Propylene Production Pathways

Propylene ProductionPathways

P122A

P122A

ABSTRACT

This report presents alternatives for producing PG Propylene from different feedstocks, and compares theireconomic potential across different countries. More specifically, the report compares the costs of PG Propyleneproduction through the following pathways:

Pathway 1 corresponds to a steam cracker for Propylene production (ethylene as co-product). In Pathway 2,Propylene is produced via metathesis reaction of ethylene with 2-butene (present in raffinate-2 feedstock). InPathway 3, propane is dehydrogenated to Propylene with hydrogen generated being valued as fuel.

The analysis presented in this report includes:

* A comparison of the economic potential of the pathways listed above in several countries, comprising:

* Comparative analysis of capital costs

* Comparative analysis of production costs

* Historical behavior of the economic potential in the last 4 years

* Comparison between product price and raw materials costs of each pathway

* An overview of each production pathway, including:

* Raw material(s) consumption figures and product(s) generated

* Related technology licensors and block flow diagram of representative industrial processes

Keywords: Propene, Ethene, Steam Cracking, PDH, Propane Dehydrogenation, Olefins Conversion Technology,OCT

* Pathway 1: Propylene Production from Light Naphtha

* Pathway 2: Propylene Production from Ethylene and Butenes

* Pathway 3: Propylene Production from Propane (with Hydrogen Generation)

Propylene Production Pathways

Production Pathways Report

TERMS OF USE

Data, information, tools, analyses and/or models herein presented are prepared on the basis of publicly availableinformation and non-confidential information disclosed by third parties. Third parties, including, but not limited totechnology licensors, trade associations or marketplace participants, may have provided some of the informationon which the analyses or data are based.

The data, information, tools, analyses and/or models herein presented are developed independently by Intratecand, as such, are the opinion of Intratec and do not represent the point of view of any third parties nor imply in anyway that they have been approved or otherwise authorized by third parties that are mentioned in this report.

Intratec conducts analyses and prepares reports and tools for readers in conformance with generally acceptedprofessional standards. Although the statements in this report are derived from or based on several sources thatIntratec believe to be reliable, Intratec does not guarantee their accuracy, reliability, or quality; any suchinformation, or resulting analyses, may be incomplete, inaccurate or condensed. All estimates included in thisreport are subject to change without notice. This report is for informational purposes only and is not intended asany recommendation of investment.

Reader agrees it will not, without prior written consent of Intratec, represent, directly or indirectly, that its productshave been approved or endorsed by the other parties. In no event shall Intratec, its employees, representatives,resellers or distributors be liable to readers or any other person or entity for any direct, indirect, special, exemplary,punitive, or consequential damages, including lost profits, based on breach of warranty, contract, negligence, strictliability or otherwise, arising from the use of this report, whether or not they or it had any knowledge, actual orconstructive, that such damages might be incurred.

Reader agrees that Intratec retains all rights, title and interest, including copyright and other proprietary rights, inthis report and all material, including but not limited to text, images, and other digital files, provided or madeavailable as part of this report. The reader further agrees to refrain from any general release of the informationpresented in this report, so as to constitute passage of title into the public domain or otherwise jeopardizecommon law or statutory copyright.

ABOUT THIS REPORT......................................................................................................................................................................5

Study Objective............................................................................................................................................................................ 5

Report Overview...........................................................................................................................................................................6

Production Pathways: Understanding the Concept.............................................................................................................7

How to Understand the Analysis Presented in this Report................................................................................................ 9

ABOUT PROPYLENE......................................................................................................................................................................10

Description................................................................................................................................................................................. 10

Applications................................................................................................................................................................................10

PG Propylene Production Pathways Diagram.................................................................................................................... 11

Other Propylene Production Pathways Reports.................................................................................................................12

PRODUCTION PATHWAYS EXAMINED.....................................................................................................................................13

Pathway 1: Propylene Production from Light Naphtha.................................................................................................... 14

Pathway 2: Propylene Production from Ethylene and Butenes.......................................................................................19

Pathway 3: Propylene Production from Propane (with Hydrogen Generation)........................................................... 24

PATHWAYS COMPARATIVE EVALUATIONS............................................................................................................................29

Introduction................................................................................................................................................................................29

Comparison of Pathways........................................................................................................................................................30

Regional Comparison...............................................................................................................................................................35

PATHWAYS' COMPARISON SUMMARY................................................................................................................................... 40

REPORT BASES & ASSUMPTIONS.............................................................................................................................................41

Pathways Inputs and Outputs Figures................................................................................................................................. 41

Market Prices............................................................................................................................................................................. 43

REFERENCES..................................................................................................................................................................................48

ANALYSIS METHODOLOGY......................................................................................................................................................... 49

Initial Research.......................................................................................................................................................................... 49

Pathways Overview.................................................................................................................................................................. 49

Definition of Input and Output Figures................................................................................................................................. 49

Pricing Data Gathering and Verification............................................................................................................................... 51

TABLE OF CONTENTS

Net Raw Materials Costs Estimating....................................................................................................................................51

Capital Costs Estimating.........................................................................................................................................................51

Other Production Costs Estimating...................................................................................................................................... 54

Depreciation............................................................................................................................................................................... 55

Economic Potential Estimating..............................................................................................................................................55

Regional Comparisons.............................................................................................................................................................56

ABOUT INTRATEC..........................................................................................................................................................................57

Our Business.............................................................................................................................................................................. 57

Our Reports................................................................................................................................................................................ 57

ABOUT THIS REPORT

When considering the production of a chemical, there are complex and interconnected issues which must bethoroughly evaluated. Those who are interested in the production of a given chemical product must understandthe options available and the key aspects that impact the economics of such options.

There are several issues that affect the manufacturing economics of a chemical, such as feedstock used, otherproducts generated, construction location, manufacturing integration, process technology selected, logistics, localgovernment incentives and investment financing conditions, among others. Typically, the choice of feedstockused, other products generated and location are key to the feasibility of a chemical venture; as such, thosevariables should be the first to be addressed.

This report is one of Intratec’s Production Pathways Reports. These reports show how the feedstock used, otherproducts generated (if applicable) and construction location impact on the economics of chemicals production.

