paul mastro llc 14601 brown bear drive palmyra, va 22963...

February 19, 2015

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Proposal for Implementation of Plastics Industry Opportunities for the State of Wyoming

As per our phone conversations last week, below is a preliminary proposal of how this project might proceed.

1. Create a list of short term and long term target businesses. From this list develop an initial list of target companies, including intermediates, chemicals, investment groups and plastic resin producers. (Refine the list from previous report)

2. Develop a marketing strategy to attract identified targets. Trade magazines, trade shows, direct mailing, phone solicitation, etc. 3. Develop a work plan to implement strategy including resources required and timing of individual activities and an initial budget. 4. Update proposed timeline (below) to synchronize with item 2 and 3 and available resources. Include periodic milestones 5. Implement work plan for all identified activities 6. Schedule and plan direct contact meetings, state visits with potential targets 7. Perform periodic milestone reviews. Modify work plan and timeline as appropriate Timeline Assuming April 1 Start Date Duration Start Date End Date

1. Create target list 4 weeks 4/1/15 5/1/15 2. Develop Strategy 6 weeks 4/15/15 6/1/15 3. Develop Work Plan 6 weeks 5/1/15 6/15/15 4. Update timeline 1 week 6/15/15 6/22/15 5. Implement work plan 52 weeks 6/1/2015 6/1/2016 6. Direct target contacts, meetings As req’d 8/1/15 7. Periodic milestone reviews quarterly 6/1/15

I think the first three steps are very important and all involved parties (CANDO, Converse County, Wyoming Business Council, MEP, others?) need to support the plan. Once the overall

Paul Mastro LLC 14601 Brown Bear Drive Palmyra, VA 22963 501-658-1103 [email protected]

of 2 plan and direction is set, as we implement items 4-7, events may change the timing and scope of activities, but the overall direction should be clear. I also have attached an excel Gantt chart of how the project might look. The line items may change, depending on the final work plan developed. As to how I should be involved, I propose the following. I can work with you on steps 1-4. I estimate that it would require 30 hours of my time or $3750. As we finalize this work it would best be done in Wyoming. I estimate a 3 day trip expenses to be $2250. We can handle travel as a fixed estimate, or I can charge actual expenses, whichever you prefer. As far as the implementation, this will really depend on the strategy and plan that is developed. I believe I would be of help with developing direct mailing lists, phone solicitations, presentations, and providing support with visits by target companies. Also, I can provide you with current industry information as to current plans of potential target companies. Once the plan is developed and we agree on the specifics of what you would like me to do, I can give you a firm estimate, but I believe it will be somewhere between 25 to 30 hours ($3125-3750) per month plus any travel expenses that might be necessary such as trips to Wyoming or to a target company. These, of course, would be preapproved by you.

Paul Mastro LLC 63 Forest Drive Palmyra, VA 22963 501-658-1103 [email protected]

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May 6, 2015

Analysis of Future Markets and Capacities for Ethylene,

Polyethylene and Polypropylene

Executive Summary

Low cost natural gas has made North America a very desirable place for the manufacture of ethylene and related chemicals and plastics. The markets for ethylene and materials made from ethylene are generally growing and with the cost advantage for North American producers, we have become exporters of many of these materials, which increases the demand for North American produced products.

The tight supply or lack of supply of the more economical natural gas feedstock in other regions of the world are leading to the shutdown of non-competitive capacities and the building of plants in North America by several major foreign players.

The favorable economics of natural gas has enabled the sourcing of major chemical plants in the US away from the gulf coast into other regions.

Engineering plastics will not be resourced solely on the base of low cost natural gas, but it will be a factor in any expansion decisions.


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Analysis of Future Markets and Capacities for Ethylene,

Polyethylene and Polypropylene

Introduction

The near term future world markets (2015-2018) for ethylene, polyethylene and polypropylene are demand driven. Ethylene is the precursor to a wide variety of plastics and chemicals including polyethylene and polypropylene. Global demand for plastics is over 440 billion pounds a year and is forecasted to grow over the next 5 years at over 4% per year. Ethylene and its derivatives are also used a wide variety of food, agriculture, and medical applications that will continue to grow.

North American markets, similarly to the world markets, will be demand driven but, even more importantly, will be cost driven. The emergence of shale gas in North America has provided a source of low cost natural gas that has made North America a low cost producer and preferred location for the production of ethylene. The low cost of ethylene impacts the rest of the ethylene supply chain, making North America a low cost producer for many downstream products such as polyethylene, which will lead to an increase in export of these materials and will give North American producers a larger piece of the world pie.

Let’s take a little closer look at the economics of natural gas. In 2014, the highest price for North American natural gas was about $5 per million Btus. A barrel of oil is equivalent to 6 million Btus or a ratio of 6:11. At $5 natural gas, oil would have to be priced at $30 per barrel to be competitive. Even at the low prices oil touched on early this year, natural gas was still by far the more economic feedstock and should remain so for the forseeable future. The long term favorable outlook for the cost of natural gas vs. oil plays a significant role in the sourcing strategy for chemical plants by the major players.

Ethylene Demand and Capacity

In North America and the Middle East, ethylene is produced largely from natural gas. Ethylene prices in the US are around $400 per metric ton and in the Middle East, still the lowest cost producer in the world, about $330 per metric ton. The Middle East producers are running into a shortage of natural gas for desired expansions. Saudi Basic Industry Corporation (SABIC) CEO Mohamed AL-Mady has said “The shortage of gas and many sectors competing for it have made internal expansion very hard”2. They are talking with a number of potential partners in the US for investment opportunities in shale gas. SABIC produces plastics, chemicals and fertilizer.

South America produces only about 4% of the world’s ethylene and its cost is about $1000 per metric ton. Significant portions of plastic materials consumed in South America are imported.

In Europe much of their ethylene is produced from naptha derived from crude oil. This is far more expensive than the natural gas route and is currently priced about $1200 per metric ton. It is quite obvious why there are a number of European companies setting up ethylene and

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polyethylene production in North America, as well as shutting down capacity in Europe. In Asia, ethylene is produced from mainly naptha and coal, with a small amount from natural gas. Their current costs average at about $1000 per metric ton. Both Asia and Europe are interested in projects to import liquefied natural gas (LNG) from North America.

The chart below shows where global ethylene is currently produced3.

Over the next 5 years, North American and Asia will increase their relative capacities while we will see a decrease in Europe. What is still unknown is how much capacity might be sourced in North America from the Middle East.

Global ethylene demand has been projected to grow at an average rate of 4.6% over the next five years. The chart below shows ethylene demand and capacity growth anticipated through 2018. Worldwide demand in 2014 was just over 300 billion pounds and global capacity was almost 350 billion pounds. By 2018, demand is expected to grow by 57 billion pounds to 363 billion pounds and global capacity is anticipating to grow 61 billion pounds to just over 400 billion pounds.

`

North America,

23%

South America,

4%

Europe, 20%

Middle East, 21%

Asia Pacific,

32%

Global Ethylene Production

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Operating rates for ethylene plants are typically in the mid-80s%. World operating rates are shown in the chart below. This chart considers firm announced capacities, but

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2013 2014 2015 2016 2017 2018

Global Ethylene Demand and Capacity(billions of pounds)

Demand

Capacity

85.0%

85.5%

86.0%

86.5%

87.0%

87.5%

88.0%

88.5%

2013 2014 2015 2016 2017 2018

Ethylene Plant Operating Rates

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not those that do not as of yet have a firm commitment. The utilizations in the out years are starting to get higher than are ideal for efficient operation and as the demands firm up, it is very likely more capacity expansions will be announced.

The next chart shows the planned ethylene (C2) expansions in North America that have been announced. The total additional volume of 21 billion pounds is far less than the anticipated demand growth of 57 billion pounds by 2018. Some of this capacity will be added in the Middle

East and Asia, but due to economics and availability of gas, additional short and long term expansion of ethylene in North America is likely.

Polyethylene Demand and Capacity Polyethylene structurally is the simplest of plastics, produced by the polymerization of ethylene. It is the highest volume plastic produced with a global volume of almost 180 billion pounds including a US volume of over 38 billion pounds. Polyethylene’s major markets include piping for commercial and residential construction and a wide array of packaging materials. Global polyethylene demand is anticipated to grow at over 4% per year4.

The chart below shows global polyethylene demand and capacity growth anticipated through 2018. By 2018, annual demand is expected to grow by 38 billion pounds to 226 billion

Company Location

Additional C2 Capacity

(Billions of Lbs)Startup

DateChevron Phillips Cedar Bayou, TX 3.3 2018Dow Freeport, TX 3.3 2015-2018Exxon Baytown, TX 3.3 2018-2019Formosa Point Comfort,TX 1.8 2018Oxy/Mexichem Ingleside, TX 1.2 2017Sasol Lake Charles, LA 3.1 2018-2019Shell Monaca, PA 2.2 2018-19Nova Sarnia, Ont.Canada 0.6 2017Braskem Mexico 2.2 2016Odebrecht West Va. ? 2018

Totals 21.0

Data from Plastics News Shale Gas report and company websites.

Planned North American Ethylene Expansions

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pounds. Capacity is anticipated to grow by 44 billion pounds to 257 billion pounds. Similarly, we can look at the US capacity and demand forecasts. The US capacity is

expected to grow by 13 billion pounds to 58 billion pounds by 2018. Due to the favorable

economics the US has become a net exporter of polyethylene and this will continue to grow for the forseeable future. In 2018 US exports of polyethylene is anticipated to be 15% of total production5.

The next chart shows the planned polyethylene capacity expansions for the next 5 years. From the chart there are a few things that are of interest. First, expansions take a long

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60.0

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2014 2015 2016 2017 2018

US Polyethylene Demand and Capacity (billions of Pounds)

Demand

Capacity

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time to bring about. Planning and implementing takes time. Any additional expansions being planned now will be brought on line in a time frame of 2018 and beyond. The second item of interest to be gleaned from the chart is that US plants are now starting to be sourced outside of the gulf coast region. In addition to the announced plants in Pennsylvania and North Dakota that are shown, plants are also under consideration in West Virginia and Ohio.

Propylene and Polypropylene Demand and Capacity

The rise of natural gas as the preferred feedstock in North America has had some unusual effects on propylene and polypropylene in North America. The plastic polypropylene is made by the polymerization of propylene to make the polypropylene polymer.

Propylene is a byproduct of the production of ethylene both from petroleum and from natural gas. The amount or propylene generated with natural gas is considerably less than that generated from petroleum and with the migration of ethylene production to lower cost natural gas, a shortage of propylene has developed. This has led to the need to make plants with the

Company Location

Additional PE Capacity


DateIneos/Sasol Deer Park, TX 1.0 2015Braskem Mexico 2.3 2015Nova Joffre, Alb.Canada 1.0 2015Formosa Point Comfort,TX 0.7 2016Equistar Corpus Christi, TX 1.1 2016Exxon Mount Belvieu, TX 3.0 2016Dow Freeport, TX 2.3 2017CP Chem Sweeny, TX 2.2 2017Sasol Lake Charles, LA 1.9 2018Nova Sarnia, Ont.Canada 0.9 2018Shell Monaca, PA 2.2 2019Badlands NGL Williston Basin, ND 3.3 2019

Totals 21.9

Data from news reports and company websites.

Planned North American Polyethylene Expansions

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specific purpose of manufacturing propylene on purpose (POP plants). There are several routes to this but most producers are building propane dehydrogenation (PDH) plants. This process, using low cost natural gas, will produce propylene at very competitive costs. All other commercial alternate routes for propylene also use natural gas as a feedstock.

