11 th Iran Petrochemical Forum June 7-8, 2014 Tehran Shahrin Ismaiyatim Chief Content Officer Advent of Shale Gas – Impact on Global Downstream Polymers

Agenda: US shale gas impact on… WTI & Natural Gas prices US ethane price What fundamental changes can we expect to see in… US ethylene US polyethylene Is the market facing a polyethylene surplus… …or not? What role is the Middle East, Iran going to play?

US shale impact on WTI & natural gas Crude to Nat Gas ratio Jan : 1 Jul : 1 Jan-09 8 : 1 Jul : 1 Jan : 1 Jul : 1 Jan : 1 Jul : 1 Jan : 1 Jul : 1 Jan : 1 Jul : 1 Jan : 1 May : 1

Shale gas impact on US ethane price Source: Petrochemwire NYMEX WTI ($/bbl) NYMEX Nat Gas ($/mmbtu) Ethane ($/gal) Ethane ($/mt) Ethane to Crude ratio Ethane to Nat Gas ratio Jan-08$99.62$7.75$1.15 $ : 17 : 1 Jul-08$145.25$13.58$1.43 $1, : 19 : 1 Jan-09$46.34$5.83$0.40 $ : 115 : 1 Jul-09$66.73$3.62$0.48 $ : 18 : 1 Jan-10$82.75$5.75$0.81 $ : 17 : 1 Jul-10$72.14$4.69$0.46 $ : 110 : 1 Jan-11$88.03$4.42$0.61 $ : 17 : 1 Jul-11$111.72$4.31$0.78 $ : 16 : 1 Jan-12$101.56$3.06$0.76 $ : 14 : 1 Jul-12$84.45$2.78$0.29 $ : 110 : 1 Jan-13$93.09$3.29$0.23 $ : 114 : 1 Jul-13$103.22$3.62$0.24 $ : 115 : 1 Jan-14$93.96$4.30$0.28 $ : 115 : 1

Shale gas impact on US ethylene price Source: Petrochemwire

US ethylene plant projects to add over 12 million mt capacity Source: TPS/Petrochemwire

What fundamental changes can we expect in ethylene? Shale-based natural gas (and NGLs) have created record margins for the past 3 years for US ethylene producers. US ethylene capacity at 26 million mt/year in 2013 By period, we could expect another million mt of new ethylene capacity …that is if all greenfield and brownfield projects are realized, bringing a total of million mt.

What fundamental changes can we expect in ethylene? However, not all projects will be built on time, or will be built at all We should expect an addition of 7-8 million mt of new ethylene capacity by Source: Shell

What fundamental changes can we expect in polyethylene? With new ethylene plants being built, so will new PE production. US alone could add about 6 million mt of new PE capacity by , but doubt remains of full capacity addition Canada and Mexico to add 1.4 million mt

Will the world be able to absorb the PE “surplus”? Global polyethylene market to remain in marginal surplus. Don’t expect any PE tsunami from the US. Source: PCW, TPS, Industry

Middle East feedstock disadvantage? Middle East feedstock advantage is clear, despite the “threat” to its natgas supplies. GPCA study showed Middle East gas shortage could rise from 32 Bcm in 2012 to up to 51 Bcm in 2015 on high economic growth Source: BP Proven natgas reserves at the end of 2012 sufficient to meet 147 years of Middle East production. In 2002, proven reserves were sufficient to meet 290 years of production. The almost 50% fall indicates how fast region’s proven gas reserves are declining.

Middle East to remain dominant supplier despite threat Middle East new ethylene capacity could top 15.5 million mt from 2014 to 2022, while new PE capacity could reach million mt by About 50%, or more of ME PE will be exported. Source: TPS, PCW, Industry figures Iran to produce around 5 million mt of new ethylene capacity by New PE capacity to amount to 4.6 million by 2022.

A quick view on naphtha – still the viable petrochemical feedstock Middle East ethane – average $180/mt US ethane – $300/mt Europe naphtha – 2013 average $920/mt Asia naphtha – 2013 average $920/mt FACT: nearly 100 million of ethylene capacity fed by naphtha, accounting for more than 60% of global production, still. FACT: Naphtha yields superior steamcracker co-products versus other feedstocks. FACT: US naphtha have headed to the East, and likely to continue. FACT: Middle East naphtha supplies grow inline with new refineries, not short of petchems feedstock to mitigate gas reductions. FACT: Asia will continue to be the main consumer of naphtha to feed majority of its steamcrackers

Conclusion US advantage is clear – the question is whether US can capitalize fully New ethylene and PE production in the US so far has only been seen in expansions, but new plants have not come online yet. Middle East to remain as the dominant supplier of surplus PE; Asia the main consumer. Naphtha continues to play a dominant role in the petrochemical industry. Some questions: What can be done to capture benefits while the PE market waits for its turn? Can China’s Methanol-To-Olefins alternatives put the brakes on shale developments?

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11 th Iran Petrochemical Forum June 7-8, 2014 Tehran Shahrin Ismaiyatim Chief Content Officer Thank You