Specifically, this report is designed to support those with an interest in understanding the economics of Propylenemanufacturing, including:

* Newcomers to the Propylene sector,

* Skilled technical professionals needing to gain a business perspective on Propylene production, and

* Professionals from the financial sectors, capital groups, consulting firms, legal, and research institutions, whoneed a quick understanding of the Propylene business.

While this report does not consider the other aforementioned aspects impacting chemical production (i.e., specificprocess technologies, logistics, government incentives), it must be viewed as a first step to rapidly learning aboutand comparing Propylene production pathways and to serve as guide to further analyses.

This report presents the production paths of Propylene, and preliminary economic comparisons between them, indifferent countries. After initially describing each production pathway to be examined, the report illustrates howoptions related to feedstock / other products mix and construction location affect the economics of Propyleneproduction.

The main purpose of the present report is to provide a rational and systematic approach with which one candiscriminate between the economic potential of several production alternatives.

Nevertheless, caution must be used when reading the results of the evaluations hereby presented. They areapproximations, and intended to serve as "pointers" to production pathways that appear to be more competitiveacross different countries, in terms of production costs and the order of magnitude of capital costs.

Study Objective

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This report is structured into six main parts that follow a logical sequence, each of which is briefly describedbelow.

By way of introduction, the first part – the current chapter – explains the report, its structure and objective, andintroduces some basic concepts adopted in the study. To make the most of the study, the reader is encouraged todedicate a couple of minutes to this chapter.

In the second part, About Propylene, the reader will learn the basics of Propylene itself. This chapter coversapplications, commercialization forms and production pathways available related to Propylene.

The third part, Production Pathways Examined, focuses exclusively on the production pathways which will be furtherevaluated in the report. This chapter provides brief descriptions of the pathways examined and some of their basictechnical aspects, such as raw material(s), other product(s) generated and related industrial processes.

The fourth part, encompassing Pathways’ Comparative Evaluations and Pathways’ Comparative Summary, is the coreof the report. In these chapters, through a sequence of comparative analyses, reader will get a clear idea of howcompetitive the production pathways examined can be, compared against each other, across different countries.

Readers needing to consult data used throughout the report, such as pricing and raw materials consumptionfigures, can find that information in the fifth part: Report Bases & Assumptions.

Finally, to address any concerns about the methodology and procedures adopted throughout the development ofthis report, the reader is referred to the Analysis Methodology chapter.

Report Overview

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The current report is structured on the concept of “production pathways” to compare the economics of differentalternatives for manufacturing a chemical.

A production pathway is a general representation of similar industrial processes that generate the same set ofproducts from the same raw materials. Thus, within the concept of production pathways, this report combinesindustrial processes that will present similar results in a preliminary economic analysis.

The figure below presents the production of a chemical of interest through 4 different pathways.

Production Pathways: Understanding the Concept

This general representation encompasses industrial processes that present distinct technical aspects (e.g., unitoperation sequence, catalysts, conversion rate and operating conditions). However, those differences are notrelevant to a preliminary economic analysis such as the analysis presented in this study.

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In the example illustrated in the figure above, Pathway A is defined by the consumption of the Raw Material A, thegeneration of the Product X, and the production of the chemical product of interest. Pathway A can be achievedthrough 3 different options: Process M, Process N and Process O. In contrast, Pathway B is defined by theconsumption of the Raw Materials A and B, by the generation of the Products X and Y, and the production of thechemical product of interest. In this case, Pathway B can be carried out in two different ways: the integration ofthe processes J and K, or by the process L. The definitions of Pathways C and D follow the same rationale.

The figure below illustrates how industrial processes are generalized under the concept of industrial pathways:

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Based on the definition of “production pathway” just given, it is important at this point to explain the nature of theeconomic evaluations made throughout this report.

First, readers must bear in mind that all evaluations are made for “production pathways”, not for specific “industrialprocesses”. This means that all figures presented, such as raw material consumption or cost values, arerepresentative of the respective production pathway examined.

These analyses of production pathways make sense because the economics of pathway-related processtechnologies are typically in the same order of magnitude. Readers must be aware that the accuracy of pathways’cost figures estimated derives from the methodology used to calculate them. Of course, as mentioned previously,the cost figures of processes related to the same pathway fall within this accuracy range. The graph belowillustrates that the cost figures of concurring processes vary, but remain within the range associated with therespective pathway.

How to Understand the Analysis Presented in this Report

Also, in light of this explanation of the estimates’ accuracy range, if a given production pathway presents coststhat are slightly higher than those of another pathway, it should not be deemed less competitive than the secondpathway a priori. Instead of precisely identifying which may be the most competitive pathway, this report aims toidentify pathways that are clearly less competitive, serving as a guide to further studies.

Once again, caution must be used when reading the results of evaluations hereby presented. The main purpose ofthis report is to compare production economics, but within the accuracy associated with an analysis on a“production pathway” level.

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Propylene is an unsaturated organic compound with the chemical formula C3H6. It has one double bond and isthe second simplest member of the alkene class of hydrocarbons, as well as in terms of natural abundance.

At room temperature, Propylene is a colorless gas. It is a low-boiling, flammable, and highly volatile gas. Becausethe primary hazard associated with Propylene is its flammability, precautions must be taken to avoid fire hazardsin the handling of this gas.

Commercially, propylene is traded in three grades:

* Polymer Grade (PG): min. 99.5% of purity

* Chemical Grade (CG): 90-96% of purity

* Refinery Grade (RG): 50-70% of purity

ABOUT PROPYLENE

Description

Propylene is a major industrial chemical intermediate that serves as one of the building blocks for an array ofchemical and plastic products, and was also the first petrochemical employed on an industrial scale. ThePropylene market is dominated by the PG Propylene, which is mainly used in polypropylene production. PGPropylene is also used in propylene oxide manufacture.