The global polypropylene capacity is currently more than adequate, but tightness of the propylene monomer has caused pressure on polypropylene prices and margins. This will began to lessen as North American PDH plants start to come online in 2017. The table below shows the planned propylene (C3) expansions in North America over the next five years.

World propylene capacity is just over 190 billion pounds and is used in a wide array of products besides polypropylene. Operating rates even with the expansions in North America and elsewhere will remain high and more expansions are very likely.

Polypropylene volumes are over 19.6 billion lbs. in North America and 130 billion lbs. worldwide. Polypropylene costs relative to other plastics in the same space are currently not cheap. Major markets include automotive applications, packaging, fibers, housewares and industrial applications. North America’s dependence on imports has grown due to costs driven by tight North American propylene. The table below shows global capacity and demand for

Company Location

Additional C3 Capacity


DateEnterprise Mount Belvieu,TX 1.7 2015Dow Freeport, TX 1.8 2015Ascend Alvin, TX 2.2 2017Formosa Point Comfort,TX 1.5 2017Dow Freeport, TX 1.8 2018Petrologistics Port Arthur, TX 1.7 ?Rextac LLC Odessa, TX 0.7 2016Williams Alberta, Canada 1.0 2017

Totals 12.4

Data from Plastics Technology Magazine, Nov. 2013 "The Boom in natural gas: What it

Means for Plastics Processors" and company websites.

Planned North American Propylene Expansions

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polypropylene. Operating rates are in the mid to low 80%, with the US being slightly higher

around 85+%. These relatively low rates do not lead to the type of expansions we see with

polyethylene, but as the PDH propylene plants come online, the North American producers will

be cost advantaged and that should reverse the trend of increasing imports and should lead to

additional capacity.

At the current time, the only announced North American polypropylene capacity

expansion is by Rextac, LLC in Odessa, TX of 600 million pounds that is scheduled to come on

stream in 2016. The company stated that the primary reason for doing this was the North

American feedstock advantage.

Engineering Plastics

Engineering plastics are specialty materials with one or more superior properties. There are

a couple of dozen of different families and they generally have higher costs and much lower volumes than commodity plastics. The process to make them can be a little more complex. They generally use natural gas as one or more of their feed stocks and because of a few special situations in the industry, there might be some opportunities here.

An interesting possibility is with Saudi Arabia Basic Industry Corporation (SABIC) They purchased General Electric Plastics Division which is a large worldwide supplier if engineering plastics. As discussed under ethylene, they are looking to North America to take advantage of feedstock supplies and have separately discussed expansion of the engineering resin capability. They are currently looking to expand their polycarbonate capacity (trade name LexanR). They also manufacture a number of other materials and a conversation with them would be worthwhile. Location of an engineering resin plant is not as transportation sensitive as commodity materials.

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Another possibility could be with a couple of acrylic suppliers. This is a growing market and should be ready for additional expansion. The major players are Arkema (trade name – PlexiglasR), Lucite International (trade name – LuciteR ) and Evonik (trade name – AcryliteR ).

Celanese makes acetal and polyesters. Both of these markets are growing and there could possibly be a fit with them.

Resources:

1. Shale Gas Market – Analysis of North American Region, June 2014, Plastics News Research report, Crain Communications, Inc.

2. ICIS Chemical Business Magazine, May 2014, digital edition page 17. 3. North American Polyethylene Update presentation, September 2013, Joel Morales,

Director of Polyolefins, IHS 4. Plastic News, April 2015, page 11”Exxon Mobil Focusing on New Grades of PE”. 5. North American Polyethylene Update presentation, September 2013, Joel Morales,

Director of Polyolefins, IHS

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November 5, 2014

Analysis of Plastics Industry Opportunities for the State of Wyoming

Introduction –

The State of Wyoming is fortunate in possessing abundant natural gas and petroleum reserves. These materials are the basic feed stocks for many plastic materials. Presently, these raw materials are extracted and generally sent out of the state for further processing and use. These downstream uses provide a high value-added contribution to the out-of-state processors and help support additional industries around them. The purpose of this study is to provide an overview of the North American plastics industry and to evaluate potential opportunities for growing this industry in the State of Wyoming and Converse County.


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Table of Contents Executive Summary …………………………………………………………….……….Page 3 Section 1 Overview of the Plastics Industry ……………………………….…………Page 4 Introduction to the Plastics Materials ………………………….……………..Page 4 The Plastics Industry …………….…………………………………….………Page 4 Plastic materials ………….……………………………………………….……Page 6 Polyethylene ……………………………….……………………….….Page 7 Polypropylene ………………………………………………….………Page 9 Polystyrene …………………………………………………………..…Page 10 Polyvinyl Chloride ………………………………………………..……..Page 11 Engineering Plastics …………………………………………….…….Page 13 Section 2 Manufacturing and the Plastics Industry in Wyoming …………..……….Page 15 Manufacturing in Wyoming …………………………………………………….Page 15 Local Plastics Manufacturers ……………………………………….. ………. Page 19 Section 3 Competitive Plastic Resin Manufacturing Plants …………………...……Page 21 Section 4 Vertical Integration Opportunities ………………………………………….Page 23 Section 5 Potential Partner Companies and Contact Information ………………….Page 26 Section 6 Alternative Methods to Capitalize on Oil and Gas Resources …………..Page 27 Section 7 Comments from Manufacturers and Interested Parties on Current or Proposed Expansion Plans. ……………………………………….Page 28 Aither Chemical ………………………………………………………………….Page 28 Badlands NGL, LLC ……………………………………………………………..Page 28 Dow Chemical ……………………………………………………………………Page 28

Exxon Mobil ………………………………………………………………………Page 29 Formosa Plastics …………………………………………………………...……Page 29 Odebrecht ……………………………………………………………...…………Page 29 Rextac LLC ……………………………………………………………………….Page 29 Shell ……………………………………………………………………………….Page 30 SPI (Society of the Plastics Industry) ………………………………………….Page 30

Appendices Appendix A PVC Feed Stocks and Production Methods by Geography …...Page 31 Appendix B North American Polyethylene Manufacturers ……………....…..Page 32 Appendix C North American PVC Manufacturers ……………………...…….Page 33 Appendix D North American Polypropylene Manufacturers …………………Page 34 Appendix E North American Polystyrene Manufacturers ………………...….Page 35 Appendix F Top 5 North American Ethylene Complexes ……………...…….Page36 Appendix G Contacts for Potential Vertical Integration Partners ……………Page 37 Appendix H Comparative tax Analysis ………………………………………Page 38

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Executive Summary The emergence of shale gas in North America has provided a source of low cost natural gas that has made North America a low cost producer and preferred location for the production of ethylene as well as many derivative chemicals and plastics. It is projected that North America will be a net exporter of several commodity plastics for the forseeable future. In the United States, ethylene and commodity plastics plants have been centered mainly in the gulf coast region, principally Texas and Louisiana but with abundant gas supplies being developed elsewhere, we are seeing plants in other areas including Pennsylvania, West Virginia, and North Dakota. Another trend we are seeing is that of investment groups putting together resources to build and run plastics resin plants in addition to the major chemical companies which have previously dominated the business. In looking at the resources and infrastructure in Converse County and the state of Wyoming, it will take a major effort to lure a company to site a major greenfield resin plant, but with the state’s abundant energy resources and other attributes which will be discussed below, I believe achieving this is possible and would be worth pursuing. However, there are a several of smaller scale upstream manufacturing possibilities such as ethylene that will be a lot easier to win and will strengthen the opportunities for a major resin plant in the future. Partnering with some of your existing midstream partners such as Chesapeake Energy and Access Midstream would be an effective way to pursue this. Winning the siting of a major plastics manufacturing facility is very competitive and to be successful you have to be very proactive. It would be highly unusual for a chemical company to make the initial contacts with a state. To get into consideration, it needs to be made known that there is interest in having such a plant and that you have distinct advantages to offer the prospective company. This will require a marketing effort and can be done in several ways such as by advertising at some industry trade shows, in facility siting publications such as “Area

Development” (www.areadevelopment.com ), as well as contacting prospective companies directly and providing them with information packets. The comparative tax analysis put together with the Wyoming Business Council and Applied Economics LLC (See Appendix H) is great information to get in front of people who are making siting decisions. Also, other information that will set the county and state apart such as quality of life, workforce availability, transportation (rail is a big plus for the state) and business climate can be very persuasive. Information about education such as the state university system and activities around STEM (science, technology, engineering and math) will be looked at. If this goes well, a company visit will follow where plant locations and available infrastructure will be evaluated. You need to sell your strengths such as energy and natural resource availability, but don’t neglect the softer things that affect quality of life issues. Often, in competing for a facility, several locations will offer similar packages to the prospective company and the final decision can be made on what would appear to be a relatively minor issue. Douglas is a charming town that if presented well could be the decider in a potential siting decision.

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Section 1 – Overview of the Plastics Industry Introduction to Plastics Materials Plastics are relatively new materials that have existed for less than 150 years but have grown rapidly as the material of choice for a wide variety of applications. In 1979, the global volume of plastics used surpassed that of steel. Plastics today are used in a myriad of applications that touch your life every day including construction, transportation, medical, electronics, industrial, recreation, and packaging applications. Plastics have grown rapidly because of a variety of unique properties such as very high strength to weight ratios, excellent electrical and thermal insulative properties, optical clarity and colorability, ease of processing into finished shapes and relatively low costs compared to competing materials. Plastic materials or polymers are composed of long molecules made up from smaller molecules called monomers that are joined together through a chemical bonding process called polymerization. These very large molecules are generally synthetically made. Feedstock sources for commercial plastic materials today are primarily natural gas and petroleum although there is a growing use of natural materials like soybeans, corn, wood fibers, and algae to produce new plastics called biopolymers. The properties of an individual plastic is determined by the chemical properties of the base molecule (the monomer) is made up of as well as the interactions of the individual polymer chains with each other. A common property of all plastics is that at some stage they are soft (plastic) and can be formed into a shape. The cost of a plastic material is determined by the cost of the feedstock(s) that are used to make it, the cost of the polymerization process, and the volume that is produced. The feedstock cost is determined by the current market value of a particular feedstock used and the cost to get it from its source to the point of use. The process cost is determined by the complexity of the equipment required, the complexity of the chemical reaction process, the cost of initiators or catalysts required, and the yield of the process. The volume produced will affect the process unit costs and can also affect the cost of the feed stocks. The Plastics Industry Plastics are a global industry. Major raw material and plastic resin producers exist in Europe, Asia, and the Americas. Plastic processors exist wherever a market emerges and favorable economics can be realized. The competitive landscape continues to develop and change with material and process technologies, economics, raw materials, legal and cultural changes. A relevant example of this is the North America going from a net importer to a net exporter of several major materials as abundant natural gas supplies have significantly changed the global economics for these materials. Let’s take a look at the basic industry supply chain. The chart below shows the basic flows from the acquisition of raw materials to the distribution and use of finished plastic products. The first box at the top of the chart shows the movement of the basic raw materials (the feed stocks) to the chemical processing plants to manufacture the building blocks of plastic materials

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required (the precursors) for the manufacture of a plastic. The primary feed stocks are natural gas and petroleum that are converted into the various chemical precursors that are required for the polymerization of plastic materials by cracking and other chemical processes. (We will discuss the specific precursors in the discussion on individual plastic materials a little later). These raw materials are moved mainly by pipe lines, rail or trucks to the chemical plants to make the precursors. These materials are then moved to the polymerization process (the second box), again by pipeline, rail, or truck. It is quite common, particularly with higher volume materials, for the plants that manufacture the precursors to be collocated or quite close to the polymerization plants. This reduces the transportation costs and also provides a just in time raw material supply. The plastic material leaves the reactor as a powder, granule, or liquid depending on the material and the polymerization process. The material will be moved to a bulk storage silo where it can be distributed to a bulk truck, rail car, or a packaging line where it will usually be put in 1000 lb. boxes, 2200 lb. super sacks (more common in Europe), or a 50 lb. bag. After the plastic resin is manufactured, it can go into the resin distribution system for direct sales to a customer (high volume) or a distribution company for smaller volumes. It also could be sent to a compounder who will modify the material by incorporating functional additives (heat or light stabilizers, fillers and reinforcements, processing aids ) or cosmetic additives (colorants, gloss agents) The next step would be for the materials to go to the processor to convert the material into a sellable plastic product. This can be an injection molder, an extruder, a blow molder, a rotational molder, or a number of other special processes. Also, the processor can be a captive processor, a department or division of a larger company that makes parts only for that company or a custom processor who would make parts for anyone. After this step, the products made can be distributed to a fabricator to perform additional operations, to a finishing or assembly operation, or directly to a user of end products.

