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Mike BloeschMike BloeschVice President Vice President –– Strategic InitiativesStrategic InitiativesTPC GroupTPC Group
54th AGM * “Addressing Tomorrow’s Challenges Today”
Butadiene – History Repeats Itself: The Past Holds the Key to Future Supply
Forward Looking Statements & NonForward Looking Statements & Non--GAAP Financial MeasuresGAAP Financial Measures
This presentation may contain “forward-looking statements” within the meaning of the U.S. securities laws. These statements include
assumptions, expectations, predictions, intentions or beliefs about future events, particularly statements that may relate to future
operating results, existing and expected competition, market factors that may impact financial performance, and plans related to
strategic alternatives or future expansion activities and capital expenditures. Although TPC Group believes that such statements are
based on reasonable assumptions, no assurance can be given that such statements will prove to have been correct. A number of
factors could cause actual results to vary materially from those expressed or implied in any forward-looking statements, including risks
and uncertainties such as volatility in the petrochemicals industry, limitations on the Company’s access to capital, the effects of
competition, leverage and debt service, general economic conditions, litigation and governmental investigations, and extensive
environmental, health and safety laws and regulations. TPC Group expressly disclaims any obligation to update any forward-looking
statements contained herein to reflect events or circumstances that may arise after the date of this presentation.
This presentation may also include non-GAAP financial information. A reconciliation of non-GAAP financial measures to the most
54th AGM * “Addressing Tomorrow’s Challenges Today”
directly comparable GAAP financial measures, as well as additional detail regarding the utility of such non-GAAP financial information,
is included in the Appendix.
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AgendaAgenda
TPC Group overview
Hi t f b t di d ti History of butadiene production
Why the world needs on-purpose butadiene
Various production routes
Different approaches for different continents
TPC G l ti
54th AGM * “Addressing Tomorrow’s Challenges Today”
TPC Group solution
TPC Group OverviewTPC Group Overview
• Market leader in service-based processing, infrastructure and logistics for the C4 hydrocarbons industry
Company Description
C4 Processing
82%
Revenue by Segment (1)
• C4 Processing services include crude C4 off-take, aggregation, storage, separation, purification and ratable transport and delivery of C4 components to manufacturing end-users in a variety of industry segments
• Performance Products consists of C4 and C3 derivatives for fuels, fuel and lubricant additives and a variety of other end uses
H d t d i H t T th C
Performance Products
18%
Plastics6%
Fuels20%
Lube & Fuel
Revenue by End Market (2)
(1) Calendar 2012
54th AGM * “Addressing Tomorrow’s Challenges Today”
• Headquartered in Houston, Texas, the Company has three manufacturing facilities along the Gulf Coast, with 820 employees and contractors
• For Calendar 2012, TPC recorded Revenues of $2.3B
Synthetic Rubber
35%
Additives7%
Other32%(2) Based on TPC estimates as of December 2011
(3) Includes nylon, surfactants and latex
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Well Positioned for the FutureWell Positioned for the Future
Market Leader in C4 Hydrocarbons
Stable, consistent cash flows
Stable, consistent cash flows
Growth DriversGrowth Drivers
Growing end-user markets
Unique logistics and infrastructure
Increasing Return on Invested
Capital
Increasing Return on Invested
Capital
Growth in fees and margins
Growth in fees and margins
CapitalInvestment
►On Purpose Isobutylene
►HR-PIB expansion
Cash Flow
►Service-based model
►Operational Efficiency
►Top line growth
54th AGM * “Addressing Tomorrow’s Challenges Today”
Disciplined, experienced management
Strong balance sheet
Strong balance sheet
►On Purpose Butadiene
Market leadership in majority of product linesMarket leadership in majority of product lines
TPC30%
A21%
B15%
Butadiene Sales VolumesNorth America
