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April 2011 Petrochemicals— General Page 1 350.0000 A © 2011 by the Chemical Economics Handbook—SRI Consulting CEH Product Review PETROCHEMICAL INDUSTRY OVERVIEW By Sean Davis CEH Product Reviews provide analysis, historical data and forecasts pertaining to the international competitive market environment for chemical products. Supply and demand data are developed for the United States, Western Europe, Japan and other relevant countries or regions with the cooperation of chemical producers and consumers worldwide. The detail and analysis may be more limited than that found in CEH Marketing Research Reports. Updated information may be available from the following CEH Program services: SRIC Web Library—Available at www.sriconsulting.com. Manual of Current Indicators (MCI)—Updates of statistical data derived from published sources. Issued semiannually. The Economic Environment of the Chemical Industry (EECI)—Economic indicators that impact the chemical industry. Issued semiannually. CEH Inquiry Service—SRI Consulting researchers are available to answer your questions. U.S.A.—Telephone: 650/384-4334 Fax: 650/330-1149 Zürich—Telephone: 4144/283-6333 Fax: 4144/283-6330 Tokyo—Telephone: 813/5202-7320 Fax: 813/5202-7333
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April 2011 350.0000 A

Petrochemicals General Page 1

CEH Product Review

PETROCHEMICAL INDUSTRY OVERVIEWBy Sean Davis

CEH Product Reviews provide analysis, historical data and forecasts pertaining to the international competitive market environment for chemical products. Supply and demand data are developed for the United States, Western Europe, Japan and other relevant countries or regions with the cooperation of chemical producers and consumers worldwide. The detail and analysis may be more limited than that found in CEH Marketing Research Reports. Updated information may be available from the following CEH Program services:

SRIC Web LibraryAvailable at www.sriconsulting.com. Manual of Current Indicators (MCI)Updates of statistical data derived frompublished sources. Issued semiannually.

The Economic Environment of the Chemical Industry (EECI)Economicindicators that impact the chemical industry. Issued semiannually.

CEH Inquiry ServiceSRI Consulting researchers are available to answer yourquestions.U.S.A.Telephone: ZrichTelephone: TokyoTelephone: 650/384-4334 4144/283-6333 813/5202-7320 Fax: Fax: Fax: 650/330-1149 4144/283-6330 813/5202-7333

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The information provided in this publication has been obtained from a variety of sources, which SRI Consulting believes to be reliable. SRI Consulting makes no warranties as to the accuracy, completeness or correctness of the information in this publication. Consequently, SRI Consulting will not be liable for any technical inaccuracies, typographical errors or omissions contained in this publication. This publication is provided without warranties of any kind, either express or implied, including but not limited to, implied warranties of merchantability, fitness for a particular purpose, or non-infringement. IN NO EVENT WILL SRI CONSULTING BE LIABLE FOR ANY INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES (INCLUDING BUT NOT LIMITED TO DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, OR THE LIKE) ARISING OUT OF THE USE OF THIS PUBLICATION, EVEN IF IT WAS NOTIFIED ABOUT THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU. IN SUCH STATES SRI CONSULTINGS LIABILITY IS LIMITED TO THE MAXIMUM EXTENT PERMITTED BY SUCH LAW. Certain statements in this publication are projections or other forward-looking statements. Any such statements contained herein are based upon SRI Consultings current knowledge and assumptions about future events, including, without limitation, anticipated levels of global demand and supply, expected costs, trade patterns, and general economic, political, and marketing conditions. Although SRI Consulting believes that the expectations reflected in the forward-looking statements are reasonable, it cannot, and does not, guarantee, without limitation, future results, levels of activity, performance or achievements. Readers should verify through independent third-party sources any estimates, projections or other forward-looking statements or data contained herein before reaching any conclusions or making any investment decisions. SRI Consulting is not responsible for the Readers use of any information in this publication. The absence of a specific trademark designation within this publication does not mean that proprietary rights may not exist in a particular name. No listing, description or designation in this publication is to be construed as affecting the scope, validity, or ownership of any trademark rights that may exist therein. SRI Consulting makes no warranties as to the accuracy of any such listing, description or designation, nor to the validity or ownership of any trademark.

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TABLE OF CONTENTSSummary ....................................................................................................................................................... 5 Introduction................................................................................................................................................... 6 Supply and Demand by Region .................................................................................................................... 7 World ........................................................................................................................................................ 7 Sources of Basic Petrochemicals .......................................................................................................... 7 Capacity ................................................................................................................................................ 7 Production........................................................................................................................................... 10 United States ........................................................................................................................................... 14 Sources of Basic Petrochemicals ........................................................................................................ 14 Coal-Derived Chemicals ................................................................................................................. 15 Crude PetroleumBased Chemicals................................................................................................ 17 Natural GasDerived Chemicals..................................................................................................... 20 Natural Gas LiquidsDerived Chemicals........................................................................................ 20 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 25 Methanol ......................................................................................................................................... 25 Olefins............................................................................................................................................. 25 Aromatics........................................................................................................................................ 27 Production........................................................................................................................................... 30 Consumption....................................................................................................................................... 31 Price .................................................................................................................................................... 32 Trade ................................................................................................................................................... 35 Latin America ......................................................................................................................................... 40 Sources of Basic Petrochemicals ........................................................................................................ 40 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 42 Methanol ......................................................................................................................................... 42 Olefins............................................................................................................................................. 42 Aromatics........................................................................................................................................ 44 Production........................................................................................................................................... 45 Consumption....................................................................................................................................... 45 Trade ................................................................................................................................................... 46 Western Europe....................................................................................................................................... 47 Sources of Basic Petrochemicals ........................................................................................................ 47 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 49 Methanol ......................................................................................................................................... 49 Olefins............................................................................................................................................. 49 Aromatics........................................................................................................................................ 51 Production........................................................................................................................................... 52 Consumption....................................................................................................................................... 53 Price .................................................................................................................................................... 53 Trade ................................................................................................................................................... 54 Middle East ............................................................................................................................................. 55 Sources of Basic Petrochemicals ........................................................................................................ 55 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 57 Methanol ......................................................................................................................................... 57 Olefins............................................................................................................................................. 57 Aromatics........................................................................................................................................ 58 2011 by the Chemical Economics HandbookSRI Consulting

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TABLE OF CONTENTS (continued)Production........................................................................................................................................... 59 Consumption....................................................................................................................................... 60 Trade ................................................................................................................................................... 61 Japan ....................................................................................................................................................... 62 Sources of Basic Petrochemicals ........................................................................................................ 62 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 64 Methanol ......................................................................................................................................... 64 Olefins............................................................................................................................................. 64 Aromatics........................................................................................................................................ 65 Production........................................................................................................................................... 66 Consumption....................................................................................................................................... 67 Price .................................................................................................................................................... 68 Trade ................................................................................................................................................... 69 China ....................................................................................................................................................... 70 Sources of Basic Petrochemicals ........................................................................................................ 70 Supply of Basic Petrochemicals by Type of Feedstock...................................................................... 72 Methanol ......................................................................................................................................... 72 Olefins............................................................................................................................................. 72 Aromatics........................................................................................................................................ 74 Production........................................................................................................................................... 74 Consumption....................................................................................................................................... 75 Trade ................................................................................................................................................... 76 Bibliography ............................................................................................................................................... 77

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SUMMARYThe petrochemicals industry has been impacted by globalization and integration of the world economy. Mergers and acquisitions, joint ventures and other forms of partnership by major petrochemical companies have led to fewer producers of commodity petrochemicals with broader geographical reach. The following are additional factors influencing world petrochemicals: Product IntegrationMost major petrochemical companies are integrated (forward to downstream derivatives and/or backward to raw materials) to improve margins and to secure raw material source. This has resulted in a number of petrochemical companies either divesting nonintegrated plants, forming a partnership with another company to improve operating efficiency (including sales, marketing and distribution), or ceasing operations. Economies of ScaleWorld-scale petrochemical plants built during the past several years are substantially larger than those built over two decades ago. As a result, smaller, older, and less efficient units are being shut down, expanded or, in some cases, retrofitted to produce different chemical products. Price of Crude OilCrude oil prices have been on the rise since 2004 and traded for nearly $139 per barrel at their peak in mid-2008. Regional downstream markets and end-use applications are impacted significantly due to rising prices. As of February 2011, crude oil prices once again eclipsed $100 per barrel. EnvironmentIncreasing concerns over fossil fuel supply and consumption with respect to their impact on health and the environment have led to the passing of legislation in Japan, the United States and Europe, which affects chemical and energy production and processing for the foreseeable future. TechnologyManufacturing processes introduced in recent years have resulted in raw material replacement, shifts in the ratio of coproduct(s) produced, and cost. This leads to a supply/demand imbalance particularly for smaller downstream petrochemical derivatives. In addition, growing environmental concerns and crude oil pricing has expedited the development and commercialization of renewably derived chemical products and technologies previously considered economically impractical. Regional ProductionPrior to 1980, the United States, Western Europe and Japan accounted for 80% of primary petrochemical production in the world. In 2010, their share had declined to 43% as a result of new capacity in other parts of the world. Political UncertaintiesSituations in virtually all parts of the worldthe Middle East, Asia, Eastern Europe, North and South America and Africahave growing global implications for the supply and demand of petrochemicals and raw materials. Economic Growth and DemandOverall expansion of the population and an increase in individual purchasing power has resulted in an increase in demand for finished goods and greater consumption of energy in China, India and Latin America.