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The plastics industry in the United States accounts for over 370 billion dollars in annual shipments and directly employs over 900,000 people making it the third largest US manufacturing industry.1 IHS, an industry research group, estimates that the development of shale gas will add another 15,000 jobs and an additional 1.3 billion dollars in value added for the plastics industry.

1) SPI “About Plastics” www.plastics industry.org 5/30/2014

Plastic Materials Plastic materials can be divided up into three basic groups, commodity thermoplastics, engineering thermoplastics and thermosetting plastics. A thermoplastic material is one which will soften when heat is applied and harden when cooled. The process can be repeated over and over. A thermosetting plastic will melt when heat is applied, but will undergo an additional chemical reaction causing chemical bonds or crosslinks to form between the molecules. This

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process is irreversible, and, once formed, thermoset parts cannot be reused or recycled. Examples of these types of materials are phenolic adhesives used in grinding wheels or plywood and melamines used in countertops (FormicaR). Thermoplastic materials are the ones that have the largest growth potential and are the ones we will focus on. High volume widely used thermoplastics are called “commodity thermoplastics”. These are widely available materials that are relatively low cost due to low cost monomers and are made by the addition polymerization process which lends itself well to large scale manufacturing. World-wide volumes of these materials are in the billions of pounds and are manufactured in world class manufacturing plants. There are no small or medium sized manufacturers of these materials. Engineering thermoplastics are materials that usually possess one or more superior properties such as temperature resistance or physical strength. They generally are made by a more complex chemical reaction with more expensive monomers. Several of these might be of interest. Before we look at the individual plastics, a brief discussion of chemical and polymer terminology might be helpful. Polymers or plastics are made up of long chains of molecules chemically bonded together. The smallest building block molecule for any polymer is called the monomer. We can represent a polymer with the general formula -(X)-n, where X would be the molecule or building block of the polymer (the monomer) and n would represent the average number of monomer units in a polymer chain. Looking at the general formula for polymers we discussed above, -(X)-n, where n is equal to the average number of repeating monomer units, n can be a very large number, in the thousands of units. A more detailed discussion of polymer chemistry will be provided in Appendix 1. Let’s take a look at the commodity plastics. There are four basic commodity plastics, polyethylene, polypropylene, polystyrene, and polyvinyl chloride. As mentioned above they are all made by addition polymerization, which is a very cost effective method of polymerization which lends readily to very large scale production. These materials can all be represented by the following chemical formula,

Where H is a hydrogen atom, C is a carbon atom. The “R” represents a variable atom or group of atoms which as you will see shortly, will give us a family of different materials. This is of interest to us because the molecule ethane CH4, which can be represented as shown below

is a component of natural gas which is a building block for all these materials.

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Polyethylene

First, we will discuss polyethylene. Polyethylene (PE) is the simplest of all polymers consisting only of hydrogen and carbon atoms. It is manufactured by the addition polymerization of ethylene (H2C=CH2) into the polymer

.

Polyethylenes have a waxy feel similar to paraffin wax, their shorter chain relatives. The basic polymer structure of PE is what determines its properties. The polymer is compact and tightly packed together making it insensitive to solvents and the similar electronegativity of the carbon and hydrogen result in low polarity, making it a very good electrical insulator.

There are 3 basic types of polyethylene. The first is called low density polyethylene (LDPE). It is produced by a High Temperature – High Pressure polymerization process (50,000 psi, 300oC) which yields a product with a specific gravity (density) 0.910-0.925 g/cc3, has good flexibility and toughness, and is easy to process. This was the original process for polyethylene and is found now only in older plants. It is used in many diverse applications including packaging film and bags, toys and squeeze bottles.

The second major type of polyethylene is called linear low density polyethylene (LLDPE). Technical advances in catalysts and reactor chemistry allowed producing a branched polyethylene product similar to low density polyethylene, but at much lower temperatures and pressures. For safety and cost reasons this is the process of choice and all new plants are built to this technology. The process yields a specific gravity (density) 0.918-0.940 g/cc3 and properties similar to LDPE but a little higher stiffness is possible. The applications are similar to LDPE, but the slightly better strength has made this the material of choice for trash bags.

The third major type is high density polyethylene (HDPE). Again, using ethylene as a feedstock, reacting with a Ziegler-Natta catalyst produces long unbranched chains at low temperatures and pressures yielding a denser product (specific gravity (density) 0.935-0.960 g/cc3 ) with improved stiffness and mechanical properties and excellent chemical and electrical resistance, It is used widely for water and gas pipe, storage containers, pallets, and trash bins. There also is a modified polyethylene materials of interest that should be mentioned briefly. Cross-linked polyethylene or PEX has found widespread use for water distribution in residential housing. This product is made by crosslinking regular polyethylene with an additional process. Polyethylene is the highest volume plastic used both in North America and worldwide. US demand in 2013 was over 38 billion pounds and global demand was over 179 billion pounds worldwide. The chart below shows how that is divided among the three major types of polyethylene.

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Polypropylene

Polypropylene is manufactured by the addition polymerization of propylene (CH2CHCH3). Propylene is a byproduct of the production of ethylene both from petroleum and from natural gas. The amount generated with natural gas is considerably less than that generated from petroleum and with the migration of ethylene production to lower cost natural gas, a shortage of propylene has developed. This has led to the need to make plants with the specific purpose of manufacturing propylene on purpose (POP plants). There are several routes to this but most producers are building propane dehydrogenation (PDH) plants. All commercial alternate routes use natural gas as a feedstock.

Polypropylene (PP) is structurally similar to PE with the exception of a methyl (CH3) group being substituted for one of the hydrogens. This larger side group provides some steric hindrance which gives the polymer higher heat resistance, toughness, and strength compared to PE. It is also stiffer and more abrasion resistant and slightly more expensive. It is used for battery cases, low cost gears and sliding components, dishwasher safe food containers (i.e. TupperwareR), toys and low cost furniture. Polypropylene volumes are over 16.5 billion lbs. in North America and 90 billion lbs. worldwide.

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Polystyrene Polystyrene is another addition polymerization product which is made from the monomer vinyl benzene. Vinyl benzene is made by chemically adding a benzene ring to ethylene. Again, the basic feedstock is natural gas. The polymer structure is shown below.

The very large aromatic ring pendant (the drawing is not to scale) prevents crystallization in the polymer and increases the tensile strength. This large pendent group prevents the chains from packing together and results in a polymer that is almost 100% amorphous and therefore quite transparent. In addition to the excellent clarity, the plastic is known for its tensile strength and resistance to water. It does have poor resistance to most solvents and although strong can be quite brittle. Polystyrene can be compounded together with a variety of additives to improve its impact strength as well as weatherability and flammability. It is also used to make several commercially important copolymers including ABS (acrylonitrile butadiene styrene). Polystyrene is used in applications such as packaging, cups, and appliances. We can make PS into a foam by using an inert gas. This material has a low thermal conductivity, high strength to weight ratio and will float which lends it to use as insulation, coffee cups, ice chests, and pool toys. ABS, because of its superior impact strength is used in appliance cases and covers, tool housings, telephones, helmets, and residential piping.

Polystyrene volumes are over 5.5 billion lbs. in North America and 23 billion lbs. worldwide. The chart below shows the major markets that polystyrene is used in.

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Polyvinyl Chloride

Polyvinyl Chloride is made by the addition polymerization of vinyl chloride (CH2CHCl) to produce an amorphous polymer as shown below:

This is a relatively simple structure, very similar to polyethylene, with the substitution of a chlorine atom for one of the hydrogen atoms. The presence of this chlorine atom is what gives PVC some of its unique properties, such as excellent flammability resistance.

One of the basic feed stocks for vinyl chloride again is natural gas. See Appendix A for a description of the different processes worldwide to make PVC and the feed stocks that are used.

Unmodified PVC (except for the additives to allow processing) is called rigid PVC or sometimes UPVC (unplasticized PVC). PVC can also be modified with a plasticizer to produce a flexible product called plasticized PVC or sometimes just vinyl. (A plasticizer is a material that will enter the polymer structure and cause some swelling and disentanglement of the molecules.)

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Rigid PVC is a very stiff and tough material that has excellent flame resistance (classified as self-extinguishing), excellent weatherability, and good chemical resistance to acids and bases. It is susceptible to solvents which do allow it to be easily solvent welded together. This is a real advantage in the joining together of pipe and fittings. Applications for rigid PVC include pipe, siding, window profiles, decking, bottles, gutters, fencing, and packaging.

Plasticized PVC is very flexible at room temperature. It has higher impact strength but lower tensile strength than rigid PVC. Flexible vinyls are processed similarly to rigid vinyls, but at lower temperatures. Flexible vinyls are used for bottles, floor mats, shrink wrap, medical and food storage bags and flexible tubing (TygonTM).

There are two other materials of commercial importance that are in the PVC family that I will discuss briefly. The first is chlorinated polyvinyl chloride (CPVC) which has two chlorine atoms, each attached to a different carbon atom. It is usually made by the post chlorination of PVC. This yields a 30% improvement in use temperature over rigid PVC as well as improved chemical resistance and flammability resistance. CPVC is widely used as residential hot water piping, chemical processing pipe and transportation applications.

The second is polyvinylidene chloride (PVDC). This material also has two chlorine atoms, but they both or on the same carbon atom, which yields very different properties from PVC or CPVC. PVDC is very tough and has excellent barrier properties. It is widely used as a shrink film and food wrap (Dow SaranR).

PVC volumes are over 15 billion lbs. in North America and 83 billion lbs. worldwide, making it the second largest volume plastic used today. The chart below shows the major markets that PVC is used in.

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Engineering Plastics Engineering plastics are materials with one or more superior properties. There are a couple of dozen of different families and they generally have higher costs and much lower volumes than commodity plastics. The process to make them can be a little more complex. In general, I believe the commodity plastics and their precursors would be a much better first step, but because many of the engineering plastics use natural gas as one or more of their feed stocks and because of a few special situations in the industry, we also will look at some possibilities with a few of these materials.

• Acrylics – PlexiglasR, LuciteR , AcryliteR

This material uses ethylene as a primary feedstock. There are three principal US producers, Arkema, DuPont and Evonik. At the moment there are not any expansion plans but they would be good candidates to keep in contact with.

• Polycarbonates – LexanR, MakrolonR The producer of LexanR (SABIC) is looking to expand their US capacity. They will be included in Appendix G in a list of potential contacts. Bayer Material Science LLC produces MakrolonR and does not have any immediate expansion plans.

