Ethylene Good Today Better Tomorrow 22Mar2011 FINAL

7/31/2019 Ethylene Good Today Better Tomorrow 22Mar2011 FINAL

1/21

Ethylene: Good Today, Better Tomorrow

Sergey Vasnetsov

SVP Strategic Planning and Transactions

Presented at

Goldman Sachs 2011 Houston Chemical Intensity DayMarch 22, 2011


2/21

2| www.lyondellbasell.com | Ethylene - Good Today, Better Tomorrow

Cautionary StatementThe information in this presentation includes forward-looking statements. These statements relate to future

events, such as anticipated revenues, earnings, business strategies, competitive position or other aspects of

our operations or operating results. Actual outcomes and results may differ materially from what is

expressed or forecast in such forwardlooking statements. These statements are not guarantees of future

performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Factorsthat could cause actual results to differ from forward-looking statement include, but are not limited to,

availability, cost and price volatility of raw materials and utilities; supply/demand balances; industry

production capacities and operating rates; uncertainties associated with worldwide economies; legal, tax

and environmental proceedings; cyclical nature of the chemical and refining industries; operating

interruptions; current and potential governmental regulatory actions; terrorist acts; international political

unrest; competitive products and pricing; technological developments; the ability to comply with the terms ofour credit facilities and other financing arrangements; the ability to implement business strategies; and other

factors affecting our business generally as set forth in our filings with the Securities and Exchange

Commission, which can be found at www.lyondellbasell.com on the Investor Relations page and on the

Securities and Exchange Commissions website at www.sec.gov.

This presentation contains time sensitive information that is accurate only as of the date hereof. Information

contained in this presentation is unaudited and is subject to change. We undertake no obligation to update

the information presented herein except as required by law.


3/21


Three Components Of The Longer Term Outlook

First, lets establish a baseline current view

Then lets consider near-future global demand and supply trends

and balance

Finally, naphtha / ethane price ratio impact on U.S.

Ethylene: Good Today, Better Tomorrow


4/21


80

85

90

95

1990 1995 2000 2005 2010

GlobalOperatingRate,

Global Operating Rates Indicate Trough Conditions

Source: CMAI. Operating rates based on nameplate capacities

Peaks follow troughs, generally with a steep incline

?


5/21


Naphtha Margins Have Been Choppy @ TroughNorth America

Northeast Asia

Western Europe

Note: Peak and trough margins from 1990-2009. Source: CMAI

A trough-to-peak increase was in arange of 10-15 /lb historically

LYB has ~14 billion lbs of ethylenecapacity

-15

-10

-5

0

5

1015

20

25

30

Jan-09 Apr Jul Oct Jan-10 Apr Jul Oct Jan-11

Margin(cents

/lb)

North America Spot Naphtha Margin

Historic Peak

Historic Trough

-5

0

5

10

15

20

25

30


Margin(cents

/lb)

Western Europe Spot Naphtha Margin

Historic Peak

Historic Trough

-10

-5

0

5

10

15

20

25

30


Margin(cen

ts/lb)

Northeast Asia Spot Margins

Historic Peak

Historic Trough


6/21


Divergence of Oil - Nat Gas Prices Creates OpportunityCrude Oil vs. Natural Gas

Despite the current supply / demand situation and low naphtha spot margins, thecrude oil to natural gas ratio has created a positive environment in North America

LYB O&P Americas segment profits reflect this positive environmentSource: CMAI

North American Ethane and Naphtha Margins

0

20

40

60

80

100

120

1990 1995 2000 2005 2010

$/barrel

0

2

4

6

8

10

12

14

16

18

20

$/MMBTU

WTI Crude Oil

Natural Gas (USGC)

-5

0

5

10

15

20

25

1990 1995 2000 2005 2010

CashMargin,cents/lb

Ethane Margin

Naphtha Margin


7/21


Promising Global Economic and Demand ForecastsGDP and Industrial Production Outlook

0

1

2

3

4

5

2001-2010 2011-2015

Percent

GDP

Industrial Production

0

50

100

150

200

250

300

350

400

2010 Demand CMAI 2011

Forecast

1.3x - 1.5x CMAI

Global GDP

Outlook

1.3x - 1.5x Wall

Street Global

GDP Outlook

Deman

d(billionpoundsethylene

Global Demand Scenarios for 2015

Economic forecasts indicate potential for strong demand growth

Sources: Global Insight, CMAI

Global Insight forecasts global GDP andindustrial production growth of >4% in 2011-15