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There are overlaps among these trends and impact varies by petrochemical product, country/region and magnitude. Detailed discussion of individual primary petrochemical feedstock, intermediates, derivatives and end-use market segments are available in other CEH reports. The various CEH marketing research reports and product reviews on each petrochemical provide in-depth coverage and a definitive source of market information for these chemicals.

INTRODUCTIONIn the petrochemical industry, the organic chemicals with the largest production volume are methanol, ethylene, propylene, butadiene, benzene, toluene and xylenes. Ethylene, propylene and butadiene, along with butylenes, are collectively called olefins, which belong to a class of unsaturated aliphatic hydrocarbons having the general formula CnH2n. Olefins contain one or more double bonds, which make them chemically reactive. Benzene, toluene and xylenes are commonly referred to as aromatics, which are unsaturated cyclic hydrocarbons containing one or more rings. Olefins, aromatics and methanol are precursors to a variety of chemical products and are generally referred to as primary petrochemicals. Given the number of organic chemicals and the variety and multitude of ways by which they are converted to consumer and industrial products, this report will limit its discussion to these seven chemicals, their feedstock sources and their end uses. The regional focus of the report is the United States, Western Europe and Japan, as well as three of the fastest growing markets; China, Latin America and the Middle East. Some discussion of the demand for the seven petrochemicals is included, but it is only intended to provide some perspective on the size and general characteristics of the markets. The following flowchart provides a simplified overview of the origins and uses of olefins, aromatics and methanol.Petrochemical Feedstocks and DerivativesCoal Natural Gas

Methane

Methanol

Natural Gas Liquids Ethane Propane Butane Condensates

Ethylene Propylene Butadiene Butylenes

Plastics and Resins Fibers

Refinery Off-Gases Crude Petroleum Naphtha

Elastomers Solvents Surface-Active Agents

Agriculture Building and Construction Electrical/Electronics Furniture and Furnishings Coatings/Adhesives/Inks Dyes Apparel Other Consumer Products

Gas Oil Surface Coatings Benzene Toluene Xylenes

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SUPPLY AND DEMAND BY REGION WORLDSOURCES OF BASIC PETROCHEMICALS Fossil fuelscoal, crude oil or petroleum, natural gas liquids and natural gasare the primary sources of basic petrochemicals. The most important use of fossil fuels is in the production of energy. In 2010, annual world energy production from fossil fuels, hydroelectric power and nuclear power amounted to 433 quadrillion British thermal units (Btus). Of this total, 67% or 290 quadrillion Btus came from crude oil, coal, natural gas and natural gas liquids. The fraction of fossil fuel energy equivalents diverted to primary petrochemical production was an estimated 17 quadrillion Btus or 5-7% of the total consumed. Although only a small subset of world energy demand, petrochemical prices are heavily influenced by fluctuations in the world energy market.World Fossil Fuel Supply/Demand for Primary Petrochemicals2010Primary Petrochemical Feedstock World Fossil Fuel Input (290 quadrillion Btus) Crude Oil Coal Natural Gas Natural Gas Liquids Refinery Off-Gases Chemical Sector Primary Energy Sector

12.4 Quadrillion Btus

Crude Petroleum

3.1 Quadrillion Btus

Natural Gas Liquids and Refinery Off-Gases Natural Gas Coal

Methanol Ethylene Butadiene Benzene Toluene Xylenes

1.4 Quadrillion Btus 0.3 Quadrillion Btus Source: CEH estimates.

CAPACITY In 2010, annual world capacity to produce the seven primary petrochemicals amounted to 478 million metric tons. Ethylene was the largest in volume, followed by propylene and methanol. The following graph presents world capacity for the individual primary petrochemicals.

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World Capacity for Primary Petrochemicals2010150 Millions of Metric Tons

100

50

0 Ethylene Propylene Benzene Xylenes Methanol Toluene Butadiene

The following graphs present capacity of the seven primary petrochemicals by region in 2010:World Capacity of Primary Petrochemical Feedstocks as of January 2011North America 1.5%Africa and Middle East 17.3% Latin America 4.9%

Europe 10.6% Latin America 13.1%

Asia and Oceania 32.9%

Asia and Oceania 53.1%Europe 22.3% North America 22.7%

Africa and Middle East 21.8% Methanol

Ethylene

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Petrochemicals General Page 9 World Capacity of Primary Petrochemical Feedstocks as of January 2011 (continued)Latin America 4.8%Latin Africa and America Middle East 3.0% 3.4% North America 22.2%

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Africa and Middle East 9%

North America 22.0%

Asia and Oceania 41.4%

Asia and Oceania 43.0%

Europe 22.8% Propylene

Europe 28.4% Butadiene

Africa and Middle East 7.4% North America 18.9%

Latin America 3.6%

Africa and Middle East 6.9% Europe 14.4% Asia and Oceania 45.5% North America 21.7%

Latin America 4.2%

Asia and Oceania 52.9%

Europe 24.7% Benzene

Toluene

a

Latin America Europe 1.7% 8.8% Africa and Middle East 9.2% North America 14.7%

Asia and Oceania 65.7%b

Xylenesa. b.

There may be some double-counting of aromatics capacity because of inclusion of capacity for toluene that is hydrodealkylated to benzne. Includes mixed xylenes streams or sums of individual isomers.

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PRODUCTION The following table presents historical worldwide growth in the production of methanol, olefins and aromatics:World Production of Primary Petrochemicals (millions of metric tons) Benzene 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 SOURCE: 18.1 22.3 25.3 25.8 27.7 28.4 30.3 31.7 31.2 33.0 34.5 37.5 37.5 38.5 40.9 37.8 37.4 40.2 Butadiene 5.6 6.3 7.2 7.1 7.5 7.5 7.8 8.1 7.9 8.3 8.9 9.4 9.5 9.7 10.1 10.0 9.2 10.2 Ethylene 43.9 56.8 70.1 73.6 78.1 81.1 86.8 90.1 90.5 95.4 98.7 104.2 105.6 110.1 114.7 110.3 113.4 123.3 Methanol 14.6 20.2 23.4 23.9 26.0 26.9 28.1 28.9 29.3 30.7 32.2 35.9 36.7 38.9 40.6 40.8 43.4 49.1 Propylene 22.6 29.5 39.5 42.0 46.4 47.7 50.2 54.1 55.3 59.6 62.4 65.3 66.7 70.7 73.7 71.4 71.3 74.9 Toluene 9.3 10.7 12.1 12.5 14.5 14.4 14.9 15.4 14.5 15.7 17.0 18.7 18.8 19.8 20.6 18.5 19.7 19.8 Xylenes 10.4 14.2 18.1 19.3 22.1 23.3 25.3 27.7 27.7 29.6 31.9 33.8 35.2 37.6 40.1 38.8 41.4 42.5 Total 124.5 160.0 195.7 204.2 222.3 229.3 243.4 256.0 256.4 272.3 285.5 304.8 310.0 325.3 340.7 327.6 335.8 360.0

CEH estimates in conjunction with the World Petrochemicals Program, SRI Consulting.

The world petrochemical industry has changed drastically in the last twenty to thirty years. The United States, Western Europe and Japan previously dominated production of primary petrochemicals, not only to supply their own domestic demand but also to export to other world markets. These areas accounted for over 80% of world primary petrochemical production prior to 1980. However, world-scale construction of petrochemical facilities in other parts of the world has been on the rise. Countries with vast reserves of crude oil and natural gas (e.g., Saudi Arabia and Canada) have constructed plants to add value to their resources. Since these countries generally have smaller domestic demand, a significant share of petrochemical production is earmarked for the export market. Other countries, such as Singapore, the Republic of Korea, and Taiwan, expanded capacity during the past two decades to support growing economies and for exports to other regions that have limited capacity. Still other countries were driven for self-sufficiency from rapidly growing populations (e.g., Thailand, Malaysia, Indonesia and China). The start-up of these plants have effectively diminished the number of export markets available to the United States, Western Europe and Japan as the volume of imports from developing regions increased. As a consequence, the petrochemical industries in the United States, Western Europe and Japan have experienced lower growth rates. In 2010, these three regions accounted for only 37% of world primary petrochemicals production.

