IHS Markit Presentation

North American Petrochemical Competitiveness How long does the light olefins gravy train last?

Todd Dina Executive Director – Global Olefins +1 281 752 3238 [email protected]

How long does the US petrochemical gravy train last?

Global economy fuels growth

US NGL’s change landscape

US ethane sustainability

US LPGs find their niche

Demand growth for chemicals & plastics directly linked to global economic growth

• Basic chemicals and plastics represent the key building blocks for durable and non-durable consumer goods

• Multiple years of positive economic growth results in acceleration of base chemical demand growth

• Aligning capacity additions with demand growth is the balance producers are seeking

Economic growth in advanced countries and emerging markets are key drivers to petrochemical demand

Real GDP Real GDP

10 Percent change 2015 2016 2017 2018 2019

8 World 2.9 2.5 3.1 3.3 3.1 6 United States 2.9 1.5 2.1 2.8 2.3

4 Canada 0.9 1.5 3.1 2.2 2.3 Eurozone 1.9 1.8 2.2 1.9 1.7 2 UK 2.2 1.8 1.5 1.0 1.2 0 Percent change Percent China 6.9 6.7 6.8 6.5 6.2 -2 Japan 1.1 1.0 1.6 1.1 0.7 -4 India 8.0 7.1 6.8 7.5 7.6 1990 1994 1998 2002 2006 2010 2014 2018 Brazil -3.8 -3.6 1.0 2.2 3.3 World Advanced countries Emerging markets Russia -2.8 -0.4 1.7 2.1 1.9

Overall growth rate of 3.5-4% for light olefins provides an attractive incentive for investment

World Propylene GDP Elasticity 3.0 Forecast 2.5 2.0 1.5 1.0 0.5

Growth in base chemicals dominated by ethylene, propylene and methanol; new capacity dominated by Asia

World base chemical capacity by market World base chemical capacity by region

Ethylene China 900 900 Propylene (PG/CG) Asia + India (less China) 800 800 Methanol North America 700 Chlorine 700 Europe & Africa Benzene 600 600 Middle East Paraxylene South America 500 500

400 400

300

Million Metric Tons Metric Million 300 Million Metric Tons Metric Million 200 200

100 100

0 0 00 02 04 06 08 10 12 14 16 18 20 22 24 00 02 04 06 08 10 12 14 16 18 20 22 24

Chemical value chains trend upward as crude shifts upward

Chemical earnings by region Chemical earnings by value chain

250 250 $169 $159 $164 200 $171 $166 $154 $144 200 $166 $144 $142 150 150 Billion$ 100 Billion$ 100

50 50

0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 2014 2016 2018 2020

Americas Europe Middle East & Africa Asia $/ton Olefins Aromatics CAV Syngas

Ethane expected to remain advantaged over naphtha for cracker feed even if crude price stagnates

ComparativeCrude Oil - VS - Natural EnergyGas & NGLs Value of Major Energy Commodities 25

5 Constant 2014 Dollars Per MMBtu Per 2014 Dollars Constant

Oil industry has cut costs to make up for lower prices incentivized continued pursuit of US crude

Break-even prices for representative new projects, 2014 and 2016 Median well break-even prices of several US tight oil wells

$100 $80 2014 2016 $90 $70 $80 $60 $70 $60 $50

$50 $40 $40 $30 $30 $20 $20 $10 $10 $0 Middle East Global US tight oil Russia Canadian oil $0 onshore deepwater onshore sands (SAGD) Q1 2013 Q1 2014 Q1 2015 Q1 2016 Full-cycle costs in Dated Brent terms (US dollars per per bbl) dollars (US terms in Dated Brent costs Full-cycle Break-evenprice in WTIdollarsterms(US per bbl)

Notes: Full-cycle costs are expressed in terms of the Dated Brent price necessary for a project to break even, assuming a 10% internal rate of return. The 2014 and 2016 break-even estimates for these supply sources are intended to broadly depict the change from the start of the oil price collapse in mid-2014 to the latter part of 2016. For details on how break-even prices of representative new projects for each supply source are estimated, please see the box "How Notes: The break-even price is the WTI price required for the project to cover all of its estimated capital and operating costs and generate a 10% rate of we estimated the break-even prices in this report." return. The plays are the Bakken, Bone Spring, Eagle Ford, Niobrara/Wattenberg, Scoop, Stack, Wolfcamp Delaware, and Wolfcamp Midland.

