PROSPERITY FUELING AMERICAN FUEL & PETROCHEMICAL MANUFACTURERS 2014 ANNUAL REPORT AMERICAN ENERGY POLICY AT A CROSSROADS A MESSAGE FROM THE CHAIRMAN OF THE BOARD AND THE PRESIDENT OF AFPM Last year, the United States became the Today, American energy policy is at a For the refining and petrochemical world’s top producer of oil and natural gas, crossroads. The issues at stake and manufacturing industries, 2014 will prove a position that no one would have predicted the policy decisions to be made have to be a pivotal year. As a country, we face just five years ago. As a result, American never been more important. A surge crucial choices as we endeavor to maintain fuel and petrochemical manufacturers in regulations, coupled with a basic access to affordable, reliable and secure now have the opportunity and the ability to misunderstanding of the fossil fuel industry, energy sources. transform the nation’s economic outlook. hampers the ability to establish sound policies and regulations that will enable us Working on behalf of and in concert with Embracing the strong global demand to continue the progress we’ve made toward our members, AFPM will continue to: for high-quality, affordable refined renewed economic growth. petroleum and petrochemical products, • Advocate for a regulatory environment AFPM companies are putting economics Fossil fuels have been an essential part that is straightforward and effective. and infrastructure to work. Refiners are of our daily lives for so long that their true meeting America’s fuel needs, maintaining impact can easily be taken for granted. • Educate policymakers and the public a strategic inventory and becoming a key But make no mistake – they don’t just to ensure the benefits of fossil fuels are exporter. And, petrochemical manufacturers keep us moving, they power every other accurately represented in all energy have secured a competitive lead for the first industry, drive productivity, create discussions and that pragmatism is not time in more than 30 years. prosperity and save lives. Eighty-one lost to politics. percent of the planet’s energy needs are The ingenuity of AFPM members to currently met by fossil fuels, according to • Uphold the high standards for combine low cost raw materials and the International Energy Agency, and that environmental compliance, safety and energy with advantages in infrastructure percentage is expected to hold steady for innovation that have long been a and diverse manufacturing capabilities is decades to come. Fossil fuels make modern hallmark of our industry. powering a manufacturing renaissance. life possible. They have proven their vital This opportunity brings with it the promise role and will continue to remain essential Standing together, we will unleash the of high-paying technical jobs and enhanced into the foreseeable future. Well-informed full potential of America’s refining and prosperity. We’re on the right path to a policies can preserve that value and petrochemical manufacturing industries. bright future. To ensure we stay the course continue to improve standards of living and reap even greater benefits that lay around the globe. ahead for our country and our citizens, we must be diligent and work together. We’re proud of our industries. We’re proud of our contributions. And we invite you to learn more. David L. Lamp Charles T. Drevna Chairman of the Board President OPPORTUNITY UNLEASHING MAKING INDUSTRY MORE PRODUCTIVE AND AMERICANS MORE PROSPEROUS America’s fuel and petrochemical allow the extraction of oil and natural gas manufacturers have been and will continue from sources that were once considered to be the catalysts that make industry economically infeasible to develop, such more productive and Americans more as shale, sand and other porous rock prosperous. Petroleum based fuels and formations. Oils coming from these newly products are the backbone of our economy developed resources are sometimes given and are predicted to remain a significant distinct names such as tight oil and shale portion of our fuels mix in the future. No oil. But all these new oils, along with other fuels deliver the same combination conventionally produced crude oils, are of performance, convenience, reliability, processed in our refineries into products safety and affordability. for consumers. According to the Energy Information Agency (EIA), the United States Oils coming from newly In October 2013, the United States is positioned to become the world’s largest developed resources produced more crude oil than it imported oil producer by 2017, and is on course to are processed in our for the first time since February 1995. enhanced energy and national security as The increased production is a result of well as improved balance of trade. refineries into products combining advanced technologies that for consumers. U.S. CRUDE OIL PRODUCTION IS RAPIDLY EXPANDING MILLION BARRELS PER DAY History 2014 Projections 10 8 Tight Oil 6 4 Other Domestic Production 2 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Note: Other domestic