Staying Competitive in a Feedstock Driven Market

Prepared for: NY Metro Section of AIChE

October 19, 2015
Agenda

Nexant Overview
Changes in the Global Petrochemical Landscape
Global Industry Dynamics
- Ethylene
- Propylene
- Butadiene

Conclusions

Nexant Presentation to NY Metro Section of AIChE 2

Nexant Overview
Nexant is a global strategic, financial and technical advisory firm
Corporate Overview
Founded in 2000 as a spinoff of Bechtels
Technology and Consulting Group;
ChemSystems established in 1964 and
purchased by Nexant in 2001 from IBM
Energy &
Chemicals
Advisory
Nexant provides high value-added
services and products for the global
energy and chemicals industries
Over 700 employees globally
Have completed over 3,000 client
assignments in over 100 countries
Energy
Demand
Management
Principal investors include Telesoft
Partners, Symphony Technology, Oak
Investment Partners, Intel Capital, and
The Beacon Group
Organized into three business units
Energy
Software &
Grid
Management
Nexant Presentation to NY Metro Section of AIChE
Business Divisions
Business advisory services integrated across the entire
energy value chain
Technical, strategic, market, financial (new build, M&A,
IPO) and project feasibility consulting services
Advanced clean energy technology consulting services
for development and commercialization
Clients are oil, gas and chemical companies, financial
companies, investors and governments
Design/management services for the largest U.S.
energy efficiency incentive programs
Demand-side management and carbon management
services for end-users, government and energy
services
Advanced software for electric utilities, U.S. ISOs, grid
operators, and energy market participants
Automated systems for electric power grids
Application service provider for energy market
participants and energy producers
4
Nexants Energy and Chemical Advisory team provides expertise across
the energy value chain

Energy Chemicals and Clean-tech

POWER GAS DOWNSTREAM OIL CHEMICALS GREEN CHEMICALS RENEWABLE ENERGY

Electric Power Gas Market Petroleum C1 Chemicals Syngas Biomass

Grid Analysis and Refining and Fertilizers Biopolymers Gasification
Management Forecasts Petroleum Olefins Olefins Solar (Thermal
Distribution Gas Logistics Aromatics Alcohols & PV)
Software Monetization Product Market Polymers Aromatics Wind Power
Energy Gas Regulation Forecasts Inorganics Sourced from Clean Coal
Efficiency LNG & Pipeline Coal to liquids Specialty Biomass, Algae, Capture and
Demand Side Projects Gas to liquids Chemicals Wastes, and Sequestration
Management Advanced Agricultural Fuel Cells &
Materials Sources Hydrogen
Geothermal

Renewable/Traditional Product Interface

Nexant Presentation to NY Metro Section of AIChE 5

Leading global advisory to the energy and chemical industries with a
proven track record
Our People
Over 150 consultants worldwide in
Energy and Chemical Advisory
Lond
Frankfurt
on Our consultants blend strategic
San White Plains consulting, operational and technical
Francisco Washington, Tokyo
DC Seoul expertise with deep energy and
Bahrain Shanghai chemical sector knowledge
New Delhi
Bangkok Kuala Lumpur
Nexants consultants are typically
Abuja
Singapor Chemical Engineers, Economists, and
e MBA Graduates who have significant
prior experience working at energy
La
Paz Rio de and chemical producers
Janeiro

Pretoria
Buenos
Aires
Headquarters
Proven Track Record
Main Offices

Representative Offices Project Offices Nexant has been advising clients in the
energy and chemicals industries for 50
years

Global Footprint We have completed over 3,000 client

Nexant has offices in the major energy and chemical producing and consuming assignments including market
regions of the world assessments, technology evaluations,
valuations/appraisals and due diligence
Strong international presence allows us to provide valuable insights through our
consultants local market knowledge and our vast network of sector
specialists

Nexant Presentation to NY Metro Section of AIChE 6

Changes in the Global Petrochemical Landscape
What a difference a year makes

Brent Crude Oil Price Decline, monthly average

140

120
US$ per Barrel

100

80

60

40
Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015
Source: Nexant

Nexant Presentation to NY Metro Section of AIChE 8

What a difference a year makes..

Q2 2014 Q2 2015

150 1,500

USA Products US$ per Ton

Brent Crude Oil US$/bbl

100 1,000

50 500

0 0

Nexant Presentation to NY Metro Section of AIChE 9

The fall in oil prices has dramatically altered the investment landscape
Cancellation or delay of projects in major regions
Decrease in planned ethane exports from the United States
Reduced availability of investment funds by oil producing countries such as
Venezuela
Reduced emphasis on renewables into fuel, though significant emphasis on
renewables into chemicals remain
Government Fiscal
Break Even - 2014
140 Iran

Venezuela
120 Nigeria
Iraq
Libya
US$ per Barrel

100 Russia
Saudi Arabia

80
Kuwait
UAE
60

40
Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015
Source: Nexant/EIA
Nexant Presentation to NY Metro Section of AIChE 10
Impact of oil prices on economies results in winners and losers

