Role of PDH in Asian Propylene Supply Market

April 19, 2017

Chul-Jin (CJ) Kim CEO

Agenda

1. SK Introduction

2. Asian Propylene Market

3. PDH as on-purpose process

4. Our Values to Customers

5. Key takeaways

SK Group

U$ 57 Billion Sales in 2015

ENERGY &

CHEMICALS (37 Co.)

U$ 37 Billion Sales in 2015

INFORMATION &

TELECOMMUNICATIONS (19 Co.)

U$ 31 Billion Sales in 2015

MARKETING &

LOGISTICS, SERVICES, etc. (30 Co.)

E&P, future energy, R&D

Oil refining & marketing

Petrochemicals

Lubricants

Holding co. of LNG distributors

Chemicals & electronic materials

Fine chemicals, life science

LPG marketing & trading

Petrochemicals

Engineering, plant, construction

Marine transportation

Brokerage house

Hotel, duty free, F&B

Energy distribution, trade, consumer goods business

Mobile service provider

Platform services

International call & VoIP service

IT solutions & consulting

Communication equipment

Semiconductor memories

Wired/wireless telecom, broadcasting services

Internet portal, SNS /messaging

Consists mainly of 3 Business Areas and Revenue for ‘15 was $ 125 Billion SK Group accounts for 9% of Korean GDP

1. SK Introduction

SK Advanced/ SK Gas

• Production of propylene from propane

(Integrated with existing Ulsan Complex)

• Ulsan, Korea

• Propylene 600 KTA (Stand-alone)

- Feed stock : Propane 700 KTA

• By-products: Hydrogen, Steam, etc.

Business

Location

Product & Capacity

Business overview Partnership Structure

SK Gas : 45%

Saudi Arabia’s APC : 30%

Kuwait’s PIC : 25%

Ulsan

JV

SK Gas Biz

Performance (‘16)

SK Gas HQ

SK Advanced HQ

140KT SK Gas LPG Storage

130KT LPG Volume (MMT) 10.4

Revenue ($MM) 4,780

EBITDA ($MM) 210

1. SK Introduction

■ Propane ■ Butane

130KT SK Gas LPG Storage

60KT

Propylene Market Trend

Asian Propylene Supply/Demand Trend

(Unit : Thousand Metric Ton)

2. Asian Propylene Market

Demand for propylene in Asia has been and will be growing at a fast rate, outpacing the conventional(NCC/FCC) process capacity additions, giving rise to the OPP(On-purpose production)

-

10,000

20,000

30,000

40,000

50,000

60,000

10 11 12 13 14 15 16 17 18 19 20

( 19 ~ 22%)

29 ~ 37%

Processes '16 '20 CAGR

NCC/FCC 30,672 31,860 1%

On-purpose 10,939 20,518 17%

Imports

ETC

FCC

NCC

On-purpose

(39 ~ 42%)

13 ~ 24%

44 ~ 51%

( 23 ~ 25%)

8 ~ 11%

53 ~ 61%

( 23 ~ 26%)

[Unit : Thousand Metric Ton]

Strong demand growth driven by

urbanization in Asian countries

NCC additions in Asia stifled by

the growth in ECC project in North

America (Shale gas)

FCC additions constrained by

low gasoline demand growth

Implications

On-purpose process has risen

to fill the gap

Demand

Demand : 6%

4%

2%

23%

CAGR

(’10~’20)

Source: IHS Markit

Asian Propylene Supply by PDH

PDH process will become more important as its share of total production increase by ‘20

Propylene supply by PDH to be increased by 3.4 MM ton 2016 2020

Almost Doubling of PDH Supply

‘16 Propylene Supply by Process ‘20 Propylene Supply by Process

2. Asian Propylene Market

48%

(20,052)

25%

(10,620)

10%

(4,309)

4%

4%

3% 3% 2%

1% 0% 0% 0%

Steam Crackers

FCC

Dehydro

HS FCC

Methanol to Olefins (MTO)

Coal to Olefins (CTO)

