IHS Chemical Prospectus

IHS CHEMICAL

Solution for the Feedstock Reshuffle:

Technology & Economic Analyzer

Special Report Prospectus

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Contents

Contents ..................................................................................................................................... 2

Study Objective .......................................................................................................................... 3

Study Scope ............................................................................................................................... 4

Sample questions the model can answer ................................................................................... 8

Examples of investment options the model can evaluate ........................................................... 8

Deliverables................................................................................................................................ 8

Qualifications .............................................................................................................................. 9

About IHS Chemical ................................................................................................................. 10

About IHS ................................................................................................................................. 11

Contact Information .................................................................................................................. 12

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Study Objective

As more geographical regions emerge with low cost feedstock and new technologies are developed to allow

conversion of more feedstocks to basic chemicals, companies need to determine where to focus for future

investments.

New technologies are developing for the production of ethylene and ethylene derivatives to capitalize on

advantaged feedstocks. More resources are emerging as possible feedstocks for production of ethylene and

derivatives enabled by new technologies. Over the last five years, coal has become a key feedstock for

olefin production through the rapid commercialization of the coal to olefin technology (CTO). More recently,

new technology developed by Siluria offers the potential to covert of methane to ethylene through oxidative

coupling.

Feedstocks are also becoming more heavily traded. Countries without low cost feedstock are considering

importing feedstocks from countries that do. Several companies have proposed ethane or methanol import

projects.

IHS Chemical has a long history of using its knowledge and database to provide project optimization

assessments, often leading to “bankable” project feasibility studies. Our success is based on our multi

disciplinary and independent approach as shown below. Specifically, we draw on our deep and broad

commercial, technical and economic data and forecast analytics to model and assess absolute and relative

project performance.

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This special report aims to provide companies with a reliable, independent and efficient solution to evaluate

the ever-increasing number of investment options for ethylene and ethylene derivatives.

This report will provide a live cash flow model fully populated with IHS data, analytics and methodology,

which

Captures the impact of feedstock/product price changes over the lifetime of the investment

Takes into account the impact from capital investment

Offers a direct and normalized view of a pro forma project returns on investments

Provides the cornerstone for a preliminary feasibility study

Study Scope

The heart of the study is an interactive Excel cash flow model that will allow evaluation of various

investment options along the ethylene value chain.

Customizable fields

In the interactive Excel cash flow model, clients of this study will be able to make selections for the

following fields. Client can choose pre-set values for:

Location

•US

•Western Canada

•Western Europe

•Middle East

•Singapore

•Indonesia

•China – East Coast

•China – West

•India

•Russia

•West Africa

•Brazil

•Argentina

•Australia

Feedstock

•Methane

•Methanol (imported)

•Ethane

•Ethane (imported)

•Naphtha

•Coal

•Biomass

Technology

•Natural gas to olefins (integrated)

•Methane to Olefins direct synthesis

•MTO (Methanol to olefins)

•Ethane Cracking

•Naphtha Cracking

•CTO (Coal to Olefins)

•CTM (Coal to MEG)

•Biomass to ethylene

Product

•Ethylene

•High Density Polyethylene (integrated)

•Ethylene Glycol (integrated)

Product Destination

•Export (one export destination designated for each location)

•Domestic

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The table below shows the feedstock/location combinations that will be available for selection in the

model:

Column1 US

W. C

an

ad

a

W.

Eu

rop

e

Mid

dle

East

Ind

on

esia

Ch

ina -

East

Ch

ina -

West

Ind

ia

Ru

ssia

West

Afr

ica

Bra

zil

Arg

en

tin

a

Au

str

ali

a

Methane (Oxidative Coupling) x x

x x

x x

x x

Methane to methanol to olefins x x

x x

x x

x x

Methanol (imported)

x Methanol (merchant market in China)

x

Ethane x x

x

x

x Ethane (imported)

x

x

x

Naphtha x

x

x

x

x Coal

x x

Biomass

x

IHS Chemical will provide the data for the following fields based on extensive research by experts in several programs. Users will also be able to input their own values as desired for more customized results.

