industrial gases - linde plc

Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06

Industrial GasesA Unique and Profitable Business Model

Chuck McConnell Vice President

Citigroup Chemicals for theNon-Chemist ConferenceNew York CityDecember 4, 2006


Global Business/Regional Market Strength

Other 20%

Taiyo Nippon Sanso 5%

Praxair 15%

Air Liquide 24%

Air Products and Chemicals 12%

Linde 12%

BOC 12%

Total Industrial Gases Sales: $48 billion

Source: JR Campbell & Associates, Inc. 1/2006

Few global players

*Consolidated as of September 2006


Industrial Gases by Market and Product

Aerospace3%

Chemicals11%

Electronics7%

Energy12%

Food & Bev7%

Healthcare11%

Manufacturing21%

Metals16%

Other12%

End Markets*

*Praxair 2005 Sales $7,656 MM

By Product

Oxygen 29%

Nitrogen 21%Argon 12%

Other 7%

Carbon Dioxide 9%

Acetylene 8%

Hydrogen 6%

SpecialtyGases 6% Helium 2%

Source: SRI Consulting, Praxair estimates

Atmospheric and process gases are fundamental to industry


Air Separation – Cryogenic Distillation

Air Filtration &Conditioning

Purify Liquefy by cooling to

-320 °F

Separate by

distillation

Air

Oxygen-297 °F

Argon-302 °F

Nitrogen-320 °F

78% N221% O21% Other Gases

First commercialized in 1896 Continuous improvements and enhancements


Air Separation – Non-Cryogenic

First commercialized in 1960

Oxygen

Adsorbent

VPSA PLANT

Air


Process Gases – A Chemical Feedstock

Hydrogen (H2)

Carbon Monoxide (CO)

Carbon Dioxide (CO2)

CH4 + ½ O2 2H2 + CO Partial OxidationCH4 + H2O 3H2 + CO Steam Methane Reforming

CO + H2O H2 + CO2 CO Shift

Produced “on- purpose” or from purified waste streams


Basic Molecules with Many Uses

Attributes MarketsProductsOxygen O2

ReactiveLife Sustaining

Steel, Chemicals, Environmental, EnergyHealthcare, Welding

Nitrogen N2

InertCryogenic (cold)Pressurized

Semiconductors, Chemicals, PackagingFood Freezing, Oil & Gas Recovery

Argon Ar

Inert At High Temperatures

Stainless Steel, Welding, Basic Steel Making, Lighting

CarbonDioxide CO2

SolubilityInertCryogenic (cold) Pressurized

Beverage CarbonationWelding, Steel, Chemicals, PackagingFood Freezing, Dry Ice Oil and Gas Recovery

ChemicalFuel

Refining, Chemicals, MetalsSpace Program, Fuel Cells, Alternative Energy

HydrogenH2

Cryogenic (cold)InertLifting

MRI, Fiber Optics, Scientific ResearchDiving Breathing Mixtures, WeldingBalloons

Helium He


Applications Technology Drives GrowthGrowth

♦ PRODUCTIVITY

♦ ENERGY SAVINGS

♦ ENVIRONMENTAL

-5%

0%

5%

10%

15%

20%

2001 2002 2003 2004 2005

Market Drivers

World Industrial Production (Weighted)Praxair SalesPraxair Net Income

Growing at an increasing multiple of IPGrowing at an increasing multiple of IP


Energy and Conservation Technologies

Steel Blast furnace coalinjection

Glass

Higher energy efficiency−10-15% fuel savings

Higher throughput

−10-20% increase

Less emissions

−80-90% NOx reduction

New oxyfuel burner

Refining Process heaters

Aluminum Remelting furnaces

Utilities Reduced NOXemissions

PX commercializes 20+ new application technologies per year


Helping Customers Reduce their Environmental Footprint

AIR QUALITY• Low Nox Combustion

• Hydrogen for refining

• VOC treatment

• Carbon dioxide recycle

• Hydrogen for fuel cells

WATER QUALITY• Oxygen/Carbon

Dioxide wastewater treatment

• Nitrogen extrusion cooling

• Carbon dioxide in grain storage

• Oxygen in paper production

ENERGY SAVINGS• CoJet® gas injection

system

• Oxy-fuel combustion

• Helium recycle

• Cryo-mechanical freezing

• Metal bonding

HEALTHCARE• Respiratory oxygen

“Making Our Planet More Productive”

Over 65% of revenue is from applications that increase energy efficiency or improve environmental performance


Three Distribution Methods – Fully Integrated Business

15 year take or pay contracts

Escalation formulas – Electricity/Gas, Inflation, Currency exposure

Price recovers fixed and capital costs

High renewal rate

On-Site/Pipeline Supply - 26%*

Merchant Liquid Supply - 30%*

5 year requirements contracts

Sourced as co-product from on-site plants

Limited distribution range – 200/250 miles

Packaged/Medical Gases - 33%*Cylinder and equipment rental

40% gases revenues under contract

Sourced as co-product from bulk sources

% of 2005 Sales of $7,656MM

Gases are not commodities!


