PENN STATE SHALE WEBINAR June 20, 2013

Jim Cutler President – Macle, Inc.

Webinar Discussion Points  Selected Definitions  Historical Background  Basic Ethylene Chemistry

 Ethylene Production  Ethane & Natural Gas  Ethylene Economics  Ethylene Production Economies Of Scale  World Scale vs. Regional Ethylene Plants

 Supply Chain Resiliency

Selected Industry Definitions  Inside Battery Limits (ISBL) – process units excluding      

support equipment World Scale Ethylene Plant – plants over 1.5 Billion lbs./yr. Mont Belvieu – a major NGL storage, processing and trading hub located 30 miles East of Houston, TX Barrel – 42 gallons NGL – natural gas liquid (ethane, propane, butane, natural gasoline) Fractionator – A processing plant that separates NGL’s into its components via distillation (heat) Olefin – A unstable (double bond) straight chain hydrocarbon

US ETHYLENE CRACKERS DEVELOPMENTAL BACKGROUND  IN THE 1960’S ETHYLENE PLANTS VIEWED TO BE

A REFINERY OPERATION  ETHYLENE PLANTS CONSIDERED TO BE GARBAGE

DISPOSAL UNITS  QUESTION OF PLANT SITE LOCATION • FEEDSTOCK • DOWNSTREAM MARKETS • EXPORT OPPORTUNITIES

Marcellus PE Freight Positioning

Rail Cost $.04/lb

Location-Location - Location Appalachian Basin

Appalachian Resins, Inc.

Major Polymer Resin Consumers

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Ethylene Chemical Compound

Ethylene is a hydrocarbon with the formula C2H4 or H2C=CH2.

Ethylene is a colorless flammable gas with a faint sweet odor pure. It is the simplest olefin.

What’s In A Name THE NAME CHANGES - NOT THE PLANT  Ethylene Plant  Ethylene Cracker

 Steam Cracker  Ethane Cracker  Light Olefins Unit (LOU)

Ethane Cracking Reaction It’s the unstable double bond that makes ethylene reactive and a valuable petrochemical intermediate.

quench

Hydrogen Gas

NGL Fractionator

“Y” Grade

Natural Gasoline

Regional Ethane Cracker - - 500 MM Lbs/Yr Natural Gas Support

MACLE, INC.

Ethylene Yields

Ethylene Cracker Feed Yields EHANE Ethylene

 Heavier feedstocks require more back end units.

Propylene C4's

 Heavier feedstocks reflect higher capital costs.  Heavy feed ethylene crackers resemble small refineries.  Ethane crackers not as sensitive to capital economies of scale.

Ful Gas Pyrolysis Gasoline

NAPHTHA Ethylene Propylene

C4's Ful Gas

Appalachian Resins, Inc.

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Steam Cracker Costs Ethane Cracker Reflects Lowest Capital Cost

$ CAPITAL COST

HIGHER

NAPHTHA

ETHANE

HEAVIER

FEEDSTOCK MOLECULAR WEIGHT

Appalachian Resins, Inc.

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ETHYLENE PLANT – SIMPLIFIED SCHEMATIC Ethane Recycle

STEAM

Ethane

Ethylene

1450 – 1600°F

FURNACES

WATER

QUENCH

RECOVERY

Typical Ethane Cracker Distillation Columns – Recovery Section

3 Columns de-methanizer  32 feet high  10 feet diameter

de-ethylenizer  55 feet high  10 feet diameter

de-ethanizer  88 feet high  10 feet diameter

A MISUNDERSTOOD FACT ALL ETHYLENE PLANTS ARE CREATED EQUAL REGIONAL PLANTS HAVE THE SAME VARIABLE COSTS AS “WORLDSCALE” PLANTS

PLANT SIZE MAKES NO DIFFERENCE

ETHYLENE PRODUCTION YIELD - POUND PER POUND ETHANE FEED

PLANT SIZE (MM LBS)

500

1,000

2,000

PRODUCT PRODUCED

YIELD

YIELD

YIELD

0.80 0.03 0.02 0.01 0.13 0.01 0.00

0.80 0.03 0.02 0.01 0.13 0.01 0.00

0.80 0.03 0.02 0.01 0.13 0.01 0.00

1.00

1.00

1.00

Ethylene Propylene Butylene Butadiene Fuel Gas Gasoline Pitch

TOTAL

Appalachian Resins, Inc.

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Regional Ethylene Plant Appalachian Resins Configuration

ETHYLENE 500 Million lbs/yr

500 MM lbs/yr

POLYETHYLENE 500 Million lbs/yrlbs/yr

World Scale Ethylene Plant Typical Configuration

POLYETHYLENE 1.0 Billion lbs/yr

ETHYLENE 2.0 Billion lbs/yr

ETHYLENE OXIDE

ETHYLENE GLYCOL

840 Million lbs/yr

600 million lbs/yr

World Scale Ethylene Plant Typical Configuration MORE OF EVERYTHING

• • • • •

MORE ENVIRONMENTAL EMISSIONS MORE LAND MORE TRAFFIC MORE COST OVERRUN POTENTIAL MORE PRODUCTION BALANCING

POLYETHYLENE 1.0 Billion lbs/yr

ETHYLENE 2.0 Billion lbs/yr

ETHYLENE OXIDE

ETHYLENE GLYCOL

840 Million lbs/yr

600 million lbs/yr

WORLDSCALE vs REGIONAL ETHYLENE CRACKERS Per Pound Capital Cost

REGIONAL ETHANE CRACKERS CAN BE COST COMPETITIVE WITH “WORLDSCALE” PLANT

• Same yield structure • Less rail staging area requirements • Environmental Considerations • Regional crackers can be integrated with existing operations (brownfield)

Regional Plants Piggy-Back (Brownfield) Capability  Barge Dock

 Rail Car Capability  Truck Capability  Warehouses

 Water  Electricity  Natural Gas

 Support Services  Office Space  Nitrogen Blanketing

WORLD SCALE ETHYLENE PLANTS  A world scale ethylene plant is over 1.5 Billion lbs.  Largest ethylene plant is 3.7 Billion lbs (India).

 A world scale ethylene plant has to support

downstream production facilities, such as: Polyethylene Ethylene Oxide Vinyl Chloride Monomer (VCM)  A world scale ethylene plant is actually a

large petrochemical complex.

CLIMATE CHANGE RECOGNITION A COMPETITIVE EDGE Evidence that Earth’s climate is changing

Some Impacts of Climate Change

Extreme weather events—droughts, wildfires, storms, floods—increasing

   

Electricity outages Rail bed damage Bridge failures Manufacturing facility damage  Workforce disruption

THE BOTTOM LINE – HIGHER COSTS

SOURCE: American Chemical Society

For Commodity Petrochemical Manufacturing, Integrated Site Operations, Not Facility Size, Is Key to Cost Competitiveness

Planned Regional Development Can Duplicate Or Exceed Benefits Associated With World Scale Ethylene Plants