production includes lower 48 offshore, Alaska and other lower 48 onshore. Source: EIA, Annual Energy Outlook 2014 Early Release 3 ABUNDANT NATURAL RESOURCES AND ADVANCED TECHNOLOGIES SPUR GROWTH At the same time, we have unleashed Through the ingenuity and industriousness Newly developed resources have abundant natural gas and liquids reserves of our member companies, we are able to given the U.S. petrochemical through shale development and technology make use of these vital natural resources advances. Once considered inaccessible, more efficiently, more safely and cleaner industry its best competitive newly developed resources such as shale than ever before. advantage in more than 30 years. gas and tight gas have given the U.S. petrochemical industry its best competitive advantage in more than 30 years. These new supplies of natural gas and liquids have created affordable energy and petrochemical feedstocks, enabling our nation’s manufacturers to flourish. NATURAL GAS SUPPLIES ARE GROWING U.S. DRY NATURAL GAS PRODUCTION Trillion Cubic Feet History 2014 Projections Billion Cubic Feet per Day 35 100 90 30 80 25 70 Shale Gas 60 20 50 15 40 Tight Gas 10 30 20 5 Other U.S. Gas 10 0 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Note: Other U.S. gas includes: Non-associated onshore, non-associated offshore, Alaska, gas associated with oil and coalbed methane. Source: EIA, Annual Energy Outlook 2014 Early Release 4 ENVIRONMENTAL AND SAFETY PERFORMANCE CONTINUE TO EXCEL Our members are strongly committed to petrochemical manufacturers to enhance clean air, water and waste reduction; have safety performance through programs, an outstanding record of compliance technical conferences, meetings and with the Environmental Protection Agency benchmarking surveys. These and other regulatory bodies; and have industries are collaborating to invested hundreds of billions of dollars develop joint performance metrics to dramatically reduce emissions as for process safety, to share measured by the EPA. As a result of these information on incidents and emissions reductions, criteria pollutants causal factors to lessen have been significantly reduced over the the chances of repeat past three decades. at other facilities and to ensure that potential Safety is also a priority. Rates of injury hazards are identified before and illness have declined significantly they become incidents. due to a concerted effort by refiners and RATE OF INJURY & ILLNESS ON THE DECLINE 2001–2012 RATE PER 100 FULL-TIME EMPLOYEES 1.45 PETROLEUM REFINING 0.50 AFPM Report of Occupational Injury & Illness for Petroleum Refining Companies and Onsite Contractors 66% 1.12 PETROCHEMICAL MANUFACTURING 0.52 AFPM Report of Occupational Injury & Illness for Petrochemical Manufacturing Companies and Onsite Contractors 54% 5 RENAISSANCE MANUFACTURING POWERING A 6 THE BOOM IN OIL AND GAS DEVELOPMENT ARE GAME CHANGERS FOR THE MANUFACTURING SECTOR The shale revolution and a boom in other today when it is among the most affordable. unconventional oil and gas development International chemical companies are taking are game changers for the manufacturing notice and have announced planned or sector, driving down both the cost of energy possible investments in the United States and the cost of important feedstocks like worth more than $91 billion. ethane. This abundance of affordable natural resources, combined with According to IHS Global Insight, by 2025, advanced manufacturing infrastructure, nearly 3.9 million manufacturing jobs will high-tech distribution networks and the be supported by unconventional oil and 3.9M ability to innovate quickly, puts America gas development and, along with energy- in a competitive position in chemical related chemicals activity, will contribute + manufacturing for the first time in decades. nearly $533 billion annually to the GDP. The result has been a dramatic reversal from the mid-2000s, when the United States $533B was one of the world’s most expensive locations for manufacturing chemicals, to FALLING NATURAL GAS PRICES HELP DRIVE U.S. MANUFACTURING COMPETITIVENESS DOLLARS PER MILLION BTU 10 9 8 7 6 5 4 3 Natural Gas Prices 2 1 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Henry Hub spot prices as compiled by EIA 7 LOW-COST ETHANE FEEDSTOCKS STRENGTHEN U.S. GLOBAL POSITION U.S. Dollars per Metric Ton U.S. Cents per Pound 1,543 70 1,323 60 1,102 50 882 40 661 30 441 20 220 10 0 0 Saudi Arabia U.S. Ethane Western U.S. Weighted West Europe Northeast Asia Southeast Asia Ethane Canada Average Naphtha Naphtha Naphtha December 2013 March 2014 Note: Ethylene is one of the most important petrochemicals and is produced in North America using low-cost ethane, making the region far more competitive in petrochemical manufacturing than other regions. Source: IHS Chemical $1= $1.48 A vibrant petrochemical manufacturing According to the National Association of AFPM members are committed to the sector lifts the rest of the manufacturing Manufacturers, every $1.00 spent in the realization of a manufacturing renaissance.