Oxygen Systems – Modes of Supply

99.5

LiquidOxygen

Cryogenic

10 TPD5 TPD 500TPD

VPSAPurity % O2

Volume

Customer demand matched with optimum supply systems


Praxair: Strongest North American supply system

WV

OH

WV

OH

BC

Alberta

Saskatchewan ManitobaOntario

Quebec NewBrunswick

ME

VTNHNY

PA

WV VA

OH

MI

WA

OR

CANV

ID

MT

WY

CO

UT

AZNM

TX LAMS AL GA

SC

NCTN

KYMOKS

OK

NE

SD

NDMN

WI

IA

IL IN

FL

MA

AR

BC

Alberta

Saskatchewan ManitobaOntario

Quebec NewBrunswick

ME

VTNHNY

PA

WV VA

OH

MI

WA

OR

CANV

ID

MT

WY

CO

UT

AZNM

TX LAMS AL GA

SC

NCTN

KYMOKS

OK

NE

SD

NDMN

WI

IA

IL IN

FL

MA

ARIllustrative 200 Mile Radius

Production and Distribution Density…

On-site and Bulk Gases300 production plants8000 customer

locations1500 distribution

vehicles11 pipeline enclaves

Packaged andSpecialty Gases

400 branches>300,000 customers280 independent distributors

Distribution LocationsHomecare Locations

Helium Transfill

Dry Ice

Merchant Plants

Specialty Gas Plants

Distributors

Pipeline Systems

Carbon Dioxide Plants

…drives reliability, growth, and returns


On-site Pipeline Supply

MITTAL

BP - AMOCO

MITTALUSS BETA

REPUBLIC

INDUSTRIAL STEELCONSTRUCTION

USS

PX LH2

MITTAL

MITTAL

Pipeline LegendOxygenNitrogenHydrogen

CALUMET

RIVER

SAFETYKLEEN

PRAXAIREAST CHICAGO

PRAXAIRLOW PURITY

PRAXAIRBURNS HARBOR

PRAXAIRWHITING

PRAXAIRLAKESIDE

Lake Michigan

MITTAL

BP -AMOCO

MITTALUSS BETA

REPUBLIC

INDUSTRIAL STEELCONSTRUCTION

USS

PX LH2

MITTAL

MITTAL

Pipeline LegendOxygenNitrogenHydrogen

CALUMET

RIVER

SAFETYKLEEN

PRAXAIREAST CHICAGO

PRAXAIRLOW PURITY

PRAXAIRBURNS HARBOR

PRAXAIRWHITING

PRAXAIRLAKESIDE

Lake Michigan

Pipeline enclaves offer highest returns and customer reliability

Praxair Chicago Area Pipeline Enclave

Current Hydrogen SourcesNew Hydrogen Plants

Nitrogen PipelineOxygen PipelineHydrogen Pipeline

Praxair Gulf Coast SystemCurrent Hydrogen Sources

New Hydrogen PlantsNitrogen PipelineOxygen PipelineHydrogen Pipeline

Praxair Gulf Coast System


Business Environment Is Positive for Industrial Gases

Praxair benefiting from secular growth trends- Energy production- Energy efficiency- Emerging markets – Brazil, China, India

Our backlog is unprecedented

2001

24 26

Backlog Bidding

37

63

Backlog Bidding

2006

High growth environment for at least 3 to 5 yearsHigh growth environment for at least 3 to 5 years


Increasing Secular Growth

2010-2015Asia Energy

and H2

2000-2005EnergyEfficiency

2005-2010Applications TechnologyIndustrial Production

0.0%

5.0%

10.0%

1995-2000

Praxair Sales Growth

Growth in Asia, Energy

& H2, and alternative

energy technologieswill fuel large

O2 and H2growth

# of GlobalSuppliers

10 7 4

A bigger share of a bigger pieA bigger share of a bigger pie


Energy – Refining Demand for Hydrogen

Heavy crude upgrading

Planned refinery expansions to process heavy crude

Replacing refineries old reformers

Locomotive & Marine

Sulfur Fuel Specifications

GasolineOn-Road

DieselOff-Road

Diesel2004 120ppm 2005 30ppm2006 15ppm2007 500ppm 500ppm200820092010 15ppm20112012 15ppm

Low sulfur fuel regulations

Source: EIA and PX estimates

US Refinery Input Quality

API Gravity Sulfur

30.030.531.031.532.032.533.033.534.034.535.0

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

F

API

Gra

vity

, Deg

rees

0.85

0.97

1.09

1.21

1.33

1.45

Sulfu

r Con

tent

, Wt %

BP

D (M

M)

15

17

19

21

23

25

2005 2010 2015

North American Refining Capacity Forecast


Energy – Oil and Gas Enhanced Extraction

Global expansion driving energy demand

Easily accessible oil and gas resources declining

Higher prices

Increased drilling activity

Allows unconventional resources to be produced

Enhanced oil recovery and well fracturing opportunities Source: Occidental Petroleum

Oil Production Curve

Primary Stage

--

Oil

Rec

over

ed (b

bls)