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The following table and graphs depict the changing geographical production pattern for the primary petrochemicals in the United States, Western Europe and Japan in comparison to the rest of the world (ROW).World Production of Primary Petrochemicals by Major Region (percent) Benzene United States, Western Europe and Japan 1980 1985 1990 1995 2000 2005 2010 72 66 66 70 63 55 44 Propylene United States, Western Europe and Japan 1980 1985 1990 1995 2000 2005 2010 SOURCE: 80 74 73 72 68 57 45 CEH estimates. Rest of the World 20 26 27 28 32 43 54 Rest of the World 28 34 34 30 37 45 56 Butadiene United States, Western Europe and Japan 68 61 65 68 64 64 48 Toluene United States, Western Europe and Japan 80 57 64 65 49 52 39 Rest of the World 32 39 35 32 36 36 52 Ethylene United States, Western Europe and Japan 78 69 66 64 58 52 41 Xylenes Rest of United States, the Western Europe World and Japan 20 43 36 35 51 48 61 74 65 64 61 50 41 35 Rest of the World 26 35 36 39 50 59 65 Rest of the World 22 31 34 36 42 48 59 Methanol United States, Rest of Western Europe the and Japan World 58 35 30 35 27 17 6 Total United States, Rest of Western Europe the and Japan World 75 64 62 63 54 49 37 25 36 38 37 46 51 63 42 65 70 65 73 83 94

Of the seven feedstocks, only methanol is traded significantly on an interregional basis; however, there is significant interregional trade of certain feedstocks, such as acrylonitrile, ethylene dichloride, vinyl chloride monomer, styrene and end-use products such as polyethylene. The following table presents the top five producing countries outside the United States, Western Europe and Japan for each of the seven feedstocks in terms of their 2010 production:

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Top Five Producing Countries of Primary Petrochemicals in Rest of the World2010 (millions of metric tons) Benzene China Korea, Republic of Taiwan Saudi Arabia Commonwealth of Independent States (CIS) Total Percent of ROW Production Butadiene China Korea, Republic of Commonwealth of Independent States (CIS) Taiwan Brazil Total Percent of ROW Production Ethylene China Saudi Arabia Korea, Republic of Canada Taiwan Total Percent of ROW Production Methanol China Saudi Arabia Caribbean Commonwealth of Independent States (CIS) Venezuela Total Percent of ROW Production Propylene China Korea, Republic of Saudi Arabia Taiwan India Total Percent of ROW Production 12.1 5.7 3.9 3.2 2.8 27.7 67% 15.5 6.4 5.2 3.2 1.5 31.8 69% 13.6 10.9 7.1 4.6 4.1 40.3 55% 1.9 1.1 0.6 0.6 0.3 4.5 85% 6.2 4.4 1.5 1.5 1.3 14.8 66%

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Top Five Producing Countries of Primary Petrochemicals in Rest of the World2010 (continued) (millions of metric tons) Toluene Korea, Republic of China India Thailand Taiwan Total Percent of ROW Production Xylenes China Korea, Republic of India Thailand Taiwan Total Percent of ROW Production SOURCE: 8.1 5.9 3.4 2.4 2.3 22.2 80% 3.9 3.5 0.8 0.7 0.6 9.4 78%

CEH estimates in conjunction with the World Petrochemicals Program.

Global capacity rationalization of methanol was realized in the early 2000s following the start up of mega-scale plants in Latin America. By 2007, growing demand for formaldehyde, acetic acid and reformulated fuels, combined with the rapid development of low-cost coalderived synthesis gas quickly transformed China into the worlds largest methanol market. New capacity in China and Saudi Arabia over the next several years will further solidify both countries as major production centers. The United States, Western Europe and Japan will remain net importers. Fluctuations in world oil prices over the past several years and expanding petrochemical production in developing regions presented new challenges for primary petrochemical producers in industrialized regions. In the United States, shifts to less expensive and lighter steam cracking feedstock resulted in increased butadiene imports to meet domestic shortfalls. In Western Europe and Japan, where feedstock imports play a considerable role in olefin production, capacity rationalizations are anticipated as largescale ethane-based ethylene capacity gradually coming on stream in the Middle East. In Latin America, China and Other Asia, continued cracking of heavy feedstocks provide additional feed for developing downstream markets as well as some export opportunities. The fastest-developing petrochemical regions are the Middle East and China. With improving social and economic conditions in countries such as Argentina, Chile and Colombia, and considerable investments in energy and infrastructure in Brazil, Latin America is positioning itself for greater growth. Further descriptions of the petrochemical industry in China, the Middle East and Latin America are outlined in this report. Combined, these three regions represent 35-40% of the worlds production of the seven primary petrochemicals in 2010. 2011 by the Chemical Economics HandbookSRI Consulting

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Olefins, aromatics and methanol are essential precursors to a variety of plastics, fibers, elastomers and other intermediates that are further converted into a multitude of consumer and industrial products. Their status as commodity chemicals makes their markets, and hence their production, vulnerable to changes in the economy. The following graph presents the fluctuations in the chemical production cycle. These changes are often more pronounced than those in the economic cycle; however, as seen in the graph, with the changes in the industry over the past 30 years, the percent change in production of these products from year to year have drawn closer to that of world GDP. For additional information see the separate CEH reports.World Petrochemical Feedstock Production vs. Real GDP25 Percent Percent Change in Real GDP 20 Percent Change in Feedstock Productiona

15

10

5

0

-5 1975

1980

1985

1990

1995

2000

2005

2010

2015

a. Feedstocks data include methanol, ethylene, propylene, butadiene, benzene, toluene and xylenes. SOURCES: (A) International Financial Statistics, International Monetary Fund (data for REAL GDP for 1975-1987). (B) World Economic Outlook, World Economic & Financial Surveys, International Monetary Fund, (data for REAL GDP for 1988-2011). (C) CEH estimates (all other data).

UNITED STATESSOURCES OF BASIC PETROCHEMICALS In 2010, over 50% of U.S. primary petrochemical production of 57.4 million metric tons came from distilled fractions of crude petroleum. Natural gas liquids were a substantial source, particularly for olefins; coal processing accounted for about 17% of methanol production, and less than 1% of aromatics production.

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Coal-Derived Chemicals Before the rapid growth in petrochemicals consumption during the third quarter of the last century, coal was the major source of benzene in the United States. Until 1984, all coal-derived chemicals in the United States were by-products of coal carbonization; their potential supply is, therefore, largely a function of demand for coke by the iron and steel industry rather than the demand for each individual chemical. Although coal by-product benzene was the major source of benzene supply for the chemical industry until 1959, the petroleum industry has since been the major supplier of all aromatics, both for motor fuels and as chemical intermediates. Currently, less than 2% of all benzene produced in the United States is derived from coal. Coal chemicals originate from the vapors evolved during high-temperature carbonization of coal to coke. Depending on the temperature at which these vapors are condensed, various crude fractions of hydrocarbons and oxygenated and nitrogenous organics are obtained.* The resulting crude hydrocarbon products are classified into two broad categories: coal tars, which consist primarily of fused-ring aromatic hydrocarbons (naphthalene, anthracene), tar acids (phenol, naphthols, cresols), tar bases (pyridine, picolines) and pitch; and light oils, which consist primarily of benzene and toluene, with smaller amounts of a large number of saturated and unsaturated compounds. Crude coal tars when distilled also yield small amounts of light-oil products; generally 1% or less by weight. Hundreds of individual chemical components, only a few of which are usually isolated as pure chemicals, constitute tars and light oils. Coke-oven gas, an additional product of coal carbonization, generally serves as fuel rather than as a source of chemicals. Coke-oven operators burn large quantities of coal tar and some coke-oven light oil for fuel rather than processing them for chemical recovery. Also, these companies do not process all chemicals from coal to their final forms; tar distillers not associated with coke ovens process a substantial portion of coal tar, generally for the purpose of isolating road tar and binder pitch. Coke-oven operators typically sell over 50% of crude light oil, primarily to chemical and petroleum companies for aromatics recovery. Aside from by-product recovery in coking operations, the most notable operations for obtaining chemicals from coal in the United States are Eastman Chemical Companys production of acetic anhydride, acetic acid and methanol from coal-based synthesis gas and Dakota Gasification Companys recovery of phenol from coal-based synthetic natural gas production. Total annual capacity of Dakota Gasifications phenol facility is 16 thousand metric tons. The following flowchart illustrates the disposition of coal-derived chemicals in the United States in 2010.

* Some ammonia is also recovered as ammonium salts by washing the off-gases from carbonization with an aqueous phase of sulfuric or phosphoric acid or milk of lime. About 25-35% of worldwide ammonia capacity is based on coke-oven gas and coal feedstocks. 2011 by the Chemical Economics HandbookSRI Consulting

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U.S. Production of Coal-Derived Chemicals2010CoalTotal Production: 1,078 Million Metric Tons Coal Carbonized in Ovens Capable of Chemical Recovery: 20.9 Million Metric Tons

Coal Carbonization Coke-Oven Products

Coal Gasification

Synthesis Gas

Light Oil

Anhydrous Ammonia

Coal Tar Total Coal-Based CapacityAcetic Anhydride 544 Thousand Metric Tons Acetic Acid 255 Thousand Metric Tons Methanol 195 Thousand Metric Tons Phenol 27 Thousand Metric Tons

Light Oil Sales(primarily to petroleum operations)

Coal Tar Sales(primarily to tar operations)

Benzene

Toluene

Xylenes3-5 Thousand Metric Tons

Naphthalene67-74 Thousand Metric Tons

90-120 Thousand 14-16 Thousand Metric Tons Metric Tons

CoumaroneIndene Resinsna

Phenol5-10 Thousand Metric Tons

OtherCreosote Oil Cresols Cresylic Acid Picolines Pyridines Xylenols

SOURCES:

(A) Quarterly Coal Report, U.S. Department of Energy, Energy Information Administration, 2010 (data for COAL, TOTAL PRODUCTION and COAL CARBONIZED IN OVENS CAPABLE OF CHEMICAL RECOVERY). (C) CEH estimates (all other data).

