A comprehensive review of the developments in shale gas affecting the North American petrochemical markets • The benefits and detriments of the shale gas revolution • Feedstock advantage spurs investment in new cracker builds and expansions • New polyethylene capacities and exports to Latin America • Lighter feed slates and the negative impact on heavier products, disconnect in ethylene/propylene production. • Most significant in propylene as constraints impact pricing and facilitate volatility. Spillover effect for derivative products. • Pending supply increases. Will it be enough? • The shale boom and its impact on aromatics • Lighter feed slates at crackers curbs aromatics output, negatively impact downstream products such as styrene, PTA, and PET • Increased crude from shale plays and impact on crude import/export balance • Northeast refineries shift to lighter crudes, trend likely to continue going forward. • Conclusion • What does this mean for the US petrochemical landscape going forward? • How will this impact/alter global petrochemical trade flows?

1. © 2013 Platts, McGraw Hill Financial. All rights reserved.
Kevin Allen
Managing Editor
Americas Petrochemicals and Biofuels - Platts
May 15, 2013
Houston, Texas
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2. 2
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker builds and expansions
• New polyethylene capacities and exports to Latin America
• Lighter feed slates and the negative impact on heavier products, disconnect in
ethylene/propylene production.
• Most significant in propylene as constraints impact pricing and facilitate volatility. Spillover
effect for derivative products.
• Pending supply increases. Will it be enough?
• The shale boom and its impact on aromatics
• Lighter feed slates at crackers curbs aromatics output, negatively impact downstream
products such as styrene, PTA, and PET
• Increased crude from shale plays and impact on crude import/export balance
• Northeast refineries shift to lighter crudes, trend likely to continue going forward.
• Conclusion
• What does this mean for the US petrochemical landscape going forward?
• How will this impact/alter global petrochemical trade flows?

3. Crude to gas ratio and the feedstock advantage
3

4. NGLs and the impact at the steam cracker
4
• Traditional light naphtha fed steam
crackers produce significantly less
ethylene however have a higher yield of
propylene and C4s. For instance, light
naphtha would give an ethylene yield of
near 35% but would give a propylene
yield of near 16% while offering up a C4
and butadiene yield of 9 and 5%,
respectively.
• Pygas output cut significantly with
ethane, propane and E/P mix feeds,
down from 19% with naphtha to 2-7%
depending on mix.
• Switching to NGLs, specifically ethane
and propane, increases ethylene output
to between 66-78% but cuts propylene
and C4 output virtually in half.

5. Robust margins spur investment in new capacities
5
New builds
Company Location MM mt/yr ETA
Aither Chemical/RMG TBD/USNE 0.20-0.30 2016
ExxonMobil Chemical Texas 1.5 2016
Formosa Plastics CUSA Texas 0.8 2016
ChevronPhillips Chemical Texas 1.5 2017
Dow Chemical Texas 1.5 2017
Sasol Louisiana 1.5 2017
Occidental/Mexichem Texas 0.55 2017
Shell Chemical Pennsylvania 1-1.50 2017
Expansions
Company Location MM mt/yr ETA
BASF-Total Texas 0.06 2012
Dow Chemical (restart) Louisiana 0.40 2012
Westlake Chemical Louisiana 0.11 2013
Williams Louisiana 0.23 2013
Ineos Texas 0.12 2013
Westlake Chemical Kentucky 0.08 2014
BASF-Total Texas 0.10 2014
Westlake Chemical Louisiana 0.11 2015
LyondellBasell Texas (3) 0.83 2014-16
Dow Chemical TX/LA (2) 0.40 2014-16