~10%

-

Recovery % of Original Oil in Place

Secondary Stage

Typically Water

Flooding

>20%TIME

EOR

~15-20%

Expanding our energy reserves


Unlocking Energy with Industrial Gases

Power (IGCC)*

Praxair OpportunitiesMarket DriversMarket

Clean CoalCO2 emissions

Large ASU’sCO2 capture technology

Gasification

RefiningHeavy crude processingEnvironmental - pet coke

conversion

H2 and O2 supplyPipeline infrastructure

Industrial/Chemical

Alternative to natural gasproduction of H2/CO or Fuel

Large plant O2 and N2Hydrogen

High energy prices drive alternative technologiesHigh energy prices drive alternative technologies*Integrated Gasification Combined Cycle


100

Leading position in China– 11 JV’s and 13 subsidiaries

Shanghai

NanjingNanjing

GuangzhouGuangzhou

Shanghai Chemical Park (BP, BASF, Bayer)

Daya Bay (Shell/CSPC)

BeijingBeijingTianjin

Petrochemical Parks– Shanghai, Caojing– Daya Bay, Nanhai

Nanhai

Samsung

Electronics – Beijing– Shanghai

SMIC(Semiconductor)

QingdaoQingdao

CO2 Plant Other

Bao Steel JVMetals– Shanghai– Guangzhou

Praxair China – Develop Key Pipeline Complexes

2005 Sales $185MM*2010F Sales $500MM**Combined Sales


Expanding Presence in India

Owens Corning

Hospet Steel

SAIL Durgapur

Jindal Steel

Haldia Petrochem

Unique situation – few global playersUnique situation – few global players

Tata Steel II April 2008

SAIL Durgapur April 2008

Owens Corning July 2007

Hospet Steel Aug 2006

Tata Steel

St Gobain

2005 Sales $120MM2010F Sales $300MM

Project Start-upDate

St Gobain II Nov 2005

Tata Steel I Oct 2005


Unique and Profitable Business Model

No commodity pricing

Long-term contracts – high renewal rates

Raw material cost pass-through

No speculative capex

High value, low cost product – reliability is key

Production/distribution density drives returns

Applications technologies drive growth above Industrial Production

Strong secular growth trends – energy production and emerging markets

Record project backlog – Unprecedented number of opportunities


Net Present Value of Project Annuity Streams

17%

PipelinecomplexNPV $62

20%

Pipelinecomplex w/

bulk and pkgNPV $85

Plant saleNPV $7

NPV $40

14%8%

Stand-aloneon-site

15 y

ear N

PV @

8%

($M

M) Example: $100 MM Project Investment

Project Internal Rate of Return

Plant sale has same completion and performance risk, but low NPV without ongoing annuity stream

We prefer the risk/reward of building high density, high return franchises

We prefer the risk/reward of building high density, high return franchises


Increasing Free Cash Flow

Praxair Free Cash Flow 1996-2006F ($MM)

$400

$800

$1,200

$1,600

1998 2000 2002 2004 2006F

$1725F

$1075F

Operating cash flow 10% CAGR

Capital spending discipline

Uses of free cash flow−Dividends −Selective acquisitions −Share repurchases−Debt reduction

Operating Cash Flow CAPEX(2)

Free Cash Flow (1)

1) Non-GAAP measure. Free cash flow equals operating cash flow minus capital expenditures.2) Excludes Leased Asset Purchase in 2003


Financial Outperformance1-Year 5-Year CAGR

PraxairPraxair 17% 8%Sales

S&P500S&P500 8% 4%

Praxair 21% 11%PraxairEarnings

S&P500 12% S&P500 7%

22%

5%S&P500

TotalShareholderReturn

Praxair Praxair

S&P500

21%

1%

Praxair continues to outperform the S&P500Praxair continues to outperform the S&P500Source: Bloomberg – 12/31/00 – 12/31/05 Sales per share, Diluted EPS from Continuing Operations


Principles of Sustainability

Governance and IntegrityFoster a culture of integrity and accountability throughout the company through rigorous compliance with all laws, and by establishing and following effective corporate governance practices.

Customer CommitmentContinuously develop new products and applications that help our customers improve their productivity, energy efficiency and environmental performance. Provide the highest levels of service, reliability and quality to our customers.

Environmental ResponsibilityContinue to improve the efficiency of energy consumption. Reduce the intensity1 of air emissions, including greenhouse gases.

Employee Safety and DevelopmentMaintain a safe work environment with a goal of zero accidents. Provide training and career opportunities that allow employees to develop to their fullest potential. Increase the diversity of our workforce so that it is more representative of the communities in which we operate.

Community SupportHelp to improve the welfare and future of the communities in which we operate by sharing our knowledge, expertise and resources related to environmental protection, and community health, safety and security.

Financial PerformanceContinuously improve our financial performance and provide attractive returns to our shareholders. Generate operating cash flow to reinvest in business growth and pay dividends.

1Intensity is per-unit-of-production measure

2006 CLIMATE LEADERSHIP INDEX

industrial gases - linde plc

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