The other grades of Propylene are used for different applications. CG propylene is used extensively for mostchemical derivatives (e.g., oxo-alcohols, acrylonitrile, etc.). RG Propylene, which is obtained from refineryprocesses, is mainly used in liquefied petroleum gas (LPG) for thermal purposes or as an octane-enhancingcomponent in motor gasoline. It can also be used in some chemical syntheses (e.g., cumene or isopropanol). Themost significant market for RG Propylene is the conversion to PG or CG Propylene.

Applications

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Propylene, more specifically PG propylene, can be manufactured from several raw materials. Globally, the largestvolume of Propylene is produced from NGL (Natural Gas Liquids) or naphtha in steam cracking processes, whichgenerates ethylene as well. The following chart presents different pathways for Propylene production.

PG Propylene Production Pathways Diagram

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Below, the reader can find other reports offered by Intratec that introduce alternatives for producing propylene andcompare the economic potential of such alternatives in different locations. For further details, please refer to thelinks below the report descriptions.

Other Propylene Production Pathways Reports

Pathway 1 corresponds to a steam cracker for Propylene production (ethylene as co-product). Pathway 2 refers toa methanol-to-olefins route involving Propylene and ethylene co-production. In Pathway 3, Propylene is producedfrom ethylene as the only raw material, through the integration of a dimerization plant with a metathesis plant.

www.intratec.us/products/p122b


* Pathway 2: Propylene Production from Methanol (with Ethylene Co-Production)

* Pathway 3: Propylene Production from Ethylene

Propylene Production Pathways - P122B

More specifically, this report compares the following production pathways

Pathway 1 corresponds to a steam cracker for Propylene production (ethylene as co-product). Pathway 2corresponds to a Methanol-to-Propylene (MTP) route, which does not generate ethylene as a co-product. Pathway3 corresponds to a high severity fluid catalytic cracking (FCC) process.

www.intratec.us/products/p122c


* Pathway 2: Propylene Production from Methanol

* Pathway 3: Propylene Production from Vacuum Gas Oil (VGO)

Propylene Production Pathways - P122C

More specifically, this report compares the following production pathways

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PRODUCTION PATHWAYS EXAMINED

Pathway 1 corresponds to a steam cracker for Propylene production (ethylene as co-product). In Pathway 2,Propylene is produced via metathesis reaction of ethylene with 2-butene (present in raffinate-2 feedstock). InPathway 3, propane is dehydrogenated to Propylene with hydrogen generated being valued as fuel.

Next, key technical information, such as a brief description, raw material(s) consumed, other product(s) generatedand related industrial processes, will be presented for each one of the pathways listed above.

* Pathway 1: Propylene Production from Light Naphtha (NAPH)

* Pathway 2: Propylene Production from Ethylene and Butenes (C2C4)

* Pathway 3: Propylene Production from Propane (with Hydrogen Generation) (C3)

This chapter introduces the production pathways examined in this report. The pathways are listed below followedby an ID, in parentheses, which will be used in the charts and tables comparing these alternatives:

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Pathway 1: Propylene Production from Light Naphtha

In this pathway, light naphtha is thermally cracked in the pyrolysis furnaces of an industrial plant with the centralgoal of producing olefins as the major products. The product mixture from cracking is then sent through acomplex sequence of separation steps to obtain PG Propylene and other desired products.

Description

The main products of this pathway are ethylene and PG Propylene. In this pathway, the following products arealso generated: pygas, crude C4s stream and fuel.

* Ethylene

Ethylene is known as a key building block for the petrochemical industry, being one of the most produced organiccompounds. Most of it is used to produce polyethylene, ethylene oxide, vinyl chloride and styrene. Commercialethylene is a colorless, low-boiling, flammable gas with a sweet odor. Polymer grade ethylene (min. 99.9% ofpurity) is produced in the present pathway.

* Pygas

Pygas, or pyrolysis gasoline, is a high octane number mixture with high aromatics content used either as a sourceof aromatics or for gasoline blending.

* Crude C4s

Crude C4s, or mixed C4s, is a stream containing C4 hydrocarbons, mainly 1,3-butadiene, isobutylene, butylenes,and butanes. It is most commonly used as feedstock to recover 1,3-butadiene, isobutylene and butenes.

* Fuel

Light ends and heavy ends hydrocarbons separated are valued as fuel in this pathway.

Product(s) Generated

Raw Material(s) Required

The main raw material used in this pathway is light naphtha, which is detailed as follows.

* Light naphtha

Naphtha is the refinery hydrocarbon fraction extracted from the light and middle ranges of distillate cuts of crudeoil. Generally, light naphtha presents the boiling range of 35-90 ºC, and heavy naphtha boils in the range of 90-200ºC. However, depending on its source and refinery conditions, it can vary in both composition and boiling range.

Naphtha is an important precursor to gasoline and solvents, but is also used as a feedstock for the petrochemicalindustry.

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Pathway Scheme

The following diagram shows the main steps utilized in this pathway, as well as the main raw materials consumedand the products and by-products generated.

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Industrial Processes Related to This Pathway

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* Industrial Process Diagram Example

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Economics of Propylene via Steam Cracking of Naphtha | Propylene E71A

This report analyses the economics of Polymer Grade (PG) Propylene production from light naphtha feedstock inthe USA, using a typical low-severity steam cracking process, maximizing propylene to ethylene ratio.

www.intratec.us/products/e122710a0

Economics of Propylene via Steam Cracking of Naphtha | Propylene E72A

This report presents the economics of Polymer Grade (PG) Propylene production from light naphtha feedstock inthe USA. Different from the report "Propylene E71A", the process examined in this report is a typical high-severitysteam cracking process, maximizing ethylene yield.


* Related Intratec Reports

As mentioned previously, analyses provided in the current report are made on a “production pathway” level. Formore detailed and accurate information about industrial processes related to Pathway 1: Propylene Productionfrom Light Naphtha, the reader is referred to Industrial Process Economics Reports offered by Intratec, as listedbelow.

Each of the above reports provide a techno-economic evaluation of a specific process technology, including capitalcosts in several locations, operating costs, raw materials consumptions, and detailed block flow diagrams.

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Pathway 2: Propylene Production from Ethylene and Butenes

In this pathway, polymer grade Propylene is produced through a metathesis reaction of ethylene with 2-butene,present in raffinate-2 feedstock. This pathway is considered an interesting alternative to increase the propylene-to-ethylene production ratio of steam cracking industrial units.