Metathesis

Coal to Propylene (CTP)

Olefin Cracking

Refinery Grade Direct

Methanol to Propylene (MTP)

Other On-Purpose

41%

(21,476)

20%

(10,384)

15%

(7,768)

4%

5%

8%

3%

3% 1% 0% 1%

0% Steam Crackers

FCC

Dehydro

HS FCC

Methanol to Olefins (MTO)

Coal to Olefins (CTO)

Metathesis

Coal to Propylene (CTP)

Olefin Cracking

Refinery Grade Direct

Methanol to Propylene (MTP)

Other On-Purpose

Total Supply : 41,950 KT Total Supply : 52,873 KT

Source: IHS Markit

On-purpose propylene process units 3. PDH as On-Purpose Process

Process Feedstock Raw material

cost CAPEX OPEX Challenges

PDH Propane Moderate Low Moderate Plant reliability & stable operation

CTO/CTP Coal Low High High High CAPEX / Environmental

& water issue

MTO/MTP Methanol High Moderate Moderate Raw material cost and

sourcing

Metathesis Ethylene/ Butylene

Moderate - High

Low Low Availability & economics of

feedstock

HS-FCC Crude Moderate Moderate Low Disposal and economics of

gasoline

There are several options for on-purpose propylene production and each have its pros and cons which make them attractive for different reasons

Competitiveness Analysis of PDH

FCC

NCC (Med) NCC

(Large)

PDH

OCU

CTO &

CTP

NCC (Small)

($/t) NEA demand

MTO

MTP

‘16 : Average E/P Price ratio 144%

’17(E) : Average E/P Price ratio 130% assumption

※ Source : Internal analysis (Propane/Naphtha price ratio : 90%)

Buffer

FCC Large NCC

OCU

CTO &

CTP

($/t) NEA demand

MTO

MTP

Buffer

3. PDH as On-Purpose Process

The competitive of PDH will be dependent on the various factors like propane/naphtha price ratio, E/P price ratio, price of methanol and butylene, etc.

NCC (Med) PDH

Small NCC

OCU

E/P Ratio 100% Case

FCC Large NCC

MTO

CTO &

CTP

($/t) NEA demand

MTO

MTP

Buffer

NCC (Med) PDH

OCU

PDH Small NCC

MTP OCU

MTP

MTP

World PDH Project Status

Source: IHS Markit & internal analysis

1.11 ((23%)

2.90 (49%) 1.90

((36%)

There has been a surge in the PDH plant production capacity in the past few years around the world, especially in NEA, and it’s expected to continue in the foreseeable future.

3. PDH as On-Purpose Process

‘13 : 5,040 KMT

’16 : 11,170 KMT

’20 : 17,00 KMT

Unit : Thousand Metric Ton (000MT)

130

North America

South East Asia

North East Asia

West Europe

CIS

Middle East

Africa

400

1,000 510

660

650

790 790 790

640

1,770 1,770 2,270

5,650

9,450

400 400

640 640

1,400 2,450

Global LPG Production by region

Source : IHS Global NGL Long-Term Market Outlook

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Oceania

North America

South America

Middle East

Far East Asia

SEA

India

Europe

Africa

3.0%

21~23%

24~30%

5~6%

12~13%

5%

2%

14~16%

7~9%

4%

4.7%

2.9%

1.8%

1.8%

4.3%

1.4%

1.4%

0.4%

CAGR ('10-'20)

3. PDH as On-Purpose Process

Global LPG Supply in ‘17 will be 301 MM Tons (increase of 7 MM Tons compared to ‘16). In ‘20, Supply is estimated 328 MM Tons (CAGR 2.8%) due to development of NAM shale Gas and Russia/ME Gas well

Key Drivers

• NGL Production increase by Shale gas &

Tight Oil Development

• Oil Price is the Key Variable Factor

• Refinery Production increase in China and India

• Ichthys/Prelude LNG Operation in Australia

(LPG 1.6 MM tons/yr Production)

