How short will ethylene get?

1. How short will ethylene get? Peter Frenken Fourth Global PVC Conference 18-19 November 2003

2. SABIC: “a new kid in town”? Global competitiveness and who are the locals? Enough mega plant addittions to supply ethylene? Conclusions and answers!

3. SABIC : Facts and Figures

4. SABIC strategy • Growth total products capacity from 35 million mt/year in 2001, 40 million mt/year in 2002 and to 48 mt/year in 2010. • For Petrochemicals SABIC has a global strategy. • Share of Petrochemicals : 14.5 million mt/year Basic Chemicals (ethylene, propylene, methanol, MTBE, butadiene etc.) 4.8 million ton of Polyolefins. • Strengthen positions in Petrochemicals by acquisitions and autonomous growth. • Constantly exploring overseas opportunities for acquisition.

5. Basic facts SABIC Established in 1976 16,800 employees in 23 countries (EU 2,300) Sales € 11.4 bln in 2002 Net profit: 2003 Q1/Q2 850 mln $ Total production in 2002 were 40 mln tonnes (EU 6 mln) 70% shares by KSA government Joint Ventures with a.o. Shell, Exxon and Mitsubishi

6. Ethane Methane Butane Styrene Propane Naphtha Benzene Salt Air Limestone Natural Gas Phosphate Rock Aluminium Potash Basic Chemicals Ethylene Propylene Butadiene Butene-1 Methanol (MEOH) Crude Industrial Ethanol (CIE) Methyl Tertiary Butyl Ether (MTBE) Benzene Styrene ParaXylene SABIC Feedstocks/Major Products (excl Metals) Sourced PRODUCED Intermediate Chemicals • Ethylene Glycol • Vinyl Chloride Monomer • Caustic Soda • 2-Ethyle Hexanol • Dioctyl Phthalate • Ammonia • PTA • Oxygen • Nitrogen • Argon • Fertilizers • Ammonia • Urea • Sulphuric Acid • Polymers • Polyester • Polystyrenes • Melamine • PVC • HDPE • LDPE • LLDPE • PP

7. SABIC’s European acquisition…… • First important step outside KSA towards leading global manufacturing position in petrochemicals • Closer to European customers and expansion of customer base • European production sites • Experienced Marketing and R&D staff in Europe • Springboard for further growth in Europe • Building on SABIC’s knowledge and know-how in the field of polymers and hydrocarbons

8. ……of an allready growing affiliate…… (Kton)

9. …. resulted in a #4 global ranking for ethylene…. KTa

10. …. and for poly-olefins as well. (#4 in EU) Kton

11. Houston Yanbu Summarising SABIC Manufacturing and R&D sites 4 highly integrated sites direct access to low cost feedstock world-scale facilities direct market access Gelsenkirchen Geleen Al Jubail Vadodara Riyadh Kerteh

12. Global competitiveness developments: Europe has become a local-for-local producer, USGC will get one

13. What about cycles in the global petrochemical industry ?

14. Which drivers to manage in a cyclical business? • Access to feedstock • Large scale • Site integration • Close to markets

15. #1: Cheap gas feedstock only in the Middle East Can Nor Russia UK Ukr. USA Neth. Turkm. Kaz. Uzb. China Mex Iraq Iran India Lib. Bangl Alg. Kuw Mal Pak. Ven UAE Indon. Saudi Qatar Nig. Aus

16. Impact of cheap feeds on derivatives will be …. Take into consideration: Cracker feedstock License cost Infrastructure Marketing and Sales cost Research and Development Other business cost Working capital … … LLDPE gasphase 350 kta HDPE slurry 300 kta Europe PP gasphase 2*200 kta Co-products extensionnaphtha cracker650 kta HDPE gasphase 350 kta LLDPE gasphase 2*350 kta Middle East Ethane cracker 1050 kta

17. …. a major cash costs advantage for the ME ME producer NWE producer Typical ranges for gas and naphtha Structural delta in cash cost Low High Low High Gas price ($/mmBTU) Naphtha (EUR/t) On a delivered cost basis this advantage will remain!

18. #2: Middle East will have scale advantage as well

19. Strong cracker sites are concentrated in the ARG region #3: Integration Strong sites: Current ethylene capacity around 1mio tonnes Potential to grow to 1.5 mio tonnes High integration cracker/derivatives Strong cost position ARG area: good ethylene logistics, not yet for propylene. USGC: good logistic integration

20. #4: a market means population, wealth and/or growth. Population is shown here. China Can Rus UK D S.K. USA F Ukr Jp Tky I Es Iran Pak Mex India Ban Eg Vie Phil Nig Bir Co Braz Eth Th Indon Za S.A. Ar

21. Conclusions In the ’90s EU became a local for local for EU producer USGC will loose export position to Asia to the Middle East because of the structural increase of natural gas based ethane feedstock to the crackers Only local cost leaders will be able to compete against Middle East delivered costs

22. Ethylene part1: How has European ethylene been doing?

23. Observations • Europe consolidated (to be shown) • Europe did not build much new capacity (to be shown) • Capacity: 24 mln ton, modest recent historic growth of 3%/y • Demand: 22 mln ton, only marginally higher than in 2002 • Production: 94% of CTP

24. Here it is: European consolidation……..

25. ...which resulted in a higher share top5 players.

26. Ethylene part 2: Ethylene will be short because of capacity growth is behind demand growth/economic growth scenario

27. Delayed economic recovery in 2003 but recovery to come

28. Global ethylene demand growth of 4.4 % in 2004-2008

29. A.A.I PE demand 4.4% in 2004-2008PVC 4.5%, styrene 4.2%, MEG 6.0%

30. Ethylene supply gap in 2003-2004and speculations on 2005 delays

31. Major capacity developments will be in Iran, China, KSA

32. ME capacity share will further increase from 9 to 17% By 2008 Europe and USA will no longer have a dominant position

33. Resulting high global utilisation rates will not be sustainable

34. Conclusions

35. Conclusions • Global GDP recovery in 2004+ • Gap in Ethylene supply in 2003-2004 • Recovery of global utilisation rates in 2004+ • New projects in 2005-2006 no big impact YET • New and still unknown projects will come up in 2004 • Impact only in 2006 and beyond • SABIC ethylene capacity share to increase from 4.9% in 2003 to 6.1% in 2008.