ames Virosco Nexant

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October 6, 2010

Canadian Plastics Resin Outlook 2010 Conference

Outlook for Polyolefins

James ViroscoManager Special of Projects, Strategy

Michelle Gutierrez

Senior Analyst


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Agenda

Overview of Nexant

North American Natural gas

Drilling Technology

North American Natural Gas Liquids

Nexants PE and PP Outlook


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Overview of Nexant

Overview of Nexant


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Nexant is a global consulting firm specializing in the Petroleumand Chemicals industry

We focus on the global

petrochemical, chemical, polymer

and specialty chemical industries

working with companies at the

corporate and divisional levels,as well as with a broad range of

financial institutions and investors

We apply industry relevant

content, methodologies/processes and tools to assist

clients in achieving desired

strategic and transaction-related

results

We conduct engagements withan integrated client/consultant

team approach to ensure

consensus on results and

implementation

TechnologyEvaluationsTechnologyTechnologyEvaluationsEvaluations

CommercialAnalysis

CommercialCommercial

AnalysisAnalysis

Strategic

Planning

StrategicStrategic

PlanningPlanning

FinancialServicesFinancialFinancial

ServicesServices

MARKET AND

COMPETITION

INDUSTRY AND

TECHNOLOGY

TechnologyEvaluationsTechnologyTechnologyEvaluationsEvaluations

CommercialAnalysis

CommercialCommercial

AnalysisAnalysis

Strategic

Planning

StrategicStrategic

PlanningPlanning

FinancialServicesFinancialFinancial

ServicesServices

MARKET AND

COMPETITION

INDUSTRY AND

TECHNOLOGY


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The Chemicals consulting group was largely formed throughthe acquisit ion of Chem Systems in 2001

Chem Systems established and recognized:

More than 40 years of service

Capabilities:

General management consulting capabilities augmented by deep industry

content knowledge and expertise

Broad services over entire spectrum of chemical and related industries

Highly experienced personnel

Combination with Nexant strengthens our service offerings:

Complete coverage of the supply chain

Commitment to web-delivered products and services

Strong, complementary traditions


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Nexants Petroleum and Chemicals services span upstreamdown through polymers and specialties

UPSTREAMOIL & GAS

Nexant

Nexant

ChemSystems

DOWNSTREAM OIL PETROCHEMICALS POLYMERS SPECIALTIES

Before 2001

After 2001

Energy Technology and Management

Energy & Chemicals Consult ing

Energy Solutions (Software)


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We are positioned to support clients globally, with over 150professionals worldwide

Main OfficesProject Offices

Representative Offices

San Francisco

White Plains, NY

Tokyo

Washington

London

Bangkok

Houston

Buenos Aires

Singapore

Seoul

Delhi

Duesseldorf

Shanghai

Beijing


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North American Natural GasNorth American Natural Gas


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Three categories of unconventional gas are being exploited shale and tight gas, and coal bed methane gas hydrates arein the R&D stage

Shale Gas

Gas produced from matrices and natural fractures of extremely low permeability

shale formations that are frequently both source rock and reservoir trap

Tight Gas Gas produced from very low permeability sandstone and limestone formations where

it was trapped after migrating from the source rock

Coal Bed Methane

Gas produced from coal seams where it is stored as adsorbed gas and dissolved inwater that is found in the natural fractures of the seams

A fourth category is still in the R&D stage:

Gas Hydrates

Gas trapped in solid ice-like crystals of carbon dioxide and methane that can trap 164

volumes of methane per volume of solid hydrate

The clathrate crystals form in the pore spaces of sandstone sediments, creating

seals that can trap additional volumes of migrating gas in underlying free gas zones


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North Americas shale gas plays cover a broad geography

Principal shale gas plays

are located throughout

most of North America and

hold very large gas

resources

U.S. plays: GIIP = 522

982 TCF

Canada plays: GIIP > 1250

TCF

Shale gas production in

North America is dominated

by the United States, with

approximately 95% of the

combined total gasproduction

U.S. plays : ~ 8.0 BCFD

Canada plays: ~ 0.4 BCFD

North America Shale Gas Reserves

Source: Canadian Discovery GIIP = Gas Initially In Place


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U.S. conventional and unconventional gas plays have a highdegree of overlap


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The U.S. Energy Information Administration (EIA) 2010 Outlookreflects the importance of shale gas to future U.S. gas supply

