J. P. Harris

1
Will There be Demand Growth in US Petrochemicals ?
J. P. Harris Senior Vice President ExxonMobil
Chemical
2
Topics

• US Domestic Demand
• Impact of manufacturing moving out of the US
• US Global Competitiveness
• US Ethylene Global Cost Position
• Global trade of ethylene derivatives
• Conclusions and Thoughts on Response

3
US Domestic Demand
4
US GDP And US Petrochemical Demand
GDP
Petrochemicals
Data Sources US Bureau of Econ Anal, APC, CMAI
and ExxonMobil estimates
5
US GDP and US Industrial Production
GDP
Industrial Production
Data Sources US Bureau of Economic Analysis
6
Produced Goods and Services - Percentage of US GDP
Service Industries (Information, Finance,
Insurance, Education, Health Care, etc.)
Producing Goods Industries (Agriculture,
Construction, Manufacturing, Mining, Oil and Gas,
etc.)
Data Sources US Bureau of Economic Analysis
7
Global Manufacturing Labor Rates - 2004
Data Source CMAI
8
PE Example - Commodity Shopping Bag Delivered
Cost (2003)
Data Source ICIS and ExxonMobil Sources
9
PE Example - Commodity Shopping Bag Delivered
Cost (2004)
Data Source ICIS and ExxonMobil Sources
10
Imported Finished Goods Impact on Domestic HD
Film Supply
Data Source APC and USITC
11
Potential US Scenarios
Linear Historical Trend Extended 2.3 Growth
Recent trends continue 0.9 growth
12
US Global Competitiveness
13
US Natural Gas Compared to Crude on a BTU Basis
Data Source CMAI
14
Global Ethylene Cash Costs - 1997
Dollars per Ton
500
US Gas to Crude BTU Ratio - 70
450
400
350
Northeast Asia
300
NA Ethane
West Europe
Southeast Asia
250
NA Naphtha
200
150
Middle East
100
Data Source CMAI
50
0
10
20
30
40
50
60
70
80
90
Cumulative Ethylene Capacity (Million Tons)
15
Global Ethylene Cash Costs - 2004
US Per Ton
750
US Gas to Crude BTU Ratio - 90
650
NA Ethane
550
NA Naphtha
450
West Europe
350
Northeast Asia
Southeast Asia
250
Global C2 Demand - 2004
150
Middle East
Data Source CMAI
50
0
20
40
60
80
100
120
Cumulative Ethylene Capacity (Million Tons)
16
Global Net Trade of C2 Derivatives
Data Sources APC, FDIS, US ITC and ExxonMobil
estimates
17
Conclusions and Thoughts on Response
18
Conclusions on US Demand

• Low growth in US Domestic Demand for
  Petrochemicals
• From 4 to 5 historical growth to 1 to 2
• Lower cost finished goods will continue to be
  imported
• US Exports Likely to Decline
• US defensive to Middle East exports
• US ethylene chain last increment of supply to
  the world
• Not just a natural gas phenomenon

19
What macro events might mitigate these trends ?

• Improved US global competitiveness in
  manufacturing
• Lower crude prices easing Middle East feedstock
  advantage
• Slower growth in Middle East capacity additions

20
How could we respond to this changing environment
?

• Food for Thought
• Improve Operational Excellence
• Support our customers likely move to higher
  value products via
• Technology and Innovation
• Reduce logistics costs by removing
  inefficiencies
• Avoid gas allocation systems
• Promote development of new oil and gas reserves