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Crude PetroleumBased Chemicals Approximately 40-45% of the seven basic petrochemicals are synthesized or isolated from petroleum fractions in the United States. Although petroleum or crude oil is the source for the major portion of organic chemicals, petrochemical output represents only 5-8% of the crude oil input to refineries (excluding natural gas liquids and refinery off-gases). Crude oils are characterized by API gravity and sulfur content; refiners prefer low-sulfur light crudes (with high API). Crude petroleum is composed of hundreds of compounds, which are often described as broad classes with similar physical or chemical characteristics. Paraffins are saturated hydrocarbons, branched and normal, with as many as sixty carbons. Saturated naphthenes or cycloparaffins contain at least one cyclic structure (e.g., cyclohexane or decalin). Aromatic constituents, such as toluene or naphthalene, consist of molecules with at least one unsaturated ring. Olefins, with at least one double bond, have been isolated in crude petroleum, but only in rare instances. Numerous compounds containing oxygen, nitrogen and sulfur are components of crude oil and must frequently be removed to ensure proper performance of catalysts and refinery facilities. The first refinery step is crude distillation, a physical separation of components into given boiling ranges for desired end uses. However, demand for motor gasoline dominates production of refined products, thus necessitating chemical conversion of many naturally occurring compounds to higher-octane molecules. Processes involving bond formation and bond breaking of crude oil fractions have become integral refinery operations and these processes convert petroleum into streams high in the content of basic petrochemicals or their precursors. These processes can be classified into three general categories: Cracking processes, such as thermal cracking, catalytic cracking and hydrocracking, involving the breaking of larger, less-valuable molecules into smaller molecules Chemical rearrangement processes, involving conversion of a stream into molecules of greater value but of approximately the same molecular weight (such as converting methylcyclopentane to benzene) and including isomerization and catalytic reforming Molecule building, in which smaller molecules may be joined to produce heavier molecules in processes such as alkylation

Catalytic reforming is the primary source of aromatics in the refinery. Depending on the aromatic and naphthenic (aromatic precursor) content of the feedstock and the conditions of reforming, the basic aromaticsbenzene, toluene and xylenesmay comprise between 40% and 60% of the volume of this refinery stream (reformate). Generally, toluene and xylenes constitute the major portion of the reformates aromatic content, with benzene constituting only 10-15% of the aromatic content (or about 5-10% of the total catalytic reformate). For additional information see the CEH Benzene, Toluene, Xylenes, and Petroleum Liquid FeedstocksNaphtha and Gas Oil marketing research reports and the Crude Petroleum and Petroleum Products product review. Refinery operations also yield sources of the C2-C4 olefins. Liquid fractions (naphtha and gas oil) from crude distillation units are cracked (broken into smaller fragments and dehydrogenated) into olefins units to yield ethylene and coproducts, including propylene, butylenes, butadiene and pyrolysis gasoline (which is another substantial source of aromatics). Large volumes of olefins are also obtained directly during refinery operations, especially from catalytic cracking and thermal processes. Although most C2 streams are used as refinery fuel, refiners can recover off-gas ethylene or, if the stream has a high content of saturates, they can ship it to an olefins cracker for fractionation. About 50% of the total supply of 2011 by the Chemical Economics HandbookSRI Consulting

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propylene and 80% of the total supply of butylenes are produced from petroleum fractions, but most of these compounds are consumed at the refineries through alkylation or polymerization for production of motor fuels. For additional information see the CEH Ethylene, Propylene, Butylenes, Butadiene, Gasoline Octane Improvers/Oxygenates, Petroleum Liquid FeedstocksNaphtha and Gas Oil marketing research reports and the Crude Petroleum and Petroleum Products product review. Other compounds recovered from petroleum operations include higher-molecular-weight chemicals: saturated acyclic hydrocarbons such as hexanes, heptanes and small amounts of cyclohexane isolated from C6-C8 streams; normal paraffins (C10 and higher, which are converted to alkylbenzene and chlorinated paraffins); carbon black produced by partial oxidation of petroleum liquids and used primarily in rubber; petroleum resins and waxes; and naphthalene. The following chart presents the supply and disposition of crude petroleum and petroleum products in the United States.

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U.S. Production of Crude PetroleumDerived Chemicals2010 (millions of metric tons)Crude PetroleumDomestic Crude Production: 2,005 Million Barrels Total Gross Input to Refineries: 4,172 Million Barrels

Light Ends C 2-C 4 Products Recovered and/or Input to Olefins Plants

Naphtha and Gas Oil Input to Olefins Plants

Aromatics Recovered from Reforming

Ethylene 2.8 21.1 Pyrolysis Gasoline Coproducts Benzene C3-C 4 Coproducts 1.5 3.5 1.2 Dealkylation and Disproportionation

Propylene 5.5 8.1

Toluene 0.4 3.8

Butadiene 1.3a 0.4

Xylenes neg 4.8 1.3

Butylenes for Miscellaneous Chemicals Isobutylene - 3.1 Other - 1.0

Miscellaneous Chemical Products Isolated or Produced from Petroleum Streams

Cyclohexane 1.2 a.

Naphthalene 0.07

Normal Paraffins (SC8) 0.75-0.82

Carbon Black 2.4-2.8

Hexanes 0.35-0.50

Includes production from imported C4 hydrocarbons coproduced with ethylene from the cracking of naphtha and gas oil. (A) Petroleum Supply Monthly, U.S. Department of Energy, Energy Information Administration (data for CRUDE PETROLEUM, DOMESTIC CRUDE PRODUCTION and TOTAL GROSS INPUT TO REFINERIES). (B) CEH estimates (all other data).

SOURCES:

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Natural GasDerived Chemicals The most important chemical constituents of raw natural gas are low-molecular-weight saturated hydrocarbons in the C1-C4 range (methane through butanes), although further processing also isolates heavier hydrocarbons. Depending on the geological source, the composition varies widely. Wet natural gas, with high liquids content (C2 and higher hydrocarbons), is normally associated with crude petroleum fields, while drier gas occurs more often in gas wells. Some less-volatile components may condense under ambient conditions at the wellhead (field condensate), but most liquid fractions, especially C2-C4, are recovered by various refrigeration, absorption or cryogenic techniques at gas processing plants (natural gas liquids and plant condensate). The liquids can then be used as clean-burning fuels in energy markets or as petrochemical feedstocks, while pipeline companies transmit the remaining gas, which is predominantly methane, at contracted Btu levels for fuel use in residential and industrial markets. Methane, which may constitute as much as 97 mole percent of dry natural gas at the wellhead, is also an important chemical feedstock. The largest-volume chemical derived from methane is ammonia, which is produced from synthesis gas. This intermediate mixture of hydrogen and carbon monoxide is generated from steam reforming of methane and further reacted with water to produce carbon dioxide and more hydrogen. Although the hydrogen is the essential starting material for ammonia production, the carbon dioxide may be marketed or, in the case of integrated nitrogen fertilizer plants, reacted with ammonia to produce urea. Natural gas also supplies energy for the steam reforming process; energy requirements may represent nearly 50% of the gas consumption for ammonia production. While natural gas provides raw materials for nearly all ammonia production in the United States, liquid feeds such as naphtha are used to some extent in regions where natural gas is not abundant. In Japan and China, ammonia can be produced from gasified coal. For additional information see the CEH Ammonia marketing research report. The second-largest methane derivative is methanol, which is also produced from synthesis gas; however, methanol production requires both the hydrogen and the carbon monoxide fractions from reforming methane. Because of the high hydrogen/carbon ratio in methane, steam reforming provides a stoichiometric excess of hydrogen for methanol; therefore, either excess hydrogen is burned as fuel or additional carbon dioxide, which is generally shipped from a nearby ammonia plant, is added to balance the requirements. Natural gasbased units currently represent 83% of methanol operating capacity in the United States; coal and heavy oil are the sources for the remaining 17%. For additional information see the CEH Methanol marketing research report. Methane is also the raw material for a variety of other chemicals: acetylene, which is produced by partial oxidation of methane (acetylene is also derived from calcium carbide or as a by-product of ethylene production); oxo chemicals (C3-C15 aldehydes); carbon disulfide from methane and sulfur vapor; and hydrogen cyanide, which is produced from methane and ammonia. For additional information see the CEH Natural Gas product review. Natural Gas LiquidsDerived Chemicals Although natural gas liquids (NGLs), the C2-C4 components of natural gas, account for a relatively small mole percent of the unprocessed gas, these hydrocarbons have traditionally provided a substantial portion of U.S. feedstocks for olefins. Ethylene crackers consume nearly all recovered ethane and propane designated for chemical uses. The major use for propane, however, is as a clean-burning fuel. Butanes for 2011 by the Chemical Economics HandbookSRI Consulting

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chemical uses are isolated primarily from natural gas, but far larger quantities derived from petroleum refinery operations are generally consumed in gasoline and fuel markets. The NGL content of domestic natural gas can range from less than one mole percent to approximately 20 mole percent, although gas most commonly has a 5-10 mole percent liquids content. While the percentage of NGLs in natural gas varies widely among fields, a representative gas contains an approximate ethane/propane/butanes mole ratio of 4:2:1. Gas processing techniques such as absorption or compression historically have recovered a low percentage of ethane, while 95% of the heavier liquids are recovered easily. However, newer cryogenic techniques have raised the quantities of ethane recovered. This increased level of ethane recovery affects olefins production. The following table and graph presents the percentage relationships among recovered NGLs.U.S. Production of C2-C4 NGLs Total (millions of metric tons) 1980 1985 1990 1995 2000 2005 2010 SOURCES: 33.7 36.3 34.4 38.8 41.2 45.6 45.5 Weight Percent of Total Ethane 26.1 29.5 30.2 32.0 34.7 44.7 48.1 Propane 42.7 42.7 40.8 39.4 37.5 34.4 32.7 Butane 31.2 27.8 29.0 28.6 27.8 20.8 19.2

(A) Energy Data Reports, Petroleum Statement, Annual, U.S. Department of Energy, Energy Information Administration (data for 1980). (B) Petroleum Supply Annual and Monthly, U.S. Department of Energy, Energy Information Administration, Office of Oil and Gas (all other data).

