Crude Oil and Natural Gas Drivers Behind Adhesive Raw Material Impacts

Oil ~22 MM BPD Transportation, Industrial & Heating Fuels Heating Fuels Refining Naphtha Gas Oil 7% Petrochem Nat Gas ~60 B ft 3 /day Methane (Fuel Gas) 95% GasProcessing Ethane, Propane Natural Gasoline, Butane 5% U.S. Petrochemicals Usage 93% 58% Imported

From One Barrel of Oil… PetrochemicalFeedstocks7% Gasoline, Diesel and Jet Fuel 66% Data from *modified to better fit categories Industrial and Home 27% U.S. Data

'90-'99 Avg = $19.7/bbl '00-'03 Avg = $28.3/bbl '04 Avg = $41.4/bbl '05 Avg = $56.7/bbl CMAI Data Why the upward trend? Apr '06 ~ $70/bbl Aug '05 – peaked over $70/bbl Cost increases in the U.S. economy Each $10/bbl increase in oil = $80 B/yr Chemical Industry = $2.6 B/yr

Global Demand for Oil Has Accelerated demand growth, rolling 4 qtr avg, mb/d, Significant growth in China Global Economic Recovery Demand growth of industrialized countries is ~ 1%

(yet with low per capita consumption) Oil demand, MM bpd Oil demand, bbls per capita per year China is now 2nd largest user of crude oil globally 10 years ago – net exporter Today – import 40% of demand Projected demand growth of 7.5% per year ~18 MM bpd in 15 years India – relatively small demand Projected demand growth of 5.5% per year China's crude oil consumption has grown dramatically 1/3 of global population

Global Capacity ~86.5 MM bbls/day Global Capacity ~86.5 MM bbls/day Global Production ~85 MM bbls/day Global Production ~85 MM bbls/day Current Excess Capacity = 1.5 MM bbls/day Current Excess Capacity = 1.5 MM bbls/day OPEC - major producing region OPEC - major producing region Capacity = ~35 MM bbls/day Capacity = ~35 MM bbls/day Production = ~34 MM bbls/day Production = ~34 MM bbls/day Supply is expected to increase Supply is expected to increase 2010 Excess Capacity = 3.5 MM bbls/day 2010 Excess Capacity = 3.5 MM bbls/day ~40 Major projects over the next 5 years ~40 Major projects over the next 5 years 15 OPEC & 25 non-OPEC 15 OPEC & 25 non-OPEC Saudi Arabia – large program Saudi Arabia – large program U.S. – recovery from Hurricane damage U.S. – recovery from Hurricane damage Former Soviet Union countries – continue to increase production Former Soviet Union countries – continue to increase production Canadian Tar Sands – continue to be developed Canadian Tar Sands – continue to be developed Crude Oil Production

'90-'99 Avg = $2.07/mmbtu '00-'03 Avg = $4.27/mmbtu '04 Avg = $6.12/mmbtu '05 Avg = $8.29/mmbtu CMAI Data Apr '06 ~ $8/mmbtu U.S. Natural Gas Spot deals Sept '05 ~ $20/mmbtu Higher costs of ethylene feedstocks Higher conversion costs – energy Cost increases in the U.S. economy Each $1/mmbtu increase in natural gas = $23 B/yr Chemical Industry = $3.7 B/yr

Impact of Crude Oil and Natural Gas on the Adhesives Market Natural Gas Separation Unit Refinery Crude Oil Steam Cracker Pygas Benzene Aliphatics (Crude C5 Splitter) EthanePropaneButaneNaphtha Gas Oil Propylene Ethylene Xylene Toluene Aromatics Dicyclopentadiene Isoprene Raffinate Piperylenes C9 Resin Oil HC Resins Methanol Acetic Acid VAMEVA Crude C4 Olefins Styrene

Real Life Polymer Example – SIS Polymers Supply chain shows shortages and potential shortages Supply chain shows shortages and potential shortages Large number of SIS producers with adequate capacity Large number of SIS producers with adequate capacity In spite of sufficient SIS capacity the upstream supply creates a shortage In spite of sufficient SIS capacity the upstream supply creates a shortage Recovered Crude C5’s SIS Ethylene Benzene Styrene DeWitt & Company Purified Isoprene Steam Cracker

