Industrial Gasification
The Counter-Intuitive Strategy Play
Mark Costa
Senior Vice President
Corporate Strategy & Marketing
1
Agenda: Industrial Gasification
• Gasification Is Advantageous
• Eastman's Strong Gasification
Credentials
• Our Strategy To Transform Eastman
Chemical Company
2
The Problem for the U.S.
"Currently, there are plans to build more
than 80 large-scale chemical plants
across the globe in the coming decade
… with price tags of a billion dollars or
more, and thousands of good jobs.
"Not a single one is planned for the U.S."
Andrew Liveris
Chairman & CEO
Dow Chemical
Oct. 30, 2006 3
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
The reason? Natural gas prices
$16.00
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
4
There is an alternative
Coal Is Lower Cost and Less Volatile
Coal Prices vs. Comparable Raw Materials
$14
$80
$70
$12
Natural Gas
and Coal
$ / MMBTU
$60
Crude
(West Texas
Intermediate)
$10
$8
$50
Crude
$40 $ / bbl
$6
$30
$4
$2
Natural Gas
(Houston Ship
Channel)
Coal (Illinois Basin)
$0
1990
Note: All prices are in constant 2006 dollars
Source: Eastman, GED
1992
1994
1996
1998
2000
2002
$20
$10
$0
2004 Oct-06
5
Coal is One Alternative
The U.S. Has Over 25% of the World's Coal Reserves
United States has 250+ year supply of coal
% of Total World Reserves
50%
40%
U.S.
Non-U.S.
30%
20%
10%
0%
Coal
Crude Oil
Source: International Energy Agency and Dept. of Energy Information Adm. (EIA)
Natural Gas
6
Coal is An Alternative
Coal Remains Low Cost Even as Demand Grows
U.S. Coal Cash Cost Curve - 2006
$ / Short Ton
250
200
150
2005
100
2025
50
0
0
2,500
5,000
7,500
10,000 12,500 15,000 17,500
Million Tons / Year
Source: Cost Curve from ICF Consulting – 2003 updated to 2006, EIA for 2025 consumption
7
Eastman's Strategy: Build on Coal
• Leverage advantages of coal
• Leverage our technology / know-how
• Build world-class cost position in the
U.S.
8
Gasification Basics
Oxygen (95-99%)
N2
Air
Air
Separation
Unit
Gasifier
(quench
type)
Carbon Source
(e.g., coal) + Water
Gasifier Section:
•Controlled chemical reaction
•High temperature
•High pressure
•Short residence time
Products (syngas):
•CO
can adjust
•H2
CO/H2 ratio
By-products:
•H2S •Ash (slag)
•CO2 •Steam
Gas
Clean-Up
Before
Product
Use!
Quench Zone (quench gasifier only):
•Gas and molten ash quenched in
circulating water bath
•Ash/slag discharged out bottom as
inert, glassy frit (saleable byproduct)9
+
Rod Mill
10
Slag (Inert Minerals/Ash from Coal)
Eastman's Coal Gasification Credentials
Proven Expertise & Reliability Over 20+ Years
• First to operate a commercial coal gasification facility
in the U.S.
– Only company to produce commercial quantities of
acetyl chemicals from coal
• Best, most experienced operator
• Developed intellectual property related to gasification
• Contributing to strong, sustained acetyl stream
operating earnings
10
Our Goal Is To Increase Volume Derived
from Coal to 50%
• Achieve low, stable cost positions in our olefins,
acetyl, and polyester streams, capitalizing on the
crude-to-coal spread
• Position for growth in current products
• Selectively expand into attractive new products
• Producer, net buyer position in key raw
materials
11
What Raw Materials Are We Targeting
From Gasification?
Top Purchased Energy and Raw Materials
Olefin Feedstocks
Other
Electricity
Paraxylene
Coal
Cellulose
Ethylene Glycol 12
Other Crude and
Natural Gas-Based Raw Materials
Natural Gas
Polyester Raw Materials Through
Gasification Improves Product Costs
PET Products
Copolyester Products
13
Polyester Raw Materials
An Example Of One of Our Projects
• North American Gasification Project
– Facility would be base-loaded with high-value products to
third-party customers
– Several interested potential partners
– Supply methanol to Eastman
• Eastman Ethylene Glycol Project
–
–
–
–
Related project with Eastman as sole owner
Developing new technology to produce ethylene glycol
Projected 2nd quartile global cost position
Replace portion of Performance Polymers' and Specialty
Plastics' purchased raw materials with low-cost, stable
feedstock
14
Disciplined Strategy to Mitigate Risk

Market



Technology
Engineering,
Procurement &
Construction




Partner

1st or 2nd quartile cost position
Long-term contracts for base-load products
EOR or sequestration of carbon
Mixture of in-house and licensed technologies
Partner with others where it can cut development time
Rely on our proven track record, best practices
Design choices for high-capital cost environment
Eastman is favored partner for gasification projects
Appropriate deal structure
15
Execution


Proactive hiring and training of staff
Stage execution of projects
Summary
Taking the Counter-Intuitive Route
• Demonstrate technology possibilities for the
US chemical industry
• Position Eastman for growth in current
products and, potentially, new products
• Use domestic feed-stocks to transform our
company
16
Industrial Gasification
The Counter-Intuitive Strategy Play
Mark Costa
Senior Vice President
Corporate Strategy & Marketing
17