Crude Oil and Natural GasCrude Oil and Natural Gas

Drivers Behind AdhesiveDrivers Behind AdhesiveRaw Material ImpactsRaw Material Impacts

OilOil~22 MM~22 MM

BPDBPD

Transportation,Transportation,Industrial &Industrial &

Heating FuelsHeating Fuels

RefiningRefining NaphthaNaphthaGas OilGas Oil 7%7%

PetrochemPetrochem

Nat GasNat Gas~60 B~60 Bftft33/day/day

MethaneMethane(Fuel Gas)(Fuel Gas) 95%95%

GasGasProcessingProcessing

Ethane, PropaneEthane, PropaneNatural Gasoline,Natural Gasoline,

ButaneButane 5%5%

U.S. Petrochemicals UsageU.S. Petrochemicals Usage

~

93%93%

58% Imported58% Imported

From One Barrel of Oil…From One Barrel of Oil…

PetrochemicalPetrochemicalFeedstocksFeedstocks

7%7%

Gasoline, DieselGasoline, Dieseland Jet Fueland Jet Fuel

66%66%

Data from www.eia.gov*modified to better fit categories

IndustrialIndustrialand Homeand Home

27%27%

U.S. Data

Crude Oil PriceNA WTI ($/bbl)

0

10

20

30

40

50

60

70

80

Jan-

1990

Jul-1

990

Jan-

1991

Jul-1

991

Jan-

1992

Jul-1

992

Jan-

1993

Jul-1

993

Jan-

1994

Jul-1

994

Jan-

1995

Jul-1

995

Jan-

1996

Jul-1

996

Jan-

1997

Jul-1

997

Jan-

1998

Jul-1

998

Jan-

1999

Jul-1

999

Jan-

2000

Jul-2

000

Jan-

2001

Jul-2

001

Jan-

2002

Jul-2

002

Jan-

2003

Jul-2

003

Jan-

2004

Jul-2

004

Jan-

2005

Jul-2

005

Jan-

2006

'90-'99 Avg = $19.7/bbl

'00-'03 Avg = $28.3/bbl

'04 Avg = $41.4/bbl

'05 Avg = $56.7/bbl

CMAI Data

Why the upward trend?Why the upward trend?

Apr '06 ~ $70/bbl

Aug '05 – peaked over $70/bbl Cost increases in the U.S. economy Each $10/bbl increase in oil = $80

B/yr Chemical Industry = $2.6 B/yr

Global Demand for Oil Has AcceleratedGlobal Demand for Oil Has Accelerated

demand growth, demand growth, rolling 4 qtr avg, rolling 4 qtr avg,

mb/dmb/d,,

0.0

0.5

1.0

1.5

2.0

2.5

3.0

97 98 99 00 01 02 03 04

Significant Significant growth in growth in

ChinaChina

Global Global Economic Economic RecoveryRecovery

Demand growth of industrialized countries is ~ 1%

(yet with low per capita consumption)(yet with low per capita consumption)

0.6 1.5

4.3

9.6 10.4

25.8

0

5

10

15

20

25

India China Brazil Russia UK USA0

1

2

3

4

5

6

7

70 75 80 85 90 95 00 05

China

Japan

Germany

Oil demand, MM bpd Oil demand, bbls per capita per year

China is now 2nd largest user of crude oil globally

10 years ago – net exporter Today – import 40% of demand Projected demand growth of 7.5% per year

~18 MM bpd in 15 years India – relatively small demand

Projected demand growth of 5.5% per year

China's crude oil consumption has grown dramaticallyChina's crude oil consumption has grown dramatically

1/3 of global 1/3 of global populationpopulation

Global Capacity ~86.5 MM bbls/dayGlobal Capacity ~86.5 MM bbls/day Global Production ~85 MM bbls/dayGlobal Production ~85 MM bbls/day

Current Excess Capacity = 1.5 MM bbls/dayCurrent Excess Capacity = 1.5 MM bbls/day

OPEC - major producing regionOPEC - major producing region Capacity = ~35 MM bbls/dayCapacity = ~35 MM bbls/day Production = ~34 MM bbls/dayProduction = ~34 MM bbls/day

