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

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00Jan-9

0

Jan-9

1

Jan-9

2

Jan-9

3

Jan-9

4

Jan-9

5

Jan-9

6

Jan-9

7

Jan-9

8

Jan-9

9

Jan-0

0

Jan-0

1

Jan-0

2

Jan-0

3

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

5

There is an alternativeCoal Is Lower Cost and Less Volatile

$0

$2

$4

$6

$8

$10

$12

$14

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)

7

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

8

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

10

10

• 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

16

• 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