EFTA01385300.pdf

3 January 2018 HY Corporate Credit HY Multi Sector,Media, Cable & Satellite I Figure 5: Increased usage of cheap ethane feedstock has reduced average U.S. ethylene production costs 60% so CO% 10% SS% IA% 50 Eu% Ca% 60% .1 40 E 30% 47 30 20% lib III " 0 2003 2004 2005 2006 2007 2006 2009 2010 2011 2012 2013 2014 2015 2016 2017 fi r.oM••htiwNwa.Gnth NS 1410v OREM .4 II t•44••••• wv Smote ant a.n OftearovoSont U.S. ethane-based ethylene producers maintain their cost advantage vs. naphtha-based ethylene producers in Europe and Asia For U.S. NGL-based ethylene producers, the widening spread between oil and natural gas in '10-'14 signified a substantial cost advantage versus oil-based producers in Europe and Asia. Based on their respective fuel value, oil and gas are balanced at a ratio of roughly of 8x. After averaging 8x (Brent oil vs. U.S. natural gas) from 2000-'06, the oil-to-gas ratio widened to an average of 30x from 2011-'14 on higher oil prices and lower natural gas prices. With the ratio at 22x in November •17, U.S. NGL producers remain highly advantaged as an oil-to-gas ratio of 15x denotes a significant cost advantage. In November, U.S. ethane-based ethylene producers enjoyed a 26 O13 cost advantage versus naphtha-based producers in Asia with U.S. costs of 13 alb vs 39 cab in Asia. We expect this cost advantage for U.S. producers to continue through the rest of the decade. Deutsche Bank's Commodities team forecasts oil prices will average $53.40/bbl (Brent) in 2017, $54.50/bbl in 2018, $56/bbl in 2019 while U.S. natural gas prices will average S3.02/MMBtu in 2017, $3.00/MMBtu in 2018 and $3.10/MMBtu in 2019. These forecasts result in an oil-to-gas ratio of 17.7x in 2017, 18.1x in 2018 and 18.1x in 2019. [Figure 6: Global Ethylene Cost Curve 2017 (cents/lb) 45 40 36 1 30 25 20 15 10 0 Saue5 US W CAN US VVTO US Co Int US LI Nap WEP Nap NEP Nap SEA Nap Arab* Ethane Ethane Aro It Nap Sven 045 [Arks( Chract• Sn Deutsche Bank Securities Inc. Page 25 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086584 CONFIDENTIAL SDNY_GM_00232768 EFTA01385300