System in Crisis An Industrial End User’s Perspective

1. SysteminCrisisAn Industrial End User’s Perspective Gordon Slack Business Director – Energy October 27, 2004 * *Trademark of The Dow Chemical Company

2. About Dow • Leader in Chemicals, Plastics and Ag Products • Annual sales of $33 billion • Serve customers in 180 countries • 46,000 employees • 10essential markets: • Food • Building and Construction • Transportation • Furniture and Furnishings • Paper and Publishing • Home Care and Improvement • Personal and Household Care • Health and Medicine • Water Purification • Electronics and Entertainment • Committed to Sustainable Development

3. Chemicals & Plastics enablegrowthin manufacturing

4. Other (Residential, Commercial, Raw Materials Industrial Heating) 33.1% Electric Power 39.2% 2004 % Change 1995 - 2004 Electric Power + 17.0% Transport + 15.6% Other - 2.0% Transportation 27.7% U.S. Energy Appetite “Electric power is the key energy sector in the U.S. - largest and fastest growing…” • Electric power is largest • Electric power is fastest growing Source: EIA The Dow Chemical Company

5. Power consumption grows relentlessly -- Projected Growth in U.S.Power Production Source: EEI

6. U.S. Natural GasConsumption by Sector “Consumption in most sectors flat but demand in electric sector strong…”

7. 2004 1994 U.S. Dry Natural Gas Production “Domestic production has done nothing … and peaked back in 1972.” Source: EIA

8. ThePower Debacle The new 200,000 MW of GT power - - • power only growing segment of gas demand. • causes unattainable 2005-2007 U.S. gas demand except by having a factory shutdown. • requires 62% of all U.S. gas production to run all 200,000 MW at the same time. • operated at 40% of capacity in 2003. • consumed over $100 Billion in new investment which is severely impaired or bankrupt.

9. Power Facts The new 200,000 MW of GT power - - • battles it’s customers for fuel. • is the high incremental cost power ($40/MWH vs $15 and $4 for coal and nuclear). • has capital charges at a 40% operating rate similar to new coal at 85% and new nuclear at 90%. • will be faced with major push for new coal capacity and revival of nuclear.

10. Industry and Utilities Battle Over Gas Supply • Industry competes in global marketplace. • US reluctant to burn coal – so jobs go to China and they burn coal ? ? ? • Environmental groups prefer natural gas • Utilities can automatically pass through high costs and volatility

11. Russia $0.80 W. Europe $3.70 Ukraine $1.50 U. S. $6.00 China $4.00-5.00 N. Africa $0.40 Trinidad $1.60 Middle East $0.60 Venezuela $0.70 Indonesia $1.20 Argentina $1.25 Result is that U.S. now has highest natural gas prices in the world ! World Natural Gas Costs $U.S./MMbtu

12. 16% 2003 Basic industrial chemical imports Chemical industry transition: net exporter net importer

13. How is Dow reacting? Positioning to capture 4% per year global growth --- prefer to capture from the U.S.

14. Why? • Are we seeking lower labor costs? No. • Are weavoiding taxes? No. • Are we seeking competitive energy? Yes Yes & Yes!

15. What is Dow Doing? All we can! End Result: Becoming a Smaller NA Natural Gas Customer

16. Becoming a Smaller Customer • New investment in gas rich areas • Shutdown U.S. facilities • New LNG terminal for US gas requirements • Energy efficiency and conservation • Renewable/alternative sources of energy

17. Becoming a Smaller Customer • New investment in gas rich areas • May 2003 - Kuwait Expansion • Ethylene gas cracker • EO/EG plant • Polyethylene expansion • EB/Styrene unit • JV with PIC June 2004 • July 2004 – Oman new site • JV with OOC and government • Ethylene gas cracker • 3 Polyethylene units • Downstream production

18. Becoming a Smaller Customer • Shutdown U.S. facilities • 2002 • 1.5B lbs Chlor-Alkali in U.S. Gulf • 2003 • 1.1 MM tons UCC ethylene in Texas

19. Becoming a Smaller Customer • New LNG terminal for US gas requirements • Location ideally suited for LNG receiving terminal • Project defined and FERC approved • Dow 1/3 of 1.5B SCFD • $650 MM project

20. 21% 22% 1990 - 1994 1995 – mid 04 Becoming a Smaller Customer • Energy efficiency and conservation Energy Intensity - The Dow Chemical Company EH&S Goal: 20% Improvement in Btu/lb from 1994 Baseline in 2005 6,500 6,000 5882 5,500 Btu/lb 5,000 4705 4,500 4,000 3,500 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2nd Qtr Year

21. Becoming a Smaller Customer • Renewable/alternative sources of energy GM Fuel Cell Project

22. Plus Advocacy Active effort to solve problem where problem began… Government • Advocate balanced energy policy: Congress, Administration • Joined forces: ACC, NAM, IECA, CAANG • Publicly outspoken: Congressional testimony, media interviews, speaking engagements

23. NPCReport Reactive Path Balanced Future • Efficiency & Conservation • Major new LNG • Exploration and drilling • Alternative fuels • Expedited permitting • Transparent price reporting • Alaska NG pipeline • Lift offshore moratoria • New coal • Sit back and watch

24. * Living.Improved Daily. *Trademark of The Dow Chemical Company