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U.S. Production of C 2-C4 NGLs60 Weight Percent Ethane Propane Butane

50

40

30

20

10

0 1970 1975 1980 1985 1990 1995 2000 2005 2007 2010

The principal chemical produced from NGLs is ethylene, with propylene and butadiene being important coproducts. The most chemically efficient feedstock for ethylene is ethane, since only small quantities of coproducts are formed. Cracking of heavier feedstocks (e.g., naphtha or gas oil) increases the percentages of coproduct propylene, butadiene and pyrolysis gasoline (a highly aromatic fraction that is not often recovered for chemical use when ethane is the feed). Cracking severity (temperature, pressure, etc.) and feedstock blend can modify ratios of products. When steam cracking processes were first commercialized in the late 1950s and 1960s, U.S. ethylene producers built plants to utilize domestic NGLs, which were available from the large domestic reserves of natural gas. In the late 1960s and early 1970s, U.S. producers, concerned about possible declines in the domestic production of ethane and propane, designed plants to crack naphtha and gas oil. The use of such feedstocks increased production and the necessity to market coproductspropylene, C4 hydrocarbons and pyrolysis gasoline. When crude oil prices went up in the early and late 1970s, NGLs again became the preferred feedstocks for ethylene plants. Many producers that had built naphtha- and gas-oil-based facilities modified their plants to accept a variety of hydrocarbon feedstocks. This flexibility allows manufacturers to take advantage of fluctuations in hydrocarbon prices and coproduct demands. From 1970 through the 1990s, ethylene produced from NGLs accounted for about 75% of total ethylene production, fluctuating only slightly because of feedstock flexibility in olefin plants. The ratio between NGLs and heavy feedstocks, as well as among individual NGL chemical feedstocks, fluctuates yearly because of such factors as supply, price competition among feedstocks and demand from fuel and gasoline markets. Since the early 2000s, NGLs continued to provide an increased percentage of feedstock for the petrochemical industry, largely in demand of ethane for ethylene production. In 2010, 80-85% of total ethylene production in the United States was based on NGLs.

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Although chemical use of ethane and propane is essentially limited to olefins production, butanes (normal and iso) are precursors of a variety of chemicals.* Acetic acid and methyl ethyl ketone are produced via liquid-phase oxidation of n-butane and in the United States the route to maleic anhydride from butane has replaced processes based on benzene. n-Butane also serves as a swing feedstock for ethylene production, although the volumes used fluctuate considerably from year to year, depending on the price relationships among butane and other feedstocks. Isobutane is consumed in the manufacture of gasoline blending components, gasoline alkylate and isobutylene for methyl tert-butyl ether (MTBE). Alkylate is produced when isobutane is reacted with an olefin, either propylene or butylenes. MTBE is produced from isobutylene, which can be obtained from various sources. Although isobutylene is primarily coproduced during ethylene manufacture or recovered from refinery operations, some companies have opted to manufacture it intentionally via isobutane dehydrogenation. Isobutane also serves as a raw material for propylene oxide. In a process used by Lyondell Chemical and Huntsman Corporation, propylene reacts with isobutane to produce propylene oxide and t-butyl alcohol (TBA). TBA may be used as a solvent or dehydrated to isobutylene for MTBE or other chemical applications. Demand for MTBE grew rapidly in the 1990s because of stricter gasoline emission requirements. Gasoline volatility regulations also backed out some butane from the gasoline pool and have made it more available for chemical feedstocks. Between 2003 and 2005, California, New Hampshire, New York, Connecticut and Maine eliminated the use of MTBE in gasoline due to growing environmental concerns. The U.S. Energy Policy Act of 2005 expedited declines in MTBE production as most refiners replaced MTBE with ethanol during the summer of 2006. For additional information see the CEH Butylenes, Butanes and Gasoline Octane Improvers/Oxygenates marketing research reports. The following flowchart presents the disposition of natural gasderived chemicals in the United States.

*

Nitroparaffins (e.g., nitromethane, nitropropane) are produced using propane. Small volumes of chlorinated solvents are synthesized from ethane and propane. 2011 by the Chemical Economics HandbookSRI Consulting

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U.S. Production of Natural GasDerived Chemicals2010 (millions of metric tons)Natural Gas Marketed Production of Natural Gas (trillions of cubic feet) Wet 24.4 Dry 21.5

Field Condensate

Natural Gas Liquids a Production (628 million barrels)

Synthesis Gas

Plant Condensate

Ammonia 8.0 Methane b Feedstock (210.9 cubic feet)

Methanol 0.9 Methane c Feedstock (25.3 cubic feet)

Ethane 17.9 (302 million barrels)

Propane 16.6 (205 million barrels)

Butanes 11.0 (121 million barrels)

Feedstock to Olefins Plants

Feedstocks to Olefins Plants Ethane Propane n-Butanes 19.3 9.7 2.2

Hydrogen Cyanide

Oxo Chemicals

Acetylene

Carbon Disulfide

Ethylene 15.9 neg Propylene 3.9

Butanes for Miscellaneous Chemicals

Recovered Natural Benzene and Aromatics from Cracking Natural Gas Liquids (small amounts)

neg Butadiene 1.1 neg

a. b.

c.

Includes ethane, LPG (propane and butanes), isopentane, natural gasoline and plant condensates. Methane feedstocks for ammonia are based on the assumption that production of one metric ton of ammonia requires 25.8 thousand cubic feet of natural gas. This factor includes methane consumed for its hydrogen content plus the methane consumed for energy in the steam reforming process, which amounts to about 40-45% of the total. Approximately 81% of U.S. methanol capacity in 2010 was based on natural gas feedstock. Methane consumption for methyl alcohol is calculated on the assumption that production of one metric ton of methanol requires 26.1 thousand cubic feet of natural gas. (A) Natural Gas Monthly, January 2011, U.S. Department of Energy, Energy Information Administration (data for MARKETED PRODUCTION OF NATURAL GAS). (B) Petroleum Supply Monthly, U.S. Department of Energy, Energy Information Administration (data for NATURAL GAS LIQUIDS PRODUCTION and ETHANE, PROPANE and BUTANES). (C) NPRA Petrochemical Surveys, Fourth Quarter 2010, National Petroleum Refiners Association (data for FEEDSTOCKS TO OLEFINS PLANTS). (D) CEH estimates (all other data).

SOURCES:

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SUPPLY OF BASIC PETROCHEMICALS BY TYPE OF FEEDSTOCK The following sections analyze the supply of each basic petrochemical, its feedstocks and production methods. Methanol Originally, methanol was produced by combustive distillation of wood, hence the term wood alcohol; however, today methanol is produced primarily using natural gas feedstocks with smaller amounts derived from coal and petroleum sources. The United States, which was a major supplier of methanol to the rest of the world up through the early 1980s, has become a major methanol importer. In 2010, imports accounted for approximately 88-93% of methanol demand in the United States. Future methanol capacity additions will continue to be built outside the United States in regions with inexpensive and abundant sources of natural gas. Olefins Olefins are important intermediates in the production of many large-volume chemicals, plastics and elastomers. Ethylene crackers, more inclusively termed olefins plants, provide the largest volumes of petrochemicals for downstream activities. The traditional feedstocks in the United States for olefins, especially ethylene, have been NGLs. By 1978, however, petroleum liquids accounted for 57% of olefins production; newer U.S. crackers were designed almost exclusively for naphtha and gas oil. Because capital costs for heavy liquids plants surpass those based on natural gas liquids, economical operation mandates recovery and marketing of coproducts (e.g., propylene, butadiene, aromatics). With continued expectations of declining NGL production during the late 1970s, the chemical industry predicted that the majority of ethylene would originate from petroleum liquid feedstocks. However, increased ethane recovery and relatively low NGL prices (especially in comparison to most other regions of the world) prompted ethylene producers to favor NGLs over petroleum fractions. Plants were built so that heavy liquids plants could also accept a moderate percentage of NGLs and, with some additional capital expense, increase flexibility. A number of grassroots ethylene plants built in recent years utilize flexible steam crackers, which can operate with a variety of feedstocks (ethane, propane, butane, ethane/propane mix, naphtha and gas oil). Feedstock selection depends on overall plant economics and downstream production requirements. With the gradual increase in crude oil pricing, and the stabilization in natural gas prices in recent years due to increased shale gas production, many olefin producers have shifted to lighter feestock. In 2010, NGLs accounted for 80-85% of ethylene and 55-60% of overall olefins production. Propylene is produced as an ethylene coproduct or from refinery operations. In the United States, more than half of demand for propylene is met by refinery operations. Demand for ethylene and propylene have grown steadily since commercial introduction. Butadiene is produced as an ethylene coproduct or from the separation of imported C4 streams containing butadiene. With the shift to lighter ethylene feeds and the closure of a number of heavy-feed crackers 2011 by the Chemical Economics HandbookSRI Consulting

