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WILLIAMS ARCTIC TEAM

WILLIAMS ARCTIC TEAM. Petrochemicals in Alaska: Background and Opportunities. Olefins - North America. The olefin business is in the early stages of restructuring and change. Consolidation and integration through mergers and acquisitions. Excellent market fundamentals- high growth.

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WILLIAMS ARCTIC TEAM

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  1. WILLIAMS ARCTIC TEAM Petrochemicals in Alaska: Background and Opportunities

  2. Olefins - North America • The olefin business is in the early stages of restructuring and change. • Consolidation and integration through mergers and acquisitions. • Excellent market fundamentals- high growth. • New market forces influencing customer/supplier relationships. • Opportunities for Williams.

  3. Ethylene Production Capacity by Region - 2000 Canada West 9.0% Canada East 4.0% U.S. Northeast 1.0% U.S. Midwest 3.0% Gulf Coast 83.0% L:\GRA\POWERPOINT\TSHUPE\EPCBR.PPT

  4. 600 550 500 450 400 350 300 250 U.S. Commodity Demand Growth Per Capita 650 160 Refining - U.S. Gasoline Consumption, gallons/person Natural Gas - U.S. Nat Gas Production, MMSCF/person 140 Plastics - U.S. Plastics (PE+PP) Consumption, lb/person Electricity - U.S. Electricity Generation, Bkwh/person 120 100 Natural Gas 80 60 Plastics Consumption: Gasoline Plastics 4.67% growth rate from 1989 - 1999 40 20 Electricity 0 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

  5. U.S. Ethylene Consolidation 2004 1995 Top 5 70% Top 5 44% Other 18 56% Other 12 30% Total 51,334 MMlbs. Total 65,554 MMlbs.

  6. Ethylene Integration Chain

  7. Ethylene Buyers and SellersU.S. Gulf Coast Capabilities - 2002

  8. U.S. Olefin Industry is Changing • Consolidation - mergers and acquisitions will continue. • Increased integration - leaving some smaller companies vulnerable to majors. • Storage hubs and the opportunity to trade around assets will occur. • E-commerce will speed up change and improve liquidity. Sales are occurring now. • These are major structural changes to the industry creating opportunities for the participants in the consolidation process.

  9. U.S. Olefin Industry is Changing • 2000 U.S. light olefins and polyolefins - $41.4 billion revenue. • Growth rates are projected to be strong. • New capacity will be needed by 2004. • In 2001, high feedstock prices shocked the industry and curtailed ethylene production. For a time, Naphtha became preferred feed over ethane. • Companies are looking for ways to manage their risk and stay competitive. They are looking for suppliers who don’t compete in downstream derivatives.

  10. Williams Has a Significant Stake in the Business • Major supplier of NGL feedstock to chemical companies in the U.S. (~88,000 BPD) and Canada (110,000+ BPD). Therefore, already tied to the industry. • 5/12 ownership of ethylene cracker in Louisiana. • Refinery-grade propylene in Memphis. • Gulf Coast Off Gas project in Louisiana. • Off Gas project with polymer grade propylene in Alberta.

  11. Williams’ Capabilities • Geismar acquisition has provided knowledge, physicals, storage and pipelines. This places us as a merchant seller of ethylene and propylene. • Familiar with commodity markets. • Excellent customer service capabilities in supply, storage, transportation and risk management. • Expertise in trading and risk analysis tools. • Backward integrated.

  12. Preliminary View of AlaskaExtraction / Petchem Complex • Remove methane for Fairbanks supply • Remove ethane for ethylene production • estimate extracting 50,000 BPD ethane • Ethylene is feedstock for polyethylene plant • Polyethylene pellets delivered by rail to Anchorage • Excess gas and liquids re-injected for delivery to Alberta and beyond

  13. Potential Alaska Petchem Project North Slope Extraction plant Ethane cracker Natural gas to Fairbanks Polyethylene Plant Railroad Anchorage Alberta

  14. Petrochemical Feasibility Study • Initiated on May 24, 2001 • Analysis ongoing. Preliminary results favorable for world class polyethylene plant in Alaska • CMAI engaged to perform international market evaluation • CMAI evaluation due mid-October • Williams study targeted for November completion • Originally planned for 9-12 months • Accelerated schedule to produce results in 6 months

  15. Feasibility Study Components • Natural gas and ethane price forecasts and differentials • Ethane extraction costs • Identification of markets • Cost factors for Alaska vs. other locations • Polyethylene and ethylene glycol price, supply, and demand forecasts • Freight costs • By-product disposition

  16. Questions?

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