monthly Ethylene Production By Feedstock 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Given its high selectivity to ethylene & relative cost position to other feeds, ethane is consistently the most favored feed Once oil & gas began to diverge, producers have been shifting feedslates lighter to capitalize on the advantage Ethane Propane Butane Naphtha Gas Oil 12

Presentation Agenda Outlook for Natural Gas Liquids Influence of Shale Development Chemical Market Themes Conclusions and Concerns 13

Chemical Market Themes Ethylene Emergence of two regions of low cost production Shale development has enabled the North American producer to become one of the lowest cost producers in the world Combined with the Middle East, over 40% of the global ethylene capacity is cost advantaged Other cracking capacity likely to trend towards increased LPG consumption in order to effectively compete Higher cost countries may respond with protectionist measures

Chemical Market Themes Ethylene North American capacity increases to leverage ethane Company 2012 2013 2014 Future Announced (-000- MT) BASF/Fina 180 Chevron Phillips (Cedar Bayou, TX) 1500 Dow (Taft / Freeport) 386 1500* Equistar (All locations) 121 310 90 Formosa (Point Comfort) 800 Ineos (Chocolate Bayou) 50 57 Oxy (Ingleside, TX) 550* Sasol (Lake Charles) 1400 Shell (Northeast) 1000* Westlake (Lake Charles) 30 110 80 Williams (Geismar) 20 70 210 Nova (Sarnia) 250* Braskem/Idesa (Mexico) 1000 Unidentified 145 110 Total 100 1069 600 8000 Cumulative Total 100 1169 1769 9969 * Dow, Shell, NOVA, and Oxy capacity additions shown are IHS estimates Dow, 15 Shell, NOVA, and Oxy capacity additions shown are CMAI estimates

Highly Advantaged U.S. Shale Gas Advantage does not benefit all Advantage No Advantage Potential Disaster Differentiated natural gas results in lower generation of C3s, C4s Aromatics in steam crackers will change trade volumes and Relative Advantage Due to Natural Gas Polyethylene Ethylene Oxide Derivatives MEG, Amines, Alpha Olefins Chlorine & Caustic Soda Vinyls EDC /VCM Styrenics Methanol Refinery Products BTX Propylene Butadiene Butylenes Rubber Latex Adiponitrile

Chemical Market Themes Propylene Worldwide on-purpose production accelerates Million Metric Tons 25 20 15 10 5 Percent, % 25 20 15 10 5 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Propane Dehydro Metathesis Olefin Cracking Methanol-to-Olefins HS FCC Others % Total Production 0

Chemical Market Themes Propylene Competitive supply from North America U.S. Dollars Per Metric Ton 1800 1600 1400 1200 1000 800 600 400 200 0 U.S. Fuel Price U.S. PDH U.S. Light Naphtha Northeast Asia PDH May 2012 U.S. RG Spot Price West Europe Naphtha U.S. Splitter Northeast Asia Naphtha U.S. Cents Per Pound 82 U.S. Metathesis U.S. Alky Value 73 63 54 45 36 27 18 9 0 18

Chemical Market Themes Butadiene Global demand necessitates on-purpose production Thousand Tons 800 700 600 500 400 300 200 100 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 Russia China U.S. Global Share 2.0%

Chemical Market Themes Butadiene Viable on-purpose production with low-cost butane Dollars per Ton 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2000 2005 2010 2015 NAM BD WEP BD KOS BD Houdry Price Oleflex-Oxo D Price

Chemical Market Themes Olefins Feedstock flexibility model evolving in North America Propane Cracking Ethylene Propylene Butadiene Ethane Cracker Ethylene Butane Cracking Naphtha Cracking Ethylene Propylene Butadiene Ethylene Propylene Butadiene Propane Dehydro N-Butane Dehydro Propylene Butadiene As a result of trending towards lighter feedslates, the industry is evolving its feedstock flexibility model as more NGL supply becomes available Given the projected increase in the production of all NGLs, the industry is transitioning to a model that leverages the available feeds for the highest selectivity of individual olefins

Chemical Market Themes Derivatives North American producers relying more on exports Naphtha cracking economics remain in place as the Global Price Maker Business plans for new capacity will include a significant export presence 15.0 12.5 10.0 7.5 North America Net Exports Million Metric Tons Percent of Production Polypropylene Vinyls Polyethylene Exports could represent 50% of 5.0 future production ethane cost position is 2.5 5% critical 0.0 0% 90 95 00 05 10 15 20 25 35% 30% 25% 20% 15% 10% 22

Presentation Agenda Outlook for Natural Gas Liquids Influence of Shale Development Chemical Market Themes Conclusions and Concerns 23

Conclusions Shale & tight oil development has ushered in a new era of hydrocarbon production, leading to growing supplies of natural gas & oil within North America The sustained disparity between global oil & North American gas prices will increase the production of NGLs by over 40% by 2020 Commensurate growth in logistics & consumption will occur to accommodate this supply surge The following chemical themes will result from the influence of unconventional development: Two regions of low-cost ethylene production will influence the global market Global on-purpose propylene production will accelerate led by low cost production from the United States Decreases in crude C4 production from North America in addition to global demand increases for butadiene will necessitate on-purpose production Increases in NGL production will precipitate the evolution of the feedstock flexibility model in North America 24

Conclusions Potential Factors To Consider Government Intervention in drilling/consumption Natural gas rapidly advances into the transportation sector New technologies for making olefins directly from methane become advantaged Naphtha cracking regions rapidly advance shale development and lower their cash cost Methanol production returning to North America MTO possible?