1. ISM Chemical Group Drivers Behind Raw Material Impacts Gerald W. Cross Eastman Chemical Company February 23-24, 2006 February 23-24, 2006

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

3. Oil 20 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

4. 200% increase over the last 3 years '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? Jan '06 ~ $58/bbl Aug '05 – peaked over $70/bbl

5. 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%

6. (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

7. Higher costs of ethylene cracker feedstocks Higher conversion costs '90-'99 Avg = $2.07/mmbtu '00-'03 Avg = $4.27/mmbtu '04 Avg = $6.12/mmbtu '05 Avg = $8.29/mmbtu CMAI Data Jan '06 ~ $8-9/mmbtu U.S. Natural Gas Spot deals Sept '05 ~ $20/mmbtu

8. Highest nat gas prices in the world

9. Crude Oil and Natural Gas provide feed to Steam Crackers which produce ethylene and propylene with PYGAS as a by-product. PYGAS is separated into Aromatics (BTX) and Aliphatics (Crude streams) Natural Gas also impacts the industry as a feedstock Natural Gas Separation Unit Refinery Crude Oil Steam Cracker Pygas Benzene Aliphatics (Crude C5 Splitter) Naphtha Gas Oil EthanePropaneButane Propylene Ethylene Xylene Toluene Aromatics Dicyclopentadiene Isoprene Raffinate Piperylenes C9 Resin Oil HC Resins Methanol Acetic Acid VAMEVA Crude C4 Olefins Styrene

10. Real Life Polymer Examples – 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

11. 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 – octane boosters Alternative value 97.6% correlation

12. 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

13. 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

14. Hurricanes Katrina and Rita Hurricanes Katrina and Rita Damages and Recovery Damages and Recovery Look Forward Look Forward Recent and Current Issues

15. Impact of Hurricanes Katrina, Rita, and Ivan Impact on Crude Oil and Natural Gas Infrastructure Katrina went through the eastern 1/3 Rita went through the western 2/3 Ivan only brushed the edge (Sept '04) Hurricane Ivan ('04)

16. Impact of Ivan (Sept '04): Ivan hit two states away from Louisiana: Ivan hit two states away from Louisiana: 7% of Gulf oil production shut-in 7% of Gulf oil production shut-in 4% of Gulf natural gas production shut-in 4% of Gulf natural gas production shut-in Impact of Katrina (Aug '05): 90% of Gulf crude oil production shut-in 90% of Gulf crude oil production shut-in 75% of Gulf natural gas production shut-in 75% of Gulf natural gas production shut-in 8.5% of US refining capacity shut-in 8.5% of US refining capacity shut-in Impact of Rita (Sept '05): 100% of Gulf crude oil production shut-it 100% of Gulf crude oil production shut-it 80% of Gulf natural gas production shut-in 80% of Gulf natural gas production shut-in 16 major refineries in the Gulf Coast region shut-in 16 major refineries in the Gulf Coast region shut-in Impact of Hurricanes Katrina, Rita, and Ivan

17. Overall damage caused by Hurricanes Katrina and Rita Overall damage caused by Hurricanes Katrina and Rita Greatest natural disaster to affect the oil and gas development in the history of the Gulf of Mexico Greatest natural disaster to affect the oil and gas development in the history of the Gulf of Mexico Platforms Platforms 115 destroyed 115 destroyed 52 significant damage 52 significant damage Substantial production will take several months to resume Substantial production will take several months to resume Rigs Rigs 8 destroyed 8 destroyed 19 suffered extensive damage 19 suffered extensive damage 19 adrift 19 adrift Pipelines Pipelines 183 damaged 183 damaged Only 22 returned to service Only 22 returned to service 65% of large diameter pipelines that were damaged still have not been repaired and returned to service 65% of large diameter pipelines that were damaged still have not been repaired and returned to service Assessments on pipeline and facility damages are still ongoing Assessments on pipeline and facility damages are still ongoing Additional damage will likely be reported Additional damage will likely be reported Current Assessment of Damage and Losses Data as of 1/19/2006