• Increase Production : Saudi Shaybah Gas Project

Initiate Production : Saudi Wasit Gas Project

• Kuwait North Field, Refinery increase Production

• Release Iran Sanction

• Russia Production increase by NG development

• North Sea Oil/Gas Production decrease

• Europe Refinery Production decrease

North America

Asia

Middle East

Europe

South America/

Africa • Angola Soyo LNG Project restart in 2nd Half ‘16

Unit: MM tons/yr

Source : IHS Global NGL Long-Term Market Outlook

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2.9%

0.2%

5.0%

3.5%

6.5%

0.2%

0.4%

1.5%

1.6%

9~11%

18~22%

12~16%

21~28%

7%

1%

5%

6~9%

11~12%

CAGR ('10-'20)

Global LPG Demand by region 3. PDH as On-Purpose Process

Oceania

North America

South America

Middle East

Far East Asia

SEA

India

Europe

Africa

Unit: MM tons/yr

• NEA Petrochem demand increase

- China PDH Increase - Price sensitive demand increase

• R&C Kerosene Replacement demand increase

in SEA/India

• C4 for MTBE Demand increase

• Demand increase for New Cracker, PDH

• R&C Demand increase in Egypt, Morocco

Asia

Middle East

Africa

Europe/ North

America

• R&C Demand increase are limited

• In ’18, NAM PDH Demand increase by

3 MM tons/yr.

• NAM Ethylene Demand is Core Variable Factor

• R&C Demand increase by Economic and

Population growth

• Power Generation Demand growth in Caribbean

South America

Key Drivers

Global LPG Demand in ‘17 will be 285 MM Tons (increase 11 MM Tons compared to ‘16). In ‘20, Demand is estimated 307 MM Tons mainly due to increase of R&C & petrochemical demand In Asia

LPG Export/Import Flow Forecast 3. PDH as On-Purpose Process

Exporting volume from NA will increase more than 6MMT by ‘20 and most of it will flow into Asia

LPG Export/Import Flow Forecast 3. PDH as On-Purpose Process

36.4

7.9

4.4

0.5

13.1

(Unit: MMT)

1.7 2016

2020

18.4

* Asia Pacific volume includes Oceania

38.4

1.5

0.4

9

3.9

4.4

North America (‘16)

Latin America (‘16) Africa/Med (‘16)

Europe (‘16)

Export Import Balance

Asia Pacific (‘16)

0.3

24.9 25.2

Export Import Balance

1.1 △8.4

Export Import Balance

7.1 3.5

10.6

Export Import Balance

△8.7

18.1

Export Import Balance

36.7 38.0

Export Import Balance

2.8

△49.4 52.2

Middle East (‘16)

9.5

1.3

9.4

Source : FGE LPG Forecast

4.6

0%

20%

40%

60%

80%

100%

120%

-

200

400

600

800

1,000

1,200

FEI MOPJ FEI/MOPJ

Glut in global LPG supply will be cleared by the price-sensitive demand, and it will lead to stabilization of Propane/ Naptha ratio in Asia in the long-term

($/MT)

Propane / Naptha Ratio

’11 ’12 ’13 ’14 ‘15 ‘16

Avg. 92% 102% 98% 96% 98% 87%

LPG Price Trend

Petro- chemicals

Autogas

Industrial

Residential / Commercial

2020

22 (7%)

78 (24%)

24 (7%)

21 (6%)

162 (49%)

2015

22 (8%)

61 (22%)

24 (9%)

20 (7%)

Others

136 (48%)

2010

244

24 (10%)

49 (20%)

22 (9%)

19 (8%)

117 (48%)

CAGR ('10-'20)

Global LPG Demand Growth Forecast

283

328

12 (5%)

20 (7%)

21 (6%)

Price- sensitive Demand

Source: IHS Markit

Unit: MM tons

3%

0.8%

0.8%

4.2%

-0.9%

2011 2012 2013 2014 2015 2016

3. PDH as On-Purpose Process

Challenges of PDH process unit

With the ample supply of propane, PDH is one of the most attractive on-purpose processes if all of the following conditions can be met