Description

PG Propylene is the only product generated in the current pathway.



The main raw materials used in this pathway are ethylene and raffinate-2, which are detailed as follows.

* Ethylene

Ethylene is known as a key building block for the petrochemical industry, being one of the most produced organiccompounds. It is largely used to produce polyethylene, ethylene oxide, vinyl chloride and styrene. Commercialethylene is a colorless, low-boiling, flammable gas with a sweet odor.

* Raffinate-2

Raffinate-2 is a C4 residual stream primarily consisting of 1-butene, 2-butenes, and butanes. It is obtained afterseparation of 1,3-butadiene and isobutylene from mixed C4s stream (or crude C4s), which is one of the products ofnaphtha steam cracking processes.

The current pathway uses raffinate-2 as the most common source of butenes. 1-butene is isomerized to 2-butenes and 2-butenes react with ethylene to form Propylene. The raffinate-2 used as raw material in this pathwayis composed of 80 wt% butenes.

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Chemistry

In regards to chemistry, this pathway involves a metathesis reaction between a molecule of 2-butene and amolecule of ethylene to produce Propylene. The reaction is presented below:

Pathway Scheme


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22

Economics of Propylene Production via Metathesis | Propylene E11A

This report presents the economics of Polymer Grade (PG) Propylene production from ethylene and raffinate-2 inthe USA, using a metathesis process similar to CB&I Lummus Technology's Olefins Conversion Technology (OCT).



As mentioned previously, analyses provided in the current report are made on a “production pathway” level. Formore detailed and accurate information about industrial processes related to Pathway 2: Propylene Productionfrom Ethylene and Butenes, the reader is referred to Industrial Process Economics Reports offered by Intratec, aslisted below.


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Pathway 3: Propylene Production from Propane (with Hydrogen Generation)

In this pathway, PG Propylene is produced via a propane dehydrogenation (PDH) reaction. This pathway is one ofthe on-purpose Propylene production pathways. In this pathway, Propylene is produced as the main product,differing from other conventional processes such as naphtha steam cracking, which also produces ethylene andcatalytic cracking, which also produces gasoline.

Description

Besides PG Propylene, this pathway also generates the hydrogen, as described below.

* Hydrogen

The dehydrogenation reaction also generates hydrogen. This hydrogen generated is separated and sold at its fuelprice.



The main raw material used in this pathway is propane, which is detailed as follows.

* Propane

Propane is recovered from propane-rich liquefied petroleum gas (LPG) streams from natural gas processingplants. Propane may also be obtained in smaller amounts from petroleum refinery operations, such ashydrocracking and fluidized catalytic cracking (FCC).

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Chemistry

Propane dehydrogenation is an endothermic equilibrium reaction generally carried out in the presence of a noble-or heavy-metal catalyst such as platinum or chromium. The reaction is presented below.

Pathway Scheme


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27

Economics of Propylene Production from Propane | Propylene E31A

This study presents the economics of Polymer Grade (PG) Propylene production from propane in the USA , using adehydrogenation process carried out in a moving-bed reactor, similar to UOP Oleflex.


Economics of Propylene Production from Propane | Propylene E32A

This report examines the costs related to Polymer Grade (PG) Propylene production from propane in the USA.Different from the report "Propylene E31A", the process examined in this report is carried out in a fixed-bed reactor,similar to CB&I Lummus CATOFIN.



As mentioned previously, analyses provided in the current report are made on a “production pathway” level. Formore detailed and accurate information about industrial processes related to Pathway 3: Propylene Productionfrom Propane (with Hydrogen Generation), the reader is referred to Industrial Process Economics Reports offeredby Intratec, as listed below.


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PATHWAYS COMPARATIVE EVALUATIONS

Throughout this chapter, a number of economic comparative evaluations between the production pathwaysdescribed are made, encompassing raw materials costs, utilities costs, fixed costs, capital costs and pathwayeconomic potential. Such evaluations consider typical representative industrial units based on each pathwayunder analysis and utilize the following main assumptions:

* All industrial plants present the same annual production

* Economic analysis date is

More information on assumptions adopted can be found in the chapter “Report Bases & Assumptions”.

In order to provide a solid understanding of the economic potential of all pathways, the comparative evaluationsare made from two perspectives, as explained below.

1) Comparison of Pathways. The goal here is to compare the economic aspects of the different productionpathways examined in the United States. In other words, the reader will be able to evaluate the competitiveness ofall pathways under analysis, using the USA as a basis for comparison (see figure below).

2) Regional Comparisons. This analysis compares the economic aspects of a given pathway across differentcountries. For each pathway examined, the reader will learn which country tends to be more competitive (seefollowing figure).

Introduction

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Comparison of Pathways

This section compares the economic aspects of the production pathways examined, assuming all industrial plantsare constructed in the USA.

Net Raw Materials Cost

This graph itself is a first indicator of the economic potential of each pathway. The pathway representing thegreatest difference between PG Propylene price and net raw materials costs has the highest margin to bear furtherproduction costs (i.e., utilities costs, other production costs, capital costs). Ultimately, the lower the bar, the higherthe potential of a pathway to be economically attractive.

In contrast, pathways with net raw materials costs higher than the PG Propylene prices can be consideredeconomically unfeasible at this time. It is important to highlight, however, that a pathway considered to beeconomically unfeasible is related to the period in which this analysis was made. Evolving pricing conditions mayof course lead to different conclusions.

Net Raw Material Costs Comparison @ USA (USD / metric ton product)

Caution must be used when examining the results of these comparisons presented hereafter. They areapproximations, and intended to serve as "pointers" to the production pathways which appear to be the mostcompetitive across different world regions.

In the following graph, each bar represents the net raw materials costs related to a specific pathway in the USA, inUS dollars per metric ton of PG Propylene. “Net raw material costs” is the difference between raw materials costsand credits from by-products generation, if available, in each pathway examined.

