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Industrial Gasification The Counter-Intuitive Strategy Play

Industrial Gasification The Counter-Intuitive Strategy Play. Mark Costa Senior Vice President Corporate Strategy & Marketing. Agenda: Industrial Gasification. Gasification Is Advantageous Eastman's Strong Gasification Credentials Our Strategy To Transform Eastman Chemical Company.

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Industrial Gasification The Counter-Intuitive Strategy Play

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  1. Industrial GasificationThe Counter-Intuitive Strategy Play Mark Costa Senior Vice President Corporate Strategy & Marketing

  2. Agenda: Industrial Gasification • Gasification Is Advantageous • Eastman's Strong Gasification Credentials • Our Strategy To Transform Eastman Chemical Company

  3. The Problem for the U.S. "Currently, there are plans to build more than 80 large-scale chemical plants across the globe in the coming decade … with price tags of a billion dollars or more, and thousands of good jobs. Andrew Liveris Chairman & CEO Dow Chemical Oct. 30, 2006 "Not a single one is planned for the U.S."

  4. The reason? Natural gas prices

  5. There is an alternativeCoal Is Lower Cost and Less Volatile Coal Prices vs. Comparable Raw Materials Crude (West Texas Intermediate) Natural Gas and Coal$ / MMBTU Crude$ / bbl Natural Gas (Houston Ship Channel) Coal (Illinois Basin) Note: All prices are in constant 2006 dollars Source: Eastman, GED

  6. Coal is One Alternative The U.S. Has Over 25% of the World's Coal Reserves United States has 250+ year supply of coal % of Total World Reserves Source: International Energy Agency and Dept. of Energy Information Adm. (EIA)

  7. Coal is An Alternative Coal Remains Low Cost Even as Demand Grows 2005 2025 Source: Cost Curve from ICF Consulting – 2003 updated to 2006, EIA for 2025 consumption

  8. Eastman's Strategy: Build on Coal • Leverage advantages of coal • Leverage our technology / know-how • Build world-class cost position in the U.S.

  9. Products (syngas): • CO • H2 • By-products: • H2S • CO2 • Ash (slag) • Steam Gasification Basics • Gasifier Section: • Controlled chemical reaction • High temperature • High pressure • Short residence time Oxygen (95-99%) N2 Air Gas Clean-Up Before Product Use! can adjust CO/H2 ratio Gasifier (quench type) Air Separation Unit Carbon Source (e.g., coal) + Water • Quench Zone (quench gasifier only): • Gas and molten ash quenched in circulating water bath • Ash/slag discharged out bottom as inert, glassy frit (saleable byproduct) + Rod Mill 10 Slag (Inert Minerals/Ash from Coal)

  10. Eastman's Coal Gasification Credentials Proven Expertise & Reliability Over 20+ Years • First to operate a commercial coal gasification facility in the U.S. • Only company to produce commercial quantities of acetyl chemicals from coal • Best, most experienced operator • Developed intellectual property related to gasification • Contributing to strong, sustained acetyl stream operating earnings

  11. Our Goal Is To Increase Volume Derived from Coal to 50% • Achieve low, stable cost positions in our olefins, acetyl, and polyester streams, capitalizing on the crude-to-coal spread • Position for growth in current products • Selectively expand into attractive new products • Producer, net buyer position in key raw materials

  12. What Raw Materials Are We Targeting From Gasification? Top Purchased Energy and Raw Materials Olefin Feedstocks Other Paraxylene Electricity Coal Cellulose Ethylene Glycol Other Crude and Natural Gas-Based Raw Materials Natural Gas

  13. Polyester Raw Materials Through Gasification Improves Product Costs Copolyester Products PET Products

  14. Polyester Raw Materials An Example Of One of Our Projects • North American Gasification Project • Facility would be base-loaded with high-value products to third-party customers • Several interested potential partners • Supply methanol to Eastman • Eastman Ethylene Glycol Project • Related project with Eastman as sole owner • Developing new technology to produce ethylene glycol • Projected 2nd quartile global cost position • Replace portion of Performance Polymers' and Specialty Plastics' purchased raw materials with low-cost, stable feedstock

  15. Disciplined Strategy to Mitigate Risk • 1st or 2nd quartile cost position • Long-term contracts for base-load products • EOR or sequestration of carbon Market Technology • Mixture of in-house and licensed technologies • Partner with others where it can cut development time Engineering, Procurement & Construction • Rely on our proven track record, best practices • Design choices for high-capital cost environment Partner • Eastman is favored partner for gasification projects • Appropriate deal structure • Proactive hiring and training of staff • Stage execution of projects Execution

  16. Summary Taking the Counter-Intuitive Route • Demonstrate technology possibilities for the US chemical industry • Position Eastman for growth in current products and, potentially, new products • Use domestic feed-stocks to transform our company

  17. Industrial GasificationThe Counter-Intuitive Strategy Play Mark Costa Senior Vice President Corporate Strategy & Marketing

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