3
2
Estimated Change in GDP, Percent

1
0
(1)
(2)
(3)
(4)
(5)
(6)

$40 Crude Oil $10 Decline in Crude Oil

Source: UBS/Oxford Economics

Nexant Presentation to NY Metro Section of AIChE 11

Uncertain times but sources of competitive advantage remain clear and
robust in refining and chemicals sectors

PARAMETER KEY OBJECTIVES

Size Capture economies of scale

Location Access to low cost

feedstocks/deficit markets

Cost advantage/product
Process Technology
differentiation

Integration Synergies with adjacent

facilities

Nexant Presentation to NY Metro Section of AIChE 12

Global Ethylene Industry Dynamics
Regional petrochemicals trends changing dynamics but familiar themes
United States Middle East China
Lighter feedstocks Heavier feedstocks Diversified feedstocks
Export markets Export markets Economic growth
Capital costs Integration Environmental issues
Product differentiation Product differentiation Product differentiation

Ethylene Capacity Drivers Ethylene Capacity Additions by Region

200
Other North
40 22% America
150 22%
Million Tons

100 Middle
China East
35% 21%
50

0
2014 2020
Nexant Presentation to NY Metro Section of AIChE 14
 Naphtha share is forecast to decline as a result of increase light feedstock
consumption in U.S., Europe, and M. East and CTO/MTO in China
Millions tons per year of ethylene Global Ethylene Capacity by Feedstock
Naphtha
+10 100%

2014 2015 2020

Ethane +16 75%

50%
2014 2015 2020

Butane Propane +4
25%

2014 2015 2020 0%

2014 2015 2020
Coal Gas Oil
+9
Naphtha Ethane Butane
Propane Gas Oil CTO/MTO
2014 2015 2020
Nexant Presentation to NY Metro Section of AIChE 15
Oil prices have had a radical effect on feedstock prices since late 2014, but
the effects on competitiveness are less well defined
U.S. Ethylene Costs U.S. Ethylene Feedstock Consumption
(U.S.$ per ton) (Million tons)

3,500 60

3,000 50
2,500
40
2,000
30
1,500

1,000 20

500 10
0
Ethane Naphtha Ethane Naphtha 0
Q2 2014 Q2 2014 Q2 2015 Q2 2015 2014 2015 2020
Net Materials Utilities Fixed Costs Naphtha Ethane Butane Propane
Source AFPM

Nexant Presentation to NY Metro Section of AIChE 16

Over 50 Coal based projects focused in China

Phase 1: Coke Based Phase 2: Syngas Phase 3: New Technology

o Acetylene based o Methanol/Ammonia o MEG via DMO

VCM o MTO/MTP o Acetyl to ethanol
o Benzene o Methanol to PX

17
Many projects in implementation phase but facing increasing challenges
Major Development Trends
CTO CTMEG MTO
Opportunity to valorize
stranded coal.
Coastal projects importing
methanol
Sector Challenges
Environmental issues
Capital cost
Production cost
competitiveness
China Ethylene Feedstock
Consumption 2015
Methanol
12%
Gas Oil
40%

Naphtha
48%
Nexant Presentation to NY Metro Section of AIChE 18
Petrochemicals feedstock cost advantages remain at lower oil prices but
are substantially reduced
Global Ethylene Production Cost Curves versus Brent Crude Oil Price
3,000 Oil Price
Lighter Feedstocks Liquids Cracking
(US$ per bbl)
(Current U.S. Dollars per Ton Ethylene)

140

2,000
Ethylene Cash Cost

100

70
1,000 50

0
0 50 100 150 200
Ethylene Cumulative Capacity (million tons)
The cost curve is much steeper with higher oil prices
Nexant Presentation to NY Metro Section of AIChE 19
Global Propylene Industry Dynamics
There are three primary routes to on-purpose propylene

metathesis of ethylene feedstock from ethane, methanol conversion from coal

or natural gas, and PDH from propane
Nexant Presentation to NY Metro Section of AIChE 21
Steam cracking and refinery FCCs currently account for a majority of
propylene supply. On-purpose production is still relatively modest
Global Propylene Capacity by Feedstock Global Propylene Capacity by Feedstock
(2015) (Volume Basis, 2015)

100% 50
90% 45
80% 40
70% 35

Million Tons
60% 30
50% 25
40% 20
30% 15
20% 10
10% 5
0%
0
North Western Middle Asia
North Western Middle Asia
America Europe East Pacific
America Europe East Pacific
Cracker Refinery PDH
Cracker Refinery PDH
MTO/MTP Others
MTO/MTP Others
Nexant Presentation to NY Metro Section of AIChE 22
 Going forward, a greater need for on-purpose production capacity is
emerging to meet future propylene demand requirements
Millions Tons per Year of Propylene Global Propylene Capacity by Feedstock
Cracker
+4
100%