In this scenario, the EIA

includes Tight Gas as a

conventional gas supply source

The indigenous gas supplycontinues to be stable in the

long term

Unconventional gas production,

which includes Shale Gas andCBM, will reach 208 BCM (7.4

TCF) in 2030, offsetting the

decline in conventional gas and

reducing gas imports

At the end of the forecastperiod, approximately 33% of

U.S. gas supply will come from

unconventional gas sources

U.S. Gas Supply EIA 2010 Outlook(Billion Cubic Meters)


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Nexant forecasts U.S. shale gas production will reach 7.5 TCF

The Barnett play will reach a peak

production plateau of 2.2 TCF in the

2015

The Marcellus, Fayetteville, and

Haynesville plays will be the main

growth areas from 2015 to 2025

The Marcellus and Rocky Mountain

plays will be the main growth areas

from 2025 to 2030

Several plays, not shown, will

produce over the forecast period;

however, these areas either have

limited reserves or will be constrained

by low gas price

The discovery of more attractive

plays will displace or defer the

expansion of the higher cost areas of

existing plays

U.S. Shale Gas Production Forecast by Play(TCF)

0

1

2

3

4

5

6

7

8

2007 2008 2009 2015 2020 2025 2030

Barrett Haynesville Marcellus Utica

Atrim Fayeteville Woodford Barnett-Woodford

Hilliard-Baxter Lewis-Mancos Others

G

as

Production-

TCF

XLS: C:\Documents and Sett ings\jservello\ My Documents\J une 2008\Linde\ Draft Report\ May 5 2010\US


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Gas production from Canada shale gas plays reaches 2.6 TCF

Commercial shale gas production is

just commencing in Canada, and

there is little experience to draw upon

except through analogy with U.S.plays and extensive Canadian tight

gas operations

Large shale plays have been

identified with characteristics similar

to U.S. plays The Horn River and Montney shale

gas plays in British Colombia will be

the main growth areas, reaching a

combined production of 2.3 TCF (6.3

BCFD) in 2030 The Utica shale gas play in Quebec

will reach 0.3 TCF (0.8 BCFD) in

2030

Canada Shale Gas Production Forecast

0

1

1

2

2

3

3

2007 2008 2009 2015 2020 2025 2030

Horn River Montney Utica

Gas

Productio

n-

TCF

XLS: C:\Document s and Sett ings\j servello\ My Documents\June 2008\Linde\Draft Report \May 12, 2010\US


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Drilling TechnologyDril ling Technology


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Horizontal dril ling and fracture stimulation breakthroughs havemade shale gas exploitation economically viable

As shale gas reservoirs are extensive

in the lateral dimension, horizontal

drilling and fracture stimulation ofwells that intersect the reservoirs

parallel to the bedding plane exposes

more reservoir to the wellbore

Traditional directional drilling takes

some 2,000 feet to bend tohorizontal, while modern technology

can make a 90 degree turn from in a

few feet

The lateral lengths can extend over

thousands of feet, increasing thedrainage radius of the wells and

reducing the number of wells required

Horizontal Drilling Technology


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Multi lateral wells increase the production rates of individualwells by contacting even more of the reservoir

Multilateral configurations range

from two wellbore branches to anarray of branches in horizontal

fan arrangement (pinnate)

Through the application of

multilateral drilling technology,the wells can effectively drain

segments of the reservoirs that

would otherwise require

numerous additional wells, thus

mitigating the environmentalimpact and footprint

Multilateral Drill ing


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Fracture stimulations are widely used in the industry toimprove the production performance of oil & gas wells

Modern technology has permitted

the application of massive

fractures required for tight gasand shale gas development

Two properties increase the

ability of formations to fracture:

Presence of hard minerals like

silica that crack like glass

Internal pore pressure that creates

or helps to propagate fractures

Fracture fluids are the fluids used

to fracture the formation and totransport proppants that will keep

the fractures open to gas flow

Fracture Stimulation Treatments


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Some new developments in shale gas fracturing technologyare promising

Simo fracs: Two or more adjacent wells are fractured simultaneously toexpose the formation to more pressure, creating a more extensive network of

fractures

Staged fracs: The shale formation is fracced in discreet sequential intervals,allowing the operators to adjust the fracture design according to responses

Numerical simulation: Models that predict fractures propagation, allowingsufficient time to engineer the fracture program to achieve the desired results

Digital applications: Monitoring in real time the hydraulic fracture propagationby employing micro-seismic arrays to ensure that the fractures achieve the

designed length and do not extend into adjacent strata


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North American Natural Gas LiquidsNorth American Natural Gas Liquids