PIB CapacityNorth America
TPC36%
A27%
• Market leader in C4 Processing with approximately 30% share of capacity
Relationships with every non-integrated ethylene producer in N th A i 15%
C15%
D8%
E7%
F4%
North American Market Positions
B23%
C14%
Product CapacityCapacity
Share
Butadiene 1,400 27%
North America
• Market leader in butene-1 with 35% share
• Among North America’s largest merchant producers of isobutylene and derivatives
54th AGM * “Addressing Tomorrow’s Challenges Today”
Butene-1 315 35%
HR-Polyisobutylene 255 65%
Diisobutylene 80 100%
and derivatives
• IP holder and sole merchant producer of highly reactive polyisobutylene(HR-PIB)
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ServiceService--based processor & logistics providerbased processor & logistics provider
Purified C4 Components
EthyleneSt C k
Elastomers Plastics
Fuelsarke
ts
Nylons
BD
B1
iBLMixed C4
BD
BDBD
B2iBL
iBL
BDB1
Bn
BD
SeparationSteam Cracker
Ma y
IsobutylenePropylene
IsobutylenePropylene
Derivatives ProductionDerivatives Production
B2
BnRaf
fin
ates
PIB
DIB
Lube Additives
Plasticizers
arke
ts
Surfactants
Co-product BD
BD
BDBD
B1B2
Bn
Ot
BD
Purification
54th AGM * “Addressing Tomorrow’s Challenges Today” 7
A leading service-based processor and infrastructure and logistics provider of value-added products derived from C4 hydrocarbons
PropylenePropylene ProductionProduction
HPIB
PropDeriv
Ma Surfactants
Strategic assets benefit the industryStrategic assets benefit the industry
Corporate Offices
Lake Charles Terminal
Baytown Operations Port Neches OperationsHouston Operations
2.4 B lbs/yr Mixed C4 Processing 85 M lbs/yr Nonene 1.8 B lbs/yr Mixed C4 Processing
54th AGM * “Addressing Tomorrow’s Challenges Today”
Managing seamless flows of C4 stream to highest value end uses
2.4 B lbs/yr Mixed C4 Processing240 M lbs/yr PIB
85 M lbs/yr Nonene50 M lbs/yr Tetramer
1.8 B lbs/yr Mixed C4 Processing
257 acres 165 acres 154 acres
Extensive pipeline networkSubstantial on and off site storage facilitiesSteam & electrical co-generation (35 MW)Exclusive deepwater docks on ship channel
Large rail rack & railcar storage yard
NA’s largest stand-alone Nonene plant Extensive rail rack & railcar storage yard
Pipeline access to customer3rd party terminaling
Extensive pipeline networkSubstantial storage facilitiesDeep water dock facilities
Extensive rail rack & railcar storage yard
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TPC Group OwnershipTPC Group OwnershipAcquired by First Reserve & SK Capital
December 20, 2012
54th AGM * “Addressing Tomorrow’s Challenges Today”
Value PropositionValue Proposition
• Reliable, secure and efficient infrastructure Strong connectivity between broad range of Crude C4 sources and
array of end use markets Operational excellence and infrastructure investment focus Independent, merchant player
• Industry-focused solutions Meeting current and future customer needs for critical products in
short supply Process and product technology leadership
• Long term perspective Strong balance sheet and pre-funded capital plan New ownership aligned for the long term
54th AGM * “Addressing Tomorrow’s Challenges Today”
Butadiene Butene-1 Fuel Products/MTBE Polyisobutylene Isobutylene Nonene/Tetramer
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“He who doesn’t know history is “He who doesn’t know history is destined to repeat it”destined to repeat it”
History of Butadiene ProductionHistory of Butadiene Production
.. destined to repeat it destined to repeat it –– SantaynaSantayna (variant)(variant)
““He He who does know history maywho does know history mayt t tt t t it!”it!”
54th AGM * “Addressing Tomorrow’s Challenges Today”
want to repeat want to repeat it!” it!” –– Butadiene industry???Butadiene industry???
Commercial Production EvolutionCommercial Production Evolution
1863 Bio-based? (thermal cracking of amyl alcohol) France1863 Bio-based? (thermal cracking of amyl alcohol) France1925 Acetylene (IG Farben) Germany
1928 Ethanol (Lebedev) Russia
1942 Butane (Dehydrogenation) U.S.
1944 Butene (OXO DTM) U S1944 Butene U S
1942 Butane (Dehydrogenation) U.S.
1928 Ethanol (Lebedev) Russia
1925 Acetylene (IG Farben) Germany
( g y )
54th AGM * “Addressing Tomorrow’s Challenges Today”
