IISRP Presentation Final.pptx...

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Mike BloeschMike BloeschVice President Vice President –– Strategic InitiativesStrategic InitiativesTPC GroupTPC Group

54th AGM * “Addressing Tomorrow’s Challenges Today”

Butadiene – History Repeats Itself: The Past Holds the Key to Future Supply

Forward Looking Statements & NonForward Looking Statements & Non--GAAP Financial MeasuresGAAP Financial Measures

This presentation may contain “forward-looking statements” within the meaning of the U.S. securities laws. These statements include

assumptions, expectations, predictions, intentions or beliefs about future events, particularly statements that may relate to future

operating results, existing and expected competition, market factors that may impact financial performance, and plans related to

strategic alternatives or future expansion activities and capital expenditures. Although TPC Group believes that such statements are

based on reasonable assumptions, no assurance can be given that such statements will prove to have been correct. A number of

factors could cause actual results to vary materially from those expressed or implied in any forward-looking statements, including risks

and uncertainties such as volatility in the petrochemicals industry, limitations on the Company’s access to capital, the effects of

competition, leverage and debt service, general economic conditions, litigation and governmental investigations, and extensive

environmental, health and safety laws and regulations. TPC Group expressly disclaims any obligation to update any forward-looking

statements contained herein to reflect events or circumstances that may arise after the date of this presentation.

This presentation may also include non-GAAP financial information. A reconciliation of non-GAAP financial measures to the most


directly comparable GAAP financial measures, as well as additional detail regarding the utility of such non-GAAP financial information,

is included in the Appendix.

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AgendaAgenda

TPC Group overview

Hi t f b t di d ti History of butadiene production

Why the world needs on-purpose butadiene

Various production routes

Different approaches for different continents

TPC G l ti


TPC Group solution

TPC Group OverviewTPC Group Overview

• Market leader in service-based processing, infrastructure and logistics for the C4 hydrocarbons industry

Company Description

C4 Processing

82%

Revenue by Segment (1)

• C4 Processing services include crude C4 off-take, aggregation, storage, separation, purification and ratable transport and delivery of C4 components to manufacturing end-users in a variety of industry segments

• Performance Products consists of C4 and C3 derivatives for fuels, fuel and lubricant additives and a variety of other end uses

H d t d i H t T th C

Performance Products

18%

Plastics6%

Fuels20%

Lube & Fuel

Revenue by End Market (2)

(1) Calendar 2012


• Headquartered in Houston, Texas, the Company has three manufacturing facilities along the Gulf Coast, with 820 employees and contractors

• For Calendar 2012, TPC recorded Revenues of $2.3B

Synthetic Rubber

35%

Additives7%

Other32%(2) Based on TPC estimates as of December 2011

(3) Includes nylon, surfactants and latex

3

Well Positioned for the FutureWell Positioned for the Future

Market Leader in C4 Hydrocarbons

Stable, consistent cash flows

Stable, consistent cash flows

Growth DriversGrowth Drivers

Growing end-user markets

Unique logistics and infrastructure

Increasing Return on Invested

Capital

Increasing Return on Invested

Capital

Growth in fees and margins

Growth in fees and margins

CapitalInvestment

►On Purpose Isobutylene

►HR-PIB expansion

Cash Flow

►Service-based model

►Operational Efficiency

►Top line growth


Disciplined, experienced management

Strong balance sheet

Strong balance sheet

►On Purpose Butadiene

Market leadership in majority of product linesMarket leadership in majority of product lines

TPC30%

A21%

B15%

Butadiene Sales VolumesNorth America

PIB CapacityNorth America

TPC36%

A27%

• Market leader in C4 Processing with approximately 30% share of capacity

Relationships with every non-integrated ethylene producer in N th A i 15%

C15%

D8%

E7%

F4%

North American Market Positions

B23%

C14%

Product CapacityCapacity

Share

Butadiene 1,400 27%

North America

• Market leader in butene-1 with 35% share

• Among North America’s largest merchant producers of isobutylene and derivatives


Butene-1 315 35%

HR-Polyisobutylene 255 65%

Diisobutylene 80 100%

and derivatives

• IP holder and sole merchant producer of highly reactive polyisobutylene(HR-PIB)

