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1
Industrial Gasification
The Counter-Intuitive Strategy Play
Mark CostaSenior Vice President
Corporate Strategy & Marketing
2
Agenda: Industrial Gasification
• Gasification Is Advantageous
• Eastman's Strong Gasification
Credentials
• Our Strategy To Transform Eastman
Chemical Company
3
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.
Andrew LiverisChairman & CEO
Dow ChemicalOct. 30, 2006
"Not a single one is planned for the U.S."
4
The reason? Natural gas prices
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There is an alternativeCoal Is Lower Cost and Less Volatile
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1990 1992 1994 1996 1998 2000 2002 2004 Oct-06
$0
$10
$20
$30
$40
$50
$60
$70
$80Coal Prices vs. Comparable Raw Materials
Natural Gas and
Coal$ / MMBTU
Crude$ / bbl
Crude(West Texas Intermediate)
Natural Gas (Houston
Ship Channel)Coal (Illinois Basin)
Note: All prices are in constant 2006 dollarsSource: Eastman, GED
6
0%
10%
20%
30%
40%
50%
Coal Crude Oil Natural Gas
U.S.Non-U.S.
% o
f T
ota
l Wo
rld
Re
serv
es
United States has 250+ year supply of coal
Coal is One Alternative The U.S. Has Over 25% of the World's Coal Reserves
Source: International Energy Agency and Dept. of Energy Information Adm. (EIA)
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Coal is An Alternative Coal Remains Low Cost Even as Demand Grows
Source: Cost Curve from ICF Consulting – 2003 updated to 2006, EIA for 2025 consumption
U.S. Coal Cash Cost Curve - 2006
0
50
100
150
200
250
0 2,500 5,000 7,500 10,000 12,500 15,000 17,500
Million Tons / Year
$ / S
ho
rt T
on
2005
2025
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Eastman's Strategy: Build on Coal
• Leverage advantages of coal
• Leverage our technology / know-how
• Build world-class cost position in the U.S.
9
+
Air
Oxygen (95-99%)
N2
Carbon Source(e.g., coal) + Water
Rod Mill
Gasifier Section:•Controlled chemical reaction•High temperature•High pressure•Short residence time
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)
Slag (Inert Minerals/Ash from Coal)
GasClean-Up
BeforeProduct
Use!
AirSeparation
Unit
Products (syngas):•CO •H2
By-products:•H2S •CO2
•Ash (slag)•Steam
can adjustCO/H2 ratio Gasifier
(quenchtype)
Gasification Basics
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• 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
Eastman's Coal Gasification Credentials Proven Expertise & Reliability Over 20+ Years
11
• 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
Our Goal Is To Increase Volume Derived from Coal to 50%
12
What Raw Materials Are We Targeting From Gasification?
Top Purchased Energy and Raw Materials
Olefin Feedstocks
Paraxylene
Ethylene Glycol
Natural GasOther Crude and
Natural Gas-Based Raw Materials
Cellulose
Coal
Electricity
Other
13
Polyester Raw Materials Through Gasification Improves Product Costs
PET Products Copolyester Products
14
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
15
MarketMarket
TechnologyTechnology
PartnerPartner
Engineering, Procurement & Construction
Engineering, Procurement & Construction
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
ExecutionExecution Proactive hiring and training of staff Stage execution of projects
Disciplined Strategy to Mitigate Risk
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• 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
Summary Taking the Counter-Intuitive Route
17
Industrial Gasification
The Counter-Intuitive Strategy Play
Mark Costa
Senior Vice President
Corporate Strategy & Marketing