This global growth requires production of 35+ world-scale ethylene plants


8/21


0

20

40

60

80

100

120

North America Europe Asia

D

emand(billionpo

undsethylene

2000

2009

Regional Demand Growth 2000-2009China and India Still Hold Tremendous Potential

Polyethylene Consumption by Region

N. America

W. Europe

S. America

CIS & Baltic States

Africa

Middle Eas t

Indian Subcontinent

Northeast Asia

SE Asia

0

10

20

30

40

50

60

70

80

0 5 10 15 20 25 30 35 40 45

2009 GDP per Capita, Thousands

PEConsumptionperCapita,LBS

0.0

0.5

1.0

1.5

China India United

States

Western

Europe

Population(billion)

CoastalChina

Population

2009 per capita consumption

Source: CMAI


9/21


0

5

10

15

20

25

2011 2012 2013 2014 2015

CapacityAdditions(billionlbs)

Nameplate Additions43 billion pounds

Potential Demand Growth

We Have Passed The Period Of Peak Capacity Additions

World Scale Plant Startups2011 2012 2013 2014 2015 Total

Middle East 3 1 - - 1 5

India - - - 1 1 2

NE Asia - - 4 2 1 7

SE Asia 2 1 - - - 3

ROW (equiv. plants) 2 1 1 2 1 7

TOTAL 7 3 5 5 4 24

Plants have a 4-5 year long construction cycle Demand suggests need for 35+ active world scale projects Only 24 of new equivalent plants have been identified by CMAI

Source: CMAI

18grassroot

plants


10/21


Storage DerivativesOlefins

Lower Reliability May Become The New NormU.S. Gulf Coast operates as a network

Aging U.S. and European plants

Isolated vs. interconnected

Middle Eastern and Asian sites are notinterconnected

Refinery / Gas Plant DerivativesOlefins

96% x 96% x 96% = 88%

0%

2%

4%

6%

8%

10%

12%

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10E Avg

90s

Avg

00s

Planned Loss (maintenance) Unplanned Hurricanes

hurricanesdeep trough shutdowns

0%

2%

4%

6%

8%

10%

12%

14%

03 04 05 06 07 08 09 10 Avg

90s

Avg

00s

Planned Loss (maintenance) Unplanned

Deep trough shutdowns reflect extraordinary

circumstances and extreme declines in ethylene demand,

in tandem with industrial demand declines globally

N. America Ethylene Production Losses, % of capacity

W. Europe Ethylene Production Losses, % of capacity

Source: CMAI


11/21


80

85

90

95

100

105

1990 1995 2000 2005 2010 2015

Global

OperatingRate,%

Effective Operating Rate

Nameplate Operating Rate

Potentialupside

Operating Rates Under Different Demand Scenarios

Effective operating rates historically 4-6% stronger than nameplate recent history is higherPractical limits are reached at effective rates in the high 90% range

Source: CMAI - nameplate operating rate. Effective operating rate estimated as nameplate operating rate + 5%.


12/21


What Could Alter This Path?

Base case is 3.6% global GDP similar to historic

China GDP growth targets are 8%-10% per year

- Surpassed targets in past years

- Regional GDP indicates historical growth haslargely been on the coast

2 billion people on cusp of increased consumption in

China & India

CouldWeSeeSlowerDemandGrowth?

This train, with its forward momentum, will be difficult to derail

Source: CMAI


13/21


What Could Alter This Path?

New plant construction Difficult to accelerate if not already underway today- Delays have been more typical

Raw Materials

Middle East natural gas / ethane availability islimited. For example:

- Energy production from liquid fuels in Middle East

- Saudi Arabia, Kuwait- Kuwait / UAE gas shortfalls Dolphin pipeline

- Local needs Electricity / Water / Reinjection

Naphtha supply growth is limited

- Slow refinery growth

- Asia auto sales

Middle East political instability is escalating

Improved reliability ex. Iran 10% improvement is only 1.3% global operating rate

impact

CouldSupplySurpassTheOutlook?


14/21


NGL Availability Is Focused On The Gulf Coast

Source: EnVantage


15/21


0

200

400

600

800

1,000

1,200

2001 2005 2010 2015

ExtractionCapacity(thousandbbl/da

y)

Ethane Fractionation Capacity Is Being Added

Year Company

Ethane

(000 BPD)