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during 2007-2009, available butadiene supplies have decreased leading to the evaluation of alternative sources of butadiene or an increase in imports. In general, the United States satisfies some of its requirements for butadiene through imports of C4 streams, historically from Western Europe. Increasing quantities of butadiene will be imported from Asia. The following flowchart presents the supply of olefins by the various sources in the United States.U.S. Supply of Olefins by Source2010Associated Natural Gas Nonassociated Natural Gas

Crude Petroleum

a Natural Gas Liquids

Refinery Off-Gases

Heavy FeedstocksNaphtha and Gas Oil

Feedstocks to Olefins Plants

Ethylene Total Volume 24.0 Million Metric Tons

4%

12%

84% Metathesis of Ethylene and Butylene 4.6% 2.6% Propane Dehydrogenation

Propylene Total Volume 14.1 Million Metric Tons

Coproduct Streams 52.5% 43.3%

Butadiene Total Volume 1.6 Million Metric Tons 92% 8% Imports of C4 Streams and Other Sources

-C C feeds may be obtained from natural gas or a. Includes ethane, propane, butane and condensates. The 2 4 petroleum sources. Sources: (A) NPRA Petrochemical Summary, Fourth Quarter 2010 (data for ETHYLENE, PROPYLENE and BUTADIENE). (B) CEH estimates (all other data).

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Aromatics Nearly all major aromaticsbenzene, toluene and xylenes (BTX)are derived from petroleum-based feedstocks; coal-based feedstocks accounted for less than 2% of the total BTX aromatics recovered for chemical uses in 2010. Catalytic reforming of crude oil fractions represents the primary source of petroleum-based aromatics and accounts for 72% of the total domestic supply of BTX. Pyrolysis gasoline, which is a by-product of ethylene manufacture, accounts for another 9-14% of the aromatics supplied. The quantity of aromatics available from this source is largely dependent on the feedstock chosen for ethylene manufacture. In addition to these sources, benzene may be produced on purpose by hydrodealkylation of toluene. Benzene is also produced by toluene disproportionation, although xylenes are the desired product in the reaction. Catalytic reforming produces high-octane components for motor fuels. About 90% of the reformate is channeled to the gasoline pool and producers annually isolate only about 2.0-2.5 billion gallons of aromatics from reformate for chemical and solvent use. The availability of petroleum-derived benzene, toluene and xylenes for chemical and solvent uses are influenced by gasoline demand and pricing as well as by catalytic reforming capacity. However, the impact will probably not be as great as in the past. In 1995, the 1990 amendments to the Clean Air Act mandated the sale of reformulated gasoline (RFG) in certain regions of the United States. RFG must contain no more than one volume percent benzene, no more than 25 volume percent aromatics and 2.0-2.7 weight percent oxygenates (e.g., MTBE). Again in 2007, the EPA finalized a rule (MSAT II) to reduce hazardous air pollutants from mobile sources that limited benzene content of gasoline and reduced toxic emissions from passenger vehicles and gas cans from 1 to 0.60 volume percent by 2011. At first, there was speculation that the aromatics backed out of the gasoline pool could be diverted to the chemical market and would significantly upset the supply/demand balance if a demand existed. However, most aromatic producers isolate only the necessary amount required for chemical use, thereby preempting the balance through reduced reformer throughput and severity or by extracting aromatic precursors via distillation prior to reforming. Because of the flexibility of U.S. refineries to adjust aromatic levels in the gasoline pool, the impact of new and future regulations will most likely have little effect on chemical benzene production levels. The following table represents BTX aromatics yields representative of typical industry performance:Typical U.S. Yields of BTX Aromatics from Reforming (volume percent based on naphtha feed charge) Benzene Toluene Xylenes Total SOURCE: CEH estimates. 3-7 11-22 14-26 28-55%

Another source of petroleum-based aromatics is pyrolysis gasoline, which is a coproduct of ethylene manufacturing, especially from petroleum liquid feeds such as naphtha and gas oil. The amount of each aromatic in the pyrolysis gasoline varies with feedstock composition and the design and operating 2011 by the Chemical Economics HandbookSRI Consulting

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conditions of the ethylene plant. Although no particular situation can accurately be described as typical concerning ethylene plants and their coproducts, the following table presents reasonable average yields of pyrolysis gasoline and BTX in the manufacture of ethylene:Typical U.S. Yields of Pyrolysis Gasoline and BTX in the Manufacture of Ethylene (weight units) Feedstock Ethane Ethylene Pyrolysis Gasoline Benzene Toluene Xylenes SOURCE: 100 0-2 neg-1 neg-1 neg Propane 100 12-18 5-7 1-2 neg n-Butane 100 15 5-7 2-4 1 Naphtha/Gas Oil 100 60-85 18-24 15-20 9-11

CEH estimates based on J. J. F. Draaisma and A. Mol, Is Steam Cracker Flexibility Economical? Hydrocarbon Processing, April 1977, pp. 149155; and W. Tucker and M. A. Abrahams, Economics of Petrochemical Output Changes, Oil & Gas Journal, April 11, 1977, pp. 81 and 84.

The following diagram illustrates the production of benzene, toluene and xylenes by feedstock:

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U.S. Supply of Aromatics for Chemical Use2010a Crude Petroleum

Coal (coke-oven light oil)

Catalytic Reforming

Pyrolysis Gasoline

Dealkylation or Disproportionation

Coke-Oven Operations

Petroleum Refineries

Recovered Benzene Total Volume 6.3 Million Metric Tons

55.3% 98.6%

23.7%

19.6% 1.4%

StyreneBy-Product

Recovered Toluene Total Volume 4.3 Million Metric Tons

88.7% 99.7%

8.3% 2.7%

0.3%

Disproportionation Recovered Xylenes Total Volume 6.1 Million Metric Tons a. Includes natural gas liquids. Source: CEH estimates.

78.6% 100%

0.6%

20.8% neg

All basic aromatics are recovered from pyrolysis gasoline in appreciable quantities; however, xylenes are recovered in much lower quantities because of lower concentrations in the stream and the difficulty of economically separating the four products (o-, m- and p-xylene and ethylbenzene) in the C8 stream unless such a stream has sufficient volume to justify recovery. Coal-based aromatics (primarily benzene) are obtained from the light oil that is a by-product of the carbonization of coal to coke. The chemical content of this light oil is recovered by both petroleum refiners that purchase the light oil and coke-oven operators. Other processors of coke by-products occasionally obtain small amounts of coal-based aromatics (e.g., benzene from coal tar by tar distillers). The availability of coke-oven light oil is solely a function of coke demand; however, the demand for aromatics can affect the degree to which light oil is used as a fuel versus being separated into chemical constituents. Tar distillers have not used coal tar as fuel for over the past 25 years.

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PRODUCTION The total U.S. production volume for the seven primary petrochemicals totaled 57.4 million metric tons in 2010. Petrochemical production in the United States plateaued in the 2000s, slowing during economic downturns (2001, 2004 and 2009). Increases in lower cost imported methanol and reduced demand for MTBE in recent years have resulted in a 16.8% average annual decline in methanol production since 1997. During 2007-2010, production declines in both aromatics and olefins were largely influenced by the slowing economy and rising feedstock costs. The following table represents the production volumes for the individual petrochemicals and the total volumes. For more detailed information on specific primary petrochemicals, see the individual CEH reports.U.S. Production of Primary Petrochemicals (millions of metric tons) Benzene 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 SOURCE: 4.7 6.3 7.0 7.2 8.0 8.0 8.3 8.4 6.7 7.3 7.5 7.9 7.3 7.2 7.4 6.3 6.1 6.3 Butadiene 1.1 1.4 1.9 2.0 2.0 2.0 2.0 2.0 1.7 1.9 1.9 2.0 2.1 2.1 2.1 2.0 1.8 1.7 Ethylene 13.9 17.1 21.3 22.3 23.2 26.6 25.4 25.7 22.5 23.6 23.0 25.2 24.0 25.0 25.4 22.5 22.6 24.0 Methanol 2.7 4.0 5.4 5.6 6.0 5.9 5.7 4.2 3.1 3.0 3.4 2.7 1.3 1.1 0.9 0.7 0.9 0.8 Propylene 6.8 8.8 11.7 12.0 13.3 13.5 14.0 15.6 14.7 15.3 15.7 16.5 16.0 16.4 16.7 14.8 13.3 14.1 Toluene 2.3 2.8 4.0 4.0 5.5 4.4 5.3 4.9 3.2 3.8 4.4 5.3 4.7 5.0 5.2 4.6 5.0 4.3 Xylenes 2.4 2.6 4.5 4.6 5.4 5.1 5.9 6.0 5.4 6.1 7.1 7.1 6.3 5.9 6.1 5.4 5.6 6.1 Total 33.9 43.0 55.8 57.7 63.4 65.5 66.6 66.8 57.3 61.0 63.0 66.7 61.7 62.7 63.8 56.3 55.3 57.4

CEH estimates.

