ICIS pricing Weekly Margin - Ethylene Europe (Methodology)

Below is a detailed calculation of how the ethylene margin (napththa feed) is calculated for Europe. The figures refer to averages for contract sales values for 2008; the calculation for spot sales values is similar, as is that for the ethylene margin (LPG feed). Figures indicated in red are those found in the tables of the margin report; others relate to underlying assumptions of the model.

Ethylene margin (naphtha feed) calculation (€/tonne) – averaged for 2008

Ethylene contract price             1,102

Logistics costs/netbacks            (103)         

Net ethylene selling price                      999

Purchase feedstock (naphtha)¹ (1,760)

Co-product sales²                      1,254

                                                          (506)

Ethylene margin (naphtha feed)       493

¹The model assumes 3.278 tonnes of naphtha are required to produce 1 tonne of ethylene. The average net naphtha price (including logistics costs) for 2008 was $799/tonne (with an average $:€ conversion rate of 1.47)

²Co-product sales include credits for propylene, butadiene, benzene, raffinate-1, pygas and a fuel export balance.

MODEL YIELD PATTERN AND CALCULATION

Plant manufacturing data relates to the variable cost components of the cracker operations. Yield pattern data relates to the overall material balance of the cracker unit, for example, for 1 tonne of ethylene produced, a cracker requires 3.2 tonnes naphtha

feedstock, and will produce coproducts (such as propylene, butadiene and benzene) of 2.2 tonnes in addition to the 1 tonne of ethylene. This plant manufacturing and feedstock yield model data has been provided by Linde Engineering, a division of Linde AG.

■ Naphtha is the dominant cracker feedstock in Europe. The report also models LPG feedstocks (propane and butane) as some cracker units have a degree of flexibility to increase LPG usage when better economics are available for its use.

■ Due to the different cracker yield patterns for using naphtha or LPG feedstocks, this comparative analysis is not a simple case of comparing feedstock price differences; it takes into account the different coproduct credits.

■ This analysis demonstrates the volatility of the business and the influence of price floors since an uneconomic margin generally forces supply reductions.

The exact yield patterns used cannot be published in an unrestricted document such as this methodology statement. However, for ICIS Weekly Margin – Ethylene Europe report subscribers with a specific requirement to see this data, it can be shared on a case-by-case basis.

Please contact the Global ICIS Customer Support Centre (details at end of document) if this data is required.

ASSESSMENT INPUTS

The following 14 ICIS pricing inputs are used to generate the full content of the ICIS Weekly Margin – Ethylene Europe report

■ Naphtha in Europe Spot CIF NWE (Friday assessment) ($/tonne)

■ Butane in Europe Spot CIF NWE 3000mt+ (Friday assessment) ($/tonne)

■ Propane in Europe Spot CIF NWE 3000mt+ (Friday assessment) ($/tonne)

■ Gasoline: Unleaded Premium in Europe Spot FOB Barges ARA (weekly average) ($/tonne)

■ Fuel Oil 1% in Europe Spot CIF Cargoes NWE (weekly average) ($/tonne)

■ Ethylene in Europe Quarterly Contract FD NWE (€/tonne)

■ Ethylene in Europe Spot CIF NWE ($/tonne)

■ Propylene in Europe Quarterly Contract FD NWE (€/tonne)

■ Propylene (Polymer Grade) in Europe Spot CIF NWE (€/tonne)

■ Butadiene in Europe Contract FD NWE (€/tonne)

■ Butadiene in Europe Spot FOB Rotterdam ($/tonne)

■ Benzene in Europe Contract FOB NWE (€/tonne)

■ Benzene in Europe Spot CIF ARA ($/tonne)

■ Raffinate-1 in Europe Spot CIF NWE ($/tonne)

The ICIS pricing methodology associated with each individual pricing quotation referenced above can be found in the free access methodology area of www.icispricing.com

In addition to the above pricing inputs ICIS pricing uses the $/€ mid market exchange rate on the date of the report publication issued at 16:00 London time by XE (www.xe.com). Mid-market rates are derived from mid-point between the buy and sell rates of large-value transactions in the global currency markets.

A key objective of the calculation procedure is to provide a weekly summary that is most strongly aligned to the reported market price positions on the date of publication.

Where ICIS price quotations are not available for individual weeks due to public holidays, then prior week data is carried forward for the specific purpose of populating the model and preventing model inconsistency. This form of data interpolation is inferring some limited data points that may not be market derived, and customers should be aware of this assumption.

All data in the ICIS Weekly Margin – Ethylene Europe report is denominated in euros unless specifically indicated otherwise.

LONGER RANGE VIEWS:

LPG VERSUS NAPHTHA FEED

This provides a weekly comparison of the calculated contract LPG margin minus the calculated contract naphtha margin. When this differential provides a positive numerical output, this implies that LPG feedstocks derive a higher margin for a cracker operator compared with naphtha feedstock. Similarly, when this differential provides a negative numerical output, this implies that LPG feedstocks derive a lower margin for a cracker operator compared with naphtha feedstock.

CONTRACT VERSUS SPOT (NAPHTHA)

This provides a comparison of the calculated margin for spotbased cracker product sales (ethylene plus coproducts) minus contract-based sales. When this differential provides a positive numerical output, this implies that spot-based cracker product sales derive a higher margin compared with contract-based sales. Similarly, when this differential provides a negative numerical output, this implies that spot-based cracker product sales derive a lower margin compared with contract-based sales.

CONTRACT MARGIN

This provides a longer range view of the contract naphtha margin and the spot naphtha price.

For the avoidance of any doubt, the basis in which ICIS pricing data is utilised for each of these respective models is summarised in the table below. For more detailed information about these quotations, please refer to the Assessment Inputs section above.

	Spot margin	Contract margin model
ICIS price	Model	model
Naphtha	Spot	Spot
Butane	Spot	Spot
Propane	Spot	Spot
Gasoline	Spot	Spot
Fuel oil	Spot	Spot
Ethylene	Spot	Contract
Propylene	Spot	Contract
Butadiene	Spot	Contract
Benzene	Spot	Contract
Raffinate-1	Spot	Spot

The ICIS Weekly Margin – Ethylene Europe report will provide contract versus spot (naphtha) and contract margin data charts on alternate weeks.

PUBLICATION FREQUENCY

The ICIS Weekly Margin – Ethylene Europe report is produced on a Friday at the close of business in Europe and distributed to customers on the following Monday, subject to schedule planning. When the Monday is a public holiday in the UK, the report is distributed on the Tuesday. The report is not published on some public holidays. Holiday dates and days of publication may be subject to revision.