2014 2015 2020

Refinery +3 75%

50%
2014 2015 2020

On-Purpose
+21
25%

2014 2015 2020

0%
2014 2015 2020
Cracker Refinery On-Purpose

Nexant Presentation to NY Metro Section of AIChE 23

Chinas propylene expansion driving non-conventional technology routes
China Propylene Capacity by Feedstock China Propylene Capacity

100% 45,000
90% 40,000
80% 35,000
70%
30,000

Thousand Tons
Technology

60%
25,000
50%
40% 20,000
30% 15,000
20% 10,000
10% 5,000
0%
0
2014 2015 2020
2014 2015 2020
Refinery Cracker Refinery Cracker
CTO/MTO On-Purpose CTO/MTO On-Purpose

Nexant Presentation to NY Metro Section of AIChE 24

Global Butadiene Industry Dynamics
Butane/butene dehydrogenation is an alternative route for butadiene
production
C4 Stream

Butane/Butene
Refinery FCCU Dehydrogenation Dehydrogenation

Isobutylene Butadiene

High Purity:
Mixed Butanes Mixed Butenes Butene-1 Butadiene Derivatives
Butyl rubber
etc.

n-Butane LLDPE Contained: Styrene Butadiene Rubber,

Butan-2-ol,
Derivatives, comononer, Polybutadiene Rubber,
Higher Oxo- MTBE
Acetic Acid, HDPE Styrene Butadiene Latex,
Alcohols, ETBE
comonomer,
etc. etc. etc. etc.
etc.

Nexant Presentation to NY Metro Section of AIChE 26

There is increased investment in alternative sources, with a step change in
2012-2014
Global Butadiene Production by Process
(Million tons)
20 Global butadiene production in 2014 was
10.7 million tons where approximately
3 percent of butadiene was produced from
dehydrogenation
15
Chinese companies reacted quickly to the
peak pricing in 2011-2012 and are
implementing numerous butene
10 dehydrogenation projects using new (and
proven) Chinese technology
By 2020, more than 6 percent of butadiene
5 will be produced from dehydrogenation
globally

0
2010 2012 2014 2016 2018 2020

Extractive Distillation On-Purpose

Nexant Presentation to NY Metro Section of AIChE 27

Feedstock costs main driver of butadiene economics
U.S. Butadiene Costs
(U.S.$ per ton)
2,000
1,800 Historically, extractive distillation has
1,600 been the low cost route to butadiene
1,400 As the market requires on-purpose
1,200 butadiene (OPBD), new sources of
1,000 marginally cost effective butadiene
800 supply (i.e., bio-based butadiene) are
being explored
600
400
200
0
Extractive On-Purpose Extractive On-Purpose
Distillation Q2 2014 Distillation Q2 2015
Q2 2014 Q2 2015

Net Materials Utilities Fixed Costs

Nexant Presentation to NY Metro Section of AIChE 28

Conclusions
In summary

The fall in oil prices has dramatically altered the investment landscape
In order to ensure competitive feedstock positions, major regions are changing to
alternative feedstocks
Lower oil prices have narrowed the gap between high and low cost olefins
producers, but Middle East and U.S. NGL-based producers remain the most
competitive
The United States has moved toward light feedstocks due to their cost
advantages
The Middle East is focusing on integration with refineries to obtain sources of
competitive advantage and capture them through the value chain
Coalfield methanol-to-olefins (MTO) in China remains highly competitive, although
MTO plants based on purchased methanol face a more challenging situation

Nexant Presentation to NY Metro Section of AIChE 30


Nexant Inc.
44 South Broadway
White Plains, NY 10601
Telephone: + 1 914 609 0391
Facsimile: + 1 914 609 0399
www.nexant.com
Marisabel Dolan
Senior Consultant
Energy & Chemicals Advisory
T: + 1 914 609 0342
E. mdolan@nexant.com
Nexant, Inc.
San Francisco
New York
Houston
Washington
This presentation was prepared by Nexant Inc. (Nexant). Except where specifically stated London
otherwise in the presentation, the information contained herein was prepared on the basis of
information that is publicly available and has not been independently verified or otherwise examined to Frankfurt
determine its accuracy, completeness or financial feasibility. Neither NEXANT, nor any person acting
on behalf of NEXANT assumes any liabilities with respect to the use of or for damages resulting from
Bahrain
the use of any information contained in this presentation. NEXANT does not represent or warrant that
any assumed conditions will come to pass.
Singapore
This presentation is integral and must be read in its entirety.
The presentation is given on the understanding that the recipient will maintain the contents Bangkok
confidential except for internal use. The presentation should not be reproduced, distributed or used
without first obtaining prior written consent by NEXANT. This presentation may not be relied upon by Shanghai
others.
This notice must accompany every copy of this presentation. Kuala Lumpur