Ethylene Good Today, Better Tomorrow A Year Later Goldman Sachs Chemical Intensity Day

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1 Ethylene Good Today, Better Tomorrow A Year Later Goldman Sachs Chemical Intensity Day Tim Roberts, SVP Olefins & Polyolefins Americas March 27, 212

2 Cautionary Statement The information in this presentation includes forward-looking statements. These statements relate to future events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of our operations or operating results. Actual outcomes and results may differ materially from what is expressed or forecast in such forward looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ from forwardlooking statements include, but are not limited to, availability, cost and price volatility of raw materials and utilities; supply/demand balances; industry production capacities and operating rates; uncertainties associated with worldwide economies; legal, tax and environmental proceedings; cyclical nature of the chemical and refining industries; operating interruptions; current and potential governmental regulatory actions; terrorist acts; international political unrest; competitive products and pricing; technological developments; the ability to comply with the terms of our credit facilities and other financing arrangements; the ability to implement business strategies; and other factors affecting our business generally as set forth in the Risk Factors section of our Form 1-K for the year ended December 31, 211, which can be found at www. on the Investor Relations page and on the Securities and Exchange Commission s website at This presentation contains time sensitive information that is accurate only as of the date hereof. Information contained in this presentation is unaudited and is subject to change. We undertake no obligation to update the information presented herein except as required by law. 2

3 Positive macro factors Global GDP Asian development Last Year We Said: The Stars are Aligning for a Bright Tomorrow Supply trends Limited construction Limited Middle East gas avails Existing asset reliability U.S. natural gas A Middle East analog Fractionator construction Elevated crude oil price These trends plus two key factors continue to define industry and regional profitability: Regional Raw Material Costs Global Supply / Demand 3

4 With Supply/Demand Still Recovering, Natural Gas versus Crude is Currently the Dominant Factor Integrated Polyethylene Production Cost Global Capacity Cost Curve Capital & Labor Raw Materials & Utilities Cost of Ethylene Production Middle East Ethane Crackers N. Amercia Ethane Crackers 2-3 /lb Global Naphtha Cracking 5-6 /lb 5-15 /lb 33% 67% Raw material factors define regional competitiveness Source: CMAI 4

5 Both Natural Gas and Crude Prices have Contributed to Differential Performance in the US Ethylene Industry US$ / Million BTU 2 Crude Oil Brent 15 1 Delta 5 Natural Gas Dec-8 Dec-9 Dec-1 Dec US$/Barrel Cost of Ethylene Production ( /lbs) 1H'9 Q1'12 Delta Ethane-based (US) Naphtha-based (US) Ethylene price (NEA) Crude price increases have been as much a factor as have US natural gas price declines Source: CMAI 5

6 Are Crude Oil Prices likely to Remain Elevated? Brent Crude Oil Forecast Year E 213E 214E 215E 216E $/bbl Factors influencing continued strong price Global economic growth and crude consumption Global vehicle sales Rising production costs Marginal crude sources Middle east social cost pressures Political instability in producing nations Factors influencing to the downside US production resurgence Vehicle fuel efficiency Regulations diversifying fuel mix Most experts forecast continued elevated crude oil Source: CMAI 6

7 Will Natural Gas Prices Remain Low? Henry Hub Price Forecast Year E 213E 214E 215E 216E $/mbtu Source: Global Insight 7 1,5 65 1,25 6 Rig Count 1, 55 5 Bcf per Day Source: EIA, Bentek 75 Monthly Gas Rig Count Production 5 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan Production has remained strong despite reduced rig count Estimate that rig count must fall below 7 to stabilize inventory levels 7

8 Drilling Technology is Driving the Success 1,6 Well productivity has increased dramatically pre-shale post-shale 1,4 1,2 1, Mcf Per Day Source: IHS CERA. May not be used for any purpose without the express written consent of IHS CERA Note: Mcf = thousand cubic feet. Potential for further improvements as experience develops and majors become more significant participants 8

9 Low Prices and Abundant Supply are Forecast to Drive Strong Natural Gas Demand Growth Gas Demand Growth NG Supply Sources 5 Elec.Gen TCF (change from 21) Industrial Trans. Fuels Exports to Mexico LNG Exports TCF Source: PIRA Source: EIA Natural gas end use increase leading to increased ethane production in a well supplied natural gas environment 9

10 Natural Gas NYMEX Price Breakevens by Play (15% After Tax Rate of Return) $8. 1 $. $6.87 $1.85 $2.37 $3.19 $3.23 $3.53 $3.6 $3.75 $3.86 $3.87 $4.12 $4.2 $4.55 $4.58 $4.64 $5.24 $5.31 $5.53 $6.65 $6.76 $7. $6. $5. $4. $3. $2. NGL Rich Gas Dry Gas $1. $. Eagle Ford Shale - Liquids Rich Marcellus Shale - SW Liquids Rich Cana Woodford Shale Marcellus Shale - SW Barnett Shale - Southern Liquids Rich Barnett Shale - Core Marcellus Shale - NE Horn River Basin Huron Shale Pinedale Haynesville Shale - Core LA / TX Eagle Ford Shale - Dry Gas Barnett Shale Fayetteville Shale Woodford Shale - Arkoma Granite Wash - Horiz. Piceance Basin Valley Haynesville/Bossier Shale - NE TX Cotton Valley Horizontal Cotton Valley Vertical Powder River CBM Most fields yield an acceptable return at $5-6./mmbtu Low natural gas prices drive production to NGL rich fields Source: Investment Banks