6. New ethylene capacities likely to be polymerized
Company Location MM mt/yr ETA
Formosa Plastics USA Texas (1) 0.3 (LDPE) 2016
ExxonMobil Chemical Texas (2) 1.3 (TBD) 2017
ChevronPhillips Chemical Texas (2) 1.0 (TBD) 2017
NOVA Chemicals Joffre, Canada 1.0 (LLDPE) 2017
NOVA Chemicals Sarnia, Canada World scale 2017
Dow Chemical USG TBD 2017
Shell Chemical Pennsylvania 1.0 (TBD) 2017
New polyethylene projects announced:
• At least 5.5 million metric tons of new PE capacity announced as a result of lower
production costs.
• Latin America is likely the target destination for US PE producers given higher prices and
shorter delivery time. The region boasts a population of near 600 million people with a
bourgeoning middle class in places like Mexico and Brazil.
• Additionally Latin America has seen strong economic growth with countries such as
Panama, Peru and Chile posting GDP growth in 2012 of 10.5, 6.2 and 5.5% respectively.
• Growth expected to continue as the United Nations' Economic Commission for Latin
America and the Caribbean (ECLAC) predicts the region's economy will expand by 4% in
2013.

7. Not all that glitters is gold…
7
So the US has a feedstock advantage, new ethylene and ethylene derivative capacities and an outlet
for this material in Latin America. What is the problem?
• US producers would have to alter their current
strategy.
• Margins destined to shrink over time as new
steam crackers increase ethane demand and
push prices higher.
• US ethylene and PE prices yet to see benefit of
cheap ethane.
• Producers must consider the 6.5 million metric
tons of additional capacities in Asia and the
Middle East slated to come online by 2015.
• Protectionism. Brazil increased its import tariff
on US PE from 14% to 20% in 2012.
Additionally Braskem is aggressively working to
expand its market share with projects in
Mexico, Venezuela, and Peru.

8. And then there is China…
• Finally there is China. If the
country’s economic growth
continues to lag at slightly
under 8%, buy interest will
wane and we could see re-
exports targeting places like
Peru and Chile
• As well, there have been a
number of coal to olefins
announcements in China. If
all are realized and run at
full rates, we could see an
additional 12.5 million
metric tons of olefins
capacity come online
8
*Nexant

9. 9
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker builds and expansions
• New polyethylene capacities and exports to Latin America
• Lighter feed slates and the negative impact on heavier products, disconnect in
ethylene/propylene production.
• Propylene and heavy products hit hard
• Production constraints due to NGL shift impact propylene pricing and facilitate volatility.
Spillover effect for derivative products.
• Pending propylene supply increases. Will it be enough?

10. US propylene output: refinery versus cracker
10
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Refinery
Cracker
• Between the years of 2000 and 2011, the percentage of propylene coming off the
steam cracker fell by roughly 40%. In 2011, propylene yields off steam crackers were
roughly 34%.
• During that same period, the percent of propylene off of refineries grew by over 30%
and accounted for near 65% of propylene production in 2011.
Source: Chemical Market Resources

11. Overview of steam cracker production at the end of 2012
• The preference for lighter feed slates weighed
heavy to close out 2012 .
• Propylene output from steam crackers in
December shrank 7.3% from the previous month,
to 28.53 million lbs/day while the P/E
(propylene/ethylene) ratio sank to 19.62%.
• The B/E (butadiene/ethylene) ratio has also seen
sharp declines in recent years, falling from near
8.25% in 2005 to close out 2012 at 5.50%, a
decrease of approximately 35%.
• Output of propylene and butadiene from steam
crackers seems unlikely to improve going
forward as the use of naphtha as a feed
continued to decline, estimated at 6.5% in
December, down from 13% in 2011 and 23.8% in
2008.
Source: Hodson Report

12. US propylene production in billions/lbs
If these estimates are indeed accurate, then total US propylene supply from ethylene
crackers in 2012 would be just under 4.4 million mt.
15.2
14.7
12.8
10.8
11.4
10.8
9.7
6.00
8.00
10.00
12.00
14.00
16.00
18.00
2006 2007 2008 2009 2010 2011 2012