More US crude demand has translated to more US NGL supply

NGL production from key shale gas and tight oil plays Chart Title

4.0 Permian SCOOP 3.0 Woodford Utica 2.0 Niobrara

Million b/d Million Marcellus

1.0 Eagle Ford Barnett Bakken 0.0 2010 2012 2014 2016 2018 2020

Both ethane for ethylene and propane for on-purpose propylene remain advantaged

Conventional Vs. Non-conventional Light Olefins Cash Cost (US$ Per Metric Ton)

1400 2011 2016 2021 1200

1000

800

600

400

200

0 W.CAN Ethane US Ethane US Lt. Naphtha WEP Naphtha NEA Naphtha China CTO China MTO

Source: World Analysis Ethylene, World Analysis Propylene

PDH = propane dehydro; GTO/P = gas to olefins/propylene; CTO = coal to olefins; MTO = methanol to olefins

Ethane sets the first quartile costs for ethylene production

World Cost Curve: Ethylene (Cost Basis = Plant Gate, Product Basis = Ethylene, Operating Rate Basis = IHS Baseline 1800 1600 1400 1st 2nd 3rd 4th 1200 1000 800 $/MetricTon 600 400 200 0 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0

Cumulative Production - Million Metric Tons Source: Competitive Cost Margin Analysis

NAM fills demand for the near-term but where the next assets get built is a function of feedstock costs vs demand growth

Global Ethylene Capacity Additions vs. Demand 12.0

9.0

6.0

3.0

0.0

ilo MetricTons Million -3.0 2011 2013 2015 2017 2019 2021 2023 2025 2027

North America South America West Europe CIS & Baltic States Middle East Africa Indian Subcontinent Northeast Asia Southeast Asia Hypo Capacity Annual Demand Increase

US ethane remains compelling as a feedstock

US ethane demand and rejection Chart Title

3.0

2.5

2.0

1.5

1.0 2nd Wave

Million day barrelsperMillion 0.5 1st Wave

0.0 2005 2010 2015 2020 2025 Base Chemical Price Sensitive Miscellaneous Fuel Exports Rejection

US ethane exports rise sharply but flatten as the second wave of crackers is built

Announced US ethane exports by destination 500

400

300

200

100 Thousand barrels perThousandday barrels 0 2010 2012 2014 2016 2018 2020 2022 2024 Canada Norway UK Sweden India Brazil

North America ethylene capacity growth is extensive with most taking advantage of cheap ethane

Starting Company Location Capacity, KTa** Q1-17 Dow Plaquemine, LA 250 Equistar Corpus Christi, TX 401 Q1/2-17 Oxy/Mexichem Ingleside, TX 550 Q3/4-17 Dow Freeport, TX 1,500 ExxonMobil Baytown, TX 1,500 Q1-18 ChevronPhillips Cedar Bayou, TX 1,500 Q2/3-18 Indorama Lake Charles,LA 420 Q4-18 Formosa Point Comfort, TX 1,150 Shin-Etsu Plaquemine, LA 500 Q1-19 Sasol Lake Charles, LA 1,550 Q1-20 LACC Lake Charles, LA 1,000 2H-21 Shell*** Monaca, PA 1,500 2H-22 TOTAL Port Arthur, TX 1,000 Total additions 12,821

North America Ethylene Projects “In The Press” Announced And Under Study. Ethane supply insufficient to build all of these assets.