2011 Targa 40

Copano 10

Exxon 10

Markwest 30

2012 ConocoPhillips 20Enterprise 40

Oneok 30

Hess 50

2013 Formosa 20

Dominion 15

TOTAL 265

Sources: Company reports, EnVantage, LyondellBasell

Ethane Extraction Capacity New Natural Gas Liquids Projects

90

140

Marcellus currently has no ethane recovery

+380 / +53%


16/21


Nat Gas Drilling Economics Supporting $5-6 price

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

Wattenberg-APC

Granite

Wash-horizontal

Marcellus

P

inedaleAnticline

NaturalButtes

Wattenberg-others

CanaWoodford

Appalachia

tightgas

PowderRiver

EagleFord

FayettevillePion

Haynesville

Montney

Barnett

Groesbeckhorizontal

Ca

rthagehorizontal

Arkoma

Woodford

WestTavaputs

JamesLime

HornRiverBasin

PiceanceBasin

YellowJacket

Carthagevertical

ConvA

ppalachiavertical

ConventionalS

.Texas

Conv

entionalE

.Texas

Gran

iteWashvertical

G

roesbeckvertical

ConventionalMidcontinent

Source: Goldman Sachs research

Required natural

gas price for

15% IRR

($/MMBTU)

Companies have stated that NGL value adds several $/MMBTU ~$5/MMBTU hedges are common


17/21


Conway

Sarnia

Mt.Belvieu

MarcellusShale

LA ethyleneplants

Possible Outlets For Marcellus Ethane

Pipeline options to existingethylene plants and storage- Texas- Midwest- Louisiana- Sarnia

Ship ethane to existing ethyleneplants and storage

New ethylene capacity?


18/21


Required

Fractionation Spread, /gal 45 - 70 /gal

Natural Gas Price, $ / MMBTU $6 - $10

Required

Cumulative Chemical Co-Product Price Increases

Propylene / Butadiene, /lb 22 - 33 /lb

Benzene, $/gal $1.60 - 2.40 /gal

Crude Oil Price Decline $42 - $70

Crude Oil Price: $114 / bbl, Natural gas - $3.75/MMBTU

Recent ethane vs. naphtha spread: 20 - 30 /lb ethylene

Major Shifts Would Be Required To Lose This AdvantageBase prices

Natural Gas / Ethane changes required to equilibrate with Naphtha cost of ethylene

Trends tend to point in opposing directions Required shifts are very large and thus, less likely

Chem. Co-

Products,

28%

Fuel -

based co-

products,

21%

Fuel gas,

21%

Ethylene,

31%

Crude oil / Co-product changes required to equilibrate with Ethane cost of ethylene

Typical ethane yields

Typical naphtha yields

Fuel gas,

15%

Other, 7%

Ethylene,

78%

Source: CMAI, LyondellBasell


19/21


40

50

60

70

80

90

100

2000 2005 2010 2015GlobalLightVehicleBuilds(million)

Naphtha Co-Products Should Carry A High ValueGlobal Propylene Supply/Demand Global Butadiene Supply / Demand

billion lbs 1990 2000 2010 2015

Supply from

Co-products

Olefins plants 46.7 77.8 96.7 110.2

Refineries 18.7 37.2 59.6 68.4

On-purpose 0.4 3.2 17.4 36.2

Total 65.8 118.2 173.7 214.8

% Co-product 99% 97% 90% 83%

Significant higher-cost on-purpose propyleneproduction required to meet demand

On - purpose,

10%

Ref ineries,

34%

Olef ins

Plants, 56%

2010 Sources Of Propylene

billion lbs 1990 2000 2010 2015

Supply from

Olefins plants 11.8 17.7 20.7 24.8

On-purpose 1.9 0.5 0.6 0.7

Total 13.7 18.2 21.3 25.5

% Co-product 86% 97% 97% 97%

Light Vehicle Production

Source: CMAI, IHS

Increased vehicle builds will contribute to risingbutadiene demand


20/21


0

5

10

15

20

North America W. Europe

Naphth

acashmargin,cents/pound

Trough

Peak

Good Today, Better Tomorrow

Margins can be additive, supported by S/D at various steps of the vertical chain

Positioned for tightening supply /demand

Lower 90% nameplate equates toupper 90% effective

Naphtha cracking margins canimprove by ~ 15 /lb Ethane advantage appearssustainable and could grow

- Fractionator spread decrease

- Crude / natural gas ratio

Source: CMAI, EnVantage

0

200

400

600

800

1,000

1,200

2006 2010 2015

EthandExtr

actionCapacity

(thousandbbl/day)

Tightened Supply / Demand Advantaged EthaneExpanded Naphtha Margins

80

85

90

95

1990 1995 2000 2005 2010 2015

GlobalOperatingRate,

%


21/21


The Stars Are Aligning For A Bright Tomorrow Positive macro factors

Global GDP

Asian development

Supply trends

Limited construction

Limited Middle East gas avails

Existing asset reliability

U.S. natural gas

A Middle East analog

Fractionator construction

Elevated crude oil price

Documents

Ethylene Good Today Better Tomorrow 22Mar2011 FINAL