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ServiceService--based processor & logistics providerbased processor & logistics provider

Purified C4 Components

EthyleneSt C k

Elastomers Plastics

Fuelsarke

ts

Nylons

BD

B1

iBLMixed C4

BD

BDBD

B2iBL

iBL

BDB1

Bn

BD

SeparationSteam Cracker

Ma y

IsobutylenePropylene

IsobutylenePropylene

Derivatives ProductionDerivatives Production

B2

BnRaf

fin

ates

PIB

DIB

Lube Additives

Plasticizers

arke

ts

Surfactants

Co-product BD

BD

BDBD

B1B2

Bn

Ot

BD

Purification

54th AGM * “Addressing Tomorrow’s Challenges Today” 7

A leading service-based processor and infrastructure and logistics provider of value-added products derived from C4 hydrocarbons

PropylenePropylene ProductionProduction

HPIB

PropDeriv

Ma Surfactants

Strategic assets benefit the industryStrategic assets benefit the industry

Corporate Offices

Lake Charles Terminal

Baytown Operations Port Neches OperationsHouston Operations

2.4 B lbs/yr Mixed C4 Processing 85 M lbs/yr Nonene 1.8 B lbs/yr Mixed C4 Processing


Managing seamless flows of C4 stream to highest value end uses

2.4 B lbs/yr Mixed C4 Processing240 M lbs/yr PIB

85 M lbs/yr Nonene50 M lbs/yr Tetramer

1.8 B lbs/yr Mixed C4 Processing

257 acres 165 acres 154 acres

Extensive pipeline networkSubstantial on and off site storage facilitiesSteam & electrical co-generation (35 MW)Exclusive deepwater docks on ship channel

Large rail rack & railcar storage yard

NA’s largest stand-alone Nonene plant Extensive rail rack & railcar storage yard

Pipeline access to customer3rd party terminaling

Extensive pipeline networkSubstantial storage facilitiesDeep water dock facilities

Extensive rail rack & railcar storage yard

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TPC Group OwnershipTPC Group OwnershipAcquired by First Reserve & SK Capital

December 20, 2012


Value PropositionValue Proposition

• Reliable, secure and efficient infrastructure Strong connectivity between broad range of Crude C4 sources and

array of end use markets Operational excellence and infrastructure investment focus Independent, merchant player

• Industry-focused solutions Meeting current and future customer needs for critical products in

short supply Process and product technology leadership

• Long term perspective Strong balance sheet and pre-funded capital plan New ownership aligned for the long term


Butadiene Butene-1 Fuel Products/MTBE Polyisobutylene Isobutylene Nonene/Tetramer

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“He who doesn’t know history is “He who doesn’t know history is destined to repeat it”destined to repeat it”

History of Butadiene ProductionHistory of Butadiene Production

.. destined to repeat it destined to repeat it –– SantaynaSantayna (variant)(variant)

““He He who does know history maywho does know history mayt t tt t t it!”it!”


want to repeat want to repeat it!” it!” –– Butadiene industry???Butadiene industry???

Commercial Production EvolutionCommercial Production Evolution

1863 Bio-based? (thermal cracking of amyl alcohol) France1863 Bio-based? (thermal cracking of amyl alcohol) France1925 Acetylene (IG Farben) Germany

1928 Ethanol (Lebedev) Russia

1942 Butane (Dehydrogenation) U.S.

1944 Butene (OXO DTM) U S1944 Butene U S

1942 Butane (Dehydrogenation) U.S.

1928 Ethanol (Lebedev) Russia

1925 Acetylene (IG Farben) Germany

( g y )


1944 Butene (OXO-D ) U.S.

1970s Steam cracker by-product Global

1944 Butene (OXO-DTM) U.S.

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“The hardest part of solving any“The hardest part of solving anyproblem is acknowledging thatproblem is acknowledging that

Why the World Needs OnWhy the World Needs On--Purpose ButadienePurpose Butadiene

problem is acknowledging thatproblem is acknowledging thatone exists.” one exists.” –– AnonymousAnonymous