1944 Butene (OXO-D ) U.S.
1970s Steam cracker by-product Global
1944 Butene (OXO-DTM) U.S.
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“The hardest part of solving any“The hardest part of solving anyproblem is acknowledging thatproblem is acknowledging that
Why the World Needs OnWhy the World Needs On--Purpose ButadienePurpose Butadiene
problem is acknowledging thatproblem is acknowledging thatone exists.” one exists.” –– AnonymousAnonymous
(Also the first tenet of most twelve(Also the first tenet of most twelve
54th AGM * “Addressing Tomorrow’s Challenges Today”
( f f( f fstep programs…)step programs…)
How Real is the Problem?How Real is the Problem?Base Case estimates 2,800 kMT/yr of On-Purpose BD requirement by 2025
Base Case: 4.1% (China @ 8.8%, India @ 16.2%)Ethylene Growth Rate: 3.5%
54th AGM * “Addressing Tomorrow’s Challenges Today”
Low probability that only new butadiene extraction capacity could meet growth Eliminating on-purpose volume gap would require demand destruction of 14% or 3% butadiene growth rate
+/- 0.5% change in global butadiene demand equals +/- 1,000 kMT volume change
Key risk: Assumption that majority of future global ethylene based on naphtha
Source: IHS Single Client Study
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North America Compounds the IssueNorth America Compounds the Issue
» Upstream producers focus on NGL rich shale
plays
• Fractionation margins drive development
» Natural gas discounted to oil (BTU basis)
0%
15%
0%
15%
% BTU Price Discount U.S. Natural Gas vs. Brent Crude Oil
g ( )
• Ethane fuel alternative low priced
» Existing infrastructure leveraged
• Pipelines, gas plants, storage
• Eagle Ford close proximity to chemical assets
U.S. NGL Production
54th AGM * “Addressing Tomorrow’s Challenges Today”
‐90%
‐75%
‐60%
‐45%
‐30%
‐15%
‐90%
‐75%
‐60%
‐45%
‐30%
‐15%
1990 1995 2000 2005 2010 2015
Source: Bentek Energy/TM&C
Source: IHS
NA Ethylene Production Increasing…NA Ethylene Production Increasing…» Dow Chemical (April 2011)• Restart St. Charles Cracker (end 2012)
• New ethylene cracker (2017)
• Fractionation Freeport, Marcellus to Louisiana
• Propane Dehydro (2015); New Prop Dehydro Technology (2018)
• Increasing ethane flexibility at Plaquemine (2014) and Freeport (2016)
» Formosa (April 2011)
» Ineos (March 2011)• 250 MM lb/yr debottleneck study at Chocolate Bayou
» Nova (Several)• May 2011 - Range Resources MOU ethane supply (Sarnia)
• March 2011 - Williams 17,000 bbl/day ethane/ethylene mix of Joffre
• March 2011- Caiman Energy Ethane – 20,000 bbl/day ethane (Sarnia)
» Williams (September 2011)• $2.1 billion capital investment at Point Comfort (2014 / 2015)
• Ethylene expansion (+28%) +450,000 MT
• Propane dehydro (+54%) +400,000 MT
• Upstream fractionation & derivative (VCM,EDC,PVC) expansion
» Braskem (April 2011)• Wants new USGC Greenfield Ethylene and Polyethylene Plant (NYSE Event)
» CPChem (March 2011)• 3.3 billion pound/yr Ethane Cracker on USGC (2014 /2015)
» Braskem (April 2011)• Mexico Ethylene XXI – JV Braskem and IDESA (65/35)
• 2 billion pound ethylene (2014)
» Shell (June 2011)
• Ethylene expansion of Geismar, LA production facility +600 million lbs/year (2013)
» Sasol (November 2011)• Feasibility study to explore building $3.5 billion- $4.5 billion ethylene
production site in Louisiana
» LyondellBasell (Several)• 500 MM lb/yr ethane debottleneck at Channelview
• 850 MM lb/yr ethane debottleneck at La Porte
• 250 MM lb/yr expansion at Channelview
• 800 MM lb/yr expansion at Corpus Christi for 2015
» Aither Chemicals (January 2012)• Catalytic cracking technology to convert ethane from Marcellus Shale
i t th l 300 000 MT
54th AGM * “Addressing Tomorrow’s Challenges Today”
» S e (Ju e 0 )• Grass roots cracker-Appalachia
» BFLP (December 2011)• 50% ethane cracking capacity after completion of April 14, 2011 outage
» Westlake (April 2011)• Calvert City Cracker conversion from propane to ethane + potential expansion
• Expand capacity Lake Charles by 240 MM lb (2012)
• 2nd Lake Charles Expansion (2014)
into ethylene +300,000 MT
» Exxon Mobil (June 2012)• 3.3 billion lb/yr ethylene-capacity steam cracker at Baytown complex
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…but Butadiene Production is not…but Butadiene Production is not
120%
130%
70%
80%
90%
100%
110%
54th AGM * “Addressing Tomorrow’s Challenges Today”
60%2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Ethylene B/E Crude C4
Source: IHS
We have located the culpritWe have located the culpritTypical C4 Production From Various Cracker Feedstocks
40
45p yPounds per 100 Pound of Ethylene
Naphtha to Ethane: 89% Reduction in CC4
15
20
25
30
35
Naphtha to Ethane: - 89% Reduction in CC4- 81% Reduction in BD
54th AGM * “Addressing Tomorrow’s Challenges Today”
0
5
10
Ethane Propane Butane Light Naphtha Gas Oil
Butadiene Isobutylene Butene-1 Butene-2 Butanes ~Source: IHS Data
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The global shortfall will grow over timeThe global shortfall will grow over time
Crackers in North America will continue to lighten feedslates Shale gas exists globally Already drilling in Poland Announced in China & Argentina May take some time, but will be done
Chinese coal to olefins
54th AGM * “Addressing Tomorrow’s Challenges Today”
Chinese coal to olefins Competitive ethylene Zero butadiene
NA will continue to be a net importerNA will continue to be a net importerBut only butadiene produced at a reasonable cost will keep our rubber production competitive!