3. PDH as On-Purpose Process

Stable/ competitive sourcing of propane

Secure propylene demand & integration for by-product utilization

Capability of EPC project execution (cost/ schedule/ quality management)

Plant reliability and stable plant operation

SK Gas as Global Top-tier LPG Player 4. SK Values to Customers

Middle East

North America

South Korea

China

India/ Indonesia

Singapore Terminal

■ Tangible Asset ■ Intangible Asset

Storage Capa. 460KT

Global offices Seoul, Singapore, Dubai, Houston

Vessel ownership 5 own vessels

(+2 in ‘18)

Network w/ Oil Exporting Countries

20+ yrs. of biz. partnership

SK group Synergy Sharing know-hows &

information

Systematic Risk Mgmt.

Middle/Back Office for trading

Domestic Demand (Captive)

Captive Demand : 4MMT

1,400 KT

3,920 KT

1,800 KT

LPG Sales

(’16)

Making history in PDH plant operation through its operation stability

- World-best plant operation stability

On-Spec production in 9 hours, 100% Load in 15 days after Feed-In (Current Load over 110% and On-Stream Factor over 99%)

Accident Zero, Export Demurrage Zero, Throughput Reduction by Sales Trouble Zero

Providing a competitive edge through successful EPC project execution

- Early mechanical completion (5 months earlier than the original projection)

- Investment cost savings ($100 MM)

SK Advanced is pursuing to be the most competitive PDH plant in the world through its operation excellency

SK Advanced/SK E&C PDH competitiveness 4. SK Values to Customers

Unit 2016

Avg. Apr May June July Aug Sept Oct Nov Dec

Operation

Available Days day 30 31 30 31 31 30 31 30 31

Load rate % 100.4% 104.4% 104.1% 98.8% 105.8% 106.2% 108.7% 110.4% 111.8% 105.6%

On Stream Factor* % 100.0% 100.0% 100.0% 98.9% 100.0% 100.0% 100.0% 100.0% 100.0% 99.9%

* On stream Factor : operation days / available days

[Monthly Operation in ‘16]

Mission We create the future of energy

(Beyond the Limits Discover, Connect, Create)

Vision Global Top Tier Eco Energy Total Solution Provider

Singapore Terminal

Middle East

North America South Korea

LPG Trader (World Top-tier Trading Capabilities utilizing existing assets) ① Handling LPG 10 MM ton, Operating own 5 VLGC, Time Charter 1 VLGC and 2 New VLGC in ‘18 ② Singapore Office & Terminal (w/Vopak) for EoS and Houston Office & Virtual Terminal for WoS ③ LPG storage caverns 270,000 tons for Propane and 190,000 tons for Butane in Korea

Higher Value Proposition to Petrochemical Customers ④ Better understanding on petrochemical industry and customers’ requirement & needs by operating PDH plant ⑤ Supply feedstock (LPG) and propylene to petrochemical customers with NCC and PDH plants

Total Solution Provider ⑥ Pursuing Total Solution Provider to various Customers by Utilizing experience as Domestic LPG provider, Worldwide LPG Trader

and Propylene Manufacturer. Delivering Solution for Customers’ Needs like Relative Price, Quality and Fuel Efficiency, etc.

Core

Competency

Our Mission & Vision

China

4. SK Values to Customers

Summary 5. Key Takeaways

[Asian Propylene Market] • Firm demand growth of propylene driven by urbanization in the developing

countries in Asia • On-purpose process units are necessary in order to fill the gap between

growth in conventional process supply and propylene demand

[On-purpose process unit] • Each on-purpose process unit can be attractive, depending on the stand-point w/ different challenges to overcome • Supply growth from CTO/PDH are outpacing all the other processes

[PDH] • Increased global LPG liquidity will lead to stabilization of propane price,

resulting in better economics for PDH • Four key factors for successful PDH :

1) LPG sourcing 2) Secure demand outlet and by-product utilization 3) EPC project execution capability 4) Plant reliability & stable operation

End of Document

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