• Acetals – DelrinR, CelconR The base material for this is a byproduct of ethylene cracking. They are manufactured by DuPont and Celanese respectively.

In the attached appendices are several tables of North American resin producers, there locations and capacities as well as some information on ethylene production.

Appendix B North American Polyethylene Manufacturers

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Appendix C North American PVC Manufacturers Appendix D North American Polypropylene Manufacturers Appendix E North American Polystyrene Manufacturers Appendix F Top 5 North American Ethylene Complexes

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Section 2 - Manufacturing and the Plastics Industry in Wyoming Manufacturing in Wyoming Manufacturing in Wyoming accounts for 5.9% of the total output in the state, employing 3.6% of the workforce. The US average is 12.5% of GDP. Total manufacturing output in 2012 was $2.3 billion dollars. Manufacturing compensation averages more than $27,000 higher than other non-farm employees in the state. Table 2-1 below details some overall manufacturing statistics for the state.

The manufacturing growth trend has been growing steadily in the state since the mid 1990’s with the exception of the 2008-9 recession, but the rate has slowed a little the past several years. Table 2-2 shows the growth in manufacturing output since 1997.

Table 2-1 Wyoming Manufacturing Data*

2012 Wyoming Total Manufacturing Output $2.3 billlion2012 Manufacturing Share to Total Gross State Product 5.9%2012 Manufacturing Establishments in Wyoming 6112011 Manufacturing Share of State's Exports 89%2011 Manufacturing Employment 10,9222011 Mfg. Employment as % of Overall Non-Farm Employment 3.6%2011 Average Annual Compensation in manufacturing $66,578

* Source - National Association Of Manufacturers

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In 2012, manufacturing exports supported 10.3% of Wyoming’s manufacturing jobs (US average is 21.9%). $595 million of Wyoming manufacturing exports (46.1%) went to US Fair Trade Agreement Partners (FTA). Manufacturing accounts for a relatively small share of the total Wyoming employment compared with many other states. Table 2-3 shows a chart of % manufacturing employment by county across the US. Wyoming is one of four states (also Montana, Arizona, and Hawaii) that do not have any county with 10% or greater employment driven by manufacturing.

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Table 2-3

Similarly, table 2-4 shows a chart of share of earnings due to manufacturing by county across the US. Crook and Washakie County derive between 10-20% of earnings from manufacturing and the rest of the state less than 10%. Montana and Hawaii is one of four states that do not have any county with 10% or greater employment driven by manufacturing.

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Table 2-4

Manufacturing is currently not a major driver in the state economy. Not surprisingly, the majority of the manufacturing that does exist revolves around the coal, petroleum and gas industries. Table 2-5 shows the top ten manufacturing sectors in the state. The largest sector by far is petroleum and coal products which accounts for 51% of manufactured products in the state. Chemicals is the next largest sector at 20.3% Plastics and Rubber Products make up 1.3% and that comes from only about a dozen companies.

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Local Plastics Manufacturers Plastics currently are not a significant market sector in the state. All of the current plastics manufacturing base is either injection molders or fabricators. There currently is none manufacturing plastic raw materials or compounding plastics materials. Below is a list of the principal plastic manufacturing companies in the state. Allsop, Laramie, WY, Inc. BRTech Racing, Evanston, WY Custom Fiberglass, Inc. Casper, WY Duraline (Polypipe), Evansville, WY Purchased by Mexichem, Aug. 2014 Industrial Screen and Maintenance, Casper, WY Legacy Molding, Riverton, WY SGL Carbon Fibers LLC Evanston, WY WL Plastics, Mills, WY Y-Tex Corp, Cody, WY

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There are also a few small sign companies where a small part of their business is plastics fabrication. An interesting note is that Laramie, Wyoming is the home of IDES Corp. which is a major plastics and materials database company that is a widely used national resource. They also do some software development. A few of the companies are very interesting. Legacy Molding has found a way to be very successful in the competitive custom injection molding business. They do significant business outside the state. Y-Tex has found a solid niche market with some unique proprietary products. SGL carbon Fibers is involved in producing high tech plastic/carbon fiber composites. Custom Fiberglass, Inc. also supplies plastic composites. There is not a lot of infrastructure in place to support these businesses such as plastic resin wholesalers or compounders, tool and die shops, and trucking companies geared to regional shipping. This needs to be kept in mind as we explore future opportunities. Also, in discussions with several of these suppliers, they all indicated that labor supply can be difficult. Because there is not a large community of manufacturers, the companies will have to have a strategy to provide any specialized training that is required. From a technical/professional perspective there is a local chapter of the American Chemical Society in Laramie, reflective of the amount of chemical manufacturing. There are no chapters of the Society of Plastics Engineers or Society of Manufacturing Engineers within the state. Table 2-6 gives a relative index of the size of plastics manufacturing in the neighboring states based on sales dollars. All have a larger presence of plastics manufacturing with Colorado, Nebraska, and Utah having more than 10 times the size.

The presence of these larger manufacturers around the southern half of Wyoming could provide some of the services that manufacturers might require. References: National Association of Manufacturers http://www.nam.org Society of Plastics Engineers (SPE) Society of the Plastics Industry (SPI) Society of Manufacturing Engineers (SME) US Bureau of Economic Analysis US Census Bureau

Table 2-6Relative Size of Plastics Mfg Business By State

Wyoming 1.0Utah 13.8Idaho 4.8Montana 1.3South Dakota 3.4Nebraska 14.3Colorado 15.7

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Section 3 Competitive Plastic Resin Manufacturing Plants Due to the available feed stocks and the current plastics industry market situation, the most logical plastics resin manufacturing plants for Wyoming would be, in the following order, polyethylene, polypropylene and polyvinyl chloride. Polyethylene capacity recently added includes a 91million lb. plant expansion by Equistar in Bay City, Texas and a 900 million lb. expansion added by Nova Chemical in Alberta, Canada. Planned green field new capacities include a 3 billion lb. plant by Shell in Pennsylvania and a 3.3 Billion lb. plant in North Dakota by Badlands NGL, LLC. Polypropylene capacity has been limited to expansions of existing capacity including a 300 million lb. expansion by Rextac in Odessa, Texas. Also there are a number of planned expansions of on purpose propylene capacity to address a marked shortage of this monomer using PDH (propane dehydrogenation) technology. Recent PVC plant activity in North America has involved capacity additions to existing plants including a 180 million to expansion by Mexichem and a 180 million lb. expansion by Westlake. The last major new facility was a 1 billion+ lb. plant by Shintech in Texas in 2008. Table 3-1 below shows the amount of natural gas withdrawn annually from the state of Wyoming. Forecasts have this volume continuing to grow over the next 10 years.

If the annual rate of over 2 trillion cubic feet were all converted to polyethylene it would equate to over 90 billion lbs. of polyethylene. A world class scale polyethylene facility would be in the 1 to 3 billion pound range. With the abundant natural gas feedstock, a plant of this scale could easily be accommodated. The smallest plant that I believe would be practically entertained would be in the 250-300 million pound range. Being a green field development with little existing supporting infrastructure, a resin manufacturer would be more likely to consider a larger plant, in the billion pound range.

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A 250 million pound plant would need about 200-250 acres of land, consume 258,750,000 pounds of ethylene and use 71,250,000KWH of electricity. Capital costs would be in the $400 million range. Working with the Wyoming Business Council and Applied Economics LLC an economic model of this plant was developed and is attached as Appendix H. There would be some economies with a larger 1 billion pound plant requiring around 300 acres and having a capital cost in the range $1.4 billion. Polypropylene plants would be similar, but would also require a propylene monomer manufacturing capability. The competitive scale would be smaller than required for polyethylene. A PVC plant would be of a similar scale to polyethylene but would require more energy due to the requirement to make chlorine and would also have a higher capital cost. Low cost natural gas and electricity is a distinct advantage here. A billion pound PVC plant would cost about $2.5 billion. There are several other important considerations for siting a resin plant in Wyoming and Converse County. Feedstock availability is an obvious advantage. Site availability is always a primary concern and there appears to be a number of good possibilities in the county to choose from, such as the area around the Enserco site rail spur, so this should not be an issue. Transportation to move the volume of product is critical. Rail service appears to be a real advantage and access to this capacity would be a major part of the siting decision. Access to roads and highways could be a concern. As we did the plant analysis, the amount of available electricity became a concern. For a major plant, some addition to the electrical infrastructure would be required. Lastly, we need to look at the human resources available. A large scale resin plant would employ 150-300 people. With the mining and chemical industry already present in the state, the required skills are present, but with the low unemployment, the quantity might be lacking. A company could easily supplement the local supply by bring resources from other locations if necessary, but that would require some additional housing for these people. Plant construction would have an additional short term requirement of at least 200-300 construction workers for 1 to 2 years.

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Section 4 Vertical Integration Opportunities While the siting of a large greenfield plastic resin plant in Wyoming would provide a large economic and employment benefit to the state, there are many other vertical integration opportunities for the state’s resources that can also provide significant benefits and because of the number of possibilities and generally smaller scale of investment have a higher probability of being realized in the short term. Looking as the diagram of the plastics industry in section 1, everything starts with the acquisition and manufacturing of the feed stocks required to produce the plastics resins. By far the largest feedstock is ethylene, which is the basic building block for all high volume commodity plastics and many of the engineering plastics. It is also the building block for a vast range of industrial chemicals. Ethylene is made from ethane which is sourced principally from either crude oil or natural gas, but the most economical route is from natural gas. As discussed earlier, the plentiful supply and low cost of this feedstock has led to significant investments in the US for ethylene and materials produced from it. Ethylene is generally produced by the steam cracking of ethane. Cracking is a chemical process in which gaseous and/or liquid feed stocks are converted, primarily into ethylene. A cracker is made up of 3 main components are the furnaces, compressors, and distillation columns. Ethane and propane feed stocks enter the furnace tubes where they are exposed to heat. The furnaces heat or crack the feed stocks at extremely high temperatures (approx. 15000F.) The reaction is very fast. This results in high gas velocities. The larger feedstock molecules are broken up into smaller molecules, including ethylene, propane, and other short chain hydrocarbons mixed together. These substances must now be separated. The mixture of gases is moved through a series of distillation columns by compressors driven by steam. The distillation columns are large structures that can reach 200 feet high. The distillation columns are made up of as many as 200 trays or pans which distill or separate the gases. Once distilled, large quantities of co-products such as ethylene, propane and fuel gases are produced. Once it leaves the columns, the materials are ready to be used to make other products such as polyethylene, polypropylene, LNG, ethylene oxide, or a wide variety of other organic chemicals. Once produced, the ethylene can be moved by pipeline to other downstream manufacturing processes. Because of the wide variety of end uses, the manufacture of ethylene can be the entry point for a number of further integration opportunities. For example, a polyethylene plant would make its ethylene on site or use locally sourced material. Ethylene crackers can range from a relatively small size to very large scale production. . Nova Chemical currently has the largest ethylene complex in North America in Joffre, Alberta at 2.8 million tons, but this could soon be surpassed by several current expansion projects. Appendix F lists the five largest ethylene producing complexes in North America. Currently, there are reported ethylene plants on the board ranging from 100,000 tons to 1.600,000 tons. Other plants smaller than these are being built, but are not widely reported. Chesapeake Energy at the Jackalope Gas Gathering facility is already cracking ethane and is sending the products via pipeline out of state. They did not disclose the size of the facility These facilities generally produce a range of products including ethylene, propylene, butane and possibly some higher fractions. This complicates plant construction cost estimates as it is difficult to assign a part of the investment to a particular product. That being said, if an ethylene

