1 The Potential for Gas Based Petrochemical Projects John Page October 12, 2011

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Copyright © 2011 IHS Inc. All Rights Reserved. With 24% of Global Gas Reserves Russia Has 3% of Chemical Capacity

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Copyright © 2011 IHS Inc. All Rights Reserved. Now N. America Ethane Has A Significant Advantage Due To Shale Gas Regional Ethylene Cash Costs

Copyright © 2011 IHS Inc. All Rights Reserved Gas-Based Competitive Advantage Bubbles Up, Globally Dollars Per Ton, Ethylene Manufacturing Cash Costs By Plant Cumulative Ethylene Capacity (Million Tons) West Europe West Europe North America North America Asia Middle East : WTI Crude = $31/bbl; US Natural Gas = $5.50/mmbtu 2009: WTI Crude = $62/bbl; US Natural Gas = $4.00/mmbtu

Copyright © 2011 IHS Inc. All Rights Reserved Gas-Based Competitive Advantage Bubbles Up, Globally Dollars Per Ton, Ethylene Manufacturing Cash Costs By Plant Cumulative Ethylene Capacity (Million Tons) West Europe West Europe North America North America Asia Middle East : WTI Crude = $31/bbl; US Natural Gas = $5.50/mmbtu 2009: WTI Crude = $62/bbl; US Natural Gas = $4.00/mmbtu RUSSIA

Copyright © 2011 IHS Inc. All Rights Reserved. New crackers are competitive in Russia BUT lack of gas demand in remote locations restricts feedstocks until NOW and MTO West Siberia- PB East Siberia- PB Caspian Sea-PB Volga-N North West- PBN Far East- N Existing Volga- PBN Middle East-PB West Europe-N China-N Ethylene Capacity (kta) , , Total Costs ,0521,071 Capital Charge Fixed Costs Other Variable Costs Net Raw Materials ,000 1,200 1,400 Cash Cost Olefins (US$/Tonne) 2015 Net Ethylene Price $90/bbl Brent Crude

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Copyright © 2011 IHS Inc. All Rights Reserved. Announced Chinese MTO Projects Methanol-to-olefins is one of the most important development trends in China’s coal chemical industry In August 2010, Shenhua Baotou Chemical put the first methanol-to-olefins plant into commercial production with 600 thousand metric tons of olefins. This plant was built integrated with a methanol unit of 1,800 thousand metric ton capacity. 6.6 million tonnes of methanol will be consumed for MTO/MTP-based olefin production in 2014 CompanyLocationProduct Capacity (-000-Metric Tons) Start-UpDesign StageFeed Shenhua Baotou ChemicalBaotou, Inner Mongolia, ChinaPropylene OperatingCoal Shenhua Baotou ChemicalBaotou, Inner Mongolia, ChinaEthylene OperatingCoal Datang Int'l PowerDuolun, Inner Mongolia, ChinaPropylene OperatingCoal Shenhua NingmeiNingdong, Ningxia, ChinaPropylene OperatingCoal Sinopec Zhongyuan PetrochemicalPuyang, Henan, ChinaOlefins ConstructionMtOH Yulin Energy and ChemicalWeinan, Shaanxi, ChinaOlefins ConstructionCoal Pucheng Clean EnergyWeinan, Shaanxi, ChinaOlefins ConstructionMtOH Shaanxi Yanchang Petroleum GroupYan’an, Shaanxi, ChinaOlefins ConstructionMtOH Shaanxi Yanchang Petroleum GroupYulin, Shaanxi, ChinaOlefins ConstructionMtOH Zhejiang TianshengZhejiang, ChinaOlefins Construction Import MtOH Yankuang GroupYankuang, ChinaOlefins ConstructionMtOH Sinopec/ Henan Coal Chemical Industry Group Hebi, Henan, ChinaOlefins PlannedCoal Shenhua/ Dow ChemicalYulin, Shaanxi, ChinaOlefins PlannedCoal

Copyright © 2011 IHS Inc. All Rights Reserved. By 2015, MTO will be 48 percent of alternative ethylene supply. On-purpose ethylene will be 3.5% of total supply As a percentage of total supply

Copyright © 2011 IHS Inc. All Rights Reserved. Economics work in China but why only China? In Norway the olefins margin could be substantial but methanol may provide a better return due to a coastal location

Copyright © 2011 IHS Inc. All Rights Reserved. It is not all about who has the best technology It is not all about who traded there first It is not all about who has the biggest plant What is Secret to Success in Commodity Petrochemicals? It is about the cost of production 16 And as much as 60% of integrated cash costs are hydrocarbon based

Copyright © 2011 IHS Inc. All Rights Reserved. What Does it Mean? Russia has low cost feedstocks Russia has low cost feedstocks Methanol to Olefins technology creates a viable outlet for Natural Gas or Coal in remote locations Methanol to Olefins technology creates a viable outlet for Natural Gas or Coal in remote locations Creates demand for methane and this creates low cost by- products such as: Creates demand for methane and this creates low cost by- products such as: Ethane /Propane Butane Ethane /Propane Butane Russia can compete but ….. Russia can compete but …..

Copyright © 2011 IHS Inc. All Rights Reserved.....but can Russia be the next Middle East?