Marketability of GTL Products 7th Doha Natural Gas Conference & Exhibition

1. Marketability of GTL Products 7th Doha Natural Gas Conference & Exhibition Doha, 9 - 12 March, 2009

2. Introduction Key Presentation Themes • Can the high-quality attributes of GTL products be marketed and capitalised upon? • Will product markets begin to provide a ‘pull’ to encourage the development of GTL projects? Presentation Agenda • Overview of the GTL industry’s evolution • Selection of gas monetisation methodology • Quality of GTL products (diesel and naphtha) and the relationship between quality and market • Potential markets for GTL products • Impact of market demand or product price premium on GTL projects

3. Overview of the GTL Industry’s Evolution • The primary focus of this paper is GTL, although much also applicable to CTL/BTL • GTL (Fischer Tropsh) technology is not new but still has relatively few commercial-scale applications • Some high profile project cancellations & postponements in recent years, but numerous GTL (and/or CTL/BTL) projects are still being contemplated • Based on current construction activities and recent start-ups, approximately a tenth of GTL capacity projections from only a few years ago will come to fruition by, say, 2012/3

4. Location of Operational/Under Development/Potential GTL Plants Legend Operational commercial-scale GTL facilities GTL projects under development Potential GTL plants

5. Gas Monetisation Options • GTL “competes” with other options including LNG, pipeline gas, ammonia, DME, methanol, but is often in direct competition with LNG and pipelines • Large number of recent LNG and gas pipeline projects but scarcity of new GTL ventures • GTL is probably regarded as a ‘secondary option’ or may not be considered at all • Some concerns over GTL as an option may include: • GTL is perceived as a high capital cost option • Costs have risen – but so have LNG, pipeline etc. • Limited “data points” for GTL costs • Lower efficiency – but GTL higher value products • Technology risk/availability - dependant on player

6. GTL as a Gas Monetisation Option • No single parameter dictates a project’s viability. Advantages may include: • High value, easily marketable products • No requirement for long-term product sales agreements • Applicable for all geographical locations • Ability to use existing liquid fuels infrastructure • High quality of GTL products presents an opportunity to target product price premiums • Are premiums achievable and sustainable? • If so where are key markets? • Does product demand provide impetus for GTL projects?

7. GTL diesel is extremely low in sulphur with a high cetane number Comparable well-to-wheel CO2 emissions with refinery-produced diesel, but NOx emissions are higher than for conventional fuels GTL diesel could be branded as both a performance fuel and an environmentally-appealing fuel potentially a premium fuel (or premium blendstock) “premium” gasoline is an accepted concept – with an accompanying price premium 2020 Middle Distillate Demand 2020 GTL Middle Distillate Production GTL Product Quality and Markets - Diesel

8. GTL Product Quality and Markets - Diesel USA • Currently imports high quality diesel but tough NOx standards and unfavourable preconceptions/limited consumer experience of performance diesel engines • Potential competition from domestically-produced CTL-based diesel. Europe • High volume and high quality, with some experience of a performance diesel concept (e.g. Shell’s V Power diesel). • Consumer willingness to pay for premium fuels as global economic concerns develop? Asia-Pacific • Diverse drivers and differing specifications in markets • Some markets (e.g. Japan) may be quality-driven • Developing markets are more concerned with volumes and, with the exception of some niche markets, may be ambivalent to GTL diesel qualities

9. GTL naphtha is a highly paraffinic product and is ideal as a steam cracker feedstock Potentially more quantifiable benefits than for diesel and possibly less education of consumers required? Potential substitution of current suppliers in EU and USA Potential for new crackers in Asia-Pacific (dependant on global economic situation) 54 52 50 48 Total Olefins (wt %) 46 44 42 40 0.60 0.65 0.50 0.70 0.40 0.45 0.55 Cracking Severity (P/E ratio) GTL Naphtha ME Naphtha GTL Product Quality and Markets - Naphtha Graphic Source: Sasol Chevron

10. Impact of Market Demand or Product Price Premiums on GTL Projects • GTL products should, with targeted marketing, secure prices equivalent to or superior to currently-available best-specification products • Current markets probably do not provide a “pull” for GTL • But price premiums could enhance the appeal of some projects 30% Decrease in OPEX 10-year tax holiday U.S.$1/MMBtu decrease in gas price 3% Price Premium on 10% GTL diesel blend 30% Decrease in CAPEX 4% 6% 8% 10% 2% Change in ROI versus Base Case

11. Conclusions • If combined with strong project fundamentals, the maximisation of product price premiums may help some GTL schemes prove to be economically-viable options • While a high-value product slate can enhance the appeal of a GTL project, it appears unlikely that market pull alone can justify a GTL project • Reductions in CAPEX costs would help provide a strong impetus for GTL, and more so than what could be achieved via market pull • Achievement of product premiums for diesel may entail more marketing and more “consumer education” than for naphtha • Premium diesel is a fairly new concept, whereas GTL naphtha it is more a tangible improvement on an existing product

12. zreeve@gaffney-cline.com 7th Doha Natural Gas Conference & Exhibition Doha, 9 - 12 March, 2009