pg. 24

cracker to support the 250 million pound polyethylene plant we used in the economic study was built, it would need to produce 130,000 tons of ethylene and would cost somewhere between $150-$200 million. Ethylene is manufactured by large companies for their own use, usually on a very large scale, but also others for resale such as the Jackalope facility. Developing facilities like this through midstream partners like Chesapeake Energy might be the easiest route to finding additional investment in the state. Another feedstock that is currently getting a lot of attention and would be of interest is propylene. Propylene is used in the making of the plastic polypropylene (over 60% of propylene use) and other chemicals. Propylene comes from both from the cracking of crude oil and natural gas. The process provides a much lower amount of propylene using natural gas and as North America is moving more towards natural gas for economic reasons, propylene has become in short supply. This has caused a rise in plants that manufacture propylene on purpose (as opposed to getting it as a cracking by-product). There are several competing technologies to do this but the most common is the propane dehydrogenation process (PDP). The process is relatively straightforward. Propane is taken from the cracking stream and passed over a heated catalyst that strips away hydrogen, leaving double bonded propylene. There currently are at least 6 PDH facilities under construction including a Dow Chemical 825,000 ton plant in Freeport Texas and a Formosa Plastics 660,000 ton plant in Point Comfort, Texas. A plant would be constructed as part of or an add-on to a cracking facility. The cost of this facility is relatively inexpensive. A 250,000 ton facility could be built for approximately $250 million. Potential companies would be those that supply propylene to others such as Koch Industries or a polypropylene producer who would send propylene to an existing facility or would co-locate a polypropylene facility. Another opportunity to consider is liquefied natural gas or LNG. Natural gas is a major source of energy, but many locations that need the energy are located far from the gas fields. Transporting gas by pipeline can be costly and impractical. Asia and Europe both want access to the cheap North American natural gas and are looking at LNG as a way to do it. LNG is liquefied natural gas, a clear, colorless, non-toxic liquid that forms when natural gas is cooled to -162ºC (-260ºF). This shrinks the volume of the gas 600 times, making it easier to store and ship overseas. When LNG reached its destination it is run through a regasification facility and piped to industrial customers or homes. US production has been slowed by regulation but a number of facilities have been given the go-ahead. The plants are expensive and can cost several billion dollars and up depending on scale. The largest producer globally currently is the country of Qatar. Shell, Chevron and Conoco Phillips are big North American Players. The basic materials ethylene and propylene are the precursors for a wide variety of organic chemicals such as ethylene oxide, ethylene glycol, cumene, and propylene oxide used in a myriad of other applications. Having these materials produced in Wyoming make it an attractive location for the production of any of these downstream materials. As we move down the supply chain from the ethylene feed stocks to the plastic resins, the next manufacturing step would be the compounders and the processors. For a compounder to locate a facility, they would want to have a local resin supplier to provide his base materials. Once a resin supplier was in place, he would be the most likely to establish his own compounder as part of his own facility. If not, a number of compounding companies such as

pg. 25

PolyOne or Washington Penn could be approached. A compounding facility would be a relatively small investment, in the range of 20 to 30 million dollars. For processors to locate a facility, their primary drivers would be proximity to a market, energy costs, and a supply of plastic material. It is important to keep in mind that it is generally more economical for a manufacturer to ship in plastic material than it is to ship out finished product. Therefore, for a large, heavy product, most of the product that would be manufactured would ideally be sold within several hundred miles of the plant. For smaller, engineered specialty parts, such as what Legacy Molding produces, shipping becomes less of an issue. The most attractive markets would generally to be for materials that would be used locally or regionally to service the oil, gas and mining industry. I believe that if there was a polyethylene plant to supply raw material, the existing plastic pipe companies would be able to expand production to service Wyoming, Colorado, the Dakotas, and Nebraska. A new plastic piping facility could be established for 15 to 20 million dollars and would provide 20 to 40 jobs. A plastic fitting fabricator similar to GPK in Fargo, ND or NACO in Logan, UT, would also be a good fit. A plant like this can be established for about 10 million dollars and would employ from 10 to as many as 50 people. Other candidate processors that would potentially be interested if local plastic resin was available would be extruders and injection molders for producing packaging materials and agricultural sheet and film.

.

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Section 5 Potential Partner Companies and Contact Information Appendix G gives a list of potential companies to be approached for vertical integration opportunities along with possible contact names and telephone numbers

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Section 6 Alternative Methods to Capitalize on Oil and Gas Resources The intent of this section is to look at what other possibilities might exist for Wyoming and Converse County to capitalize on its oil and gas resources besides a plastics resin manufacturing facility. We have already discussed some other vertical integration possibilities including upstream basic feedstock production and downstream processors. We now will discuss some other innovative and creative ways that can be used to leverage the available resources. Ethylene, produced by cracking natural gas, is itself one of the largest volume chemicals produced in the world. In addition to being the starting monomer for many plastic resins, it is also used in agriculture to force the ripening of fruit and to improve the growth rate of fruits and vegetables, used in the manufacture of welding gases, used in pharmaceutical manufacturing and many other markets. Ethylene capacity by itself can be marketed to a number of different industries. We have touched a little already on the refining of intermediates. This would involve using natural gas to make chemicals that would be further processed either on site or at a remote location into other materials. An example of this would be taking the ethylene from a cracker and using it to manufacture ethylene oxide. This material would be used in a number of applications including manufacture of refrigerants, PET plastic resin, and the sterilization of medical supplies. It would be worthwhile to canvas existing chemical manufacturers within the state to see what basic raw materials they are currently using. Another avenue that would be worth pursuing would be the possibility of a trading supply arrangement. This is something that could be used to help attract a processor to locate in the state. How this would work is that ethylene would be furnished to an out of state resin producer in trade for plastic material to be delivered to the state at a favorable price. The resin company would benefit from a cheap supply of ethylene and competitive resin in the state would allow a volume producer of a product like plastic pipe to be able to produce locally. Because of the high demands for products from cheap US natural gas, a very recent trend has been for investment firms to put together a consortium of technical and market resources to produce and sell ethylene, ethylene derivative, and polyethylene from smaller scale but efficient plants. These firms are not tied to the gulf infrastructure as many of the existing major chemical companies are and are more willing to consider non-traditional sites. An example of this type of arrangement is Aither Chemical who is currently active in West Virginia and is on our potential contact list. Lastly there might be some opportunity in partnering with some regional refiners such as Tesoro. They produce intermediate chemicals and petroleum, but are more active with petroleum resources than natural gas.

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Section 7 Comments from Manufacturers and Interested Parties on Current or Proposed Expansion Plans. Aither Chemical Aither chemical is an investment group that is planning to build and run a facility in West Virginia to produce ethylene, other derivatives, and polyethylene. Aither CEO Leonard Dolhert, commenting on the interest in materials planned to be produced in Aither’s West Virginia Plant, quoted on the company website. “I am very pleased with the market response, which shows strong interest in the products that can be made using Aither’s catalytic ethane cracking technology. Aither has the ideal process to build an ethane cracker in the Kanawha Valley, and elsewhere in the world where ethane is available.” Badlands NGL LLC Badlands NGL LLC is a private equity firm that has recently announced plans to build a 4 billion dollar petrochemical complex in North Dakota. A proposed $4 billion polyethylene manufacturing facility in North Dakota would be "the largest private investment" in the history of the state, according to North Dakota Gov. Jack Dalrymple. “Value-added is a term we feel we almost invented here in North Dakota in terms of agriculture,” Dalrymple said. “Today we are working on the same kind of strategy for our energy resources.” With the majority of manufacturing facilities in the United States for converting natural gas liquids located in the Gulf Coast region, company CEO Bill Gilliam was questioned on the need for such a plant in North Dakota. “Why North Dakota? There’s lots of ethane in the U.S. and there’s lots of ethane in North Dakota,” Gilliam said. (reported by Nick Smith in the Bismarck Tribune) Dow Chemical Leading PE maker Dow Chemical by itself is adding more than 3 billion pounds of capacity for PE and related products on the U.S. Gulf Coast. Dow commercial vice president Greg Jozwiak said at a conference in November 2013 “that shale gas expansion will lead to new growth in reshoring, materials, processing and finished goods exports.” He cited industry projections that show the shale movement is expected to create 55,000 resin production jobs and 10,000 plastics manufacturing jobs, as well as 485,000 temporary construction jobs. Jim Fitterling, executive vice president for Dow in a company news release commenting on expansions in Freeport TX and Plaquemine, LA. “Dow Performance Plastics is the world’s leading plastics franchise and with these expansions Dow will be able to further leverage our cost-advantaged position and R&D expertise to deliver leading edge technology that provides a competitive benefit to our customers in many of our most strategic markets,”. “Our history on the U.S. Gulf Coast reaches back more than 70 years, and we’re proud to continue our commitment

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to this important region with these strategic and accretive investments." He also added “The investment surge could be much bigger than we expected it to be,” . Exxon Mobil Exxon is a large producer of ethylene and polyethylene with several large expansions in the works. Steven Pryor-President commenting in a Plastics News report on Shale Gas “After three decades, the U.S. is back in the game as a low-cost producer,” he added. “We have the opportunity to add high-paying jobs in chemicals and manufacturing. We’re seeing the recapitalization of the U.S. chemical industry.” Pryor also repeated ExxonMobil’s support of potential exports of liquefied natural gas (LNG) from the region. This topic has divided some in the industry, but Pryor said that “it’s very “it’s very simple – LNG is good for chemicals.” Formosa Plastics Formosa Plastics Corp. USA in 2012 to announced plans for a $1.7 billion expansion of its plastics and petrochemicals site in Point Comfort, Texas in 2012. Formosa officials said that the expansion will include a new low density polyethylene plant with annual capacity of about 660 million pounds. The expansion also will include a 1.8 billion-pound capacity olefins cracker and a 1.3 billion-pound capacity propane dehydrogenation unit. “We’re just like everyone else in the way that natural gas is affecting us,” Formosa spokesman Steve Rice told Plastics News. “We’re now comfortable not only with supply [of natural gas] but of its endurance and we’re anticipating prices that will be economical.” “This will be our third major expansion at the Point Comfort site,” Executive Vice President C.L. Tseng said. “It sends a clear signal of our dedication to substantial investment and job creation in the U.S.” Odebrecht Brazilian chemical company Odebrecht is planning to explore the development of a new petrochemical complex in Wood County, W.Va. The "Ascent -- Appalachian Shale Cracker Enterprise" complex would include an ethane cracker, three polyethylene plants and associated infrastructure for water treatment and energy co-generation. “Although we realize much work remains to be done, this announcement of a potential project is tremendous news for our state and our region. I appreciate the hard work of my team from the Development Office and the Ascent team members who have come together to explore this investment. I look forward to working closely with them to help bring the project to fruition,” West Virginia Gov. Earl Ray Tomblin said. (Quoted in Processing Magazine, Nov 15, 2013 Rextac LLC Shale gas was cited as a reason in Rextac LLC’s recent decision to re-open a dormant PP resin line in Odessa, Texas, and to build a new PP line there as well. Privately owned Rextac is expected to spend about $700million on the projects, which will create 155 permanent jobs and numerous temporary construction jobs. Commercial production is set to begin in the third quarter of 2016. President Nick Fowler said. “We’re doing this because of the North American feedstock advantage.”

