1. The Role of Innovation in US Gulf Coast Competitiveness The Future of the Gulf Coast Petrochemical Industry Global Energy Management Institute University of Houston April 29, 2005 James H. D’Auria UOP LLC

2. Agenda The competitiveness gap Potential for technology innovations to improve competitiveness Key technology innovations Examples of options for the USGC The integration conundrum Final thoughts

3. The USGC Cost of Production Gap: Ethylene Example North American Ethane Crackers Have Become the High Cost Producers

4. How Can Technology Innovation Help? Technology can be developed to: – Make use of lower cost and/or unique feedstocks – Create feedstock or product flexibility — Hedge — Reduce volatility – Reduce required capital investment – Make existing assets more efficient – Integrate existing assets to increase efficiency – Improve product quality Competitive advantage is gained when technology innovations are linked with the right market or business circumstances

5. Alternative Feedstocks to Consider Low Value Refinery/Cracker Streams – Light Gases – By Product Olefins – Pentanes – Light Cycle Oil – Resid Remote Gas Coal ? Biomass ??? Basis for US Industry Advantage: GC Refining Concentration Atlantic Basin Stranded Gas Coal Reserves Biomass potential

6. Key Technology Innovations Use of Alternative feedstocks – Stranded Gas to Olefins/Polymers — “Mega-Methanol” Plants — Methanol to Olefins – Clean Coal Refinery- Petrochemical integration – Petrochemicals from FCC – Olefins Conversion – LCO Conversion – Naphtha optimization Longer term Breakthrough Technologies

7. Methanol/MTO Economies of Scale Constant IRR Mega Methanol Plants Enable Gas to Olefins Projects

8. MTO on the USGC

9. * Based on $85/MT methanol from Atlantic Basin Stranded Gas ** Based on $100/MT methanol USGC MTO Becomes Attractive At High Oil Prices

10. Clean Coal Technology Coal Gasification Synthesis Gas Methanol Power F-T Liquids Steam, H 2 Chemicals Alternative Gasification Feedstocks: Petroleum coke Resid bio-residue

11. Coal to Olefins in the US (@ $40/BBL Crude) * Based on correlation of ’97-’05 CMAI data: weighted avg. feedstock ** Assumes $125/MT methanol from coal High Oil Prices Improve Attractiveness of Coal To Olefins

12. Key Technology Innovations Use of Alternative feedstocks – Stranded Gas to Olefins/Polymers – “Mega-Methanol” Plants – Methanol to Olefins – Clean Coal Refinery- Petrochemical integration – Petrochemicals from FCC – Olefins Conversion – LCO Conversion – Naphtha optimization Longer term Breakthrough Technologies

13. Propylene from Refineries VGO Crude Oil CrudeColumn C 4 and Lighter Straight Run Gasoline Kerosene AGO VacuumColumn Vacuum Residue FCC Propylene Propylene Fuel Gas LPGGasolineDieselHeavy Fuel Oil PRU Downstream Processing UOP 4288K-4 Refinery FCC is an Important Source of Propylene

14. Petrochemicals from FCC Propylene Yield Unit Design and Operation Max. Gasoline 3 - 5 wt% Gasoline Enhanced Propylene 5 – 7 wt% C 3 = Gasoline High-Severity FCC 10 -16 wt% C 2 = C 3 = Gasoline PetroFCC 20 + wt% C 2 = C 3 = Aromatics UOP 4399A-7 Increasing Petrochemical Production Challenge: Manage Across Traditional Boundaries

15. Refineries FCC Olefin Recovery Gas Oils FCC Gasoline Cycle Oils Light Olefins C 4 -C 8 LPG C2=C2=C2=C2= C3=C3=C3=C3= Olefin Cracking Olefins Conversion Technology Naphtha Crackers Furnace Product Recovery C 5 /C 6 Paraffin-Rich C 4 /C 5 Olefins C2=C2=C3=C3=C2=C2=C3=C3= Olefin Cracking Naphtha UOP 4399A-22 Metathesis: Converts ethylene + C4 olefins to propylene Olefin Cracking: Converts C4 – C8 olefin streams to propylene + ethylene Utilize USGC refinery & liquid cracker capacity

16. ULSD New catalysis selectively opens rings to upgrade Light Cycle Oil to produce: – Clean fuels – BTX Aromatics Environmental Benefits: – Reduces HSFO production – ULS Diesel co-product – ULS Gasoline co-product Ring Opening to Upgrade LCO LCO LCO Ring Opening High Octane Gasoline Petrochemicals UOP 4288A-18 USGC Opportunity: Pool LCO Streams

17. Naphtha Optimization UOP 3994J-10 Naphtha Cracker Catalytic Reformer Iso/normal separation Full Range Naphtha C 5 -C 11 n-paraffins C7+C7+C7+C7+ Ethylene yield 30% higher than with conventional naphtha Same propylene yield Increased octane- barrel production Economic value of ~ $30 MM/year Requires close integration of olefins & gasoline production

18. Concentration of refining capacity in USGC provides basis for competitive advantage Technology innovations that cross traditional boundaries can create economic value and cost advantage - “On Paper” Barriers to integration are many: – Increasing complexity/Limiting flexibility – Conflicting objectives – Mixing disparate cultures – Difficult technical issues – Diffusing business focus (What business are we in?) The Integration Conundrum Need to develop integration enablers Business management practices Advanced process technology Information technology

19. Longer Term Technology Outlook Continuing investments are needed to develop new chemistries Example areas of focus: – Catalytic Naphtha Cracking – Paraffin Activation — Ethane + Benzene to EB — Direct Propane to PO, CAN, Acrylic Acid — Pentanes to Higher Value Chemicals – Direct Methane to Methanol – Renewables as Feedstocks (carbohydrates, biomass)

20. The Role of Technology: Final Thoughts Technologies are available today to take advantage of lower cost feeds – Remote gas, coal, refinery by-products Future technology advances will continue to come via process engineering & catalysis innovations New technology needs to be matched with the right situations to provide a competitive advantage. For USGC: – Integration with refining, power – Ability to increase propylene production – Pooling of by-product streams – Access to Atlantic basis remote gas, US coal Can we improve the risk-reward balance? – Cost to develop & commercialize new technology – First user risks & rewards – Government regulations & incentives – Market uncertainties

21. THANK YOU