13. Tight supply supports high PGP prices, fosters volatility

14. Volatility spills downstream to spot polypropylene

15. US PP export prices not competitive globally

16. US polypropylene exports in metric tons: 2006-2012
16
1,564,342
1,998,633
1,530,651 1,600,054
1,231,368 1,195,139
1,083,800
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2006 2007 2008 2009 2010 2011 2012
Source: ITC

17. Higher PP prices open the door for HDPE substitutions
17

18. Anticipated additional propylene from cracker projects
77,936
91,831
165,402 169,481
252,492
392,577
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2012 2013 2014 2015 2016 2017
*based on 100% ethane feedstock when applicable
Metric Tons

19. Company Location Capacity (mt/year) ETA
Dow Chemical Freeport, TX 750,000 2015
Enterprise Mont Belvieu, TX 750,000 Q3, 2015
C3 Petrochemicals Alvin, TX 1,200,000 H2, 2015
Formosa Point Comfort, TX 600,000 2016
Williams Redwater, Alberta 500,000 2016
*Dow Chemical TBD TBD 2018
*Enterprise Mont Belvieu, TX TBD TBD
*Under Study
PDH units to provide lion’s share of new supply
• PDH announcements continue to increase with several companies announcing new
capacities with at least two projects under study. Total increase in production expected at
3.8 million mt/year by 2016, assuming all projects a realized.

20. Anticipated North American PP consumption
7,758,000
7,940,000
8,133,000
8,338,000
8,553,000
7,200,000
7,700,000
8,200,000
8,700,000
2011 2012 2013 2014 2015
Source: Townsend Solutions
Metric Tons

21. 21
• Total propylene output from steam
crackers in the US in 2012 was just under
4.4 million mt.
• Additional output from new steam
cracker projects expected to be about
392,500 mt.
• If all on purpose PDH units, not currently
under study but including Williams
Alberta unit, come to fruition, propylene
supply in the US will increase 3.8 million
mt.
4,400,000 +
392,500 +
3,800,000
--------------
8,592,500 mt
Expected capacity increase from crackers and PDH units
• This raises the question: Is 8.592 million mt
of new propylene capacity enough?

22. 22
• To meet anticipated
polypropylene demand in the
North America in 2015, monomer
supplies would need to be just
under 8.725 million mt.
• Factor in continued growth in PP
consumption at 2.5% per year and
North American demand for
propylene in 2016 would be
8,942,161 mt.
• In 2017, presuming consumption
levels in the region hold steady,
total propylene demand needed
for PP would be just under 9.165
million mt.
C3 from crackers will not meet expected PP demand
(Total US production - 2017) 8,592,500 –
(PP demand in 2017) 9,165,720
--------------
(573,220)

23. 23
Agenda
• The benefits and detriments of the shale gas revolution
• Feedstock advantage spurs investment in new cracker builds and expansions
• New polyethylene capacities and exports to Latin America
• Lighter feed slates and the negative impact on heavier products, disconnect in
ethylene/propylene production.
• Propylene and heavy products hit hard
• Production constraints due to NGL shift impact propylene pricing and facilitate
volatility. Spillover effect for derivative products.
• Pending propylene supply increases. Will it be enough?
• The shale boom and its impact on aromatics
• Lighter feed slates at crackers curbs aromatics output, negatively impact
downstream products such as styrene, PTA, and PET
• Increased crude from shale plays and impact on crude import/export balance
• Northeast refineries shift to lighter crudes, trend likely to continue going
forward.