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Shell Shell has announced intent to make a major investment in Pennsylvania to produce ethylene and polyethylene taking advantage of the Marcellus shale play. More than 1,000 people attended a pair of public meetings hosted by Shell Chemical LP in April 2014 to discuss the possibility of building a major petrochemicals plant in the Pittsburgh area, but a final decision on the project could still be a year or two away, a company official said at the first meeting. “We’re just really glad to see that there’s so much excitement and enthusiasm,” new business development general manager Dan Carlson said in a story from the Associated Press. “I think people recognize the impact the project could have.” In February 2014, Shell spokeswoman Kimberly Windon said that the firm “continues to consider the possibility of building a petrochemical facility in western Pennsylvania.” “There are many hurdles to clear before we can even make an investment decision to build the proposed petrochemical complex,” she added. “We need to confirm the suitability of the site, secure ethane feedstock supply, complete the engineering and design work, confirm the support of customers for our products, receive all the necessary permits and confirm that the project is economically robust and competitive.” SPI (Society of the Plastics Industry) SPI President and CEO William Carteaux commenting in a news release on a shale gas study by IHS “the study shows how shale energy development is creating a global competitive advantage for U.S. plastics manufacturers by bringing energy and feedstock prices down… particularly when you consider that most resins in the U.S. are produced rom natural gas, while those in Europe and Asia are made from oil-based feedstocks.”

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Appendix A PVC Feed Stocks and Production Methods by Geography

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Appendix B North American Polyethylene Manufacturers

Company PlantEstimated

Capacity

BP Solvay Cedar Bayou, TX 700M

Deer Park, TX 300M

Total Total 1.0B Lbs

Chevron Phillips Baytown, TX 3.5B Lbs

Pasadena, TX 1.5B Lbs

Total 5.0B Lbs

Dow Chemical Freeport, TX

LaPorte, TX

Seadrift, TX

St. Charles, LA

Fort Saskatchewan, Can. 1.9B Lbs

Total 8.0B Lbs

Exxon Mobil Mt Belvieu, TX

Beaumont, TX

Baton Rouge, LA 450M Lbs

Sarnia, Ontario

Total 4.75B lbs

Equistar(Lyondell Basell) Clinton, IA

Chocolate Bayou, TX

Matagorda, TX 5.4B Lbs

Victoria, TX

Mansfield, TX

La Porte, TX

Morris, IL

Total 7.5B Lbs

Formosa Point Comfort, TX 1.0B Lbs

Ineos Chocolate Bayou, TX 2.0B

La Porte, Tx 1.75B

Total 3.75B Lbs

Nova Monaca, PA 250M

St Clair River , Ont 450M

Joffre, Alberta 2.0 B

Corunna, Ont. 395 mil

Mooretown, Ontario 840 mil

Total 3.94B

Shell f PE since 2005, Building PA Plant

Sasol Lake Charles, LA Plant being built

Total Petrochemicals Pasadena, TX 900 mil

Westlake Lake Charles, LA 500M

Longview, TX 500M

Total 1.0B Lbs

Grand Total 36.8B

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Appendix C North American PVC Manufacturers


Capacity

Axial Corp (Georgia Gulf) Oklahoma City, OK 700M Lbs

Plaquemine, LA 1.2B Lbs

Aberdine, MI 1.0B Lbs

Total 2.9B Lbs

Shintech Plaquemine, LA 2.1B LBS

Addis, LA 500M Lbs

Freeport, TX 3.2B Lbs

Total 5.8B Lbs

Oxy Vinyls Avon Lake, OH

Deer Park, TX

Pasadena, TX

Pedricktown, NJ

Niagara Falls, Ont

Total 3.7B Lbs


Baton Rouge, LA 400M Lbs

Delaware City, NJ 250M Lbs

Illiopolis, IL 250M Lbs

Total 2.5B Lbs

Westlake Calvert City, KY 1.05 B Lbs

Geismar, LA 575M Lbs

Total 1.65B Lbs

Grand Total 16.5B

pg. 34

Appendix D North American Polypropylene Manufacturers


Capacity

Braskem La Porte, TX 0.85B Lbs

Braskem Freeport, TX 0.7B Lbs

Braskem Seadrift, TX 0.4B Lbs

Braskem Marcus Hook, PA 0.77B

Braskem Kenova, WV 0.5B Lbs

Equistar(Lyondall Basell) Lake Charles, LA 2.3B Lbs

Exxon Mobil Baytown, TX

Baton Rouge, LA

Total 3.2B Lbs


Ineos Chocolate Bayou, TX

La Porte, Tx 0.32B Lbs

Carson, CA 0.5B Lbs

Total 1.5B Lbs

Rextac Odessa, TX 0.3B Lbs

Total Petrochemicals La Porte, TX 2.7B Lbs

Williams Olefins Geismar, LA 90M lbs

Grand Total 16.4B Lbs

pg. 35

Appendix E North American Polystyrene Manufacturers

Company Plant Estimated Capacity

AmSty (Styron/CP JV) Torrance, CA

Gales Ferry, CT

Ironton, Il

St James, LA

Marietta, OH

Total 750M Lbs

Chevron Phillips Pasadena, TX

Torrance, CA

Allyns Point, CT

Joliet, IL

Marietta, OH

Total 900M Lbs

Firestone Lake Charles, LA 100M Lbs

Nova Chemicals Joliet, IL 880M

Monaca, PA 250M

Painesville, OH 100M

Total 1.23B Lbs

Total Petrochemicals Carville, LA 1.45B Lbs

Trinseo (Styron LLC) (Dow) Midland, MI

Allyns Point, CN

Dalton, GA

Lake Charles, LA

Total 1.3B Lbs

Westlake Channel View, TX 400M Lbs

Grand Total 6.08B Lbs

pg. 36

Appendix F Top 5 North American Ethylene Complexes

Company Location C2 capacity

Nova Chemical Joffre, Alberta 2.8M tons

ExxonMobil Baytown, Texas 2..2M tons

Chevron Phillips Sweeny, Texas 1.87 tons

IneousChocolate

Bayou, Texas1.75M tons

Equistar

Chemicals

Channelview,

Texas1.75M tons

pg. 37

Appendix G

Company Materials Contact Title Telephone No

Steven Cohen Marketing Director 614‐336‐7956

Steven J Adelkoff Communications Manager 412‐567‐1499

Arkema Acrylics, PVDF, Intermediate ChemicalsDavid Seiler Business Development Manager 215‐419‐7396

Badlands NGL LLC Polyethylene, Intermediate Chemicals William Gilliam President, Executive Director 415‐456‐1001

Raja Zeidan Business President, feedstocks 989‐636‐1000

Carl Baker Technical Manager 979‐238‐7850

William G. Lutz Development Leader 989‐636‐3132

Exxon Mobil PE, PP, Intermediate chemicals Stephen Pryor President 972‐444‐1000

Jay SuVice President/Planning & OPS

Vinyl Div.361‐987‐7105

Ken Mounger Vice President, Polyolefins Division 973‐992‐2090

Lubrizol CPVC, PE, Intermediate chemicals Gary Johnson Global Business Development Mana757‐331‐0240

Kaneka North America LLCPolyolefins, Chlor Alkali, Intermendiate Eddie Smith Vice President 704‐578‐7217

Nova Chemical PE, PP, Intermediate chemicals Chris Bezaire SVP, Polyethylene Business 403‐750‐3600

Hank Giovannelli national Sales Manager 800‐699‐4665

B.J. Hebert Vice President ‐ Vinyls 972‐404‐3800

Don CarlsonGeneral manager Business

Development 713‐241‐6161

Mark DeGuerre Pipe Resin End‐User Manager 713‐241‐6991

Shintech PVC, Intermediate Chemicals Sylvia Moore Technical Manager North America 330‐618‐8666

Greg Goff President and CEO 210‐626‐6000

Cynthia

(CJ) Warner

Executive Vice President, Strategy

and Business Development 210‐626‐6000

Aither Chemical Polyethylene, Intermediate Chemicals

Appendix G Contacts for Potential Vertical Integration Partners

Oxyvinyls PVC, Intermediate Chemicals

Formosa PVC, PE, Intermediate Chemicals

Dow Chemical Polyethylene, Intermediate Chemicals

Tesoro Intermediate chemicals, gasoline

Shell Polyethylene, Intermediate Chemicals

pg. 38

Appendix H Comparative Tax Analysis

COMPARATIVE TAX AND INCENTIVE ANALYSIS FOR A POLYETHYLENE MANUFACTURING FACILITY

PREPARED BY:

APPLIED ECONOMICS LLC 11209 N. TATUM BOULEVARD, SUITE 225

PHOENIX, AZ 85028

AUGUST 2014

pg. 39

1.0 INTRODUCTION

This analysis details comparative tax and utility costs for a polyethylene manufacturing facility in nine competitive locations throughout the United States. The analysis highlights Converse County, WY and representative locations in other states including: Ames, IA; Scottsbluff, NE; Beaver County, PA; Rapid City, SD; Billings, MT; Logan, UT; Fort Collins, CO and Pocatello, ID. The objective is to illustrate the relative competitiveness of Wyoming as a location for this type of facility. Applied Economics was retained by the Wyoming Business Council to provide an independent

third party analysis of comparative costs. The purpose of this analysis is to compare taxes as

well as possible incentives and utility costs in each location.

1.1 Project Description The analysis shown here is for a single year. Most of the sales taxes associated with manufacturing projects occur in the construction phase. Property taxes and utility franchise taxes represent on‐going annual costs. The pro‐forma company is a 250 million pound polyethylene plant. This size of plant would

consume 258.75 million pounds of ethylene per year. It would require a capital investment of

$400 million, of which $315 million would be for equipment and $85 million would be for

facilities (Figure 1). It is assumed that construction materials would make up 41 percent of the

cost of construction. The plant would be a large utility user with estimated usage of 47,349

megawatts per year at an 85 percent load factor.

Based on the project information shown in Figure 1, this analysis estimates major taxes and

incentives in each of the alternative locations. The analysis does not include an assessment of

every tax, fee or charge that would be levied in each jurisdiction. Rather, it focuses on the

major sources of public revenue for each of the alternative sites. Included are sales taxes,

property taxes, utility costs and utility franchise taxes. The public revenue sources shown here

Capital ExpendituresManufacturing Equipment $315,000,000

FacilitiesConstruction Costs $85,000,000 Estimated Value of Materials $35,000,000

Utilities

Annual MWh electricity usage (85% load factor) 47,349

FIGURE 1BASIC ASSUMPTIONS

250 MILLION POUND POLYETHYLENE FACILITY

pg. 40

not only make up the majority of the project’s non‐federal tax liability, they also account for

most of the available tax abatement programs, except for those programs related to corporate

income taxes and training reimbursements.

pg. 41

2.0 EXECUTIVE SUMMARY

This analysis details comparative tax and utility costs for a polyethylene manufacturer in Converse County Wyoming and eight alternative locations. The results are summarized below.

Converse County ranks first in terms of cost competitiveness at $8.2 million in the first year

and $6.1 million in subsequent years based on taxes and utility costs without incentives (Figure 2). This compares to $10.8 million in the first year and $8.5 million in subsequent years in Logan, Utah which is the next lowest cost location. These cost figures include sales, property and utility franchise taxes as well as annual electric utility costs.

One of the most significant differences between locations is in sales taxes. States like Wyoming that offer an exemption for manufacturing equipment have significantly lower sales taxes in the first year. Wyoming also exempts electricity used in manufacturing which means there would be no on‐going sales tax liability for the company.

Property taxes vary significantly based on the taxability of personal property, which for this type of company is significantly larger than the value of real property. Iowa, Pennsylvania and South Dakota do not tax personal property. While Wyoming does tax personal property, the effective tax rate is much lower than the other locations.

