“New Feedstock Sources?LNG and Renewables”

Agenda

LNG Update – Then and Now

Ethylene Feedstock from LNG

Frontier Feedstocks – the Move to Renewables

Conclusions

LNG – Then and NowLNG – Then and Now

Regasifcation ProjectsThen and NowProject Assumptions 2002-2004 2007-2010

Needs analysis Build them and LNG will come

Supply development needed to justify new terminals

Construction Costs Falling - $300 to $500 million each

High & rising - $800 to $1 billion each

Gas Prices $3.00-$4.25/Mmbtu $6.00 and higher

Project Cycle – MOU to Startup

3 to 5 years 5 to 7 years

Business model for owners

Take or Pay throughput Terminals in multiple markets

Environmental Issues Concerns can be satisifed

Some locations will be off limits

Regasification Outlook through 2010Keeping Pace With Supply

Regas capacity is adequate to handle expected supplyThrough 2010 without more new construction starts

Bcf

/dal

y

Liquefaction ProjectsThen and NowProject Assumptions 2002-2004 2007-2010

Needs analysis Market will be strong; abundant gas reserves available for export

Strong export market, but domestic demand growing fast

Construction Costs(greenfield)

$250/Ton of capacity and falling due to scale

$900/Ton and higher due to scarcity of materials & people

Gas Prices $2.75-$4.00/Mmbtu delivered - fixed

$6+/Mmbtu – formula based

Project Cycle – MOU to Startup (greenfield)

4 to 5 years 5 to 10+ years (Arctic projects take longer)

Business model for owners

Long term contracts some spot; project sponsor marketing agreements to move project forward

Blend of baseload & more spot ; increased control by reserve owners

Risks/Issues Working out commercial terms for offtake

Having enough reserves; cost escalation

Global Gas DemandLNG Market Share Growing, Slowly

7% 9% 9% 9% 11%% fromLNG

Atlantic Basin

EurasiaPacific Basin

Supply 10.6 Regas Capacity 15.3

Supply 6.3 Regas Capacity 1.2

Supply 9.8 Regas Capacity 17.2

Room for More TerminalsIn India?

Bcf/day 2007

India is closest distance for Middle East shipments, but Japan and Korea havemore developed markets and usually pay higher prices

Regasification TerminalsN. America - Then and Now

2002-2004 2007-2010

Number of terminals planned

60+ (includes “planned” and permitted)

40+ (approved, planned or permitted)

Number of terminalsBuilt

9 (new builds, including offshore)

Estimated Cost (land based)

$400-$500 million Actual $700 million to $1.1 billion

Throughput fees for users

$.27-$.32/Mmbtu ?

Risks/Issues Permitting, pipeline capacity

Supply

LNG Import Trend – USAHigh Seasonality

Relatively flat last 4 years except for summer 2007 – new trend or temporary?Enough to boost storage to higher levels and put pressure on prices

LNG Import Trend – USA2006 V. 2007

.5 BCF of“Swing” VolumeComing Here

Lake Charles emerging as the “swing” location for summer surplus

LNG Import Outlook – USAWe’ll Have Enough Capacity

Bcf

/day

Feedstock From LNGN. AmericaFeedstock From LNGN. America

LNG Processing for Feedstock Supply

Processing Capacity Will Be Available:

– Existing – Lake Charles Processing Facility

– Likely – Point Comfort (Calhoun LNG)

– Possible – Freeport, others if volume is there

– Some processing possible on East Coast but will be C3+ recovery

Supply depends mostly on ethane frac spread and volume:

– Potential for 25-50M BPD incremental volume next few years

– Most likely seasonal when storage arbitrage is good

– Could compete with Rockies supply for market share; extraction costs lower from LNG than domestic gas

Frontier FeedstocksFrontier Feedstocks

What’s On The Horizon

Plants to Plastics – Here Now:

– Archer Daniels Midland renewables to chemicals business unit launched this year

– Biodegradable plastics from corn (Dow and DuPont)

– “PGR” – propylene glycol renewable – glycerin byproduct from biodiesel replaces propylene oxide as feedstock in Dow process, can also be used to make raw material for epoxy resins

– BASF/DOW HPPO process to make Propylene Oxide with no co-products or isobutane feedstock

Steam Cracker Replacements – Next Decade:

– R&D in progress on ethylene production via another process

ConclusionsConclusions

Conclusions

LNG Supply/Demand Trends:

– Terminal capacity is adequate; supply is the issue

– Higher construction costs & stronger than expected domestic demand may slow development of liquefaction in some producing regions

– More LNG traded on spot markets – volatility will increase

– U.S. Gulf Coast will be the clearing market for seasonal surplus until more storage is developed elsewhere (U.K., Dubai)

Feedstock Issues:

– Renewables beginning to replace some hydrocarbon feedstocks in limited volumes

– Ethane on ethane competition possible in the future if extraction from LNG remains profitable