11 The Value of NGLs Drives Production Even at Low Natural Gas Prices NGL Component Values vs. Natural Gas Dry vs. Rich Gas: NGL Uplift (Margin Over Fuel Value) $25 6 Market Value, $/MMBTU $2 $15 $1 $5 $ Gas Ethane Propane Butane Natural Gasoline $/MMBTU $ Dry Gas $2.41 Rich Gas (2.5 GPM) $5.31 Very Rich Gas (5.5 GPM) Potential for further improvements as experience develops and majors become more significant participants Source: CMAI, LYB 11

12 Trend Toward Wet Wells Benefits US Ethylene Producers If we assume 1% shift from dry gas to wet gas NGL production can increase significantly US Gas Production US NGL Production As drilling emphasis shifts, ethane production is not being sacrificed, in fact, it can be increased Source: LYB 12

13 Both the Mid-Stream and Ethylene Industries are Responding to this Trend Gulf Coast Fractionation Capacity Ethane Additions Ethane Cracking Capacity Growth thousand b/d 1 5 1H'212 2H'12 1H'13 2H'13 1H'14 thousand b/d LYB Other Pipelines Flowing into Mont Belvieu 1 6 1H'12 2H'12 1H'13 2H'13 1H'14 Sources: LYB thousand b/d 4 2 Development has been like a game of leapfrog and the next step is significant fractionation and pipeline infrastructure addition 1H'212 2H'12 1H'13 2H'13 1H'14 13

14 Ethane Premiums to Natural Gas have Grown but so has the Advantage Versus Global Naphtha Ethane Premium to Fuel Value ("Frac Spread") US Ethane Advantage to NE Asia Naphtha US Ethane Advantage to NE Asia Naphtha / gal Ethane Cost of Ethylene, / lb Avg Avg Ethane price at equivalent value to: US natural gas energy value: 15-2 c/gal Global naphtha economics: c/gal Source: CMAI 14

15 Shift in Feed Mix Has Significantly Impacted Co-Products Estimated Propylene Production (1) (MMLbs.) Mix 211 Mix Estimated Butadiene Production (1) (MMLbs.) Propylene Price as a % of Ethylene 16% 12% 8% 4% % 26 Mix 211 Mix Butadiene Price as a % of Ethylene 25% 2% 15% 1% 26 Mix 211 Mix 5% 26 Mix 211 Mix Co-product capabilities add significant value Future growth in durable products could further benefit co-products Sources: CMAI. (1) Estimated co-product production based on 211 ethylene production and 26 and 211 feed mixes. 15

16 Ethane is Not the Only Important NGL in the US Market US Cost of Ethylene Production US NGL Supply Growth 5 4 Propane COE* Naphtha COE Ethane COE 3,5 3, 2,5 C4+ / lbs 3 2 thousand b/d 2, 1,5 1, Propane 1 5 Ethane Source: CMAI Source: Bentek * COE Cost of Ethylene Propane: Can limit ethane pricing Greatly expands the cracking pool 16

17 Strong LYB Results in Global Trough Global Ethylene Effective Operating Rates 1% 95% 9% 85% 8% Global Refining Operating Rates 86% 84% 82% 8% 78% 76% E Performance has been driven by actions, geographic position and assets, not cycle Sources: CMAI, Purvin & Gertz. Trough Peak Trough Trough Peak Trough 17

18 At These Low Operating Rates Global Margins Have Been Near Trough Levels Northeast Asian Ethylene Margins Naphtha-based Production Cost Spot Ethylene Price Margin 3 25 Typical NE Asian Cycle Margins cents / pound Trough Mean Peak Asian margins have been weak, Asian prices set the global price Source: CMAI 18

19 Cyclical Upside is a Second Chapter in a Positive Story Billions of Pounds World 95% On-Stream Demand Capacity 1% 9% 8% 7% 6% 5% Effective Operating Rate (EOR) % Balance begins to shift in favor of producers in 212 / 213 Source: LYB,CMAI 19

20 Economic Progress and Increased Consumption are a Focus in Developing Economies Expanding Number of Upper/Middle Class Households In Asia Economic forecasts anticipate a significant increase in the Asian middle class - this typically drives ethylene demand 2

21 The Path from Concept to Full Production is Long ID Task Name Year 2111 Year Year 2133 Year 2144 Year 2155 Year 2166 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 1 Technology Supplier Selection 2 Basic Engineering and Estimate 3 EPC Bidding and Award Feasibility 4 FEED Package 5 Permitting Engineering and Permitting 6 Detailed Engineering 7 Major Equipment Procurement 8 Site Prep and Construction 9 Commissioning and Start-up Construction and Start-up A major ethylene project can require 5+ years to move from concept to production 21

22 The Stars Are Aligning For A Bright Tomorrow View from a US ethylene producer perspective Geography, geology, technology are positively aligned Economics of crude oil and natural gas support U.S. producers Infrastructure investments are bringing NGL s to the market Supply / demand positioned for a cyclical upside New U.S. plants are not forecast to start-up until 216+ We continue to believe: Good today and better tomorrow The stars are aligning 22

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