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

$45,000,000

FIGURE 2ANNUAL TAXES AND UTILITY COSTS

First Year On‐Going

pg. 42

Utility costs for this level of industrial user are a significant component of overall operating costs. Utilities in Converse County are below average among the comparative locations at about $3.1 million per year, or about 6.5 cents per kilowatt hour. The other locations range from a low of $2.7 million per year in Pocatello (5.7 cents per kWh), to $4.3 million in Billings (9.2 cents per kWh) based on a usage level of 47,349 MWh at an 85 percent load factor.

Utility franchise taxes are generally proportional to utility costs and range from $27,000 per year in Pocatello to $225,000 in Beaver County, with no taxes in Ames, Scottsbluff and Billings. Converse County ranks third lowest among locations that have a franchise tax.

A ranking of taxes, net of incentives, plus utility costs is shown in Figure 3 where Converse County ranks fourth. However, total annual costs including incentives are relatively similar among the top four locations.

Incentives are available in some states that reduce the cost of sales and property taxes, however the company may or may not qualify depending on wage levels, number of jobs created, location within an incentive zone and other factors. In the case of sales tax, Iowa, Nebraska and Idaho offer rebates on construction sales taxes through programs driven by job creation and capital investment. However, most of the overall cost savings on sales taxes is in the form of exemptions that do not have any qualifying conditions. Pennsylvania offers no exemptions, but does offer a full sales tax rebate if the company is in a Keystone Opportunity Zone.

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

FIGURE 3ANNUAL TAXES NET OF INCENTIVES AND UTILITY COSTS

First Year On‐Going

pg. 43

In terms of property tax incentives, all of the states except for Wyoming and Utah offer full

or partial property tax rebates for a specific term (usually 5 to 10 years), although the company must meet the program requirements in terms of jobs and capital investment, and the terms of the abatements are often discretionary.

pg. 44

3.0 COMPARATIVE TAX ANALYSIS

3.1 Sales Taxes

Sales taxes in this analysis may apply to the purchase of manufacturing equipment,

construction materials and electricity. Not all categories of expenditures are taxable in every

jurisdiction. The applicable state and local tax rates do not vary significantly among the selected

locations, ranging from 6 percent to 7.4 percent, except for Montana where there is no sales

tax (Figure 4). Note that the basic sales tax calculation takes standard exemptions into account

in each state, however incentives and refunds are included in the “potential value of

incentives” column.

In Converse County, sales taxes apply only to construction materials. There is a manufacturing

equipment sales tax exemption. Additionally, electricity used in manufacturing is exempt from

sales tax. The estimated sales tax liability in Wyoming would be $2.1 million during the

construction phase based on estimated construction materials of $35.0 million. This is the

second lowest tax liability, net of incentives, among the comparative areas (except for Montana

where there is no sales tax liability), plus there would be no on‐going sales taxes in Wyoming.

In Iowa, manufacturing equipment, construction materials and electricity are all subject to state

and local sales tax. This results in an estimated sales tax liability of $24.8 million in the first year

of operations, primarily due to sales taxes on $315 million of manufacturing equipment. On‐

going sales taxes are estimated at $255,000 per year. If the company located in an enterprise

zone, they could be eligible for a refund of construction sales taxes valued at $2.45 million. This

would lower the estimated first year sales tax liability in Iowa to $22.3 million.

In Nebraska, similar to Wyoming, electricity used in manufacturing and manufacturing

equipment are exempt from sales tax. The resulting sales tax liability on construction materials

is estimated at $2.45 million. The company could qualify for a full refund of construction sales

taxes through the Nebraska Advantage program if they create at least 30 new jobs and invest at

least $3 million. This would result in the elimination of their sales tax liability in Nebraska.

Pennsylvania has no local sales tax except in Philadelphia and Pittsburgh, but there is a state

sales tax of 6 percent resulting in total sales taxes of $21.2 million in the first year of operations.

Although there are no standard exemptions for manufacturing equipment, construction

materials or utilities, all of these items could be exempted from sales tax if the project is

located in a Keystone Opportunity Zone. This would result in the elimination of the company’s

sales tax liability in Pennsylvania.

South Dakota does not provide any sales tax exemptions. Also, along with sales tax there is a 2

percent contractor’s excise tax on gross receipts from construction. This results in a sales and

pg. 45

excise tax liability of $22.9 million in the first year, which is one of the highest among the

comparative areas. However, since the majority of the sales tax is on manufacturing equipment

purchases, the on‐going sales tax liability would only be $200,000. There was previously an

incentive program in place to partially refund construction sales tax and contractor’s excise tax

based on the level of capital investment, but it ended as of December 2012.

Montana has no state or local sales tax and thus there would be no sales tax liability for the

company.

Assumptions

First Year On‐Going Potential ValueLocation Local State Sales Tax Due1 Annual Tax of Incentives Available Incentives and Exemptions

Converse County WY 2.0% 4.0% $2,100,000 $0 $0

Manufacturing equipment and electricity used in manufacturing are

exempt.

Ames, IA 1.0% 6.0% $24,754,917 $254,917 ($2,450,000)

Companies that locate in enterprise zones and make a capital

investment of at least $500,000 over 3 years and create at least 10

new jobs with benefits paying at least 90% of county average wage

are eligible for a refund of state sales tax on construction materials.

The High Quality Jobs program offers a similar rebate on construction

sales tax.

Scottsbluff, NE 1.5% 5.5% $2,450,000 $0 ($2,450,000)

Qualifying companies receive a sales tax exemption on manufacturing

equipment and utilities used in manufacturing. Nebraska Advantage

offers a refund of 1/2 of the sales tax on capital purchases with an

investment of $1 million and 10 new jobs or a full refund of all sales

tax with an investment of at least $3 million and 30 new jobs.

Nebraska Advantage also offers a 15% investment credit; plus 10%

job credit on new employee compensation for jobs paying at least

200% of the county average wage or 150% of the state average wage.

Beaver County, PA 0.0% 6.0% $21,228,383 $228,383 ($21,228,383)

Within a Keystone Opportunity Zone, tangible personal property and

services exclusively used, consumed or utilized by qualified businesses

in the zone are exempt from sales tax. Effective September 8, 2008, a

construction contractor may make exempt purchases of taxable

tangible personal property and services pursuant to a construction

contract with a qualified business located within the zone.

Rapid City, SD 2.0% 4.0% $22,899,600 $199,600 $0

South Dakota charges a 2% contractor's excise tax in addition to sales

tax on construction materials. Equipment and machinery that is 7

years old or more is exempt from sales tax.

Billings, MT 0.0% 0.0% $0 $0 $0 Montana has no general sales tax.

Logan, UT 1.9% 4.7% $2,509,211 $199,211 $0

Manufacturing equipment is exempt from sales tax. No sales tax

rebates are available although up to 30% of new state sales tax may

be claimed as a refundable income tax credit through the Economic

Development Tax Increment Financing program.

Fort Collins, CO 4.5% 2.9% $25,843,103 $129,128 $0

Sales of electricity used in manufacturing are exempt from state sales

tax. The first $150,000 of machinery used in manufacturing is

exempt.

Pocatello, ID 0.0% 6.0% $1,575,000 $0 ($525,000)

Manufacturing equipment and utility sales are exempt in Idaho. The

Idaho Business Advantage Program offers a 25% rebate on

construction materials if a business invests at least $500,000 in new

facilities and creates at least 10 new jobs averaging $40,000 a year

with benefits.

1 Excludes exempted items but does not incorporate exemptions related to specific incentive programs.

FIGURE 4SALES TAX COMPARISON


Value of new manufacturing equipment: $315 million; estimated value of construction materials: $35 million; electricity: varies by location. Exemptions of specific

items vary by state. If equipment is purchased out of state, it is assumed that use tax will be paid locally.

Average Sales Tax

pg. 46

Utah taxes construction materials and electricity, but exempts manufacturing equipment from

sales tax. The resulting tax liability would be $2.5 million in the first year and $199,000 in

subsequent years. Although there are no sales tax rebate programs in Utah, the company could

claim a refundable income tax credit equal to 30 percent of state sales tax paid.

Colorado does not tax electricity used in manufacturing, but there would be a tax on

construction materials and equipment. The first $150,000 of manufacturing equipment is

exempt from tax. This would result in a sales tax liability of $25.8 million in the first year, which

is the highest among the comparative areas, and $129,000 in subsequent years with no

equipment purchases or construction. Fort Collins also has the highest combined state and

local sales tax rate among the comparative areas.

Idaho does not have local sales tax, but there is a state sales tax of 6 percent. Only construction

materials would be taxable in Idaho, but the company could qualify for a 25 percent rebate if

they create at least 10 jobs and invest $500,000. The result would be a net one‐time sales tax

liability of $1.1 million.

3.2 Property Taxes

All the states in this analysis impose a tax on real property, although Iowa, Pennsylvania and

South Dakota do not tax personal property. The assessment ratios and tax rates vary by

location. For comparison purposes, effective property tax rates were calculated by multiplying

the assessment ratio by the mill rate in each of the selected cities. Effective tax rates vary from

a low of 0.73 percent in Converse County, Wyoming to a high of 3.24 percent in Ames, Iowa

(Figure 5). Personal property is not depreciated in this single‐year example, however the

different depreciation schedules required in Wyoming versus the other states would impact the

level of annual personal property taxes.

The extent of abatement programs varies considerably from state to state. Most are multi‐year

programs. The details and qualifications for each program are described in Figure 3. It is

important to note that many abatement programs are discretionary in terms of the length and

level of abatement as well as the potential payment in lieu of tax (PILOT) agreements.

pg. 47

In Wyoming all industrial property is assessed at 11.5 percent of market value. A mill rate of

63.641 percent is applied in Converse County resulting in a real and personal property tax of

$2.9 million per year. While Wyoming does not offer property tax abatement programs, there

may be grant funds available to offset upfront infrastructure costs.

Ames, Iowa has the highest real property tax rate among the comparative areas, but there is no

tax on personal property in Iowa. Since personal property represents the majority of the

company’s capital investment, unabated property taxes are slightly lower in Iowa than

Wyoming at $2.8 million per year. If the company locates in an enterprise zone, they may

qualify for a 10 year, 100 percent abatement. However, there are generally negotiated

payments in lieu of taxes to offset the cost of local public safety services.

Scottsbluff, Nebraska has a moderate tax rate, but with the combined tax on real and personal

property, the total annual tax is estimated at $7.9 million. The company could qualify for a 10

year tax exemption through the Nebraska Advantage program, depending on the level of

Assumptions

Potential AnnualLocation Real Personal Real Personal Total Incentive Value Available Incentive Programs

Converse County, WY 0.732% 0.732% $622,091 $2,305,395 $2,927,486 na Grants may be available to offset infrastructure costs.

Ames, IA 3.236% 0% $2,750,643 $0 $2,750,643 ($2,750,643)

Companies that locate in enterprise zones and make a capital

investment of at least $500,000 over 3 years and create at least 10 new

jobs with benefits paying at least 90% of county average wage are

eligible for a 100%, 10 year property tax abatement on the value of

new construction. In some cases, the City has negotiated a PILOT for

fire and police services for the property.

Scottsbluff, NE 1.966% 1.966% $1,671,185 $6,193,215 $7,864,400 ($6,193,215)

Nebraska Advantage offers a variety of personal property exemption

options. Companies that create at least 50 new jobs with wages of at

least 150% the state average and invest $109 million could qualify for a

personal property tax exemption for up to 10 years and a 15%

investement tax credit.

Beaver County, PA 2.267% 0% $1,926,729 $0 $1,926,729 ($1,926,729)

Keystone Opportunity Zones offer abatement of a variety of state and

local taxes including real property taxes. Typical abatements are for

100 percent of property taxes for 10 years. PILOT agreements are often

negotiated to cover the value of existing property tax revenues.

