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INEOS

INEOS. 9 th June 2009 : Langesund. Agenda. Impact of the recession on European Petrochemicals INEOS response to recession INEOS & Skanled Future plans for Rafnes. Impact of the Recession. OECD Composite Leading Indicator: May 09. USA. UK. China. Euro Zone.

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INEOS

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  1. INEOS 9th June 2009 : Langesund

  2. Agenda • Impact of the recession on European Petrochemicals • INEOS response to recession • INEOS & Skanled • Future plans for Rafnes

  3. Impact of the Recession

  4. OECD Composite Leading Indicator: May 09 USA UK China Euro Zone

  5. INEOS Overall Global Weekly Order Trend

  6. Ethylene: margin improvement becoming evident BOC : Feb 09

  7. Propylene: margin improvement becoming evident BOC : March 09

  8. Benzene: margin improvement becoming evident BOC : Feb 09

  9. Butadiene: margin improvement becoming evident BOC : April 09

  10. Ineos Technologies: Major Licences won in 2008 Example of Delays in new Plant Construction SIBUR, Tomsk (Russia) 200 KTe Innovene P Leshan (China) 150 KTe BiChlor BCPL/GAIL (India) 300 KTe Innovene G Pequiven (Venezuela) 400 KTe PVC 400 KTe EDC Sinopec, Wuhan (China) 300 KTe Innovene S Polimerica (Venezuela) 430 KTe Innovene G 400 KTe Innovene S Essar (India) 400 KTe Innovene G 400 KTe Innovene S 900 KTe Innovene P Braskem (Brazil) 200 KTe PVC 200 KTe EDC

  11. Ineos Technologies: Major Licences won in 2008 Few untouched by financial crisis Delayed min 1 year, financing/market SIBUR, Tomsk (Russia) 200 KTe Innovene P Leshan (China) 150 KTe BiChlor BCPL/GAIL (India) 300 KTe Innovene G Payments delayed, 6 months, banking issues Delayed min 1 year, financing / market Pequiven (Venezuela) 400 KTe PVC 400 KTe EDC Payments delayed, 6 months, banking issues Sinopec, Wuhan (China) 300 KTe Innovene S Payments delayed, 4 months, banking issues Polimerica (Venezuela) 430 KTe Innovene G 400 KTe Innovene S Delayed min 1 year, financing/market Essar (India) 400 KTe Innovene G 400 KTe Innovene S 900 KTe Innovene P Braskem (Brazil) 200 KTe PVC 200 KTe EDC

  12. Ineos Technologies: 2009 Licencing Opportunities Salavat, Sibur (Russia) 300 KTe Innovene P 500KTe Innovene G Rosneft (Russia) 250 KTe Innovene P 320KTe Innovene S BASF (Germany) 250 KTe EDC Azerchimia (Azerbaijan) 400KTe Innovene S Jiangshan (China) 80 KTe MAN Yanchang (China) 300 KTe Innovene S 300KTe Innovene G 300KTe Innovene P Unipetrol (Czech) 250 KTe Innovene S 200KTe Innovene P Chimprom (Russia) 135 KTe BiChlor 35KTe PVC Sonatrach/Total (Algeria) 450 KTe Innovene G CNOOC (China) 400 KTe Innovene S 300KTe Innovene G 400KTe Innovene P China 8 x 100KTe BiChlor TBC (Egypt) 900 KTe Innovene G Thai Plastic (Thailand) 350KTe EDC OPAL, ONGC (India) 1,080 KTe Innovene G 340 KTe Innovene P Miandoab (Iran) 200 KTe BiChlor 300KTe VCM 300KTe PVC