2006-2010 - Supply is expected to increase2006-2010 - Supply is expected to increase 2010 Excess Capacity = 3.5 MM bbls/day2010 Excess Capacity = 3.5 MM bbls/day ~40 Major projects over the next 5 years~40 Major projects over the next 5 years

15 OPEC & 25 non-OPEC15 OPEC & 25 non-OPEC Saudi Arabia – large programSaudi Arabia – large program U.S. – recovery from Hurricane damageU.S. – recovery from Hurricane damage Former Soviet Union countries – continue to increase productionFormer Soviet Union countries – continue to increase production Canadian Tar Sands – continue to be developedCanadian Tar Sands – continue to be developed

Crude Oil ProductionCrude Oil Production

Natural GasUS Contract Burner Tip ($/mmbtu)

0

2

4

6

8

10

12

14

Jan-

1990

Jul-1

990

Jan-

1991

Jul-1

991

Jan-

1992

Jul-1

992

Jan-

1993

Jul-1

993

Jan-

1994

Jul-1

994

Jan-

1995

Jul-1

995

Jan-

1996

Jul-1

996

Jan-

1997

Jul-1

997

Jan-

1998

Jul-1

998

Jan-

1999

Jul-1

999

Jan-

2000

Jul-2

000

Jan-

2001

Jul-2

001

Jan-

2002

Jul-2

002

Jan-

2003

Jul-2

003

Jan-

2004

Jul-2

004

Jan-

2005

Jul-2

005

Jan-

2006

'90-'99 Avg = $2.07/mmbtu

'00-'03 Avg = $4.27/mmbtu

'04 Avg = $6.12/mmbtu

'05 Avg = $8.29/mmbtu

CMAI Data

Apr '06 ~ $8/mmbtu

U.S. Natural Gas

Spot deals Sept '05 ~ $20/mmbtu Higher costs of ethylene feedstocks Higher conversion costs – energy

Cost increases in the U.S. economy Each $1/mmbtu increase in natural gas = $23 B/yr Chemical Industry = $3.7 B/yr

Impact of Crude Oil and Natural Gas on the Adhesives Market

NaturalGas

GasSeparation

Unit

RefineryCrude

Oil

SteamCracker

Pygas

Benzene

Aliphatics (Crude C5 Splitter)

EthaneEthanePropanePropaneButaneButane

NaphthaNaphthaGas OilGas Oil

Propylene

Ethylene

Xylene

Toluene

Aromatics

~

Dicyclopentadiene

Isoprene

Raffinate

Piperylenes

C9 Resin Oil

HCResins

Methanol

Acetic Acid VAM EVA

Crude C4 Olefins

Styrene

Real Life Polymer Example – Real Life Polymer Example – SIS PolymersSIS Polymers

Supply chain shows shortages and potential shortagesSupply chain shows shortages and potential shortages

Large number of SIS producers with adequate capacityLarge number of SIS producers with adequate capacity

In spite of sufficient SIS capacity the upstream supply creates a In spite of sufficient SIS capacity the upstream supply creates a shortageshortage

RecoveredCrude C5’s

SIS

Ethylene

Benzene

Styrene

DeWitt & Company

PurifiedIsoprene

Steam Cracker

Crude Oil vs. Benzene Price

0

50

100

150

200

250

300

350

400

Jan-

1990

Jul-1

990

Jan-

1991

Jul-1

991

Jan-

1992

Jul-1

992

Jan-

1993

Jul-1

993

Jan-

1994

Jul-1

994

Jan-

1995

Jul-1

995

Jan-

1996

Jul-1

996

Jan-

1997

Jul-1

997

Jan-

1998

Jul-1

998

Jan-

1999

Jul-1

999

Jan-

2000

Jul-2

000

Jan-

2001

Jul-2

001

Jan-

2002

Jul-2

002

Jan-

2003

Jul-2

003

Jan-

2004

Jul-2

004

Jan-

2005

Jul-2

005

Jan-

2006

Ben

zen

e ($

/gal

)

0

10

20

30

40

50

60

70

80

Cru

de O

il, WT

I ($/bb

l)

Benzene NA

Crude Oil WTI NA

Benzene has historically traded at 2x crude when supply and demand have been in balance.