The following table represents the yearly production values for each petrochemical and the yearly total values. Production values are based on average unit prices and represent gross estimates of total value.

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U.S. Production Values for Primary Petrochemicals (millions of dollars) Benzene 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 a. 2,083 2,451 1,906 2,064 1,923 1,814 1,989 4,044 2,102 2,496 3,804 7,336 6,034 7,267 7,922 6,249 4,576 6,190 Butadiene 744 884 882 817 990 731 660 1,170 768 871 1,269 1,572 2,242 2,551 2,659 4,290 1,767 3,554 Ethylene 4,667 8,084 13,160 11,784 14,308 10,337 13,860 19,278 11,161 8,377 10,800 17,210 22,648 22,855 23,969 23,658 13,553 23,581 Methanol 389 520 813 790 1,302 513 721 882 599 522 850 731 368 412 381 293 209 259 Propylene 2,272 2,779 5,911 4,770 6,227 4,172 4,481 9,433 5,282 5,431 6,715 11,871 14,127 15,788 18,055 17,494 11,221 18,018 Toluene 851 855 970 884 1,447 887 1,344 1,804 987 1,108 1,810 3,353 3,151 4,156 4,524 4,218 3,421 3,606 Xylenes 920 758 1,485 1,014 1,546 1,045 1,355 2,142 1,658 1,999 3,347 4,226 5,460 5,192 5,441 5,085 3,939 5,238 Totala 11,926 16,331 25,127 22,123 27,743 19,499 24,410 38,753 22,557 20,804 28,595 46,299 54,030 58,221 62,951 61,287 38,686 60,446

Totals may not equal the sums of the categories because of rounding. CEH estimates.

SOURCE:

For additional information on the relationship between feedstock and petrochemical prices, please refer to the PRICE section of this report. CONSUMPTION Because the chemical industry serves almost all manufacturing industries, primary petrochemicals have many end-use markets; polymersincluding plastics, fibers and elastomersdominate these markets. In 2010, these end uses accounted for about 70-75% of total U.S. primary petrochemical demand. The following table presents consumption of primary petrochemicals in the United States:U.S. Consumption of Primary Petrochemicals2010 (millions of metric tons) Ethylene Propylene Benzene Methanol Xylenes Toluene Butadiene Total SOURCE: CEH estimates. 23.9 14.3 7.5 5.8 5.1 4.3 1.9 62.6

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U.S. consumption of primary petrochemicals totaled nearly 63 million metric tons in 2010, recovering 35% from recessionary lows during 2009. Olefins and aromatics accounted for 64% and 27% of total petrochemical demand, respectively. Among individual petrochemicals, methanol has the most diversified market distribution, including solvents, textiles, plastics, and fertilizers. The largest outlet presently is in formaldehyde production which eclipsed MTBE, a gasoline octane enhancer, beginning in 2006. MTBE was phased-out of the gasoline pool because of environmental concerns by the end of 2008, declining from a high of 3.5 million metric tons in 1999 to the present level of less than 0.9 million metric tons. Most domestic MTBE production is exported for fuel use in Latin America and Asia. Among the olefins, ethylene and propylene are consumed predominantly in the production of plastics and resins, which accounted for nearly two-thirds of annual ethylene demand and about half of annual propylene demand. In the case of butadiene, elastomer uses dominate, totaling 70% of annual demand. The major market for aromatics is fuel; plastics, resins and fibers are the primary chemical uses. Important chemical appplications for benzene include plastics and resins and fibers. Toluene is used mainly as an octane-improving gasoline component and as a solvent. Xylenes, excluding fuel use, are consumed mainly by the plastics and fibers industries, which accounted for two-thirds of annual xylenes demand. PRICE The following table and graphs show historical prices for the seven primary petrochemicals. Prices are expressed as indexes to illustrate the fluctuations in prices adjusted for general economic inflation. For actual prices, refer to the individual CEH reports.Normalized Deflated U.S. Price Indexes for Primary Petrochemicalsa (2005 = 100) Benzene 171.8 201.4 227.3 231.8 236.0 238.5 242.1 247.1 252.7 256.9 262.5 270.0 278.9 287.8 296.5 302.9 305.7 308.8 Butadiene 667.7 782.6 883.5 900.8 917.1 926.8 940.9 960.4 982.1 998.4 1,020.0 1,049.3 1,084.0 1,118.7 1,152.3 1,177.2 1,188.1 1,200.0 Ethylene 601.3 704.8 795.6 811.2 825.9 834.7 847.3 864.9 884.4 899.1 918.6 945.0 976.2 1,007.4 1,037.7 1,060.2 1,069.9 1,080.7 Methanol 175.2 205.3 231.8 236.3 240.6 243.2 246.9 252.0 257.7 261.9 267.6 275.3 284.4 293.5 302.3 308.8 311.7 314.8 Propylene 529.8 620.9 700.9 714.7 727.6 735.3 746.5 762.0 779.2 792.1 809.3 832.5 860.0 887.5 914.2 934.0 942.6 952.0 Toluene 67.4 79.0 89.2 90.9 92.6 93.5 95.0 96.9 99.1 100.8 102.9 105.9 109.4 112.9 116.3 118.8 119.9 121.1 Xylenes 138.0 161.7 182.6 186.1 189.5 191.5 194.4 198.5 202.9 206.3 210.8 216.8 224.0 231.2 238.1 243.3 245.5 248.0 GDP Deflator 61.6 72.2 81.5 83.1 84.6 85.5 86.8 88.6 90.6 92.1 94.1 96.8 100 103.2 106.3 108.6 109.6 110.7

1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Prices were adjusted for inflation by the GDP deflator as published by the International Monetary Fund. (A) World Economic Outlook, International Monetary Fund (data for GDP DEFLATOR). (B) CEH estimates (all other data).

SOURCES:

Many variables affect the pricing of primary petrochemicals. Among these are the pricing and availability of raw materials, which are tied directly to the price for crude oil; the supply and demand balance for the individual petrochemicals; and government regulations in the form of either price controls or legislation, both of which contribute to increased capital and production costs. The following table presents wellhead prices of crude oil and natural gas since 1980:U.S. Crude Oil and Natural Gas Wellhead Prices Refiner Acquisition Cost for Crude Oil (dollars per barrel) 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 a. 26.75 22.22 17.23 20.71 19.04 12.52 17.51 28.23 21.99 23.63 27.87 36.98 50.24 60.24 67.93 94.74 59.27 76.69 Natural Gas Wellhead Pricea (dollars per thousand cubic feet) 2.51 1.71 1.59 2.16 2.32 1.94 2.17 3.68 4.00 2.95 4.98 5.46 7.33 6.40 6.25 7.97 3.67 4.18

One thousand cubic feet of natural gas is equivalent to approximately 1.03 million Btus. CEH estimates.

SOURCE:

The following table and graph present the historical trends for producer price indexes of crude oil, natural gas and some of the primary petrochemicals.

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U.S. Average Annual Producer Price Indexes for Raw Materials and Refining Productsa Crude Petroleum (domestic) 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 a. na 77.3 55.6 68.2 62.6 38.9 54.7 92.8 75.4 73.9 90.3 117.8 163.4 191.6 209.8 300.3 176.1 238.0 Natural Gas (Wellhead) na 75.5 62.6 85.7 95.5 78.8 85.7 146.1 161.5 114.1 191.6 216.4 298.4 251.2 248 311.7 145.3 165.2 Primary Petroleum Refining Products na 76.4 59.0 76.8 79.1 59 70.2 119.5 118.7 94.3 137.1 165 228.2 226.8 232.9 313.2 166.3 210.3

Basis is 1984 = 100 for all products. Producer Price Indexes, U.S. Department of Labor, Bureau of Labor Statistics.

SOURCE:

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U.S. Average Annual Producer Price Indexes for Oil, Gas and Primary Petrochemicals1984 = 100 350 Crude Petroleum 300 Primary Petroleum Refining Products Natural Gas 250

200

150

100

50

0 1990

1995

2000

2005

2010

The supply and pricing of hydrocarbon energy sources influence prices for U.S. petrochemicals; however, resistance to price increases by end users and derivative producers, coupled with competition from newly developed regions, skewed the relationship of hydrocarbon energy sources and some petrochemicals in certain years. Another factor that affects petrochemical pricing is the balance between the supply and demand of petrochemicals. In times of overcapacity and sluggish demand, prices tend to weaken. In contrast, when demand is strong to the point of straining available supply, prices generally increase. The break point or critical level of capacity utilization (i.e., the point at which prices increase rapidly) varies from product to product. Business recessions dampen demand for petrochemicals because the major end markets such as construction and transportation are sensitive to economic cycles. In addition, demand for petrochemicals and derivatives are influenced in yearly cycles by seasonal demand. Operating problems and supply disruptions caused by natural disasters (force majeure) or human error, unscheduled maintenance, and accidents can also rapidly change the pricing structure. Inventory changes can also affect pricing. If users anticipate price increases or impending supply problems, they tend to stockpile products. TRADE The following table presents U.S. trade values for methanol:

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U.S. Trade in Methanol (millions of dollars) Imports 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 SOURCE: 93.1 104.4 365.4 215.8 335.1 234.5 267.7 578.1 819.8 634.8 877.4 1,053.0 1,376.9 1,632.5 1,795.5 1,994.3 810.8 1,302.9 Exports 4.6 30.5 49.9 25.6 54.2 19.1 17.5 24.6 43.6 37.2 42.7 34.5 30.1 39.2 67.8 74.7 83.9 63.1 Net Exports 88.5 73.9 315.5 190.2 280.9 215.4 250.2 553.5 776.2 597.6 834.7 1,018.5 1,346.8 1,593.3 1,727.7 1,919.6 726.4 1,239.8

U.S. Department of Commerce, Bureau of the Census.