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Capital Costs

The following graph illustrates, comparatively, pathways-related capital costs, i.e., each bar represents the capitalcosts related to a specific pathway for an industrial unit constructed in the USA. As presented in the graph, thecapital costs bar comprises two items: Total Process Capital and Contingency.

For the sake of comparison, the capital costs for all pathways were normalized, meaning that the capital costs ofeach pathway were divided by the capital costs related to Pathway 1: Propylene Production from Light Naphtha.

The total process capital estimates encompass the investment required for the construction of the mainprocessing units necessary to the manufacture of product(s), as well as auxiliary facilities typically needed for thefunctioning of such production units (i.e., storage, utilities supply, and auxiliary buildings).

In addition, as presented in the graph, a contingency for each capital cost estimate was considered. Contingencyconstitutes an addition to capital cost estimations, implemented based on previously available data or experienceto encompass uncertainties that may incur, to some degree, cost increases. Higher contingencies were assumedfor new, emerging production pathways, based on the risks associated with the uncertainties involved in suchpathways.

The capital costs estimates presented do not include working capital and additional capital costs associated withplants’ start-up. The presented estimates were obtained using methods designed for the rapid calculation ofcapital costs for the construction of process industries. For information on how capital costs were estimated, thereader is referred to the Capital Costs Estimating section in the chapter titled “Analysis Methodology”.

Capital Costs Comparison @ USA

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In this section, the economic potentials of each pathway examined are compared when considering industrialplants constructed within the USA.

The economic potential of a pathway is directly related to the “product value” associated with that pathway.“Product value” is a term commonly used wherein all costs associated with the production of a product arecombined. More specifically, it includes the production cost (net raw materials, net utilities, fixed costs, corporateoverhead costs and depreciation), as well as an expected return on capital employed (ROCE).

It should be noted that the product value must not be confused with product price. While the product value, aspreviously mentioned, is calculated based on the costs associated with the production of a product, the productprice is the actual value as seen in the market.

In the following graph, each bar represents the product value of a specific pathway normalized by division by thePathway 1: Propylene Production from Light Naphtha product value.

This graph, in fact, combines all comparisons done so far. In the end, pathways with the lowest product valuesstand out as the best candidates for further studies.

The following table complements the graph presented, providing the cost figures that make up pathways’ productvalues. Once again, the product values presented were normalized utilizing Pathway 1: Propylene Production fromLight Naphtha as the basis.

Product Value Comparison @ USA

Economic Potential

32

The raw materials costs and capital costs presented were already discussed in previous chapters. Other costcomponents making up the product value are briefly described below.

* Utilities costs: costs associated with main process utilities required in each pathway (steam, electricity, fuel, andrefrigeration).

* Other production costs: includes the fixed costs (e.g. maintenance, operating labor, operating charges, plantoverhead) and corporate overhead costs (i.e., company’s costs associated with R&D, administrative activities,marketing and products distribution).

* Depreciation: refers to the decrease in value of industrial assets over the passage of time, primarily because ofwear and tear.

* ROCE: a component of product value which reflects the capital costs of a given pathway, based on an expectedreturn on capital employed in the construction of the plants.

For information on how product values were calculated, the reader is referred to Economic Potential Estimatingsection in the chapter titled “Analysis Methodology.”

The comparisons presented so far are frozen snapshots, based exclusively on economic data. Of course,it should be kept in mind that different pricing conditions could lead to different results.

In order to provide a more consistent approach to pathways’ competitiveness, this analysis also compares howpathways’ economic potentials have evolved over time in the USA. In this context, the following graph presentsthe product values variation over the last quarters.

Product Value Comparison @ USA

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Quaterly Comparative Product Values History @ USA

Complementing this analysis, a 4-year economic potential history based on the USA is presented below. Thefigures presented are yearly averages for the product values available up to the period of the analysis. Here, thevalues presented are also comparative - they were normalized using Pathway 1: Propylene Production from LightNaphtha product value at the current period of analysis as the basis.

Yearly Comparative Product Values History @ USA

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Regional Comparison

This section examines each pathway individually, comparing its economic aspects across the following countries:

Pathway NAPH: Net Raw Material Costs Vs. Product Price (USD / metric ton product)

Net Raw Materials Costs

The next graphs present the net raw materials cost and PG Propylene price in US dollars per ton of PG Propylenefor each of the pathways in different countries.

Basically, this presents economic aspects previously discussed, specifically, net raw material costs and productvalues, under a regional perspective.

* United States

* Germany

* China

* Singapore

* Brazil

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Pathway C2C4: Net Raw Material Costs Vs. Product Price (USD / metric ton product)

Pathway C3: Net Raw Material Costs Vs. Product Price (USD / metric ton product)

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Net raw materials costs were calculated using the same methods as the previous section, considering, however,local pricing data related to the country examined (presented in the chapter titled “Report Bases & Assumptions”).

Historical Economic Potential Comparison

In order to regionally compare the economic potential of each pathway, all items that comprise the product value(namely, net raw materials costs, utilities costs, other production costs, depreciation and return on capitalemployed) were properly adjusted for each country examined.

Similar to the analysis provided for the USA in the previous section (Comparison of Pathways), this section alsocompares how pathways’ product values have evolved over time in several world locations.

The following graphs present a 4-year history of the economic potential for each production pathway in severalcountries. The figures presented are yearly averages for the product values available up until the period of theanalysis ( ). Here, the values presented are also comparative - they were normalized considering Pathway1: Propylene Production from Light Naphtha product value in the period of the analysis, in the USA as the basis.

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Pathway NAPH: Yearly Comparative Product Values History

Pathway C2C4: Yearly Comparative Product Values History

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Pathway C3: Yearly Comparative Product Values History

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The following graph is an overall summary presenting the economic potential of each production pathway inseveral countries.

Each bar represents the product value associated with a specific pathway in a specific country in . Thevalues are normalized based on the product value related to Pathway 1: Propylene Production from Light Naphtha,in the United States.

PATHWAYS' COMPARISON SUMMARY

Product Values Comparison Summary

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REPORT BASES & ASSUMPTIONS

Pathways Inputs and Outputs Figures

This section presents raw materials consumption figures and products generated rates, if applicable, for eachproduction pathway examined. The tables below summarize major input and output figures adopted.

