The Potential for Gas Based Petrochemical Projects

John Page jpage@cmaiglobal.com October 12, 2011

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Presentation Agenda
What is the Russian Situation? Can Russia be Competitive? What has Changed?

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With 24% of Global Gas Reserves Russia Has 3% of Chemical Capacity

Capacity, Million Metric Tons 1000 875 750

% World Capacity 8%
7% 6%

625
500 375

5%
4% 3%

250
125 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 Total CIS Capacity Total Global Capacity

2%
1% 0% Percent of Global Capacity

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Middle East is Large BUT only 12%

Capacity, Million Metric Tons 1000 900 800 700 600 500 400 6% 4% 2% 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 Total MDE Capacity Total Global Capacity Percent of Global Capacity % World Capacity 14% 12%

10%
8%

300
200 100 0

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Presentation Agenda
What is the Russian Situation? Can Russia be Competitive? What has Changed?

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Now N. America Ethane Has A Significant Advantage Due To Shale Gas

Dollars Per Metric Ton 1,400

1,200
1,000 800 600 400 200 0

Regional Ethylene Cash Costs

95

00 U.S. Ethane

05 WEP Naphtha

10 SEA Naphtha

15

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Gas-Based Competitive Advantage Bubbles Up, Globally

Dollars Per Ton, Ethylene Manufacturing Cash Costs By Plant 950 850 750 650 550 450 350 Asia Middle East 0 25 50 75 100 125 150 North America 2003
2003: WTI Crude = $31/bbl; US Natural Gas = $5.50/mmbtu 2009: WTI Crude = $62/bbl; US Natural Gas = $4.00/mmbtu

2009

250
150 50

West Europe

Cumulative Ethylene Capacity (Million Tons)

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Gas-Based Competitive Advantage Bubbles Up, Globally

Dollars Per Ton, Ethylene Manufacturing Cash Costs By Plant 950 850 750 650 550 450 350 RUSSIA North America 2003
2003: WTI Crude = $31/bbl; US Natural Gas = $5.50/mmbtu 2009: WTI Crude = $62/bbl; US Natural Gas = $4.00/mmbtu

2009

250
150 50 0 25

Asia Middle East

West Europe

50

75

100

125

150

Cumulative Ethylene Capacity (Million Tons)

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New crackers are competitive in Russia BUT lack of gas demand in remote locations restricts feedstocks until NOW and MTO
1,400 Net Ethylene Price ($1236/Tonne) @ $90/bbl Brent Crude 1,200 1,000 800
(US$/Tonne)

2015

600 400

Cash Cost Olefins

200 0

Ethylene Capacity (kta) Total Costs Capital Charge Fixed Costs Other Variable Costs Net Raw Materials

West Siberia PB 900 486 207 68 68 143

East Siberia PB 900 500 236 77 61 125

Caspian Sea - PB 600 784 217 71 164 332

Volga - N 600 791 266 79 92 354

North West PBN 1,200 803 175 55 175 398

Far East N 1,200 858 216 64 143 435

Existing Volga PBN 360 508 87 128 293

Middle East - PB 1,200 841 45 19 777

West Europe - N 800 1,052 58 223 771

China - N 800 1,071 39 224 809

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Presentation Agenda
What is the Russian Situation? Can Russia be Competitive? What has Changed?

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Announced Chinese MTO Projects

Company Shenhua Baotou Chemical Shenhua Baotou Chemical Datang Int'l Power Shenhua Ningmei Sinopec Zhongyuan Petrochemical Yulin Energy and Chemical Pucheng Clean Energy Shaanxi Yanchang Petroleum Group Shaanxi Yanchang Petroleum Group Zhejiang Tiansheng Yankuang Group
Sinopec/ Henan Coal Chemical Industry Group

Location

Product

Shenhua/ Dow Chemical

Baotou, Inner Mongolia, China Propylene Baotou, Inner Mongolia, China Ethylene Duolun, Inner Mongolia, China Propylene Ningdong, Ningxia, China Propylene Puyang, Henan, China Olefins Weinan, Shaanxi, China Olefins Weinan, Shaanxi, China Olefins Yanan, Shaanxi, China Olefins Yulin, Shaanxi, China Olefins Zhejiang, China Olefins Yankuang, China Olefins Hebi, Henan, China Olefins Yulin, Shaanxi, China Olefins

Capacity Start-Up Design Stage Feed (-000-Metric Tons) 600 2010 Operating Coal 300 2011 Operating Coal 500 2011 Operating Coal 500 2011 Operating Coal 163 2013 Construction MtOH 600 2013 Construction Coal 680 2013 Construction MtOH 600 2013 Construction MtOH 600 2016 Construction MtOH Import MtOH 600 2014 Construction 600 2014 Construction MtOH 600 2015 Planned Coal 500 2016 Planned Coal

Methanol-to-olefins is one of the most important development trends in Chinas coal chemical

industry
In August 2010, Shenhua Baotou Chemical put the first methanol-to-olefins plant into

commercial production with 600 thousand metric tons of olefins. This plant was built integrated with a methanol unit of 1,800 thousand metric ton capacity.
6.6 million tonnes of methanol will be consumed for MTO/MTP-based olefin production in 2014

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By 2015, MTO will be 48 percent of alternative ethylene supply. On-purpose ethylene will be 3.5% of total supply
As a percentage of total supply

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Economics work in China but why only China? In Norway the olefins margin could be substantial but methanol may provide a better return due to a coastal location

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What is Secret to Success in Commodity Petrochemicals?

It is not all about who has the best technology It is not all about who traded there first It is not all about who has the biggest plant It is about the cost of production And as much as 60% of integrated cash costs are hydrocarbon based

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What Does it Mean?

Russia has low cost feedstocks Methanol to Olefins technology

creates a viable outlet for Natural Gas or Coal in remote locations Creates demand for methane and this creates low cost byproducts such as:
Ethane /Propane Butane

Russia can compete but ..

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....but can Russia be the next Middle East?

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