North America Ethylene Projects Company Location Capacity, KTa Ascent / Braskem West Virginia 1,000 Badlands NGL 1 North Dakota 1,500 Badlands NGL 2 “Shangri-La” 1,000 ChevronPhillips 2 Cedar Bayou, TX 1,500

Formosa St James Parish, LA 1,000 Formosa LA 1,000 Hanwha TBA 1,000 Indorama LA or TX 1,500 PTTCG/Marubeni Shadyside, OH 1,000 NOVA Geismar, LA 1,500 Exxon/Sabic Corpus Christi, TX 1,800 Total Additions 13,800 Source: IHS Markit © 2017 IHS Markit

Ethane expected to remain advantaged over naphtha for cracker feed even if crude price stagnates

ComparativeCrude Oil - VS - Natural EnergyGas & NGLs Value of Major Energy Commodities 25

5 Constant 2014 Dollars Per MMBtu Per 2014 Dollars Constant

On-purpose propylene investment has reached critical mass as crackers and refining co-product cannot satisfy growing demand

World: PG/CG Propylene Production By Technology 200.0 40% 175.0 35% 150.0 30% 125.0 25% 100.0 20% 75.0 15%

50.0 10% On-Purpose % ilo MetricTons Million 25.0 5% 0.0 0% 11 13 15 17 19 21 23 25

Stm. Crackers (1.2/2.6) Refinery (3.7/0.8) On Purpose (17.6/9.4) On Purpose % of Total Production

Propane dehydrogenation (PDH) accounts for largest share of total on-purpose production

World: On-Purpose PG/CG Propylene Production by Technology

40 35 30 25 20 15

ilo MetricTons Million 10 Propane 5 consumer 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Dehydro Metathesis Methanol to Olefins Methanol to Propylene Coal to Olefins Coal to Propylene HS FCC Olefin Cracking Others On-Purpose

Both ethane for ethylene and propane for on-purpose propylene remain advantaged

Conventional Vs. Non-conventional Light Olefins Cash Cost (US$ Per Metric Ton)

1400 2011 2016 2021 1200

1000

800

600

400

200

0 US PDH WEP PDH NEA PDH US Lt. Naphtha WEP Naphtha NEA Naphtha China CTO China MTO

Source: World Analysis Ethylene, World Analysis Propylene

PDH = propane dehydro; GTO/P = gas to olefins/propylene; CTO = coal to olefins; MTO = methanol to olefins

Strong interest in on-propylene investment has waned as crude prices fell – some have remained on the list

Propylene Capacity Additions / Reductions Projected North American Propylene (KMT per Year) Company Location Type Capacity Online Enterprise Mont Belvieu, TX PDH 750 Oct-17 Shell Convent, LA FCC (200) 1Q18 Inter Pipeline Redwater, Alberta PDH 520 2022 CKPC Redwater, Alberta PDH 550 2022 Formosa Point Comfort, TX PDH 600 2022 LyondellBasell Houston, TX? PDH ??? ???

Total 2220

US is now the world’s largest LPG exporting country

Total LPG exports by selected major exporters Chart Title 120

100

60 US 40

20 Million YearMetricTonsMillion Per 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Saudi Arabia UAE Qatar United States North Sea Algeria Nigeria Russia Iran

China can exploit an advantaged capital cost structure Allows petrochemical assets to be built for a fraction of US cost

Construction Location Factors (2016)

FSU CEP 1.05 - 1.25 NEA (ex. China) NAM (ex UGGC) WEP 0.75-0.82 0.82 – 0.95 1.03 - 1.16 0.99-1.04 China 0.55 – 0.70 MDE USGC 0.75 - 1.19 1.00 AFR 0.90 - 0.95 SEA SAM 0.85 - 1.10 0.91 - 1.15

Source: Downstream Capital Cost Service

Much of the propylene investment has been in the demand growth center of Asia

Global Propylene Capacity Additions vs. Demand 8.0 Forecast 7.0 6.0 5.0 4.0 3.0 2.0 1.0 Million Metric Tons MetricMillion 0.0 -1.0 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

North America Middle East Total Asia West Europe Others Annual Demand Increase

NGL Production is key to durability of US light olefins advantage

Improved pace of GDP growth spurs light olefins demand

Competitive US production of tight oil drives ample NGL supply and light olefins profitability

US ethane can drive further cracker expansion… but up to a point

Low cost LPG trade and advantaged capital recovery incentivizes new propylene assets to be built near demand centers

Todd Dina Executive Director – Global Olefins +1 281 752 3238 [email protected]