It is important to mention that the figures hereby presented are not related to any specific industrial process.Rather, they are averages that represent each pathway sufficiently to support the comparative evaluationspresented in this report within the accuracy expected.

For information on how processes inputs and outputs were defined, the reader is referred to the Definition of Inputand Output Figures section in the chapter titled “Analysis Methodology.”

Pathway NAPH: Input & Output Figures (unit per metric ton of product)

Raw Materials

By-Products

DESCRIPTION STOICHIOMETRY VALUE ADOPTED VALUEUNIT

Pathway C2C4: Input & Output Figures (unit per metric ton of product)

Raw Materials


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Pathway C3: Input & Output Figures (unit per metric ton of product)

Raw Materials

By-Products


42

This section presents raw materials and products market prices used in the economic analysis for the currentreport. Each table presents a 4-year history for a certain product in the countries studied in this report.

Market Prices

43

44

45

46

47

REFERENCES

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ANALYSIS METHODOLOGY

After more than a decade supporting leading companies worldwide, Intratec has gained considerable expertise inthe analysis of chemical markets and process economics. All of this expertise is distilled in our reports throughthe use of consistent development methodologies.

Our methodologies ensure that our reports are reliable, structured, and continuously tested and proven by themany corporations, R&D centers, EPC companies, financial institutions and government agencies that rely onthose reports.

The methodology used in the development of Production Pathways Reports is illustrated in the diagram presentedon the next page.

Initial Research

The development of a Production Pathways report starts with research focused on existing alternatives(pathways) for manufacturing a given chemical, related to different raw materials and/or products generated. Thisencompasses patents, encyclopedias, text books, technical papers and non-confidential information disclosed bylicensors, duly reviewed by the Intratec team.

Following completion of this initial research, Intratec assembles a diagram, illustrating major production pathwaysthat have been identified.

Pathways Overview

Subsequently, the Intratec team conducts additional bibliographical research and data gathering focused on eachindividual production pathway, with the goal of identifying the key aspects of the pathways under analysis,including:

* Overall manufacturing scheme,

* Raw material(s) required and product(s) generated,

* Related industrial processes and technology licensors, and

* Annual production adopted and utilization rates assumed (based on competitive plants on a global market)

Regarding raw materials, and product(s) generated, in particular, the Intratec team evaluates their basicspecifications (grade, purity, water content, etc.) and if product(s) are sold at market price or at the fuel equivalentprice.

Definition of Input and Output Figures

In a next step, raw materials consumption and products generation figures associated with each productionpathway examined are estimated. Initially, the stoichiometry of main reactions involved in the process is identifiedafter which additional research is carried out focusing on identifying conversions, yields and/or selectivity ofprocesses’ main reactions in order to find the ranges of key input and output figures. This research encompassesprocess information currently available in patents, encyclopedias, text books, technical papers and non-

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confidential information disclosed by licensors.

Finally, the input and output figures adopted in the analysis are defined by utilising:

* Best judgment based on the conversions, yields and/or selectivity ranges identified on processes reactions,

* Values directly disclosed in the literature (when available), and

* Analogies with similar processes and/or reactions data available in Intratec’s database.

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In order to compare the economic aspects of the pathways, the Intratec team uses average transaction prices ofproducts and raw materials across different regions. These prices are based on trade statistics issued by theofficial government agencies of the countries examined, over the time period considered. The pricing informationis checked to verify consistency, but issues such as discounts related to volumes or contractual negotiations arenot considered.

In some cases, e.g., when market prices do not exist for some chemicals or raw materials, the Intratec teamassumes transfer prices, based on estimates of costs to produce that chemical.

In addition, when by-products are utilized for energy generation, their prices are calculated based on fuel pricesand their respective heat of combustion.

Pricing Data Gathering and Verification

From previously identified raw materials consumptions and historical pricing data, the Intratec team calculates thenet raw materials costs of each pathway. “Net raw material costs” is the difference between raw materials costsand credits from by-products generation, as expressed in the formula below.

Net Raw Material Costs = Raw Material Costs – By-product Credits

The raw materials costs, in turn, are estimated by multiplying pathways’ consumption figures by the respectiveraw material prices in the region considered. The formula below illustrates the raw materials costs calculation:

Raw Material Costs = Sum ( Raw Material Price * Raw Material Consumption )

By-products credits were estimated in a similar way, based on pathways’ input and output figures and pricing data.

The first step in estimating capital costs is determining the definition of a comparison basis for the productionpathways under analysis. Initially, based on previous research, the Intratec team defines a common annualproduction target for the industrial units that represent each pathway.

The actual nominal capacity of each representative process plant is then established according to typicalutilization rates addressing specific raw materials availability constraints. For instance, plants based on renewableraw materials (e.g., sugar cane) present lower utilization rates than plants relying on oil derivatives, since somerenewables raw materials are only available during harvest season, while oil is available throughout the entire year.

Another issue in the comparison basis definition concerns the maximum feasible nominal capacity of industrialunits based on different pathways. Due to technical limitations, industrial units based on some pathways are notable to achieve the same maximum production capacity as plants based on another compared pathway. In thosecases, instead of thinking in terms of an unfeasible plant scale for the former pathway, the Intratec team considersmultiple industrial units side-by-side (multiple production trains), thus establishing a fair comparison basis for allpathways.

The Intratec team then begins elaborating the capital costs estimates associated with each pathway. The capitalcost is essentially composed of two items: Total Process Capital and Contingency. Both items’ definitions and

Capital Costs Estimating

Net Raw Materials Costs Estimating

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estimating methods are more fully described in the next sections.

The following figure summarizes the capital costs estimating methodology.

The total process capital is comprised of the investment required for the construction of main processing unitsnecessary to the manufacture of product(s), as well as auxiliary facilities typically necessary to the functioning ofsuch production unit(s) (i.e., storage, utilities supply, and auxiliary buildings).

The Intratec team employs three different methods for estimating total process capital, according to the nature ofthe pathway under analysis.