N t N th A i B t di I t
150
200
250
300
350
400
450
/ Yr Butadiene
Net North American Butadiene Imports
54th AGM * “Addressing Tomorrow’s Challenges Today”
0
50
100
150
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
kMT /
Range of TPC Group Production Analysis
Source: NA Trade Statistics, CTC International
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Why does your smartphone know the exact Why does your smartphone know the exact distance to New York, yet still give you distance to New York, yet still give you
Various Production RoutesVarious Production Routes
three totally different routes to get there???three totally different routes to get there???
Depends on if best is defined as fastest, Depends on if best is defined as fastest, shortest, easiest, most green, or most shortest, easiest, most green, or most
54th AGM * “Addressing Tomorrow’s Challenges Today”
scenic...scenic...
Many different technologies, but only
five primary feedstocksNormal Butane
OXO-DTM
(Oxidative Dehydrogenation)
Dehydrogenation
Dehydrogenation
TPC Group
TPC Group
OnOn--Purpose Butadiene (OPBD) RoadmapPurpose Butadiene (OPBD) Roadmap
N-butene
By-Product C4 Olefins(steam cracker & refinery)
Finished Butadiene
QPEC (Oxidative
Dehydrogenation)
Butadiene Extraction
Distillation
Dimerization
Fermentation & Dehydration
Fermentation
Ethylene
Sugar( )
Dehydration1,4-BDO
Bio-basedRoutes
Traditional Routes
Chinese
TPC Group
54th AGM * “Addressing Tomorrow’s Challenges Today”
Distillation
Dehydrogenation & Dehydration
(biomass)
Ethanol
y,
Fermentation HydrogenolysisSuccinic
Acid
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Ethanol Ethanol ButadieneButadiene First developed in late 1920s in Russia by Lebedev Two step process improved efficiency Used in Russia, China, India, & US New capacity announced by Showa Denka for Japan
Dehydrogenation & DehydrationEthanol Distillation
Finished Butadiene
Pros Proven technology
“Lo er” in estment cost
Cons Higher feedstock &
operating cost than C4
54th AGM * “Addressing Tomorrow’s Challenges Today”
“Lower” investment cost Feedstock available &
transportable Suited for small applications
operating cost than C4 Selectivity around 40% Many by-products (including
water) All shut down in US in 1950s
Sugar (biomass) Sugar (biomass) ButadieneButadiene At least four different routes being explored Most require many processing steps
Fermentation & Dehydration
OXO-DTM
(Oxidative Dehydrogenation)N-butene
Butadiene Extraction
Pros Not oil based
Cons Not commercially proven
Distillation
y
Fermentation Sugar(biomass)
Dehydration1,4-BDO
Fermentation HydrogenolysisSuccinic
Acid
Dehydrogenation)
Finished Butadiene
54th AGM * “Addressing Tomorrow’s Challenges Today”
Laboratory work progressingy
Many likely to be years away
Sugar does not equal biomass
Economics???
