Petrochemicals in Alaska:

Background and Opportunities

WILLIAMS ARCTIC TEAM

Olefins - North America

• The olefin business is in the early stages of restructuring and change.

• Consolidation and integration through mergers and acquisitions.

• Excellent market fundamentals- high growth.

• New market forces influencing customer/supplier relationships.

• Opportunities for Williams.

Canada West9.0%

Canada East4.0%

U.S. Northeast1.0%U.S. Midwest

3.0%

Gulf Coast83.0%

Ethylene Production Capacity by Region - 2000

L:\GRA\POWERPOINT\TSHUPE\EPCBR.PPT

U.S. Commodity Demand Growth Per Capita

250

300

350

400

450

500

550

600

650

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

20

40

60

80

100

120

140

160

Refining - U.S. Gasoline Consumption, gallons/person

Natural Gas - U.S. Nat Gas Production, MMSCF/person

Plastics - U.S. Plastics (PE+PP) Consumption, lb/person

Electricity - U.S. Electricity Generation, Bkwh/person

PlasticsGasoline

Natural Gas

Plastics Consumption:4.67% growth rate from 1989 -

1999

Electricity

U.S. Ethylene Consolidation

1995

Top 544%

Other 1856%

2004

Top 570%

Other 1230%

Total 51,334 MMlbs. Total 65,554 MMlbs.

Ethylene Integration Chain

Oil & Refined Pipeline & NGL NGL Pipelines Olefin Pipelines Olefin Consumer Marketing &Gas Products Storage Processing & Storage & Storage Derivatives Products Trading

enter Dow Chemical Yes Yes 10.73 Yes Yes YesEquistar 9.10 Yes YesExxonMobil Yes Yes Yes Yes Yes 8.83 Yes YesChevron Phillips Yes Yes Yes 8.14 Yes YesShell Yes Yes Yes Yes Yes 5.50 Yes Yes YesFormosa Plastics 3.30 Yes YesBP Yes Yes Yes Yes Yes 3.20 Yes YesHuntsman 2.86 Yes YesWestlake 2.30 Yes YesBASF 1.73 Yes YesDupont 1.30 Yes YesEastman 1.30 Yes YesSASOL Yes 0.96 Yes YesATOFINA 0.80 Yes Yes

Williams Yes Yes Yes Yes Yes 0.73 Yes YesGE Plastics 0.21 Yes YesJavelina 0.20

Nova Chemicals YesBayer (Mobay) YesDMS - Copolymer YesGeorgia Gulf YesOld World Yes YesCelanese Yes YesUniroyal YesHoneywell YesPhillips BP YesVulcan YesBorden YesPPG YesSterling Chemicals Yes YesBasell YesSolvay YesOxyVinyls L.P. Yes

Enron YesDuke Yes Yes Yes YesLouis Dreyfus Yes Yes YesDynegy Yes Yes Yes

Segregation of U.S. Gulf Coast Ethylene Players Based On Integration Depth2002 Capacities - U.S. Gulf Coast plants excluding other capacity in U.S. or Canada

CompanyDegree of Integration

Olefins

(Blbs./yr)

Ethylene Buyers and SellersU.S. Gulf Coast Capabilities - 2002

(3,000) (2,000) (1,000) 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000

Equistar

ExxonMobil

Chevron Phillips

Shell

BP

Huntsman

Westlake

BASF

SASOL

Williams

J avelina

Bayer (Mobay)

GE Plastics

DuPont

DSM - Copolymer

Uniroyal

Honeywell

Phillips BP

Vulcan

Borden

Eastman

ATOFINA

Nova Chemicals

PPG

Sterling Chemicals

Basell

Celanese

Formosa Plastics

Old World

Solvay

Georgia Gulf

OxyVinyls L.P.

Dow Chemical

MM Pounds Per Year

Derivative Captive Supply

11 Net Long - Ethylene for Merchant Sales

22 Net Short - Ethylene Purchase Requirement

U.S. Olefin Industry is Changing

• Consolidation - mergers and acquisitions will continue.

• Increased integration - leaving some smaller companies vulnerable to majors.

• Storage hubs and the opportunity to trade around assets will occur.

• E-commerce will speed up change and improve liquidity. Sales are occurring now.

• These are major structural changes to the industry creating opportunities for the participants in the consolidation process.

U.S. Olefin Industry is Changing

• 2000 U.S. light olefins and polyolefins - $41.4 billion revenue.

• Growth rates are projected to be strong.

• New capacity will be needed by 2004.

• In 2001, high feedstock prices shocked the industry and curtailed ethylene production. For a time, Naphtha became preferred feed over ethane.

• Companies are looking for ways to manage their risk and stay competitive. They are looking for suppliers who don’t compete in downstream derivatives.

Williams Has a Significant Stake in the Business

• Major supplier of NGL feedstock to chemical companies in the U.S. (~88,000 BPD) and Canada (110,000+ BPD). Therefore, already tied to the industry.

• 5/12 ownership of ethylene cracker in Louisiana.

• Refinery-grade propylene in Memphis.

• Gulf Coast Off Gas project in Louisiana.

• Off Gas project with polymer grade propylene in Alberta.

Williams’ Capabilities

• Geismar acquisition has provided knowledge, physicals, storage and pipelines. This places us as a merchant seller of ethylene and propylene.

• Familiar with commodity markets.

• Excellent customer service capabilities in supply, storage, transportation and risk management.

• Expertise in trading and risk analysis tools.

• Backward integrated.

Preliminary View of AlaskaExtraction / Petchem Complex

• Remove methane for Fairbanks supply

• Remove ethane for ethylene production

– estimate extracting 50,000 BPD ethane

• Ethylene is feedstock for polyethylene plant

• Polyethylene pellets delivered by rail to Anchorage

• Excess gas and liquids re-injected for delivery to Alberta and beyond

Potential Alaska Petchem Project

NorthSlope

Ethane cracker

Natural gasto Fairbanks

Extractionplant

PolyethylenePlant

Anchorage

Railroad

Alberta

Petrochemical Feasibility Study

• Initiated on May 24, 2001

• Analysis ongoing. Preliminary results favorable for world class polyethylene plant in Alaska

• CMAI engaged to perform international market evaluation

• CMAI evaluation due mid-October

• Williams study targeted for November completion – Originally planned for 9-12 months

– Accelerated schedule to produce results in 6 months

Feasibility Study Components

• Natural gas and ethane price forecasts and differentials

• Ethane extraction costs

• Identification of markets

• Cost factors for Alaska vs. other locations

• Polyethylene and ethylene glycol price, supply, and demand forecasts

• Freight costs

• By-product disposition

Questions?