* Pathways Based on Established Industrial Processes

This type of pathway is based on mature industrial processes, i.e., several plants worldwide have been constructedover the years, employing processes related to such a pathway.

For these pathways, total process capital is primarily estimated from the Intratec database. More specifically, the

Total Process Capital Estimating

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Intratec team initially gathers investment data in the company’s database (such data were actually generated inprevious studies, specifically targeting the industrial processes under analysis). The total process capital datacollected are then adjusted to the same basis – converted in time, location and production capacity. Finally, theIntratec team double-checks total process capital estimates that have been obtained; this is based on publishedinvestment data, related to the construction of industrial plants of that pathway worldwide.

* Pathways Based on New Industrial Processes

Pathways are based on new industrial processes when there have only been a few plants constructed around theworld.

Total process capital associated with this kind of pathway is calculated according to internal cost estimatingmethods, refined from established techniques designed for rapid calculations of total process capital for theconstruction of process industries. These established techniques include significant step methods such as Zevnikand Buchanan, Wilson, Timm, and Petley correlations (see “References” chapter).

Generally speaking, Intratec methods consist of making rapid total process capital calculations from preliminaryblock diagrams with main process steps and basic process parameters, such as the physical state of fluid beingprocessed, capacity or throughput of processing steps, approximate information about operating conditions(pressure and temperature) and probable materials of construction. Using these inputs, which are primarilyderived from the technical literature, the Intratec team calculates the initial total process capital figures.

Subsequently, total process capital estimates obtained are double-checked based on data available in Intratec’sdatabase that are related to the total process capital of similar plants (after correcting for time, location and scale).In some cases, when the profitability associated with the pathway examined is known, the Intratec team may alsodouble-check estimates using reverse engineering methods. In other words, using this method, the total processcapital amount would be calculated based on the known profitability of the pathway examined.

* Pathways Based on Embryonic Industrial Processes

These pathways employ industrial processes which are still under development; in fact, no published data relatedto investments or even a well-defined process exists.

In such cases, Intratec total process capital estimates are based on previously explained estimating methodsdesigned for rapid total process capital calculations and analogies with similar industrial plants and/or processingunits.

Similar to what is done for pathways based on new industrial processes, the Intratec team begins by drawingpreliminary flowsheet sketches and compiling basic process parameters from technical literature (e.g. patents,articles) available. Based on such inputs, the Intratec team develops initial estimates of the amount of totalprocess capital required for the construction of hypothetical industrial plants. Estimates obtained are thencompared to the known total process capital figures (corrected in time, location and capacity) of similar industrialplants and/or processing units.

In addition, a contingency is considered for each total process capital estimate. Contingency constitutes anaddition to total process capital estimations, implemented based on previously available data or experience toencompass uncertainties that may incur, to some degree, capital cost increases. More specifically, these

Contingency

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uncertainties may be related to:

* Technical information: uncertainty in equipment and performance, accurate definition of process parameters (i.e., severity of operating conditions, quantity of recycles) and allowance for design changes, and

* Problems that must be overcome during construction or plant start-up: project errors or incompletespecifications, labor costs changes, strikes, problems caused by weather; inflation of costs.

Higher contingencies are assumed for emerging production pathways, according to the risks associated with theuncertainties involved in such pathways. In this context, a contingency of 20% is assumed for establishedpathways; a contingency of 30% is assumed for new processes, with few operating plants; and, for embryonicprocesses still under development, a contingency of 45% is adopted.

The accuracy range for capital cost estimates obtained according to the methods hereby presented is -25% to-40% on the low side and +35% to +80% on the high side, depending on the maturity level of the pathwayexamined. The presented accuracy considers a confidence level of 90%, which is consistent with the type ofconceptual evaluations that this study aims to do.

Accuracy

At this point, net raw materials costs and capital costs of all pathways have already been calculated. There are,however, other relevant production costs not yet included, namely, fixed costs, corporate overhead costs, netutilities costs and depreciation.

In this study, the utilities costs component encompasses costs related to a plant’s energy requirements, mainlyincluding: steam, electricity, and fuel. These energy requirements are estimated based on the heat of reactionsinvolved in a given pathway. The correlation used by the Intratec team was refined from a well-establishedmethod reported in technical literature by Lange, related to chemical process industries. (See “References”chapter)

Fixed costs include costs of maintenance, operating labor, operating charges and plant overhead. Such costs donot change when production volume in a plant changes.

Corporate overhead is associated with costs incurred by company’s head office such as general administrativecosts, research and development activities related to the process and product, market and product distribution.

Finally, it is worth noting that costs associated with catalyst and minor chemicals consumed in the process arenot considered in the analysis performed in the present report.

Other Production Costs Estimating

It is important to mention that the capital costs estimates presented do not include working capital and additionalcapital costs associated with plants’ start-up. Working capital is defined as the funds, in addition to the totalinvestment, that a company must contribute to a project to get the plant into operation and to meet subsequentobligations. Further, additional start-up capital costs are associated with the money spent during the periodbetween the nominal end of construction and the production of quality product in the quantity required (e.g.,operator and maintenance employee training, testing and adjustment of equipment, etc.).

Estimates Scope Limitations

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Heretofore, the pathways examined were compared separately in terms of raw materials and capital costs. Thenext step in the methodology is the comparison between the economic potential of each pathway examined. Sucheconomic potential, in turn, is measured through the combination of all costs estimated for a given pathway in asingle item: the “Product Value”.

More specifically, the product value results from the sum of production costs (i.e., net raw material costs, netutilities costs, other production costs and depreciation) with the return on capital employed (ROCE). The formulabelow expresses the product value calculation.

Product Value = Net Raw Material Costs + Net Utilities Cost + Other Production Costs + Depreciation + Expected ROCEAmount

where all components are expressed in US dollars per amount of product.

The expected ROCE amount is a component which reflects the capital costs of a given pathway into its productvalue. This component is based on the expected return on capital employed typically aimed by chemicalcompanies. It is calculated by multiplying capital costs by the expected ROCE percentage, divided by the totalamount of product manufactured:

Expected ROCE Amount = Capital Costs * Expected ROCE Percentage / Product Annual Production

This “Expected ROCE Amount” component is, in fact, a measure of the cost of investment required to construct theplant, in terms of US dollars per amount of product.