'90-'99 Avg = $1.05/gal

'00-'03 Avg = $1.28/gal

'04 Avg = $2.88/gal

'05 Avg = $2.90/gal

Strong demand from China

CMAI Data

Relationship of Crude Oil to Adhesive Raw Material Relationship of Crude Oil to Adhesive Raw Material ProductsProducts

U.S. Data

Benzene vs. Styrene Price

0

60

120

180

240

300

360

420

480

Jan-

1990

Jul-1

990

Jan-

1991

Jul-1

991

Jan-

1992

Jul-1

992

Jan-

1993

Jul-1

993

Jan-

1994

Jul-1

994

Jan-

1995

Jul-1

995

Jan-

1996

Jul-1

996

Jan-

1997

Jul-1

997

Jan-

1998

Jul-1

998

Jan-

1999

Jul-1

999

Jan-

2000

Jul-2

000

Jan-

2001

Jul-2

001

Jan-

2002

Jul-2

002

Jan-

2003

Jul-2

003

Jan-

2004

Jul-2

004

Jan-

2005

Jul-2

005

Jan-

2006

Ben

zen

e ($

/gal

)

0

10

20

30

40

50

60

70

80

Styren

e ($/lb)

Benzene NA

Styrene NA Contract-Market  

Styrene price typically changes by 1 c/lb for every 10 c/gal change in Benzene price

Tight supply/demand

Increase following benzene

CMAI Data

Relationship of Crude Oil to Adhesive Raw Material Relationship of Crude Oil to Adhesive Raw Material ProductsProducts

U.S. Data

Crude Oil vs. Gasoline ULRNA WTI ($/bbl)

0

30

60

90

120

150

180

210

240

Jan-

1990

Jul-1

990

Jan-

1991

Jul-1

991

Jan-

1992

Jul-1

992

Jan-

1993

Jul-1

993

Jan-

1994

Jul-1

994

Jan-

1995

Jul-1

995

Jan-

1996

Jul-1

996

Jan-

1997

Jul-1

997

Jan-

1998

Jul-1

998

Jan-

1999

Jul-1

999

Jan-

2000

Jul-2

000

Jan-

2001

Jul-2

001

Jan-

2002

Jul-2

002

Jan-

2003

Jul-2

003

Jan-

2004

Jul-2

004

Jan-

2005

Jul-2

005

Jan-

2006

Un

lead

ed G

aso

line,

Reg

ula

r ($

/gal

)

0

10

20

30

40

50

60

70

80

Cru

de O

il, WT

I ($/bb

l)

CMAI Data

Relationship of Crude Oil to Adhesive Raw Material Relationship of Crude Oil to Adhesive Raw Material ProductsProducts

U.S. Data

Gasoline impacts the costs of numerous downstream products.

Aromatics and aliphatics – gasoline pool Alternative value

97.8% correlation

Katrina and Rita 3Q2005Katrina and Rita 3Q2005 Impact of Initial DamagesImpact of Initial Damages Current Assessment of Current Assessment of

RecoveryRecovery Lingering Impact on PricesLingering Impact on Prices Forward LookForward Look

Hurricanes Rocked the Hurricanes Rocked the Petrochemical Industry in 2005:Petrochemical Industry in 2005:

Impact of Hurricanes Katrina, Rita, and Impact of Hurricanes Katrina, Rita, and IvanIvan

Impact on Crude Oil and Natural Gas Infrastructure

Katrina (Cat 5) went through the eastern 1/3 Rita (Cat 5) went through the western 2/3 Wilma (Cat 5) hit Yucatan and Florida

Katrina (Aug '05):Katrina (Aug '05): 90% - Gulf Crude Oil Production Shut-in90% - Gulf Crude Oil Production Shut-in 75% - Gulf Natural Gas Production Shut-in75% - Gulf Natural Gas Production Shut-in 8.5% - US Refinery Capacity Shut-in8.5% - US Refinery Capacity Shut-in