18. Hurricane damage to Gulf oil and gas facilities still being discovered offshore Hurricane damage to Gulf oil and gas facilities still being discovered offshore Repair of damaged oil and gas production cannot be completed before the 2006 hurricane season begins Repair of damaged oil and gas production cannot be completed before the 2006 hurricane season begins About 255,000 bbls/day of oil capacity projected shut-in About 255,000 bbls/day of oil capacity projected shut-in About 400 MM cubic feet of daily gas capacity projected shut-in About 400 MM cubic feet of daily gas capacity projected shut-in 100% Gulf oil production shut in by the two storms 100% Gulf oil production shut in by the two storms 1.5 MM bbls/day – total Gulf oil production 1.5 MM bbls/day – total Gulf oil production 396,000 bbls/day remains shut in 396,000 bbls/day remains shut in 94% Gulf gas production shut in by the two storms 94% Gulf gas production shut in by the two storms 10B cubic feet (bcf) – total Gulf gas production 10B cubic feet (bcf) – total Gulf gas production 1.8 bcf remains shut in 1.8 bcf remains shut in Current Assessment of Damage and Losses Data as of 1/19/2006

19. As of early January, 27.4% of crude oil still shut-in Cumulative losses since 8/26 have been over 100 MM bbls (~20% of annual GOM production)

20. As of early January, 19.5% of natural gas still shut-in Cumulative losses since 8/26 have been over 500 BCF (~15% of annual GOM production)

22. Raw Materials and Energy – Looking Forward Some significant infrastructure damage – will affect supply & prices of crude oil, natural gas and other products for weeks, if not months. Disclaimer Can't forecast natural disaster impacts Can't forecast natural disaster impacts Forward look based on info from multiple consultants and gov. sources Forward look based on info from multiple consultants and gov. sources Crude Oil: Prices around $68/bbl Prices around $68/bbl Average from 1990-1999 was $19.70/bbl Average from 1990-1999 was $19.70/bbl 2006 – likely to remain high; slow decline 2006 – likely to remain high; slow decline Natural Gas: Prices – wide variability - $8-9/mmbtu Prices – wide variability - $8-9/mmbtu Average from 1990-1999 was $2.07/mmbtu Average from 1990-1999 was $2.07/mmbtu Inventories are high Inventories are high Warm winter so far Warm winter so far Cold weather would likely increase prices Cold weather would likely increase prices 2006 – likely to be high through Q1 2006 – likely to be high through Q1 Probably some decrease the rest of year Probably some decrease the rest of year Dependent on weather and recovery in GOM region Dependent on weather and recovery in GOM region Comments from DOE-EIA Crude Oil Crude Oil 2005 avg = $57/bbl est 2005 avg = $57/bbl est 2006 avg = $64-65/bbl est 2006 avg = $64-65/bbl est Comments from DOE-EIA Natural Gas Natural Gas 2005 avg = $9.15/mmbtu est 2005 avg = $9.15/mmbtu est 2006 avg = $9/mmbtu est 2006 avg = $9/mmbtu est Likely $10+ thru winter Likely $10+ thru winter

23. Unleaded Gasoline Prices increased significantly after hurricanes Prices increased significantly after hurricanes Reached ~$2.25/gal for wholesale ULP Reached ~$2.25/gal for wholesale ULP Fell due to imports and inventories Fell due to imports and inventories Average from 1990-1999 was $0.596/gal Average from 1990-1999 was $0.596/gal Q1 price likely to remain high Q1 price likely to remain high Price likely to follow crude oil pricing Price likely to follow crude oil pricingBenzene: December settlement of $2.18/gal December settlement of $2.18/gal Jan - $2.46/gal Jan - $2.46/gal Feb nomination - $3.00/gal Feb nomination - $3.00/gal Price likely to remain volatile Price likely to remain volatile Supply/demand and crude oil movement Supply/demand and crude oil movement Logistics and Transportation Still an issue Still an issue Raw Materials and Energy – Looking Forward

24. Closing Summary Cost Increases in the U.S. economy Cost Increases in the U.S. economy Each $10/bbl increase in oil = $2.6 B/yr Each $10/bbl increase in oil = $2.6 B/yr Each $1/mmbtu increase in natural gas = $3.7 B/yr Each $1/mmbtu increase in natural gas = $3.7 B/yr Basic raw materials and energy Basic raw materials and energy Inventories above average Inventories 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 Dependent on raw materials, energy, and production capability Dependent on raw materials, energy, and production capability Producers are getting squeezed Producers are getting squeezed Security of supply may be key for the foreseeable future Security of supply may be key for the foreseeable future

25. Thank you Gerald W. Cross Eastman Chemical Company Kingsport, TN