- Feedstock price

o Natural gas

o Methanol

o Ethane

o Naphtha

o Coal

o Biomass

- Product price

o Ethylene

o High-density Polyethylene (HDPE)

o Ethylene Glycol (MEG)

- Utility price

o Electricity

o Fuel

o Water

o Other

- Capital cost

- Debt Equity Ratio

- Interest Rate

- Plant Capacity

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Fixed Fields

The cash flow model will make the following assumptions:

Yield factors for each technology

Scale factors for each technology

Operating life – 15 years

Operating rates – 90 percent

Start-up year – 2020

Location factors

Transportation costs per location

Duties/Tariffs per location

Construction Period of 4 years

Tax rate by location

Owners cost

Working capital

Depreciation

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Cash Flow Model Output

Internal rate of return (IRR) and Net Present Value (NPV) Calculations

Cash flow statement for 4 years of construction and 15 years of operation (see below)

Graphics for side by side comparison of multiple case (see below)

Note: all years will be provided in the actual model deliverable (years omitted here to improve readability). Detailed breakdown of each item in the cash flow statement is also provided. For example, detailed feedstock costs calculations will be shown.

Column1 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2034

Product Revenue 0 0 0 0 0 301 593 608 636 668 686 793

Feedstock Costs 0 0 0 0 0 83 137 132 129 134 148 177

Gross Margin 0 0 0 0 0 219 456 476 506 534 538 616

Variable Operating Expense 0 0 0 0 0 12 24 24 25 25 26 31

Fixed Operating Expense 0 0 0 0 0 20 22 22 23 23 23 28

Total Operating Expenses 0 0 0 0 0 32 46 47 47 48 49 58

Operating Income (EBITDA) 0 0 0 0 0 187 410 429 459 486 489 557

Sustaining Capital Depr. 0 0 0 0 0 0 0 0 -1 -1 -1 -2

Capital Depeciation 0 0 0 0 0 -19 -19 -19 -19 -19 -19 -19

Total Depreciation 0 0 0 0 0 -20 -20 -20 -20 -20 -20 -21

EBIT 0 0 0 0 0 167 391 409 439 466 469 536

Net Income Taxes 0 0 0 0 0 54 132 139 150 160 161 188

Net Operating Cash flow 0 0 0 0 0 241 543 568 609 646 650 745

Sustaining Capital 0 0 0 0 0 -2 -2 -2 -2 -2 -2 -2

Capital Spending 0 -29 -116 -116 -29 0 0 0 0 0 0 0

Working Capital 0 0 0 0 0 -61 0 0 0 0 0 0

Change in WC 0 0 0 0 0 0 -55 -2 -4 -6 -5 -2

Cumulative Cash Flow 0 -29 -116 -116 -29 178 486 565 603 639 644 741

24% 21%

13% 13% 11%

-6% -10%

-5%

0%

5%

10%

15%

20%

25%

30%

Ethylene - HDPE BDH - Selling BDE Ethylene - MEG

BDH - Selling Isobutylene PDH - Selling Propylene BDH - MTBE

NGL: Returns (IRR, %) vs. Risk

Source: IHS © 2014 IHS

Investment Option Comparison, %IRR

Source: IHS © 2014 IHS

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Sample questions the model can answer

Which chemicals feedstock will see the highest return on investment for producing ethylene

using state-of-the-art technologies in the US?

What is the IRR for an integrated ethylene to HDPE plant in Western China with coal as

feedstock and product delivered to coastal China?

For the countries with low cost ethane, which one will have the best return on investment for a

polyethylene plant with product delivered to China?

Which option provides the best IRR for a plant in Argentina?

Examples of investment options the model can evaluate

Polyethylene in east coast China through

o MTO (methanol to olefins) using merchant methanol sourced locally

o MTO (methanol to olefins) using imported methanol from US priced at US market price

plus freight

o Integrated CTO (coal to olefins) polyethylene plant in Western China product

shipped by rail to East Coast China

o Integrated ethane steam cracker polyethylene plant in the US shipped to East Coast

China

Polyethylene in Western Europe through

o Integrated naphtha cracker polyethylene plant in Western Europe

o US ethane shipped to Western Europe to feed ethane cracker in Western Europe

o Polyethylene produced in the US with ethane product shipped to Western Europe

o Integrated ethane cracker polyethylene plant in Russia product shipped to Western

Europe

Deliverables

Each client to this study will receive the cash flow model in Excel.

A PowerPoint file containing the study objective, methodology, cash flow and financial basis, and key

input data will also be included with this study. Key cases studies will also be analyzed in this

document. User support will be available to help run this model.

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Qualifications

The technology yield factors and capital costs used in the model will be based on the analysis by the IHS Process Economics Program (PEP).