Rita (Sept '05):Rita (Sept '05): 100% - Gulf Crude Oil Production Shut-in100% - Gulf Crude Oil Production Shut-in 80% - Gulf Natural Gas Production Shut-in80% - Gulf Natural Gas Production Shut-in 16 - Refineries in the Gulf Region Shut-in16 - Refineries in the Gulf Region Shut-in

Initial Impact of HurricanesInitial Impact of Hurricanes

Damage Caused by Hurricanes Katrina and Rita:Damage Caused by Hurricanes Katrina and Rita:

Platforms:Platforms: 115 Destroyed115 Destroyed 52 Significantly Damaged52 Significantly Damaged

Rigs:Rigs: 8 destroyed8 destroyed 19 with extensive damage19 with extensive damage 19 set adrift19 set adrift

Pipelines:Pipelines: 183 Damaged183 Damaged 42 of the 64 Large Diameter Pipelines Out of 42 of the 64 Large Diameter Pipelines Out of ServiceService

Current Assessment of Damage and LossesCurrent Assessment of Damage and LossesApril 2006April 2006

Current Assessment of Damage and LossesCurrent Assessment of Damage and LossesApril 2006April 2006

100% Gulf oil production shut in by the two storms100% Gulf oil production shut in by the two storms 1.5 M bbls/day – Total annual Gulf crude oil production1.5 M bbls/day – Total annual Gulf crude oil production 310K bbls/day – remains shut in (~20%)310K bbls/day – remains shut in (~20%)

94% Gulf gas production shut in by the two storms94% Gulf gas production shut in by the two storms 10 BCF/day – total annual Gulf natural gas production10 BCF/day – total annual Gulf natural gas production 1.1 BCF/day – remains shut in (~11%)1.1 BCF/day – remains shut in (~11%)

Repair of damaged crude oil and natural gas Repair of damaged crude oil and natural gas production production cannotcannot be completed before the 2006 be completed before the 2006 hurricane season beginshurricane season begins

April 5, 2006 – 2006 predicted to be another active April 5, 2006 – 2006 predicted to be another active hurricane seasonhurricane season 17 named storms17 named storms 9 hurricanes9 hurricanes 5 intense storms5 intense storms

Forward Look – Raw Materials and EnergyForward Look – Raw Materials and Energy

Significant infrastructure damage from hurricanesSignificant infrastructure damage from hurricanes Has affected supply & prices of raw materials and energy for Has affected supply & prices of raw materials and energy for

monthsmonths

DisclaimerDisclaimer Can't forecast natural disaster impactsCan't forecast natural disaster impacts Forward look based on information from multiple consultants Forward look based on information from multiple consultants

and government sourcesand government sources

Crude Oil: Crude Oil: Prices above $70/bblPrices above $70/bbl

Record closing price on April 19Record closing price on April 19thth

June price is currently $74/bblJune price is currently $74/bbl Average from 1990-1999 was $19.70/bblAverage from 1990-1999 was $19.70/bbl

2006 – likely to remain high2006 – likely to remain high

Comments from DOE-EIAComments from DOE-EIA Crude OilCrude Oil

2006 avg = $65/bbl estimate2006 avg = $65/bbl estimate 2007 avg = $61/bbl estimate2007 avg = $61/bbl estimate

Forward Look – Raw Materials and EnergyForward Look – Raw Materials and Energy

Crude Oil - Current IssuesCrude Oil - Current Issues Bearish FactorsBearish Factors

High Inventories – Strong imports, mild US winterHigh Inventories – Strong imports, mild US winter

Bullish FactorsBullish Factors Tight Supply/DemandTight Supply/Demand Heavy U.S. refinery maintenance seasonHeavy U.S. refinery maintenance season

Some work deferred after hurricanesSome work deferred after hurricanes Geopolitical IssuesGeopolitical Issues

Venezuela ~ 2.8 MM bbls/dayVenezuela ~ 2.8 MM bbls/day Political Tensions – Chavez threatsPolitical Tensions – Chavez threats

