1 Shift To Import Parity MarketCase Study of

1 Shift To Import Parity Market—Case Study of Europe’s Chemical Industry Theo Jan Simons Partner—Global Chemicals Practice The Future of Gulf Coast Petrochemical Industry University of Houston—Conference 29 April 2005 (version 1 May 2005) © 2005 Accenture. All rights reserved. 11/23/2020

2 Proposed Agenda • Europe versus US Competitiveness • High Performance in Petrochemicals • Wrap—Up © 2005 Accenture. All rights reserved. 11/23/2020

3 European Petrochemical Industry 2 1 3 4 5 6 1’ 000 km 7 13 10 12 8 9 Main Petrochemical Complexes 1. Mosmorran/Fife, Grangemouth 2. Stenungsund 3. Wilton 4. Stade, Willemshaven 5. Rotterdam, Antwerp 6. NDG 7. Rurh area 8. Ludwigshaven 9. Porto Maghera/Ferrara 10. Med(Lavera Fos Berre) 11. Taragona 12. Leuna 13. Carling 11 © 2005 Accenture. All rights reserved. 11/23/2020

4 Europe versus USGC Comparing Europe and US Chemicals North America Europe Historical Development Private Companies National and Private Companies Feedstock Gas Some Liquids Some Gas Location Gulf Coast Across Europe Infrastructure Pipe Line Storage Some Pipe Line Limited Storage Logistics Rail Truck Integration Focus Refining/Feedstock End Market © 2005 Accenture. All rights reserved. 11/23/2020

5 Capacity Very Similar Trends in Capacity Growth INSTALLED CAPACITY Million Tons 1995 2005 CAGR 2% 2% 2% 4% 3% 2% 6% 7% Reference: data Parpinelli TECHNON, Accenture Analysis © 2005 Accenture. All rights reserved. 11/23/2020

6 Scale Europe is closing the gap with US on scale—slowly AVERAGE PLANT SCALE KTA 1995 2005 Growth 30% 25% 35% 40% 20% 55% 50% Reference: data Parpinelli TECHNON, Accenture Analysis © 2005 Accenture. All rights reserved. 11/23/2020

7 Closures and Start Ups Closures drive up average scale US Capacity (kta) 200 PP WE PP PE Typical 2005 Typical 1995 100 PP PP PE 100 PE PE 0 0 0 Plant Closures (number) 30 0 Plant Start Ups (#) 30 Reference: data Parpinelli TECHNON, Accenture Analysis © 2005 Accenture. All rights reserved. 11/23/2020

8 Logistics and Infrastructure US more effective than European Observations • High Reliance on Road Logistics • Europe will be investing in further Pipe Line infrastructure • EC has launched program to upgrade Rail Infrastructure • Refinery Integration—will it grow or go away … Reference: Excludes Pipe Line movements. Accenture Analysis © 2005 Accenture. All rights reserved. 11/23/2020

9 Ethylene Economics Overall: Change in Ethylene Economics driven by Natural Gas price increase not structural factors ETHYLENE CASH COST US$/ton Reference: Nexant/Chem. Systems, Deutsche Bank/CMAI estimates, Accenture Analysis © 2005 Accenture. All rights reserved. 11/23/2020

10 Foreign Policy US leads Europe in Foreign Investments Middle East Ethylene— 10 M tons PE— 6. 6 M tons US 24% Others 75% Others 92% Others 75% US 21% Europe 4% Europe 8% Others 75% Europe 4% PP— 5. 2 M tons PE— 7. 4 M tons US 22% Asia US 4% US 18% Europe 7% Europe 1% Ethylene— 9 M tons Other 70% PP— 3. 5 M tons US 4% Others 85% Europe 11% Reference: data Parpinelli TECHNON, Accenture Analysis © 2005 Accenture. All rights reserved. 11/23/2020

11 Role of Middle East is highly competitive but limited impact with about 10% of volume ETHYLENE GLOBAL SUPPLY CURVE (2004) US$/ton Asia LA (4 M $400/ton) WE (20 M $360/ton) US (30 M $470/ton) (30 M $300/ton) ME (10 M $150/ton) Reference: Nexant/Chem. Systems, Deutsche Bank/CMAI estimates, Accenture Analysis © 2005 Accenture. All rights reserved. 11/23/2020

12 Chemical Industry Performance US performance appears stronger than Europe CHEMICAL COMPANY TRS 1995— 2005 WE 2. 3 US 3. 6 Reference: Accenture Analysis. Companies include Air Liquide, Air Products, Akzo Nobel, Bayer, BASF, BOC, Ciba, Clariant, CYTEC, DOW, DSM, Du. Pont, Eastman Chemicals, ICI, Lyondell, Nova, Praxair, Rohm & Haas © 2005 Accenture. All rights reserved. 11/23/2020

13 High Performance Business Performance gap suggests that there is further room for restructuring in Europe Market Focus and Position Distinctive Capabilities Defining Road Map for Differentiation Creating New Direction • • • Business Model Selection Active Portfolio Management Articulating the Vision © 2005 Accenture. All rights reserved. Performance Anatomy • • • Innovation Customer Focus Operations Management Out-Executing Competition • • • Effective Governance and Financial Flexibility Strong Performance Culture Information Technology as a Strategic Asset 11/23/2020

14 Case Study Borealis is completing impressive transformation Past Future Direction Road Map Execution (Market Focus and Position) (Distinctive Capabilities) (Performance Anatomy) Statoil NESTE EXIT Borealis Neste 1998 OMV New Borealis IPIC Sales Euro Bn 4. 6 3. 7 3. 5 3. 7 9% 3% 2% 3% 3% 11% 1999 2000 2001 2002 2003 2004 3. 0 ROIC % © 2005 Accenture. All rights reserved. 11/23/2020

15 European Industry Restructuring The jury is still out on a number of other “ventures” Past Future Direction Road Map Execution (Market Focus and Position) (Distinctive Capabilities) (Performance Anatomy) ENI EVC INEOS ICI DSM New DSM SABIC VEBA Sabic Euro. Petrochemicals Advantaged Portfolio BP Chem Innovene Total Petrochemicals Total Arkema © 2005 Accenture. All rights reserved. A&A ? ? ? ? ? 11/23/2020

16 Way Forward Becoming High Performance Petrochemicals Business—Focus Areas for Differentiation Ongoing • • • Refinery Integration and Envelop Optimization Improving Scale and Reliability Upgrading Industry Infrastructure © 2005 Accenture. All rights reserved. Accelerating • • • Leverage Advantaged Feedstock Focus on Growth Markets Technology and Innovation and Commercialization “New” • • • Insight To Action— leveraging investments in business process and IT Winning Chains—Market, Customer, Supply Chain, Manufacturing, Procurement working together Join not Beat—Leveraging Global Supply Network 11/23/2020

17 Wrap—Up In Closing • Nothing Wrong With USGC— implementing select lessons from Europe • Restructuring in Europe continues—the challenge is differentiation • Wrap—Up © 2005 Accenture. All rights reserved. 11/23/2020