1. Is Liquids Cracking the Future of Gulf Coast Petrochemicals? Fran Keeth Executive Vice President Shell Chemicals Limited

2. 2 ‘Gas’ Cracker Ethylene Petrochemical feedstock: oil and gas Ethylene Co-products (Propylene, C4s, Gasoline, Aromatics) Liquids Cracker Raw Natural Gas Crude Oil transportation fuels, heat, power power, heat Naphtha, Gas Oil Refinery distillation Gas Cracking Liquids Cracking Separation of natural gas and natural gas liquids (NGLs) Ethane, Propane, Butane USGC Ethylene Production 70% from Gas 30% from Liquids

3. 3 Feedstock Gas (NGL) Energy Fixed Cost Co-Product Credits Ethylene manufacture Feedstock Liquids Energy Fixed Cost Co-Product Credits: Propylene C4s Gasoline Aromatics Net Ethylene Cost From Liquids Net Ethylene Cost From Gas (NGL)

4. 4 Natural Gas to Crude Oil Ratio 1990 – 1997 Average = 0.60 1998 – 2004 Average = 0.88 @ 6 MMBtu/bbl

5. 5 Source: CMAI Historical ethane vs. naphtha cracking margins for generic USGC crackers

6. 6 Global ethylene production costs Middle East lowest cash cost Ethane availability enables Middle East supply growth Middle East 9% of world ethylene today  14% by 2010 Source: CMAI

7. 7 -2.0 -8.3 -1.1 2.5 9.9 1.0 -0.4 -0.9 0.3 -1.3-1.1-0.9 1.8 1.9 Shifting trade flows in polyethylene Net trade in polyethylene 1996 – 2010 (mln t/a ) export import 1996 2001 2010 1.8 Source: historical data - Parpinelli TECNON; Shell forecasts

8. 8 Percent Co-Product Price Composite Index USGC Generic Naphtha Cracker Basket of naphtha cracker co-product values, normalized by crude price and indexed to long- term average, includes propylene, C4s, pyrolysis gasoline components 1985 – 2003 Average = 100% Increasing in 2004

9. 9 Higher Values for “non-C2” Source: CMAI On-Purpose Propylene Growth

10. 10 US Ethylene Market Source: CMAI Expected demand growth met by capacity creep/de-bottlenecks

11. 11 USGC Refining Picture - Current No new grass roots US refineries in last 30 years US fuels demand greater than domestic supply Global demand and limited supply growth => favorable margins in recent years Clean fuels regulations - less sulfur - less aromatics (Bz) - lower vapor pressure & MTBE Invested/investing in hydrotreating & coking

12. 12 Western Hemisphere Crude Shifts Source: Simmons & Co., Platts

13. 13 USGC Refining Picture – Future? Refinery additions - chemicals feed? -Gasoline future: FCC, coking, benzene extraction -Distillate future: Hydrocracking & coking -Steam cracking as ‘conversion capacity’ -Only integrated refining/chemical companies likely to play

14. 14 WeakStrong Co-product Values High Low Natural Gas/ Oil Ratio Relative Competitiveness of USGC Cracking – Gas vs. Liquids Liquids >> Gas Liquids << Gas Future? Past X X

15. 15 Conclusions Liquids cracking competitiveness improves Demand does not warrant new crackers (liquid or gas) New liquids feedstock opportunities may be created Revitalization of USGC petrochemicals based on liquids feeds unlikely We need to make the most of what we have

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