Rapid City, SD 1.950% 0% $1,408,875 $0 $1,408,875 ($1,408,875)

No personal property tax. County commissioners may abate up to 100

percent of property taxes on new construction for commercial and

industrial structures valued at $30,000 or more.

Billings, MT 1.963% 2.970% $1,668,125 $9,357,000 $11,025,125 ($834,063)

Property tax abatement is available to new or expanding

manufacturing businesses. Property will be taxed at 50% of taxable

value for the first five years after a construction permit is issued; the

tax rate is raised incrementally over the next five years to 100%.

Logan, UT 1.266% 1.266% $1,076,270 $3,988,530 $5,064,800 $0

No property tax abatement programs are available for businesses in

Utah. However, property tax rebates may be available through tax

increment financing based on a percentage of the tax increase created

by the project.

Fort Collins, CO 2.590% 2.590% $2,201,837 $8,159,747 $10,361,584 ($4,079,874) Up to 50 percent of taxes on personal property used in connection with

a new or expanded business can be abated for up to 10 years.

Pocatello, ID 1.829% 1.829% $1,554,378 $5,760,342 $7,314,720 ($7,314,720)If a business invests at least $3 million, they may qualify for a property

tax abatement of up to 100% for up to 5 years through the Idaho Tax

Reimbursement Incentive.

Property Tax Due without Incentives

FIGURE 5PROPERTY TAX COMPARISON


Avg Effective

Property Tax Rate

Manufacturing equipment: $315 million; Building: $85 million. Calculation excludes land value. Personal property has not been depreciated in this example.

pg. 48

capital investment and the number of new jobs created. The minimum would be 100 jobs and

a $12 million investment.

Pennsylvania only taxes real property resulting in an estimated annual tax of $1.9 million in

Beaver County. If the company is located in a Keystone Opportunity Zone, local property tax

can be abated. Abatements typically last up to 10 years. PILOTS are sometimes negotiated to

cover the value of any existing taxes so that the abatement is effectively only on the increase in

assessed value.

Rapid City’s unabated real property tax liability is the lowest among the comparative areas at

$1.4 million. Real property tax abatements are available at the discretion of local county

commissioners.

Billings, Montana has the highest unabated property tax liability at $11.0 million per year.

Montana taxes both real and personal property and has relatively high property tax rates. The

company could qualify for a 10 year tax abatement in which 100 percent of property tax would

be abated for the first five years, and then the rate of abatement would decrease incrementally

over the remaining five years. As of January 2014, Montana also enacted new legislation to cap

personal property tax rates at 1.5 percent on the first $6 million of property value and 3

percent on any amount over $6 million.

Logan, Utah has a moderate property tax liability at $5.1 million. There are no property tax

abatement programs available in Utah, but the company could receive some of the property tax

back as an incentive through tax increment financing.

Fort Collins, Colorado has the second highest property tax liability at $10.4 million per year, and

also the highest overall property tax rates. The company could qualify for a 50 percent, 10 year

abatement on personal property.

In Pocatello, Idaho the estimated annual property tax liability would be $7.3 million. Since the

company is investing more than $3 million, they could qualify for a 5 year, 100 percent

abatement.

3.3 Utility Franchise Tax

Polyethylene facilities are large utility users and utility costs are an important part of overall

operating costs. This analysis assumes that the plant would use 47,349 MWh per year at an

85% load factor. It is important to note that with such a large user, it is likely that they would

either generate some of their own power or negotiate to buy power at a lower rate. The

amounts shown reflect the tariffed costs for large industrial users with no discounts.

In addition to the basic cost of electricity, six of the comparative areas also impose a franchise

tax based on total electricity sales. Although franchise taxes are paid by the utility, the cost is

pg. 49

ultimately passed on to the consumer. Franchise tax rates vary from city to city, so the rates

shown here are only for the representative cities within each state. Tax rates range from 2

percent in Rapid City to 6 percent in Logan and Fort Collins (Figure 6). Franchise taxes apply in

addition to any sales tax on utilities.

Annual electric costs in this example range from $2.9 million to $4.3 million per year, with the

highest cost in Billings. Converse County is below average and ranks fourth among the

comparative areas in terms of electric costs at $3.1 million per year. Franchise taxes range from

$27,000 in Pocatello to nearly $225,000 in Logan. Ames, Scottsbluff, and Billings do not have

utility franchise taxes.

Assumptions

Location Utility

Annual Electricity

Cost

Average Utility

Franchise Tax

Rate

Utility Franchise

Tax DueConverse County, WY Rocky Mountain Power $3,065,871 4.0% $122,635Ames, IA City of Ames $3,641,672 0.0% $0Scottsbluff, NE Nebraska Public Power $3,026,106 0.0% $0Beaver County, PA Penn Power $3,806,380 5.9% $224,576Rapid City, SD Black Hills Power $3,326,667 2.0% $66,533Billings, MT Northwestern Energy $4,348,059 0.0% $0Logan, UT City of Logan $3,018,347 6.0% $181,101Fort Collins, CO City of Fort Collins $2,901,742 6.0% $174,105Pocatello, ID Idaho Power $2,707,664 1.0% $27,077

FIGURE 6UTILITY COSTS AND FRANCHISE TAX COMPARISON250 MILLION POUND POLYETHYLENE FACILITY

Based on annual electricity usage of 47,349 MWh, 85% load factor.

Note: Franchise fees may vary significantly by city within a given state.

pg. 50

4.0 SUMMARY OF RESULTS

A summary of total taxes by type, plus utility costs, in each location is shown in Figure 7.

Converse County ranks lowest in terms of first year costs at $8.2 million based on low overall

business taxes in Wyoming and below average utility costs. With no sales tax after the first

year, on‐going tax and utility costs are also very competitive in Converse County at $6.1 million.

The next lowest cost locations would be in Logan, Utah; Pocatello, Idaho and Scottsbluff,

Nebraska. Logan, Utah at a first year cost of $10.8 million has similar sales tax exemptions to

Wyoming, but somewhat higher property taxes and utility costs. Pocatello, Idaho offers

moderate electricity costs and property taxes and a sales tax exemption for manufacturing

equipment, resulting in a first year tax and utility cost of $11.6 million and an on‐going cost of

$10.0 million. Scottsbluff offers a sales tax exemption for manufacturing equipment, no on‐

going sales tax, no utility franchise tax, and is among the lowest for electric costs. Billings is

slightly higher cost at $15.4 million per year with the highest property taxes and electric costs,

but no sales tax.

First year taxes and utility costs in the remaining four locations are significantly higher, ranging

from $27.2 million per year in Beaver County, to $39.3 million in Fort Collins. This is primarily

due to the lack of a sales tax exemption on manufacturing equipment in these locations. On‐

going sales taxes in these areas would be significant lower, ranging from $5.0 million in Rapid

City to $13.6 million in Fort Collins, making the average annual costs more similar to the other

comparative areas.

Figure 8 includes taxes and utility costs net of the potential value of sales and property tax

abatements that are available in each of the comparative areas. Note that "potential

incentives" include first year sales and property tax incentives, however property tax

abatements are typically spread over a multi‐year period. This figure does not include the value

of any grants or income tax credits. The company may or may not qualify for these incentives

Location

First Year Sales

Tax

On‐Going Sales

Tax Property Tax Electricity Cost

Utility

Franchise Tax

Total First Year

Taxes &

Utilities

Total On‐Going

Taxes and

UtilitiesConverse County, WY $2,100,000 $0 $2,927,486 $3,065,871 $122,635 $8,215,991 $6,115,991

Logan, UT $2,509,211 $199,211 $5,064,800 $3,018,347 $181,101 $10,773,458 $8,463,458

Pocatello, ID $1,575,000 $0 $7,314,720 $2,707,664 $27,077 $11,624,461 $10,049,461

Scottsbluff, NE $2,450,000 $0 $7,864,400 $3,026,106 $0 $13,340,506 $10,890,506

Billings, MT $0 $0 $11,025,125 $4,348,059 $0 $15,373,184 $15,373,184

Beaver County, PA $21,228,383 $228,383 $1,926,729 $3,806,380 $224,576 $27,186,068 $6,186,068

Rapid City, SD $22,899,600 $199,600 $1,408,875 $3,326,667 $66,533 $27,701,675 $5,001,675

Ames, IA $24,754,917 $254,917 $2,750,643 $3,641,672 $0 $31,147,232 $6,647,232

Fort Collins, CO $25,843,103 $129,128 $10,361,584 $2,901,742 $174,105 $39,280,533 $13,566,558

FIGURE 7SUMMARY OF ANNUAL TAXES AND UTILITY COSTS

pg. 51

depending on wage levels, number of jobs created, location within an incentive zone and other

factors.

When incentives are included, Converse County ranks 4th lowest in terms of costs at $8.2

million, although the top four locations fall within a fairly tight range. Pocatello, Idaho offers the

lowest cost location with incentives at $3.8 million, assuming the company could qualify for a

five year full property tax abatement. For Beaver County, the potential incentive value assumes

that the company would be located in a Keystone Opportunity Zone, which could result in the

elimination of all sales and property taxes. Nebraska offers significant sales and property tax

abatements through the Nebraska Advantage program for companies with large capital

investments.

Logan, Utah and Billings, Montana offer the next lowest costs at $10.8 million and $14.5 million.

Utah does not offer and sales or property tax abatements but overall taxes and utility costs are

moderate and there is an exemption on sales taxes for manufacturing equipment. Billings

offers a partial tax abatement on real property and has no sales tax.

Net taxes in the remaining three locations are significantly higher, ranging from $26.3 million

per year in Rapid City, to $35.2 million in Fort Collins. This is primarily due to the lack of a sales

tax exemption on manufacturing equipment in these locations. Rapid City and Ames both offer

a full property tax abatement, but this does little to offset the first year cost differences.

Converse County, Wyoming offers a cost competitive location for plastics manufacturing with

low utility costs and low overall business taxes. Companies making large capital investments

benefit significantly from sales tax exemptions on manufacturing equipment as well as low

property tax rates.

Location

First Year Sales

Tax

Potential

Incentives Property Tax

Potential

Incentives

Electricity

Cost

Utility

Franchise Tax

First Year Taxes

Net of Incentives

Plus Utilities

Pocatello, ID $1,575,000 ($525,000) $7,314,720 ($7,314,720) $2,707,664 $27,077 $3,784,741

Beaver County, PA $21,228,383 ($21,228,383) $1,926,729 ($1,926,729) $3,806,380 $224,576 $4,030,957

Scottsbluff, NE $2,450,000 ($2,450,000) $7,864,400 ($6,193,215) $3,026,106 $0 $4,697,291Converse County, WY $2,100,000 $0 $2,927,486 $0 $3,065,871 $122,635 $8,215,991

Logan, UT $2,509,211 $0 $5,064,800 $0 $3,018,347 $181,101 $10,773,458

Billings, MT $0 $0 $11,025,125 ($834,063) $4,348,059 $0 $14,539,121

Rapid City, SD $22,899,600 $0 $1,408,875 ($1,408,875) $3,326,667 $66,533 $26,292,800

Ames, IA $24,754,917 ($2,450,000) $2,750,643 ($2,750,643) $3,641,672 $0 $25,946,589

Fort Collins, CO $25,843,103 $0 $10,361,584 ($4,079,874) $2,901,742 $174,105 $35,200,659

SUMMARY OF ANNUAL TAXES, UTILITY COSTS AND INCENTIVESFIGURE 8

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