Process Economics Program (PEP)

The Process Economics Program (PEP) is the core technology and cost analysis program for the chemical and related industries at IHS Chemical. PEP provides thorough and up-to-date technical and economic evaluations of both state-of-the-art commercial processes and potentially promising processes under development. The program’s evaluations cover both commodity and specialty chemicals and polymers. Within the PEP program olefin processes, naphtha, gas and fuel oil cracking processes, polymer processes, and almost all process for major derivatives of cracker complexes have been evaluated on many occasions. PEP has a team of highly experienced engineers that study process economics (production and capital cost estimates) through: • Fundamental process design • Process simulation • Full mass and energy balance • Detailed equipment accounting Single-Client Consulting Work IHS Chemical has also performed various single-client consulting work that includes detailed financial analysis. The following projects are a few examples of the single client work that IHS Chemical has conducted in the last couple years with cash flow analysis similar to what is proposed in this study. Methanol Feasibility Study - a private equity firm sought the assistance of IHS to conduct a high-level feasibility study into a world scale methanol plant in Africa. As part of this study, IHS provided a cash flow model that generated key financial indicators including IRR, NPV. Year on year cash flow for the duration of the project was also provided. All assumptions used in the calculations were explicitly stated. Sensitivities in graphical output that included changes in input and finished product pricing, reduced demand and higher capex costs, were also included. Refining and Petrochemical Complex Study – IHS Chemical collaborated with IHS Energy to design the optimal refining and petrochemical complex based on the client’s crude oil of choice. Various refining and petrochemical configurations were analyzed through a cash flow model to determine the most optimal options. Ethylene, propylene and derivatives were included in the analysis. Overseas Investment Options Study – A large integrated player in Asia looked for investment opportunities overseas to take advantage of low cost feedstock for production of methanol, ethylene, propylene and/or C4’s. IHS Chemical developed a detailed cash flow model that analyzed over 100 options across four countries.

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About IHS Chemical

Best-in-Class Brands

IHS Chemical now combines the former CMAI

and SRI Consulting groups together with

Chemical Week Magazine, Harriman Chemsult,

IntelliChem and PCI Acrylonitrile into one

integrated business unit comprising its

multiclient and single client services. IHS

Chemical’s experts, analysts and researchers

who are well respected throughout the industry

for their deep-rooted analysis and forecasts,

extends the value that IHS can now offer by

connecting clients with the vast resource of

insight and expertise that exists across IHS

including energy, supply chain and economics.

Comprehensive Coverage

IHS Chemical provides the most comprehensive

chemical market content and industry expertise in

the world. The company has more than 200

dedicated chemical experts working together to

create a consistent and integrated view across

more than 300 industrial chemical markets and

2,000 chemical processes for 95 industries. Ensure

that your decisions are based on broad,

comprehensive information, forecasts, intelligence,

and analysis.

IHS has assembled a team of chemical experts

that offers an unprecedented coverage level for

core chemical markets and technologies. Backing

them is a larger IHS community of experts covering

related markets, from energy and the macro

economy to the world's largest chemical-using

industries, such as automotive, construction and

others. IHS Chemical’s intellectual capital is built

on an operating model that utilizes over 1,800

consultants, researchers and economists to

advance cross-disciplinary collaboration and

analysis.

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About IHS

IHS is the leading source of information, insight and analytics in critical areas that shape today’s business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs more than 8,000 people in 31 countries speaking 50 languages around the world. IHS serves businesses and all levels of governments worldwide ranging from 85% of Global Fortune 500 to small businesses. IHS provides comprehensive content, software and expert analysis and forecasts to more customers in more than 180 countries worldwide.

Information, analytics, and expertise

IHS offers must-have business information, advanced research and analytics, and deep expertise in core industry sectors, such as energy and natural resources, chemicals, electronics, and transportation. We focus on business-critical workflows that support our customers’ needs, including:

Strategy Planning & Analysis: Strategic Planning, Corporate Development, M&A, Investment Analysis, Risk Assessment

Energy Technical: Exploration-Production, Geoscience, Engineering, Commercial Development

Product Design: Engineering Design, Research and Development

Supply Chain: Procurement, Logistics, Operations, Manufacturing

Environmental Health, Safety & Sustainability: Sustainability, Regulatory, Environment Health and Safety

This interconnected information, expertise, and analytics across industries and workflows allows IHS to provide best-in-class solutions that power growth and value for our customers.

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Contact Information

To make an inquiry about this study, please reach out to the IHS Chemical Special Reports team at ChemicalSpecialReports@ihs.com.

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