The following table presents U.S. trade values for olefins:

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U.S. Trade in Olefins (millions of dollars) Butadiene Imports 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 a. 201.6 93.8 73.1 55.5 79.7 68.7 52.2 61.6 41.6 37.7 77.6 81.5 79.9 107.9 171.1 161.6 145.7 408.9 Exports 52.2 0.5 1.0 0.9 8.6 9.7 11.6 26.0 2.6 4.3 8.6 42.7 86.1 83.9 131.8 138.4 55.2 77.5 Net Exports 149.4 93.3 72.1 54.6 71.1 59.0 40.6 35.6 39.0 33.4 68.9 38.8 6.2 24.0 39.3 23.2 90.5 331.4 Imports 51.7 na 44.8 85.2a 4.4 5.4 3.9 4.8 4.5 2.4 4.2 5.2 9.5 6.9 7.2 9.0 5.1 7.8 Ethylene Exports 13.3 1.04 1.5 36.6 61.4 32.5 27.5 98.2 3.8 23.3 12.8 128.9 51.9 76.1 89.4 27.3 41.2 79.3 Net Exports 38.4 na 43.3 48.6 57.0 27.1 23.6 93.4 0.7 20.9 8.6 123.7 42.4 69.2 82.2 18.3 36.1 71.5 Imports 34.0 4.6 95.0 164.7a 63.9 50.0 54.7 72.0 36.5 63.1 85.8 125.5 109.1 204.0 227.9 397.7 180.7 455.8 Propylene Exports 30.0 97.7 82.6 110.9 171.2 76.9 75.5 104.1 42.0 147.7 96.0 165.7 195.0 310.4 382.3 269.5 185.5 203.0 Net Exports 3.9 93.1 12.4 53.8 107.3 26.9 20.8 32.1 5.5 84.6 10.2 40.2 85.9 106.4 154.4 128.2 4.8 252.8

Imports as reported by the source are believed to be overstated. U.S. Department of Commerce, Bureau of the Census.

SOURCE:

The following table presents U.S. trade values for aromatics:

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U.S. Trade in Aromatics (millions of dollars) Benzene Imports 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 a. 187.4 61.4 141.2 510.1a 81.1 137.2 145.8 410.0a 243.8 247.9 300.0 768.7 1,038.1 1,271.5 1,442.3 1,309.0 679.8 1,145.6 Exports 16.9 125.0 14.2 7.5 38.9 7.7 7.3 4.9 8.7 2.5 47.3 39.6 21.2 27.7 14.0 49.0 83.6 134.2 Net Exports 170.5 63.7 127.0 502.6 42.2 129.5 138.5 405.1 235.1 245.4 252.7 729.1 1,016.9 1,243.8 1,429.2 1,260.0 596.2 1,011.4 Imports 165.2 49.3 56.4 93.7 29.6 24.8 37.9 57.3 107.4 107.2 124.5 85.1 140.1 344.5 348.7 441.4 136.2 228.5 Toluene Exports 32.7 99.3 75.6 68.0 51.4 18.2 12.1 31.6 41.3 147.7 202.6 428.0 379.6 221.9 205.0 169.5 112.7 237.7 Net Exports 132.5 50.0 19.2 25.7 21.8 6.6 25.8 25.7 66.1 40.5 78.1 342.9 239.5 122.6 143.7 271.9 23.5 9.2 Imports 74.2 13.5 112.6 292.1a 120.3 66.5 24.6 40.9 31.9 40.7 29.3 19.4 14.6 30.8 9.8 33.8 8.5 1.4 Xylenes Exports 45.8 51.8 153.4 159.3 432.6 310.6 352.3 581.3 33.4 120.4 192.7 286.7 174.6 370.3 275.7 202.6 343.1 477.3 Net Exports 28.4 38.3 40.8 132.8 312.3 244.1 327.7 540.4 1.5 79.8 163.4 267.3 160.0 339.5 265.9 168.8 334.6 475.9

Imports as reported by the source are believed to be overstated. (A) U.S. Department of Commerce, Bureau of the Census (data for 1985, 1990 and 1995-2003). (B) World Trade Atlas, Global Trade Information Services, Inc. (data for 2004-2010).

SOURCES:

U.S. Net Exports of Primary Petrochemicals (millions of dollars) Methanol 2003 2004 2005 2006 2007 2008 2009 2010 SOURCE: 834.7 1,018.5 1,346.8 1,593.3 1,727.7 1,919.6 726.4 1,239.8 Olefins 50.2 125.1 134.5 151.6 197.3 133.1 49.6 512.7 Aromatics 11.2 118.9 617.4 1,026.9 1,307.0 1,363.1 285.1 526.3

CEH estimates.

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U.S. Net Exports of Methanol-600 -800 -1,000 -1,200 -1,400 -1,600 -1,800 -2,000 2003 Millions of Dollars

2004

2005

2006

2007

2008

2009

2010

200 100 0 -100 -200 -300 -400 -500

Millions of Dollars

U.S. Net Exports of Olefins

-600 2003

2004

2005

2006

2007

2008

2009

2010

U.S. Net Exports of Aromatics300 200 100 0 -100 -200 -300 -400 -500 -600 -700 -800 -900 -1,000 -1,100 -1,200 -1,300 -1,400 -1,500 2003 Millions of Dollars

2004

2005

2006

2007

2008

2009

2010

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The United States has been a net importer of olefins, particularly butadiene, since the Bureau of the Census began collecting data on these chemicals. Short-term fluctuations in the trade pattern for petrochemicals over a period of time can be attributed to the value of the U.S. dollar in relation to other foreign currencies. A strong dollar tends to depress exports, while encouraging imports. Long-term, the U.S. trade pattern will continue to be influenced by the increasing globalization of the petrochemical industry. For example, the start-up of several world-scale methanol plants in countries with abundant natural gas feedstocks has shrunk the export market available to the United States. This factor has also affected the trade of olefins and aromatics, and even more importantly, their derivatives.

LATIN AMERICALatin America includes Argentina, Brazil, Chile, Colombia, Mexico and Venezuela, as well as contributing countries of the Caribbean (Trinidad and Tobago) and Central America. SOURCES OF BASIC PETROCHEMICALS Approximately 65-70% of the seven basic petrochemicals are synthesized or isolated from petroleum fractions in Latin America. Refineries historically produced considerable quantities of crude oil for exports and increased yields of naphtha for gasoline and chemical use. Increased flexibility in automobiles capable of operating on fuel ranging from full ethanol to 80% gasoline leaves a greater amount of naphtha available for steam cracking while gas oil is predominantly reserved for energy and fuel consumption. Natural gas and NGLs account for a large percentage of ethylene production but yield no coproduct propylene or butadiene. Only a negligible amount of coal is used for aromatics production. Brazil is the worlds largest exporter and second-largest producer of ethanol. With a large and well developed agricultural base, rising demand for advanced biofuels in industrialized regions and crude oil prices sustained at levels above $80 per barrel, Brazil is emerging as the worlds first sustainable biofuels economy and ethanol a viable source for greater petrochemical production. The following flowchart illustrates the disposition of crude petroleum and natural gas in the Latin American petrochemical industry.

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Latin American Production of Petrochemicals by Source2010 (millions of metric tons)Natural Gas

Crude Petroleum Domestic Crude Production: 507.3 Million Metric Tons (3,607 million barrels) Total Gross Input to Refineries: 342.9 Million Metric Tons (2,438 million barrels) Natural Gas Liquids

Marketed Production of Natural Gas (205 billion cubic meters)

a Light Ends C 2-C 5 Products Recovered and/or Input to Olefins Plants

Naphtha and Gas Oil Input to Olefins Plant

Aromatics Recovered from Reforming

Ethane Propane Butane

Ethylene 2.4 3.1 Ethyl Alcoholb

0.1 C3-C 4 Coproducts Propylene 1.3 2.3 Pyrolysis Gasoline Coproducts Benzene 0.8 0.3 0.2

Ammonia Methane Feedstock (7.4 billion cubic meters)

Methyl Alcohol Methane Feedstock (8.0 billion cubic meters)

Butadiene 0.4

Toluene 0.3 0.4

Dealkylation and Disproportionation

Butylenes 0.2 0.5 Butane Dehydrogenation 0.2

Ethylbenzene By-Product

neg Xylenes 0.2 0.3 0.1

a. Includes production from LPG. b. Includes mixed feedstocks. Source: CEH estimates.

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SUPPLY OF BASIC PETROCHEMICALS BY TYPE OF FEEDSTOCK Methanol The following table presents the production of methanol by type of feedstock:Latin American Production of Methanol by Feedstock2010 (percent) Natural Gas Acetylene Off-Gas Total SOURCE: CEH estimates. >99 99.7%


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