Most chemical companies aim to achieve a ROCE percentage ranging from 10% to 30% for the construction of anew plant. In this context, the Intratec team assumes an expected ROCE percentage of 10% for establishedindustrial processes.

In contrast, a 30% expected ROCE is assumed for emerging industrial processes, as such processes inherentlyinvolve a larger amount of risk and cost uncertainty. It should be noted that the risk taken into account here islimited to the technical risk associated with the process uncertainties. Other venture risks were not considered,such as business environment, product market changes, increased competition, raw materials and product pricesvariations, change in government policy, etc.

Finally, it is also important to mention that the product value must not be confused with product price. While theproduct value is calculated based on production costs and expected ROCE, the product price is the actual valuepracticed in market transactions.

Economic Potential Estimating

Depreciation refers to the decrease in value of industrial assets with the passage of time, primarily due to wear andtear. While not a true manufacturing cost, depreciation is considered to be a manufacturing expense foraccounting purposes – it allows the recovery of the cost of an asset over a time period.

In this report, depreciation is calculated based on the straight-line method, according to which the cost of an assetis uniformly distributed over its lifetime. The Intratec team assumes a depreciation of 10 % of the capital costs peryear.

Depreciation

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The accuracy range for product values estimated in the present study is -15% to -20% on the low side and +15% to+25% on the high side, depending on the maturity level of the pathway examined. The presented accuracyconsiders a confidence level of 90%, which is consistent with the type of conceptual evaluation that this studyaims to provide.

Thus far, all analyses developed were based on a specific region. The last step of report development is theevaluation of each pathway individually, comparing net raw material costs and economic potential, acrossdifferent countries. Next, the way in which such costs are calculated for each of the countries examined will bepresented.

Net raw materials costs are calculated using the same methods previously described, considering, however, localpricing data related to the countries examined

Capital costs and depreciation estimates are directly converted to other locations according to Intratec’s chemicalplant location factors. These factors are calculated based on high volumes of local data of different locations,relating to productivity, labor costs, steel and energy prices, equipment import needs, freight, taxes and duties onimported and domestic materials and regional business environment, among others.

The utilities costs initially calculated are, in turn, adjusted for each country based on local market fuel price data.

Finally, fixed costs and corporate overhead costs are calculated mainly based on local labor costs and the capitalcosts associated with each location examined.

Regional Comparisons

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ABOUT INTRATEC

Our Business

Our Reports

Intratec is an independent research and leading advisory firm, recognized for excellence in the evaluation ofchemical markets and the economics of industrial process. We are a mix of consulting professionals, marketresearchers and cost estimators with extensive industry experience.

Since 2002, the reports and databases we provide have increased the early recognition of promising research andcapital investment opportunities in the chemical, petrochemical, oil, plastic, renewable and allied sectors. Ourproducts have been used by our clients in multiple ways, such as:

* To understand chemical market size, dynamics and attractiveness

* To understand the feasibility of competitors’ technologies and developments

* To obtain estimates of ventures’ profitability, capital and operating costs

* To assess the economic potential of R&D breakthroughs

* To ascertain the economic aspects and risks of their competitors’ research

* To screen and assess industrial investment options

* To define consistent business cases for investments

* To evaluate / select independent licensors

Intratec has an extensive portfolio of reports targeting chemical markets and process economics. With more than900 up-to-date reports for the chemical, petrochemical, oil, energy, plastic, renewables and allied sectors, theIntratec portfolio is constantly growing.

Intratec offers the following types of reports:

* Production Pathways Reports: Reports presenting paths to producing chemical and preliminary economiccomparisons of those paths. From these reports, you can learn the ways in which changes in feedstocks andlocation can affect chemical production economics.

* Industrial Process Reports: Techno-economic evaluations of chemical production processes. Each reportprovides an up-to-date economic assessment, including required capital costs in several locations and operatingcosts.

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Find below the chemicals covered in Intratec reports. For a more complete and updated list, the reader isencouraged to visit www.intratec.us

3-Hydroxypropionic Acid

Acetone

Acetylene

Acetyls

Acrylic Acid and Derivatives

Acrylic/Maleic Copolymer

Acrylonitrile

Adipic Acid

Aldehydes

Alkylbenzenes

Amino Acids

Ammonia

Aniline

Biodiesel

Bisphenol A

BTX

Butadiene and C4's

C6's

Caprolactam

Carbon Monoxide

Chlorine and Derivatives

Chloroprene

Citric Acid

Cosmetics

Cumene

Detergents

Dicyclopentadiene

Diesel

Dimethyl Carbonate (DMC)

Dimethyl Terephthalate

Diols

Diphenyl Carbonate

Dyes & Pigments

Electricity

Epichlorohydrin

Ethanol

Ethylene

Ethylene Oxide

Fertilizers

Fibers

Fire Retardants

Food Additives

Furans and Derivatives

Glycerol

Glycols

Hydrogen

Hydrogen Cyanide

Hydrogen Peroxide

Industrial Gases

Insecticides

Isocyanates

Isophthalic Acid

Isoprene

Lactic Acid

Linear Alpha Olefins

Methacrylic Acid and Derivatives

Methanol

MTBE

Nitric Acid

Nitro Aromatics

Nylon

Oxalic Acid

Oxo Alcohols

Pentaerythritol

PET

Pharmaceuticals

Phenol

Phosgene

Phthalic Anhydride

Polyacrylate

Polyacrylonitrile

Polyalphaolefins

Polycarbonates

Polyesters

Polyethers

Polyethylenes

Polylactic Acid (PLA)

Polypropylene

Polyurethanes

Propanol and Isopropanol

Propylene

Propylene Oxide

PVC

Reformate

Resins

Silanes

Silicones

Siloxanes

Sodium Hydroxide

Speciality Polymers

Styrenics

Succinic Acid

Sulfuric Acid

Synhetic Rubbers

Synthesis Gas

Vitamins

Terephthalic Acid

Trimethylolpropane

Urea

Vinyls

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Propylene Production Pathways