(Also the first tenet of most twelve(Also the first tenet of most twelve


( f f( f fstep programs…)step programs…)

How Real is the Problem?How Real is the Problem?Base Case estimates 2,800 kMT/yr of On-Purpose BD requirement by 2025

Base Case: 4.1% (China @ 8.8%, India @ 16.2%)Ethylene Growth Rate: 3.5%


Low probability that only new butadiene extraction capacity could meet growth Eliminating on-purpose volume gap would require demand destruction of 14% or 3% butadiene growth rate

+/- 0.5% change in global butadiene demand equals +/- 1,000 kMT volume change

Key risk: Assumption that majority of future global ethylene based on naphtha

Source: IHS Single Client Study

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North America Compounds the IssueNorth America Compounds the Issue

» Upstream producers focus on NGL rich shale

plays

• Fractionation margins drive development

» Natural gas discounted to oil (BTU basis)

0%

15%

0%

15%

% BTU Price Discount U.S. Natural Gas vs. Brent Crude Oil

g ( )

• Ethane fuel alternative low priced

» Existing infrastructure leveraged

• Pipelines, gas plants, storage

• Eagle Ford close proximity to chemical assets

U.S. NGL Production


‐90%

‐75%

‐60%

‐45%

‐30%

‐15%

‐90%

‐75%

‐60%

‐45%

‐30%

‐15%

1990 1995 2000 2005 2010 2015

Source: Bentek Energy/TM&C

Source: IHS

NA Ethylene Production Increasing…NA Ethylene Production Increasing…» Dow Chemical (April 2011)• Restart St. Charles Cracker (end 2012)

• New ethylene cracker (2017)

• Fractionation Freeport, Marcellus to Louisiana

• Propane Dehydro (2015); New Prop Dehydro Technology (2018)

• Increasing ethane flexibility at Plaquemine (2014) and Freeport (2016)

» Formosa (April 2011)

» Ineos (March 2011)• 250 MM lb/yr debottleneck study at Chocolate Bayou

» Nova (Several)• May 2011 - Range Resources MOU ethane supply (Sarnia)

• March 2011 - Williams 17,000 bbl/day ethane/ethylene mix of Joffre

• March 2011- Caiman Energy Ethane – 20,000 bbl/day ethane (Sarnia)

» Williams (September 2011)• $2.1 billion capital investment at Point Comfort (2014 / 2015)

• Ethylene expansion (+28%) +450,000 MT

• Propane dehydro (+54%) +400,000 MT

• Upstream fractionation & derivative (VCM,EDC,PVC) expansion

» Braskem (April 2011)• Wants new USGC Greenfield Ethylene and Polyethylene Plant (NYSE Event)

» CPChem (March 2011)• 3.3 billion pound/yr Ethane Cracker on USGC (2014 /2015)

» Braskem (April 2011)• Mexico Ethylene XXI – JV Braskem and IDESA (65/35)

• 2 billion pound ethylene (2014)

» Shell (June 2011)

• Ethylene expansion of Geismar, LA production facility +600 million lbs/year (2013)

» Sasol (November 2011)• Feasibility study to explore building $3.5 billion- $4.5 billion ethylene

production site in Louisiana

» LyondellBasell (Several)• 500 MM lb/yr ethane debottleneck at Channelview

• 850 MM lb/yr ethane debottleneck at La Porte

• 250 MM lb/yr expansion at Channelview

• 800 MM lb/yr expansion at Corpus Christi for 2015

» Aither Chemicals (January 2012)• Catalytic cracking technology to convert ethane from Marcellus Shale

i t th l 300 000 MT


» S e (Ju e 0 )• Grass roots cracker-Appalachia

» BFLP (December 2011)• 50% ethane cracking capacity after completion of April 14, 2011 outage

» Westlake (April 2011)• Calvert City Cracker conversion from propane to ethane + potential expansion

• Expand capacity Lake Charles by 240 MM lb (2012)

• 2nd Lake Charles Expansion (2014)

into ethylene +300,000 MT

» Exxon Mobil (June 2012)• 3.3 billion lb/yr ethylene-capacity steam cracker at Baytown complex

