Synthetic Base Oil Outlook - PAO

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1 Synthetic Base Oil Outlook - PAO Agenda Overview of Chevron Phillips Chemical Polyalphaolefins Industry Update: A quick look at the production process and feedstock Advantages of the properties of PAOs in today s and next generation formulations Polyalphaolefins Supply / Demand Outlook Summary Questions 1

2 Company Founded in 2000 About Us Manufacturer of petrochemicals that are essential to manufacturing over 70,000 consumer and industrial products Currently $12.3 billion in assets and more than $14.1 billion in annual revenues Trusted supplier to customers in 140 countries A highly educated and diverse workforce of approximately 5,000 employees working on four continents across the globe 2

3 Safety Culture SAFETY is foremost in Chevron Phillips Chemical s culture Achieved a 60 percent reduction in the combined employee and contractor Recordable Incident Rate (RIR) since 2002 Active OSHA Voluntary Protection Program (VPP) Participant 17 Star Sites Combined employee and contractor performance in 2013 was in the top quartile among American Chemistry Council (ACC) peer companies Committed to company s Tenets of Operation Manufacturing Locations Belgium Saudi Arabia Qatar China South Korea United States Singapore Colombia 3

4 Chevron Phillips Chemical: Next Planned Investments Alpha Olefin Expansion 100 kmta expansion Planned start-up in 2015 Low Viscosity PAO Expansion Study 10 kmta expansion Planned start-up in 2016 USGC Petrochemical Project 1,500 kmta ethylene unit kmta polyethylene units 10,000 engineering and construction jobs 400 direct jobs Planned start-up in PAO Industry Update Production of Polyalphaolefins Advantages of Low and High Viscosity Polyalphaolefins Polyalphaolefins Supply / Demand Outlook 4

5 How PAO is Produced Synfluid Ethylene Cracker PAO 2 9 Feedstocks Ethane Propane Ethylene Unit Ethylene, C2= PAO Unit mpao Butane Natural Gas Liquids Naphtha Others Normal Alpha Olefins Unit Octene, C8= Decene, C10= Dodecene, C12= 9 NAO Applications Carbon Number Fraction Overview Polyethylene Comonomer PAO C4 C6 C8 C10 C12 Surfactants C14 C16 Lube Oil Additives Wax Applications C18 C20 Relative production Output 5

6 Advantages of PAO 11 PAO: Properties PAOs offer the following advantages compared to mineral oils: Improved heat transfer capabilities Better low temperature viscometrics Lower friction Better oxidative stability Better energy efficiencies 12 6

7 Role of Base Oil in Fuel Economy Engine oil related friction has a great impact on energy efficiency Better energy efficiencies results in improved fuel economy There is a friction reduction from Group III to PAO of ~22% less friction, better energy efficiencies Source: B. J. Hardy, K. K. Bjornen, S. F. Bell, Group III Base Oils: Their Role & How to Take Advantage of Them, 9 th ICIS-LOR World Base Oils Conference, Improving Base Oil Improves Oxidation Time Pressure (psi) Group II Group III PAO RBOT Time (min) 0.5wt% DPA for PAO 0.5wt% DPA/PhoenolicAO for Group II/III less oil degradation, improved durability Source: K. Hope and D. Twomey, SAE Paper ,

8 Lower Volatility less emissions, improved durability 15 Specific Heat / Thermal Conductivity PAO has a 10-15% higher specific heat than mineral oil PAO will absorb more heat and run at lower temperatures than mineral oil Furthermore, PAO has a 20% higher thermal conductivity than equiviscous mineral oil PAO will better conduct heat away from lubricated parts less oil degradation, improved durability 16 8

