Petrochemicals in Alaska: Background and Opportunities WILLIAMS ARCTIC TEAM

Olefins - North America The olefin business is in the early stages of restructuring and change. Consolidation and integration through mergers and acquisitions. Excellent market fundamentals- high growth. New market forces influencing customer/supplier relationships. Opportunities for Williams.

Canada West 9.0% Canada East 4.0% U.S. Northeast 1.0% U.S. Midwest 3.0% Gulf Coast 83.0% Ethylene Production Capacity by Region L:\GRA\POWERPOINT\TSHUPE\EPCBR.PPT

U.S. Commodity Demand Growth Per Capita Refining - U.S. Gasoline Consumption, gallons/person Natural Gas - U.S. Nat Gas Production, MMSCF/person Plastics - U.S. Plastics (PE+PP) Consumption, lb/person Electricity - U.S. Electricity Generation, Bkwh/person PlasticsGasoline Natural Gas Plastics Consumption: 4.67% growth rate from Electricity

U.S. Ethylene Consolidation 1995 Top 5 44% Other 18 56% 2004 Top 5 70% Other 12 30% Total 51,334 MMlbs.Total 65,554 MMlbs.

Ethylene Integration Chain

Ethylene Buyers and Sellers U.S. Gulf Coast Capabilities

U.S. Olefin Industry is Changing Consolidation - mergers and acquisitions will continue. Increased integration - leaving some smaller companies vulnerable to majors. Storage hubs and the opportunity to trade around assets will occur. E-commerce will speed up change and improve liquidity. Sales are occurring now. These are major structural changes to the industry creating opportunities for the participants in the consolidation process.

U.S. Olefin Industry is Changing 2000 U.S. light olefins and polyolefins - $41.4 billion revenue. Growth rates are projected to be strong. New capacity will be needed by In 2001, high feedstock prices shocked the industry and curtailed ethylene production. For a time, Naphtha became preferred feed over ethane. Companies are looking for ways to manage their risk and stay competitive. They are looking for suppliers who don’t compete in downstream derivatives.

Williams Has a Significant Stake in the Business Major supplier of NGL feedstock to chemical companies in the U.S. (~88,000 BPD) and Canada (110,000+ BPD). Therefore, already tied to the industry. 5/12 ownership of ethylene cracker in Louisiana. Refinery-grade propylene in Memphis. Gulf Coast Off Gas project in Louisiana. Off Gas project with polymer grade propylene in Alberta.

Williams’ Capabilities Geismar acquisition has provided knowledge, physicals, storage and pipelines. This places us as a merchant seller of ethylene and propylene. Familiar with commodity markets. Excellent customer service capabilities in supply, storage, transportation and risk management. Expertise in trading and risk analysis tools. Backward integrated.

Preliminary View of Alaska Extraction / Petchem Complex Remove methane for Fairbanks supply Remove ethane for ethylene production –estimate extracting 50,000 BPD ethane Ethylene is feedstock for polyethylene plant Polyethylene pellets delivered by rail to Anchorage Excess gas and liquids re-injected for delivery to Alberta and beyond

Potential Alaska Petchem Project North Slope Ethane cracker Natural gas to Fairbanks Extraction plant Polyethylene Plant Anchorage Railroad Alberta

Petrochemical Feasibility Study Initiated on May 24, 2001 Analysis ongoing. Preliminary results favorable for world class polyethylene plant in Alaska CMAI engaged to perform international market evaluation CMAI evaluation due mid-October Williams study targeted for November completion –Originally planned for 9-12 months –Accelerated schedule to produce results in 6 months

Feasibility Study Components Natural gas and ethane price forecasts and differentials Ethane extraction costs Identification of markets Cost factors for Alaska vs. other locations Polyethylene and ethylene glycol price, supply, and demand forecasts Freight costs By-product disposition

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