Petrochemical Update - Chuck Whisman, VP Global Energy Market Director, CH2M. August 2015

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1 Petrochemical Update - Chuck Whisman, VP Global Energy Market Director, CH2M August 2015

2 Natural Gas Distribution & Use 3

3 NGL Markets: Ethane/Ethylene Ethylene is widely used in chemical industry, and its worldwide production exceeds that of any other organic compound. 7

4 NGL Separation & Processing Volumes from natural gas separation plants are expected to increase significnatly. Numerous processing facilities have been built in PA, WV, and OH in the past 3 years, MarkWest Liberty Rich Gas Infrastructure 8 8

5 Chemical feedstock economics the game has changed Low natural gas prices will reduce the price of ethylene, which is expected to reduce from around ~$980/ton to <$300/ton (likely 30+ years of stable and low cost petrochemical feedstock in the US). Dramatic change in material costs will result in ability to create cheaper to make goods here, resulting in an industrial renaissance. Stable polyethylene costs will resonate throughout the plastics industry. Example: the blow molding industry uses more HDPE in North America than any other group, ~ 5 billion lbsof plastic per year is blow molded into finished goods 10

6 Chemical feedstock economics the game has changed for the US Companies like DOW, Linde Group, Formosa, ExxonMobil, Shell, Chevron, Sasol, CF Industries and others have announced multi-billion infrastructure investments in the US. Projects include, petrochemical/fertilizer plants, crackers, GTL facilities, and more! Last month, fixed domestic US industrial investment actually doubled on a year-on-year basis. "Outlays for factory-related structures jumped in January through March," says the National Association of Manufacturers, "surging at a 95 percent pace" year-on-year. Investment in new plants has grown at the strongest rate since recordkeeping began in Spot ethane at Mont Belvieu, Texas, dropped about 9 percent from a year ago and traded at 20.5 cents a gallon on Aug. 12, according to prices from Liquidity Partners and DTN Energy compiled by Bloomberg. The feedstock fell to the lowest since 2001 Foreign or domestic, manufacturers in total have added nearly 700,000 jobs since 2010, bringing U.S. factory employment to 12.2 million. Only a 5 percent cost gap now separates manufacturing costs in the U.S. and China, according to Fortune magazine. Just today it was announced that Intrexon and Dominion will partner on gas-to-isobutanol projects in the Marcellus and Utica Region. 11

7 Shell Ethane Cracker Drives Manufacturing Development in the Ohio River Valley Shell Ethane Cracker in Beaver County, PA - the start of petrochemical growth on the Ohio River Former zinc smelter site (now demolished) Shell has invested over $25 million for land to develop the facility Air quality permit granted in June Project investment by Shell is estimated at >$2 Billion Petrochemical plants will arise along the river and near the ethane cracker. Pre-Demo Post-Demo 12

8 Ethane Exports SinopacificOffshore & Engineering Co. unveiled dragon-class tanker to carry U.S. ethane to Europe. The 180-meter (591 feet) long vessels will move ethane across the Atlantic to Norway and Scotland, where IneosGroup Holdings SA will process the natural gas liquid into chemicals used to make plastics. The tankers, the biggest of their kind so far, are the latest link in an energy supply chain bringing abundant hydrocarbons unlocked in recent years from the U.S. to markets as far away as India. The ships wouldn t have been designed or built if their cargo weren t so cheap, prompting overseas chemical makers to benefit from low feedstock prices. 13

9 Former Marcus Hook, PA Refinery (Repurposed by Sunoco) > Marcus Hook will be driving new construction and traffic through the Delaware River port. > Braskem America purchased a portion of the Marcus Hook refinery to produce polypropylene, a form of plastic used in water bottles and credit cards. > Other parts of the facility will focus primarily on propane and ethane. > From Marcus Hook, materials from Western PA will be shipped to global markets. > INEOS Europe has entered into a 15-year shipping agreement with Evergas to transport Marcellus Shale ethane to Rafnes, Norway from Marcus Hook. From Norway, the gas will be supplied to other parts of Europe 14

10 North American Crude Fueling the Rail & Refining Business 15

11 Philadelphia Refinery Project The Philadelphia refinery produced ~330,000 barrels a day, but it was about to shut it down because of their $800 million losses over three years. The Carlyle Group has helped save the former refinery and reconstruct it due to U.S. shale oil & gas.- operating as Philadelphia Energy Solutions > Building a high-speed railroad terminal to unload shale oil and a power plant that would run on shale gas. > With these changes, they hope to attract new industrial companies to contribute to development of the area. Source: Carlyle Group, Sunoco, and politician s joint venture to rescue Philadelphia refinery, The Washington Post,

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14 Plans for the Future: U.S. LNG Exporting Projects >17 additional export projects are looking to source U.S. shale NGL. Worldwide, LNG trade will rise by 40 percent to 450 billion cubic meters by 2019 (EIA June 2014 report). U.S. LNG exports will probably climb to about 8.5 billion cubic feet a day of gas in Source: U.S. Shale Boom Redraws Liquefied Petroleum Gas Market Map, Money News, 2013 The Dominion Resources gas facility in Lusby, Md., which is tied to Pa.'s Marcellus Shale gas field. (AP, File) 20

15 Fertilizer Market Methane to Ammonia to Nitrogen We ve become just as dependent globally on nitrogen as we have on ethylene. Low-cost natural gas is already translating to $12.7-billion worth of new fertilizer plants that are set to start producing by 2020 in the United States. 21

16 Gas-to-Liquids 22

17 Petrochemical Update - Chuck Whisman, VP Global Energy Market Director, CH2M August 2015