  13. Ineos Technologies: 2009 Licencing Opportunities Significant delays across most projects Delayed, min 1 year Salavat, Sibur (Russia) 300 KTe Innovene P 500KTe Innovene G Delayed, min 1 year Rosneft (Russia) 250 KTe Innovene P 320KTe Innovene S Delayed min 6 months BASF (Germany) 250 KTe EDC Delayed, 9 months Azerchimia (Azerbaijan) 400KTe Innovene S Jiangshan (China) 80 KTe MAN Delayed, min 6 mths Delayed, min 1 year, financing Yanchang (China) 300 KTe Innovene S 300KTe Innovene G 300KTe Innovene P Unipetrol (Czech) 250 KTe Innovene S 200KTe Innovene P Chimprom (Russia) 135 KTe BiChlor 35KTe PVC Delayed, min 1 year Sonatrach/Total (Algeria) 450 KTe Innovene G CNOOC (China) 400 KTe Innovene S 300KTe Innovene G 400KTe Innovene P China 8 x 100KTe BiChlor TBC (Egypt) 900 KTe Innovene G Thai Plastic (Thailand) 350KTe EDC OPAL, ONGC (India) 1,080 KTe Innovene G 340 KTe Innovene P Miandoab (Iran) 200 KTe BiChlor 300KTe VCM 300KTe PVC Delayed, min 1 year, financing

  14. INEOS Response to Recession

  15. Cost Management • 10% Reduction in fixed costs during Q4 2008 • Further 10% reduction in fixed costs for 2009 • Pay freeze across organisation • Bonuses cancelled for 2009 • Dividends cancelled for 2009 • Contractors reduced by 26% in Q1 09 versus Q4 08

  16. Cash Management • Capital expenditure reduced from €600m in 2008 to €250m in 2009 • Capital spend limited to essential items • Stock volume reduction • Stocks reduced by 22.5% in Q1 09 versus Q4 2008 • Cash release from stocks of €317m

  17. Q1 Financial Performance • EBITDA in Q1 2008 was €420m • EBITDA in Q1 2009 was €200m • Operating cashflow of €428m • Net cash inflow after financing charges in excess of €100m

  18. Q1 2009 Industry Performance • Major decrease in financial performance across the sector • INEOS EBITDA • Q1 09 = €200m • Q1 08 = €420m • Reduction = 52% • Determined from Financial Statements Q1 09 • Considers Chemical Business Activities only as appropriate

  19. INEOS and Skanled

  20. Original Concept for INEOS • Skanled pipe comes through Grenland • INEOS constructs and operates a Gas Separation Plant to extract … • Ethane from dry gas • Additional Ethane spiked into gas flow at Karsto

  21. Cancellation of GSP • INEOS decided in January that the GSP project could not work • Return on Investment was very poor • World ethylene demand had collapsed further undermining the investment • INEOS cash availability was limited • Could not secure long term agreements for economic gas supply

  22. Revised Skanled Scope • Branch line to Grenland • Would allow Yara to consume dry gas and release the ethane currently used by Yara • INEOS would use the Yara ethane to expand the cracker at Rafnes (+150kt NGL) • €70-75m investment in cracker expansion

  23. Future Plans for INEOS in Grenland

  24. The INEOS Cracker • Yara ethane expansion option not available without Skanled • Expansion based on additional LPG’s s feasible and will be the subject of further study • Expansion will need to be timed with recovery in European ethylene demand • INEOS still believes that the best option for the Rafnes cracker is a significant expansion based on additional ethane

  25. Additional Ethane • Ethane is a valuable chemical feedstock • It should not be exported from Norway for fuel use when significant value can be added within Norway • The challenge is to find ways to economically extract ethane from the dry gas system • We believe that Norway can have a highly competitive petrochemical industry if a solution can be found to the ethane issue

  26. INEOS ChlorVinyls • Securing feedstock for the Rafnes cracker opens the way for further expansion in ChlorVinyls chlorine/EDC in addition to cracker expansion • BUT • We need more confidence in the long term supply of economic power to Grenland

  27. Long Term Power • INEOS in Grenland is a large consumer of electricity, ~1,3 TWh annually • Electricity is a raw material and an important part of production costs • Final products are mainly exported and competition is global • Access to competitive, long-term power contracts is a key issue for investments

  28. The Power Challenge • INEOS is partially covered by long term contracts to 2015 • No long term contracts in place after 2015 • Similar to many power intensive users in Norway • Need to secure competitive, long term contracts within current market framework • Indirect carbon costs increase power price (even for CO2 free generation) • Illiquid market for long term contracts of 15-20 years • Extensive up front guarantees required

  29. Summary • INEOS remains very committed to Grenland • Still seeking expansion options across our businesses • Need competitive long term power supplies • Opportunity for Norway to add significant value to Norwegian ethane in Grenland

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