9 Low & High Viscosity PAO Supply and Demand 17 PAO Global Producers COMPANY LOCATION CAPACITY, kta 1 CPChem Cedar Bayou, TX 48 2 CPChem Pasadena, TX 9 3 CPChem Beringen, Belgium 63 4 Chemtura Elmira, ON 16 5 Chemtura Ankerweg, Netherlands 15 6 ExxonMobil Gravenchon, France 60 7 ExxonMobil Beaumont, TX 85 8 ExxonMobil Baytown, TX 50 9 Ineos Feluy, Belgium Ineos La Porte, TX NACO Shanghai, China 15 Source: Lubes'n'Greases / CPChem Low Viscosity PAO Manufacturing Facility High Viscosity PAO Manufacturing Facility Low & High Viscosity Manufacturing Facility 9

10 Capacity, kta PAO Supply WW PAO Capacity North America LV North America HV Europe LV Europe HV Asia HV CPChem PAO Capacity: 120 kmta U.S. and EU production Cedar Bayou, TX Pasadena, TX Beringen, Belgium High and Low Viscosity PAO producer Three regional offices to cover global sales Producer of ethylene and alpha olefins (feedstock security) 20 - XOM INEOS CPChem Chemtura Naco Source: Lubes'n'Greases / CPChem PAO Demand Trends Transportation Low viscosity base oils improve energy efficiency Emission and fuel economy standards and regulations driving movement towards higher performance lubricants EU has set a target of 95g/km CO 2 emissions for passenger vehicles by 2020 Industrial Modern manufacturing equipment is being employed in developing regions as economic conditions recover Lubricants being developed to provide improved energy efficiency, higher stress operating conditions, and targeting reduced maintenance Grease Environmental drivers continue, longer life, energy savings 10

11 Low Viscosity PAO Supply / Demand Anticipate low viscosity PAO AAGR of 4 to 6% from 2013 through 2015 Low viscosity PAO operating rates expected to be elevated above 95% and depend on feedstock availability due to the growing demand for PAO Limited growth in feedstocks have constrained the growth of low viscosity PAO First grassroot expansion has been announced 21 High Viscosity PAO Supply / Demand High viscosity PAO demand forecast to grow at 4 to 7% AAGR from 2013 to 2015 Demand driven by higher performance requirements in industrial and automotive applications Recent expansion of HV PAO supply (Chemtura, ExxonMobil and NACO) Limited growth in feedstocks have constrained growth of high viscosity PAO Two technologies exist on high viscosity PAO: conventional and metallocene Chevron Phillips Chemical produces high viscosity metallocene based mpaos based on Octene, C8 = feedstock 22 11

12 Synfluid mpao in Industrial Oils In blends with a low viscosity PAO, mpao offers higher viscosity index and lower pour points (<-50 C) These improved properties are achieved while requiring less HV PAO, which provides for a more economical formulation! Viscosity Index Percent HV PAO Savings PAO 40 mpao 65 mpao 100 mpao 150 *All blends made with PAO 8 to achieve the ISO 320 target PAO 40 mpao 65 mpao 100 mpao C h e v r o n P h i l l i p s C h e m i c a l s I n t e r n a t i o n23 a l N V Foaming Characteristics (Sequence I ASTM D892) mpao 100 Conventional PAO

13 Summary Next generation lubricants will require higher levels of PAO to meet increasing performance requirements PAOs provide a number of technical advantages when compared against other base oils Low and high viscosity PAO demand increasing at roughly 4 to 6 % AAGR Chevron Phillips Chemical Company continues to show commitment for future growth to help meet increasing customer demand 25 Questions? Forward Looking Statement Disclaimer Certain statements in this presentation are forward-looking statements that are subject to risks and uncertainties. These statements are not guarantees of future performance and actual outcomes and results may differ, perhaps materially, from what is expressed herein. Actual results could differ materially, based on a number of uncertainties, factors and risks (collectively, the Risks ), many of which are outside the control of the presenter or Chevron Phillips Chemical Company LLC and its affiliates, employees, directors, or officers (collectively, CPChem ). Any or all of the Risks could cause results to differ materially from those referred to in this presentation. Recipients of this information are cautioned not to rely on these forward-looking statements. CPChem undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise 26 13