Benzene has historically traded at 2x crude when supply and demand have been in balance. '90-'99 Avg = $1.05/gal '00-'03 Avg = $1.28/gal '04 Avg = $2.88/gal '05 Avg = $2.90/gal Strong demand from China CMAI Data Relationship of Crude Oil to Adhesive Raw Material Products U.S. Data

Styrene price typically changes by 1 c/lb for every 10 c/gal change in Benzene price Tight supply/demand Increase following benzene CMAI Data Relationship of Crude Oil to Adhesive Raw Material Products U.S. Data

CMAI Data Relationship of Crude Oil to Adhesive Raw Material Products U.S. Data Gasoline impacts the costs of numerous downstream products. Aromatics and aliphatics – gasoline pool Alternative value 97.8% correlation

Katrina and Rita 3Q2005 Katrina and Rita 3Q2005 Impact of Initial Damages Impact of Initial Damages Current Assessment of Recovery Current Assessment of Recovery Lingering Impact on Prices Lingering Impact on Prices Forward Look Forward Look Hurricanes Rocked the Petrochemical Industry in 2005:

Impact of Hurricanes Katrina, Rita, and Ivan Impact on Crude Oil and Natural Gas Infrastructure Katrina (Cat 5) went through the eastern 1/3 Rita (Cat 5) went through the western 2/3 Wilma (Cat 5) hit Yucatan and Florida

Katrina (Aug '05):  90% - Gulf Crude Oil Production Shut-in  75% - Gulf Natural Gas Production Shut-in  8.5% - US Refinery Capacity Shut-in Rita (Sept '05):  100% - Gulf Crude Oil Production Shut-in  80% - Gulf Natural Gas Production Shut-in  16 - Refineries in the Gulf Region Shut-in Initial Impact of Hurricanes

Damage Caused by Hurricanes Katrina and Rita: Platforms:  115 Destroyed  52 Significantly Damaged Rigs:  8 destroyed  19 with extensive damage  19 set adrift Pipelines:  183 Damaged  42 of the 64 Large Diameter Pipelines Out of Service Current Assessment of Damage and Losses April 2006

Current Assessment of Damage and Losses April % Gulf oil production shut in by the two storms 100% Gulf oil production shut in by the two storms 1.5 M bbls/day – Total annual Gulf crude oil production 1.5 M bbls/day – Total annual Gulf crude oil production 310K bbls/day – remains shut in (~20%) 310K bbls/day – remains shut in (~20%) 94% Gulf gas production shut in by the two storms 94% Gulf gas production shut in by the two storms 10 BCF/day – total annual Gulf natural gas production 10 BCF/day – total annual Gulf natural gas production 1.1 BCF/day – remains shut in (~11%) 1.1 BCF/day – remains shut in (~11%) Repair of damaged crude oil and natural gas production cannot be completed before the 2006 hurricane season begins Repair of damaged crude oil and natural gas production cannot be completed before the 2006 hurricane season begins April 5, 2006 – 2006 predicted to be another active hurricane season April 5, 2006 – 2006 predicted to be another active hurricane season 17 named storms 17 named storms 9 hurricanes 9 hurricanes 5 intense storms 5 intense storms

Forward Look – Raw Materials and Energy Significant infrastructure damage from hurricanes Significant infrastructure damage from hurricanes Has affected supply & prices of raw materials and energy for months Has affected supply & prices of raw materials and energy for monthsDisclaimer Can't forecast natural disaster impacts Can't forecast natural disaster impacts Forward look based on information from multiple consultants and government sources Forward look based on information from multiple consultants and government sources Crude Oil: Prices above $70/bbl Prices above $70/bbl Record closing price on April 19 th Record closing price on April 19 th June price is currently $74/bbl June price is currently $74/bbl Average from was $19.70/bbl Average from was $19.70/bbl 2006 – likely to remain high 2006 – likely to remain high Comments from DOE-EIA Crude Oil Crude Oil 2006 avg = $65/bbl estimate 2006 avg = $65/bbl estimate 2007 avg = $61/bbl estimate 2007 avg = $61/bbl estimate