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Nexants oil price scenarios in constant dollars are: High $110/bbl Medium $70 /bbl Low $45 /bbl. Oil settled in at anapproximate average of $62 /bbl for 2009

Brent Crud e

0

20

40

60

80

100

120

140

160

180

1980 1990 2000 2010 2020 2030

$/bbl

History Medium High Low

Spot Brent FOB Sullom Voe oil prices averaged US$77/bbl

in Q1 2010 and US$81/bbl in Q2 2010


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Due to growing supplies of unconventional sources, US naturalgas prices have fallen below crude oil equivalent

U.S. Natural Gas

0

2

46

8

10

1214

16

18

20

1990 2000 2010 2020 2030

H

enryHub$/mmbtu

History Medium

High Low

Crude Oil Equivalent (Medium)

USGC natural gas spot prices averaged US$5.1/MMBtu in

Q1 2010 and US$4.1/MMBtu in Q2 2010


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This has resulted in a strong incentive to extract ethane from cheap natural gas

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 YTD*

Natural Gas Ethane

plus higher gas production has boosted U.S. ethane production

U. S. Ethane and Natural Gas PricingUS $ per MMBtu

*Prices are average January-August 2010


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Ethane has steadily increased as the feedstock of choice forethylene, displacing C5+ liquids

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009

%

oftotalfeedstock

usage

Ethane Propane C5+

NPRA Petrochemical Production Survey data

U.S. Feedstocks for Ethylene

North American

ethylene crackers are

going Light driven bycheap feedstock

availability

75 % of all U.S. based

crackers are now lightfeedstock capable

Light means lighter

feedstocks such as

ethane, propane, and

E/P mixes


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Reduced prices have resulted in improved ethane and propanederived ethylene margins relative to naphtha

restoring some degree of cost advantage to the USGC

Ethylene Variable Cost Marg in

-150

-100

-50

0

50

100

150

1990 1993 1996 1999 2002 2005 2008 2011

$/ton

Ethane Propane Standard Naphtha


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PE and PP OutlookPE and PP Outlook


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Global economic growth was negative for the first time in overforty years in 2009. However, Nexant forecasts a return to moretraditional growth levels; no double dip is foreseen

GDP History and Outlook

-10%

-5%

0%

5%

10%

15%

20%

1980 1990 2000 2010 2020 2030

World North America Western Europe China Japan

2010 Data is estimated


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Nexants outlook calls for a margin trough in 2010-2012followed by profitability recovery


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Significant changes are anticipated in global polyethylene nettrade

-15000

-10000

-5000

0

5000

10000

15000

20000

NorthAme

rica

SouthAme

rica

WesternEurope

Central/Eas

tern

Europe

MiddleEast

Africa

Ja

pan

Asia

2000 2005 2010 2015 2020 2025

NetTrade(thousandtons)

POPS2009_ER_FR_Sec_1

The Middle East has

become the major exporting

region of PE. By 2015, the

region is set to have net

exports of over 11 milliontons/year, rising to over 16million tons/year by 2025

In contrast, Asia Pacific

under the same scenario is

set to be importing over 11

million tons/year by 2025

Western Europe will see

net PE imports rise to just

under 3 million tons by2025

North America, currentlywith a significant export

position is also forecast to

move to become a net

importer by 2015

PE NET TRADE 2000-2025(Thousand tons per year)


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Changes are also forecast in global polypropylene net trade

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

NorthAmerica

SouthAmerica

WesternEurope

Central/Eastern

Europe

MiddleEast

Africa

Japan

Asia

2000 2005 2010 2015 2020 2025

NetTrad

e(thousandtons)

POPS2009_ER_FR_Sec_1

The Middle East

has become the major

exporting region of PE

in the world

North America and

Western Europe will

move to net import

positions as older units

are closed anddemand recovers

As refinery

investment grows in

South America, the

region is alsoexpected to grow its

polypropylene net

trade position

PP NET TRADE 2000-2025(Thousand tons per year)

Li ht N th A i ki f d t k ill h l


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Lighter North American cracking feedstocks will have longterm implications on the polyolefins industry and even otherpolymers and petrochemicals

Polyethylene

Cost advantage should result in increased production, forestalling the need for

imports

Polypropylene

Lower cracker by-product production should result in reduced propylene supplies

resulting in somewhat higher propylene and PP pricing

Polystyrene

Volumes suffered in the past decade, partly due to less expensive polypropylene.

Rising polypropylene prices should stimulate polystyrene demand

Butadiene Derivatives

Lighter feedstocks result in reduced supplies and higher pricing