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…but Butadiene Production is not…but Butadiene Production is not

120%

130%

70%

80%

90%

100%

110%


60%2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Ethylene B/E Crude C4

Source: IHS

We have located the culpritWe have located the culpritTypical C4 Production From Various Cracker Feedstocks

40

45p yPounds per 100 Pound of Ethylene

Naphtha to Ethane: 89% Reduction in CC4

15

20

25

30

35

Naphtha to Ethane: - 89% Reduction in CC4- 81% Reduction in BD


0

5

10

Ethane Propane Butane Light Naphtha Gas Oil

Butadiene Isobutylene Butene-1 Butene-2 Butanes ~Source: IHS Data

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The global shortfall will grow over timeThe global shortfall will grow over time

Crackers in North America will continue to lighten feedslates Shale gas exists globally Already drilling in Poland Announced in China & Argentina May take some time, but will be done

Chinese coal to olefins


Chinese coal to olefins Competitive ethylene Zero butadiene

NA will continue to be a net importerNA will continue to be a net importerBut only butadiene produced at a reasonable cost will keep our rubber production competitive!

N t N th A i B t di I t

150

200

250

300

350

400

450

/ Yr Butadiene

Net North American Butadiene Imports


0

50

100

150

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

kMT /

Range of TPC Group Production Analysis

Source: NA Trade Statistics, CTC International

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Why does your smartphone know the exact Why does your smartphone know the exact distance to New York, yet still give you distance to New York, yet still give you

Various Production RoutesVarious Production Routes

three totally different routes to get there???three totally different routes to get there???

Depends on if best is defined as fastest, Depends on if best is defined as fastest, shortest, easiest, most green, or most shortest, easiest, most green, or most


scenic...scenic...

Many different technologies, but only

five primary feedstocksNormal Butane

OXO-DTM

(Oxidative Dehydrogenation)

Dehydrogenation

Dehydrogenation

TPC Group

TPC Group

OnOn--Purpose Butadiene (OPBD) RoadmapPurpose Butadiene (OPBD) Roadmap

N-butene

By-Product C4 Olefins(steam cracker & refinery)

Finished Butadiene

QPEC (Oxidative

Dehydrogenation)

Butadiene Extraction

Distillation

Dimerization

Fermentation & Dehydration

Fermentation

Ethylene

Sugar( )

Dehydration1,4-BDO

Bio-basedRoutes

Traditional Routes

Chinese

TPC Group


Distillation

Dehydrogenation & Dehydration

(biomass)

Ethanol

y,

Fermentation HydrogenolysisSuccinic

Acid

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Ethanol Ethanol ButadieneButadiene First developed in late 1920s in Russia by Lebedev Two step process improved efficiency Used in Russia, China, India, & US New capacity announced by Showa Denka for Japan

Dehydrogenation & DehydrationEthanol Distillation

Finished Butadiene

Pros Proven technology

“Lo er” in estment cost

Cons Higher feedstock &

operating cost than C4


“Lower” investment cost Feedstock available &

transportable Suited for small applications

operating cost than C4 Selectivity around 40% Many by-products (including

water) All shut down in US in 1950s

Sugar (biomass) Sugar (biomass) ButadieneButadiene At least four different routes being explored Most require many processing steps

Fermentation & Dehydration

OXO-DTM

(Oxidative Dehydrogenation)N-butene


Pros Not oil based

Cons Not commercially proven

Distillation

y

Fermentation Sugar(biomass)

Dehydration1,4-BDO

Fermentation HydrogenolysisSuccinic

Acid

Dehydrogenation)

Finished Butadiene


Laboratory work progressingy

Many likely to be years away

Sugar does not equal biomass

Economics???