Forward Look – Raw Materials and Energy Crude Oil - Current Issues Bearish Factors Bearish Factors High Inventories – Strong imports, mild US winter High Inventories – Strong imports, mild US winter Bullish Factors Bullish Factors Tight Supply/Demand Tight Supply/Demand Heavy U.S. refinery maintenance season Heavy U.S. refinery maintenance season Some work deferred after hurricanes Some work deferred after hurricanes Geopolitical Issues Geopolitical Issues Venezuela ~ 2.8 MM bbls/day Venezuela ~ 2.8 MM bbls/day Political Tensions – Chavez threats Political Tensions – Chavez threats Jail diplomats, close U.S. refineries (Citgo), stop oil exports to the U.S. Jail diplomats, close U.S. refineries (Citgo), stop oil exports to the U.S. Nigeria ~ 2.7 MM bbls/day – Africa's largest oil producing country Nigeria ~ 2.7 MM bbls/day – Africa's largest oil producing country Internal political unrest Internal political unrest Damage to oil facilities and infrastructure, kidnapped workers Damage to oil facilities and infrastructure, kidnapped workers Iran ~ 4.2 MM bbls/day exports Iran ~ 4.2 MM bbls/day exports Political issues – nuclear program Political issues – nuclear program Saudi Arabia ~ 11.1 MM bbls/day Saudi Arabia ~ 11.1 MM bbls/day Terrorist targets? Terrorist targets? Not enough excess capacity in to make up for potential losses Not enough excess capacity in to make up for potential losses How high could crude go? How high could crude go?

Forward Look – Raw Materials and Energy Natural Gas: Prices – $8/mmbtu Prices – $8/mmbtu Average from was $2.07/mmbtu Average from was $2.07/mmbtu High Inventories - warm winter High Inventories - warm winter 2006 – continued high price 2006 – continued high price Jan'07 options currently around $12/mmbtu Jan'07 options currently around $12/mmbtu Comments from DOE-EIA Natural Gas Natural Gas 2006 avg = $8.87/mmbtu estimate 2006 avg = $8.87/mmbtu estimate 2007 avg = $8.70/mmbtu estimate 2007 avg = $8.70/mmbtu estimateBenzene: April settlement – $2.80/gal April settlement – $2.80/gal Price likely to remain volatile Price likely to remain volatile Supply/demand Supply/demand Crude oil movement Crude oil movement

Unleaded Gasoline Prices increased significantly after hurricanes ~$2.25/gal Prices increased significantly after hurricanes ~$2.25/gal Fell due to imports and inventories Fell due to imports and inventories April 18, Back up to $2.23/gal April 18, Back up to $2.23/gal Average from was $0.596/gal Average from was $0.596/gal U.S. Gasoline reformulation issues U.S. Gasoline reformulation issues MTBE being removed MTBE being removed Ethanol and toluene/xylene filling the gaps Ethanol and toluene/xylene filling the gaps Transportation concerns Transportation concerns Mandated sulfur reductions Mandated sulfur reductions Potential to decrease U.S. gasoline production & increase imports Potential to decrease U.S. gasoline production & increase imports 2006 prices likely to remain high 2006 prices likely to remain high Follow crude oil pricing Follow crude oil pricing Will impact other chemicals Will impact other chemicals Logistics and Transportation Still an issue Still an issue Forward Look – Raw Materials and Energy

Closing Summary Cost Increases in the U.S. economy Cost Increases in the U.S. economy Each $10/bbl increase in oil = $80 B/yr Each $10/bbl increase in oil = $80 B/yr Each $1/mmbtu increase in natural gas = $23.7 B/yr Each $1/mmbtu increase in natural gas = $23.7 B/yr Basic raw materials and energy Basic raw materials and energy Inventories average or above average Inventories average or above average But… prices continue to be volatile But… prices continue to be volatile Several chemical intermediates are tight Several chemical intermediates are tight Need to know supply chain and any weak links Need to know supply chain and any weak links Impacted by raw materials, energy and production capabilities Impacted by raw materials, energy and production capabilities Producers are getting squeezed Producers are getting squeezed Hurricane season could cause problems again Hurricane season could cause problems again Security of supply for chemical intermediates and adhesive raw materials is likely to be key for the foreseeable future Security of supply for chemical intermediates and adhesive raw materials is likely to be key for the foreseeable future