SABIC EuroPetrochemicals

Future Sources of Polyethylene Supply

in Europe

Koos van Haasteren

SABIC EuroPetrochemicals4 February 2003

SABIC EuroPetrochemicals

SABIC …

… is number 3 global PE player

… markets almost 5 million tons of PE/PP

… is now established in Europe

… has technical centres in KSA, USA, India and

The Netherlands

… accelerates its expansion

SABIC EPC: positioned for leadership …SABIC EPC: positioned for leadership …

SABIC’s Geleen site

SABIC’s headquarters in Riyadh

SABIC EuroPetrochemicals

… … with the Power to Provide with the Power to Provide

Total SABIC NPC (ktpa)today Q4 2003

Ethylene C2 5.400 5.400Polyethylene 3.130 3.930Polypropylene 1.670 1.670

Gelsenkirchen

Ethylene C2 on-sitePolyethylene 570Polypropylene 505

ktpaGeleen

Ethylene C2 1.250Polyethylene 910Polypropylene 585

ktpa

YanbuEthylene C2 800Polyethylene 580Polypropylene 130

ktpa

4 highly integrated sites direct access to low cost feedstock

world-scale facilities direct market access

multiple lines per technology

HoustonVadodara

Riyadh

Al JubailYanbu

GeleenGelsenkirchen

Kerteh

Al Jubail ktpa

Ethylene C2 3.350

Polyethylene 1.070 ( Q4 2003 1.870 )Polypropylene 450

SABIC EuroPetrochemicals

Despite ME producers’ cash cost advantage over WE …Despite ME producers’ cash cost advantage over WE …

Gas price ($/mmBTU) Naphtha (EUR/t)

Structural

delta

in cash cost

Typical ranges for

gas and naphtha

ME producer NWE producer

Delta depends on oil price and co-product values

Low High Low High

SABIC EuroPetrochemicals

… … WE capacity has outpaced demand, WE capacity has outpaced demand,

kton

Margin as C4 LL -/- C2 (EUR/t)

contributing to deterioration of margins …contributing to deterioration of margins …

… … and resulting in poor profitability; even for WE leaders!and resulting in poor profitability; even for WE leaders!

SABIC EuroPetrochemicals

Structure of typical projects are differentStructure of typical projects are different

extension naphtha

cracker 650 kta

Ethane cracker

1050 kta

Middle East

Europe

Take into consideration:

Cracker feedstock

License cost

Infrastructure

Marketing and Sales cost

Research and Development

Other business cost

Working capital

…

…

HDPE slurry

300 kta

LLDPE gasphase

350 kta

PP gasphase

2*200 kta

LLDPE gasphase

2*350 kta

HDPE gasphase

350 kta

Co-products

SABIC EuroPetrochemicals

ME re-investment level is lower than average WE levelME re-investment level is lower than average WE level

Gas price ($/mmBTU) Naphtha (EUR/t)

Delta in

re-investment level

ME producer

Within WE players differ in site scale and integration, portfolio, …

Only strong WE super sites (cost leaders) remain

Re-investment level required for IRR of 20%

Delta in

cash cost

NWE producer

Low High Low High

SABIC EuroPetrochemicals

Pricing in Europe will be affected Pricing in Europe will be affected

WE

ME

Re-investment

level

Middle East attracts investment at lower levels than Europe

SABIC EuroPetrochemicals

No rationale for investment in additional integrated ethylene and PE

capacity in Europe

Potential for scrap and build

Little further improvement of cost position

All cost laggards in Europe will disappear

Central and Eastern Europe have the same future as WE

European cost leaders will be able to compete

Future PE source for West Europe

WE super sites

Growth will come from Middle East

ConclusionsConclusions

SABIC EuroPetrochemicals

Drivers for European industry: We enter a new eraDrivers for European industry: We enter a new era

Period ’95 – ’02Scale and cost

Site integration and M&A

Technology and Catalyst Development

Period ’02 – ’09Cost & Rationalisation

Bottomline cashflow

Invest and grow

Re-establishment of sustainable profit levels

scale cash flow