24. The shale boom and it’s impact on aromatics
24
The shift to lighter feed slates by US steam cracker operators has negatively impacted
aromatics output at the cracker. From 2011-2012 we can see a sharp reduction in benzene
production from steam crackers in where volumes declined by over 17.5%.
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
2011 2012 2013 2014 2015 2016 2017
Metric Tons

25. 112,405
125,584
99,376
128,385
99,450
141,212
130,619
145,038
109,478
149,697
80,000
90,000
100,000
110,000
120,000
130,000
140,000
150,000
160,000
170,000
Aug
2011
Sep
2011
Oct
2011
Nov
2011
Dec
2011
Jan
2012
Feb
2012
Mar
2012
Apr
2012
May
2012
Jun
2012
Jul
2012
Sep
2012
Nov
2012
Oct
2012
Dec
2012
Jan
2013
Feb
2013
Mar
2013
Benzene exports from South Korea (in metric tons)

26. Benzene prices strong, prone to volatility
26

27. Toluene and MX from crackers to experience similar fate
Blue = Anticipated toluene output
Red = Anticipated MX output
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
2011 2012 2013 2014 2015 2016 2017

28. This is bad news for aromatic derivatives
28
• Tighter supply has led to higher mixed xylene
prices which means higher paraxylene prices.
• Paraxylene is a feedstock for PTA, which then is a
feedstock for PET. The end use for PET in North
America is from bottled beverages though PET
fiber constitutes a larger chunk of demand in Asia.
• Higher mixed and paraxylene prices also make US
exports less attractive to buyers in Asia, which is
significant as demand for xylenes in the region is
expected to be strong amid a surge of new PTA
production.
• China alone is expected to see 10.9 million mt of
capacity come online by the first half of this year.
Asian PTA capacity is expected to increase by near
19 million mt by 2015.

29. US mixed xylene and toluene blend values
29

30. Impact from shale not confined strictly to gas
• Aromatics production in the US has been constrained, not only by the shift to lighter
feeds at the cracker, but also at the refinery due to increased production of
unconventional tight oil.
• Crude from the Eagle Ford play is set to surge in the coming years with production
slated to increase more than three-fold between 2012-2020.
• Prior to the shale boom, refiners were utilizing crude which had an estimated 40%
naphthene and aromatic cut. The naphthene and aromatic cut from unconventional
tight oil is estimated at near 35%.
• The reduction of aromatics as a result of shale plays is difficult to quantify though as
many US refiners cannot run straight Eagle Ford crude and are most likely to blend with
heavier crudes.
• Trend shows that refiners in the Northeast and Gulf Coast are utilizing lighter crudes
with a higher API.
30

31. US crude production versus imports
MBPD
0.00
2.00
4.00
6.00
8.00
10.00
12.00
US Production
US Imports
MBPD
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

32. Average API of crude input GC/NE refineries
32
Since 2007-08, we can see a shift toward lighter crudes with higher APIs. Of particular
interest here is the input into refineries in the Northeast, which have seen a shift from
medium crudes in 2008 to lighter crudes in 2012. Similar movement can be seen in the
US Gulf inputs below, though not as pronounced.
27.83
29.7
30.95
32.93
22
24
26
28
30
32
34
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

33. Conclusion
• Vast reserves of shale gas have revived the US petrochemical industry and prompted
investment in new projects.
• Brownfield projects most likely to benefit from cost advantage while those who come
late to the game will see margins crunched as demand for ethane pushes costs higher.
• New ethylene capacities likely to be polymerized and global trade flows will shift as US
demand will not keep pace. US sellers will likely target Latin America, the Caribbean and
to a lesser extent Europe and Africa however increased PE capacities globally, shrinking
prices/margins due to increased PE supply, and protectionism in Latin America could
prove to be problematic.
• Propylene and derivatives will continue to take a beating as a result of the shift to
lighter feed slates at the cracker. Even with new production from planned PDH units,
propylene supply from crackers will be insufficient to meet PP demand.
• US aromatics production negatively impacted by shale gas and crudes with benzene
likely to be hardest hit.
• Processing unconventional tight oil likely to continue as companies such as Phillips 66,
FHR and Marathon invest in Eagle Ford projects and look to increase capacity to process
Eagle Ford crude.
33

34. Thank you
Visit www.platts.com to register to see more of this
great petchems content & why not join the
Platts Petrochemical group on LinkedIn to receive the latest updates
Kevin Allen
Managing Editor – Americas Petrochemicals
kevin_allen@platts.com