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ByBy--product C4 Olefins product C4 Olefins ButadieneButadiene Good fit for China (800 kMT capacity online by end 2013) Two primary technologies – OXO-DTM & QPEC Used in Russia China & USUsed in Russia, China, & US


Ver efficient 85+% selecti it

Cons Energy intensive

Closel held technolog

By-Product C4 Olefins(steam cracker & refinery)

Finished Butadiene

QPEC (Oxidative

Dehydrogenation)


Distillation


Very efficient; 85+% selectivity Scalable

Closely held technology Feedstock has high value

for alkylate production By-products have no value

Chinese OPBD generally onChinese OPBD generally on--tracktrack Construction quality appears good Technology appears to work Environmental standards not as stringentEnvironmental standards not as stringent Feedstock C4 olefins available at reasonable pricing

Very low alkylate production by refineries for gasoline Feedstock supply will become key going forward; lots of

developing uses – including export of C4 olefins

Objective is to back integrate for their rubber plants not


Objective is to back integrate for their rubber plants, not butadiene sales

Longer term, feedstock cost / supply may challenge economics

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Natural gas liquids (NGLs) Natural gas liquids (NGLs) ButadieneButadiene Very good fit for shale revolution Used in Russia & US

Dehydrogenation


Cons Added capital cost to

Finished Butadiene


Normal Butane

OXO-DTM

(Oxidative Dehydrogenation)

Dimerization

Dehydrogenation

Ethylene

TPC Group

TPC Group

TPC Group


gy Lowest feedstock cost Low operating cost Scalable High selectivity

pproduce butylenes

Closely held technology

“TPC seeks to find the best overall solution“TPC seeks to find the best overall solutionto the butadiene shortage in the simplest to the butadiene shortage in the simplest

d i l ffi i ibl ”d i l ffi i ibl ”

TPC Group SolutionTPC Group Solution

and most capital efficient manner possible.”and most capital efficient manner possible.”

“Gentlemen, we are headed back to the“Gentlemen, we are headed back to thefuture!”future!”


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TPC Group OPBD Project ObjectiveTPC Group OPBD Project Objective Leverage existing capabilities

Assets Two independent butadiene production / C4 processing sites

Connected by pipeline & marine Large amount of land for expansion Large amount of land for expansion

Five butadiene extraction trains (two of which are idle) Idle dehydrogenation unit Extensive infrastructure

200 mile butadiene pipeline network Pipeline connectivity to Mt. Belvieu for NGL supply Pipeline connectivity to local producers for additional olefins Five ship & barge docks 35 railcar loading spots & 500 railcar storage yard 75,000+ MT above ground C4 storage, in addition to salt dome storage


Favorable utilities position EHS&S handling capabilities; 1 ppb fenceline measurement

Commercially Proven Technology Normal butane to butadiene via dehydrogenation (practiced for 15+ years) Normal butane to butenes via dehydrogenation (practiced for 45 years) N-butene to butadiene via OXO-DTM (practiced for 45 years)

TPC Group OPBD Project Objective TPC Group OPBD Project Objective (cont’d)(cont’d)

Coupled with cost advantaged NGL feedstocks

95%

Normal Butane pricing relative to crude oil

75%

80%

85%

90%Normal Butane pricing relative to crude oil


65%

70%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: IHS

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TPC Group OPBD Project Objective TPC Group OPBD Project Objective (cont’d)(cont’d)

To produce butadiene to keep rubber producers competitive globally

U t 270 000 MT d ti it d d t d d Up to 270,000 MT production capacity, dependent on demand

Targeting late 2016 start-up TCEQ & EPA now working “together”

Permitting timeframes now appear shorter

Located on Texas Gulf Coast Heart of butadiene demand in US

Extensive logistics delivery capability


Extensive logistics delivery capability

“Study the past, if you would divine “Study the past, if you would divine thethefuture” future” -- ConfuciusConfucius

“The distinction between the past, present,“The distinction between the past, present,and future is only a stubbornly persistent and future is only a stubbornly persistent illusion.” illusion.” -- Albert EinsteinAlbert Einstein

“The future“The future ain’tain’t what it used to be!”what it used to be!”


The future The future ain tain t what it used to be! what it used to be! -- Yogi BerraYogi Berra

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Mike BloeschMike BloeschVice President Vice President –– Strategic InitiativesStrategic InitiativesTPC GroupTPC Group


Butadiene – History Repeats Itself: The Past Holds the Key to Future Supply

IISRP Presentation Final.pptx...

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