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ByBy--product C4 Olefins product C4 Olefins ButadieneButadiene Good fit for China (800 kMT capacity online by end 2013) Two primary technologies – OXO-DTM & QPEC Used in Russia China & USUsed in Russia, China, & US
Pros Proven technology
Ver efficient 85+% selecti it
Cons Energy intensive
Closel held technolog
By-Product C4 Olefins(steam cracker & refinery)
Finished Butadiene
QPEC (Oxidative
Dehydrogenation)
Butadiene Extraction
Distillation
54th AGM * “Addressing Tomorrow’s Challenges Today”
Very efficient; 85+% selectivity Scalable
Closely held technology Feedstock has high value
for alkylate production By-products have no value
Chinese OPBD generally onChinese OPBD generally on--tracktrack Construction quality appears good Technology appears to work Environmental standards not as stringentEnvironmental standards not as stringent Feedstock C4 olefins available at reasonable pricing
Very low alkylate production by refineries for gasoline Feedstock supply will become key going forward; lots of
developing uses – including export of C4 olefins
Objective is to back integrate for their rubber plants not
54th AGM * “Addressing Tomorrow’s Challenges Today”
Objective is to back integrate for their rubber plants, not butadiene sales
Longer term, feedstock cost / supply may challenge economics
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Natural gas liquids (NGLs) Natural gas liquids (NGLs) ButadieneButadiene Very good fit for shale revolution Used in Russia & US
Dehydrogenation
Pros Proven technology
Cons Added capital cost to
Finished Butadiene
Butadiene Extraction
Normal Butane
OXO-DTM
(Oxidative Dehydrogenation)
Dimerization
Dehydrogenation
Ethylene
TPC Group
TPC Group
TPC Group
54th AGM * “Addressing Tomorrow’s Challenges Today”
gy Lowest feedstock cost Low operating cost Scalable High selectivity
pproduce butylenes
Closely held technology
“TPC seeks to find the best overall solution“TPC seeks to find the best overall solutionto the butadiene shortage in the simplest to the butadiene shortage in the simplest
d i l ffi i ibl ”d i l ffi i ibl ”
TPC Group SolutionTPC Group Solution
and most capital efficient manner possible.”and most capital efficient manner possible.”
“Gentlemen, we are headed back to the“Gentlemen, we are headed back to thefuture!”future!”
54th AGM * “Addressing Tomorrow’s Challenges Today”
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TPC Group OPBD Project ObjectiveTPC Group OPBD Project Objective Leverage existing capabilities
Assets Two independent butadiene production / C4 processing sites
Connected by pipeline & marine Large amount of land for expansion Large amount of land for expansion
Five butadiene extraction trains (two of which are idle) Idle dehydrogenation unit Extensive infrastructure
200 mile butadiene pipeline network Pipeline connectivity to Mt. Belvieu for NGL supply Pipeline connectivity to local producers for additional olefins Five ship & barge docks 35 railcar loading spots & 500 railcar storage yard 75,000+ MT above ground C4 storage, in addition to salt dome storage
54th AGM * “Addressing Tomorrow’s Challenges Today”
Favorable utilities position EHS&S handling capabilities; 1 ppb fenceline measurement
Commercially Proven Technology Normal butane to butadiene via dehydrogenation (practiced for 15+ years) Normal butane to butenes via dehydrogenation (practiced for 45 years) N-butene to butadiene via OXO-DTM (practiced for 45 years)
TPC Group OPBD Project Objective TPC Group OPBD Project Objective (cont’d)(cont’d)
Coupled with cost advantaged NGL feedstocks
95%
Normal Butane pricing relative to crude oil
75%
80%
85%
90%Normal Butane pricing relative to crude oil
54th AGM * “Addressing Tomorrow’s Challenges Today”
65%
70%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: IHS
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TPC Group OPBD Project Objective TPC Group OPBD Project Objective (cont’d)(cont’d)
To produce butadiene to keep rubber producers competitive globally
U t 270 000 MT d ti it d d t d d Up to 270,000 MT production capacity, dependent on demand
Targeting late 2016 start-up TCEQ & EPA now working “together”
Permitting timeframes now appear shorter
Located on Texas Gulf Coast Heart of butadiene demand in US
Extensive logistics delivery capability
54th AGM * “Addressing Tomorrow’s Challenges Today”
Extensive logistics delivery capability
“Study the past, if you would divine “Study the past, if you would divine thethefuture” future” -- ConfuciusConfucius
“The distinction between the past, present,“The distinction between the past, present,and future is only a stubbornly persistent and future is only a stubbornly persistent illusion.” illusion.” -- Albert EinsteinAlbert Einstein
“The future“The future ain’tain’t what it used to be!”what it used to be!”
54th AGM * “Addressing Tomorrow’s Challenges Today”
The future The future ain tain t what it used to be! what it used to be! -- Yogi BerraYogi Berra
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Mike BloeschMike BloeschVice President Vice President –– Strategic InitiativesStrategic InitiativesTPC GroupTPC Group
54th AGM * “Addressing Tomorrow’s Challenges Today”
Butadiene – History Repeats Itself: The Past Holds the Key to Future Supply
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