Adding Value to the Bakken NGLs The Williston Basin Petroleum Conference Don Bari, Vice President, Technology and Analytics Groups IHS Chemical

May 21, 2014 Bismarck, North Dakota

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Who is IHS? • We are a public company (founded in the 1950s) and have a current revenue of over US $ 2 billion • We help companies make informed decisions by providing independent: – industry insight – knowledge – data & analysis

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IHS Has Strong Industry Integration We have  9000 staff in  30 countries Power &  Utilities 

Military &  Security

Healthcare

Financial  Transportation 

Energy Oil & Gas

Aerospace  & Defense

IHS Chemical Consumer  & Retail  

Automotive

Agriculture  Electronics  & Telecom

Government Metals &  Mining

Construction Shipping 

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IHS Chemical

• IHS Chemical brings together over 60 years of insight through 3 world-class legacy brands

IHS Chemical

 CMAI  SRI Consulting  Chemical Week

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We Think Value Chains: Vertically & Chemical industry development starts here Horizontally Oil, Gas Production

You

Hydrocarbon Feed

Retail

Building Block Chemicals

Derivatives & Intermediates

Manufactured Goods

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Plastics & Rubber

Converters: Tires and Other Fabricated OEM Parts 5

The Fabricated Products are Diverse and Familiar

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Why is There an Opportunity to Add Value to the Bakken’s Hydrocarbons? Methane Ethane (Fuel Gas) Ethane, Propane, Butane, Light Naphtha (NGL)

Global Gas Demand (2013) 120 TCF

Bakken has a very rich NGL composition at 30% as compared to a more typical 8%

Petrochemical Industry 25%

Oil, coal and methane- based feedstocks make up the rest The Williston Basin Petroleum Conference 2014

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The Feedstock-Products Value Chain To be Advantaged here, You need to be advantaged here Ethane, Propane, Butanes

Intermediate Chemicals

Commodities & Specialties

End-Use & Fabricated Products

Natural  Gas  Liquids  (NGLs)

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Have Advantages along the Value Chain: • Low Cost Feedstock • Competitive Production Costs • Good Logistical Proximity to the Market

PRICE  POINT

COST OF PRODUCTION

Fundamentally, the Industry Cost Curve Dictates Success

Need to be Here, to get Here

PRODUCTION PLANTS

DEMAND

CUMULATIVE INDUSTRY CAPACITY The Williston Basin Petroleum Conference 2014

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Case Studies of Likely Value-Add Opportunities for the Bakken Currently to Pipeline and Fuels

Ethane, Propane, Butanes

Intermediate Chemicals

Commodities Specialties

Ethane C2

Ethylene

HDPE Resin

Propane C3

Propylene

PP Resin

n-butane C4

Butadiene

PB Rubber

Isobutane C4

Isobutylene

PIB Rubber

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End-Use & Fabricated Products

For the Consumer, Automotive, Construction Industries

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Bakken NGL is Expected to Have an Advantaged Feedstock Position Even with IHS’ conservative estimates, the availability situation for competitivescale petrochemical plant is promising

The U.S. NGL supply demand outlook and resultant market prices are forecast to give a Bakken-based NGLs a strong feedstock to derivative chemical plants

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Nearly 50% of US Polyethylene Demand is in Good Proximity to a North Dakota Plant West Canada 1%

East Canada

Potential Production Hub

5% West North 6% Central

Pacific

East North Central

Montreal Ottawa Toronto

4%

35%

4%

21% Mid Atlantic

1% Mountain

6% West South Central

POLYETHYLENE

New England

3% East South Central

South Atlantic 14%

Production Hub

Most the production is centered in the Gulf Cost The Williston Basin Petroleum Conference 2014

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Advantages for the North Dakota Translate in Value-Add Opportunities

Ethylene & HDPE

Other Petrochemical  Case Studies

Butadiene % PBR

Ethylene & MEG

Developing Technologies

Mature Technology Multiple Products

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Butadiene Merchant Propylene & PP

Propylene Merchant

Mature Technology Single Product

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The Value of a Basic Feedstock Typically Increases Down the Supply Chain Ethane, Propane, Butanes

Intermediate Chemicals

Commodities Specialties

Ethane

Ethylene

HDPE

Volume (T)

1

1.29

1.30

Value ($/T)

197 (27c/gal)

938

1507

Ethane

Equivalent

197

727

1157

27,500 bpd

404

400 (880MM lb/y)

Investment (MM USD)

940

310

Return IRR (%)

21%

24%

‐‐‐‐‐Contained  Value in product ($/T) Capacity (KT/YR)

‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

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End-Use & Fabricated Products

Capital and operating cost at each step generate the value increase

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To Be Successful, Project Development Must “Execute” all the Fundamental Aspects FINANCING

EXECUTION

THE PROJECT

Project Management

Technology Licensor and/or Developer

Strategic and/or Private Equity

EPC Contractor

Owners & Sponsors

Debt

MANUFACTURING UTILITIES & SERVICES

Feedstock Supply/Logistics

Utilities

Product Offtake Co-Product Offtake

ALIGNMENT

Site Services

State (Federal) Policy, Social & Regulatory Aspects

Infrastructure

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Conclusions  There are feasible opportunities for the development

of NGL-based chemicals and derivatives  There will be need for additional supply of U.S. –

based petrochemicals  North Dakota is expected to have an ample supply of

NGLs to feed competitive-scale chemical plants  North Dakota has an advantaged priced feedstock

(NGLs) relative to the U.S.G.C. and Asia/Europe  North Dakota product rail cost is competitive to

supply mid US customers  Project and business development success can yield

a variety of benefits to North Dakota The Williston Basin Petroleum Conference 2014

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Cautions  Investment (cost and labor resources) are very

significant to construct downstream chemical production plants (and build their associated businesses)  Project development and implementation (including

market entry) will have challenges  To be successful, North Dakota will likely need to

solicit world-class chemical industry participants and stakeholders

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Adding Value to the Bakken NGLs The Williston Basin Petroleum Conference 2014

Thank You! The Williston Basin Petroleum Conference 2014

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