Jail diplomats, close U.S. refineries (Citgo), stop oil exports to the U.S.Jail diplomats, close U.S. refineries (Citgo), stop oil exports to the U.S. Nigeria ~ 2.7 MM bbls/day – Africa's largest oil producing countryNigeria ~ 2.7 MM bbls/day – Africa's largest oil producing country

Internal political unrestInternal political unrest Damage to oil facilities and infrastructure, kidnapped workersDamage to oil facilities and infrastructure, kidnapped workers

Iran ~ 4.2 MM bbls/day exportsIran ~ 4.2 MM bbls/day exports Political issues – nuclear programPolitical issues – nuclear program

Saudi Arabia ~ 11.1 MM bbls/daySaudi Arabia ~ 11.1 MM bbls/day Terrorist targets?Terrorist targets?

Not enough excess capacity in to make up for potential lossesNot enough excess capacity in to make up for potential losses

How high could crude go?How high could crude go?

Forward Look – Raw Materials and EnergyForward Look – Raw Materials and Energy

Natural Gas: Natural Gas: Prices – $8/mmbtuPrices – $8/mmbtu

Average from 1990-1999 was $2.07/mmbtuAverage from 1990-1999 was $2.07/mmbtu High Inventories - warm winterHigh Inventories - warm winter 2006 – continued high price2006 – continued high price

Jan'07 options currently around $12/mmbtuJan'07 options currently around $12/mmbtu

Comments from DOE-EIAComments from DOE-EIA Natural GasNatural Gas

2006 avg = $8.87/mmbtu estimate2006 avg = $8.87/mmbtu estimate 2007 avg = $8.70/mmbtu estimate2007 avg = $8.70/mmbtu estimate

Benzene: Benzene: April settlement – $2.80/galApril settlement – $2.80/gal Price likely to remain volatilePrice likely to remain volatile

Supply/demandSupply/demand Crude oil movementCrude oil movement

Unleaded GasolineUnleaded Gasoline Prices increased significantly after hurricanes ~$2.25/galPrices increased significantly after hurricanes ~$2.25/gal

Fell due to imports and inventoriesFell due to imports and inventories April 18, 2006 - Back up to $2.23/galApril 18, 2006 - Back up to $2.23/gal

Average from 1990-1999 was $0.596/galAverage from 1990-1999 was $0.596/gal

U.S. Gasoline reformulation issuesU.S. Gasoline reformulation issues MTBE being removedMTBE being removed Ethanol and toluene/xylene filling the gapsEthanol and toluene/xylene filling the gaps

Transportation concernsTransportation concerns Mandated sulfur reductionsMandated sulfur reductions Potential to decrease U.S. gasoline production & increase importsPotential to decrease U.S. gasoline production & increase imports

2006 prices likely to remain high2006 prices likely to remain high Follow crude oil pricingFollow crude oil pricing Will impact other chemicalsWill impact other chemicals

Logistics and Transportation Logistics and Transportation Still an issueStill an issue

Forward Look – Raw Materials and EnergyForward Look – Raw Materials and Energy

Closing SummaryClosing Summary Cost Increases in the U.S. economyCost Increases in the U.S. economy

Each $10/bbl increase in oil = $80 B/yrEach $10/bbl increase in oil = $80 B/yr Each $1/mmbtu increase in natural gas = $23.7 B/yrEach $1/mmbtu increase in natural gas = $23.7 B/yr

Basic raw materials and energyBasic raw materials and energy Inventories average or above averageInventories average or above average But… prices continue to be volatileBut… prices continue to be volatile

Several chemical intermediates are tightSeveral chemical intermediates are tight Need to know supply chain and any weak linksNeed to know supply chain and any weak links Impacted by raw materials, energy and production capabilitiesImpacted by raw materials, energy and production capabilities Producers are getting squeezedProducers are getting squeezed

Hurricane season could cause problems againHurricane season could cause problems again

Security of supply for chemical intermediates and Security of supply for chemical intermediates and adhesive raw materials is likely to be key for the adhesive raw materials is likely to be key for the foreseeable futureforeseeable future