Canada’s chemical producersresponsible care®

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After 100 years of sweating the small stuff, you realize there is no small stuff.

Food. Shelter. Clothing. Transportation. Medicine. When you’re dealing with the essentials of life, no

detail is too small. And the ramifications of just about everything can be rather big. That’s why, on 5 continents, in

over 60 countries, the people of Dow continually push their mastery of science and technology. A mastery that

has, at last count, produced over 59,000 patents and, more important, found its way into millions of products and

services — improving them in ways big. And not so small.

From its early and rapid growth in the 1960s, the Canadian chemical industry has come a long way to solidifyits position as a mainstay of the national economy. This special report looks at the road it has travelled andchallenges that lie ahead.

C A N A D A ’ S C H E M I C A L P R O D U C E R S 3

Climate change is a hot topic, but theCanadian chemical industry has had it

on the front burner for more than a decade.The Canadian Chemical Producers’ Association

(CCPA), whose member companies producemore than 90% of industrial chemicals man-ufactured in Canada, urged its members totake up the challenge of reducing greenhousegas emissions in 1994, three years before theKyoto accord was formulated. And CCPAhad started tracking these emissions evenfurther back – in 1992. “There was already a recognized need that

we had to do something after the 1992 RioEarth Summit,” recalls David Podruzny, CCPA’svice-president of business and economics.“Consistent with our Responsible Care ethic,we felt that we were going to have to headdown this road, and that the sooner we did,the better it would be for all concerned.” The chemical sector encompasses a diverse

industry that produces organic and inorganicchemicals, plastics and synthetic resins. ForCanada’s chemical industry, energy is a signi -

ficant cost of doing business, and companieshave worked for many years to improve theenergy efficiency of their operations. And along-term improvement in energy efficiencyhas brought an associated reduction ingreenhouse gas emissions.Those reductions have occurred concurrently

with industry growth. The chemical sector’sproduct output has increased nearly 26% since1992, but total carbon-dioxide emissions byCCPA members from 1992 to 2003 increasedby only 0.7%. In terms of global warmingpotential, CCPA member companies’ green-house gas emissions in 2003 decreased by41% compared to 1992 amounts (measuredin million tonnes carbon-dioxide equivalent). Some individual corporate performances stand

out. Imperial Oil, for instance, has invested$14.5 million in capital projects to increaseenergy efficiency at its refinery/chemicaloperations since an energy study was carried outin 2000, with another $45 million committed.ERCO Worldwide has reduced fossil-fuel

consumption by more than 94% at its facility

in Buckingham, Que., through an innovativeplan to turn waste hydrogen into fuel for itssteam plant. Methanex has established a mechanism that

treats its greenhouse gas emissions globally,rather than on a national basis. It developedan internal greenhouse gas emissions tradingregime, just to track their emissions andreductions, and applied a value to the carbonto determine what it would be paying orreaping if it were selling and buying credits. For more than a decade, NOVA Chemicals’

Furnace Optimization Team worked to developand perfect the ANK400 high-temperaturealloy furnace tube coating. It reduces green-house gas emissions by reducing the frequencyof the decoking process. The innovative coatinginhibits the formation of catalytic coke withinethylene furnaces, enabling longer, moreefficient furnace run times of more than 400days – a significant improvement over theprevious 30-to-40-day run times.

An Industry With a Mission: Reducing Greenhouse Gas Emissions

Energy and Feedstocks: Caught in a Bind

The North American petrochemical indus-try relies heavily on natural gas – specif-

ically, the liquid natural gas componentethane – not just as an energy source butalso as its primary feedstock. But natural gas isat least 40% to 50% more expensive in NorthAmerica than in the rest of the world, and notenough of the valuable ethane is strippedout of the gas before it exits the country.Caught in the crunch between growing

demand, unstable supply and consequenthigh prices, industry leaders say it’s time forgovernment leaders to step up with a coherentenergy policy that will save their industry.Ramesh Ramachandran, president of Dow

Canada, says chemical plants are closing andnew investment is being driven offshore in aquest for reliable energy feedstocks. “When

you couple the uncertain supply of ethane withthe dramatic increase in the price of naturalgas, Canada’s ability to compete on a globallevel has been seriously compromised,” hesays. “From a global standpoint, it’s hard tocome up with a rationale for large-scale capitalinvestment unless we see major changes.”Many of his colleagues in Canada’s manu-

facturing sector who use natural gas as a sourceof energy agree. In a survey of 72 companiesrepresenting $71 billion in output, 28% ofrespondents said that high energy costs willcause output to decline either “significantly”or “somewhat”. Higher energy costs havealready led more than a third of respondentsto either move investment out of Canada(12%) or to actively consider it (24%).High prices are already causing plants to

operate at less than full capacity. Between2000 and 2004, consumption of natural gasactually declined 6.75% while prices rose 24%. “The question we should be asking ourselves

is how do we ensure that energy resourcesare used in the best possible way,” says ValMirosh, vice-president of NOVA Chemicals.“We should be trying to upgrade the value ofnatural resources in Canada as much as we can.” Ramachandran points out that there’s

plenty of worldwide demand to justifyincreased petrochemical investment – justnot in North America. He says 120 chemicalplants, each worth $1 billion-plus, are underconstruction around the world – but only onein North America. Yet Alberta is exporting itsnatural gas without extracting nearly half of

cont’d on p.6

Shell Chemicals

Happy 20thResponsible Care

®

Responsible Care is a Canadian-made ethic which sets standards for chemical

industry operations and public dialogue.

Because continuous improvement is at the heart of Responsible Care, two decades is indeed something we can all celebrate.

shell.com/chemicalsProud participant in:

C A N A D A ’ S C H E M I C A L P R O D U C E R S 5

Federal and provincial energy policies foryears have promoted natural gas as the

clean-burning fuel – the superior choice forresidential and industrial heat and as fuel forelectricity generating plants. Canadian chemical producers are wondering

whether the country is figuratively paving thestreets in gold and ignoring cheaper alterna-tives. Natural gas is a key raw material for theirvalue-added processes. But chemical industryleaders say excessive demand has made naturalgas so expensive, driving electricity priceshigher along with it, that it undermines theirability to compete inter nationally.The over-reliance developed through decades

when natural gas was plentiful and inexpensive.Now, burning natural gas for fuel at US$14per mcf seems extravagant when you considerthat the rate ranged around US$2 or US$3 inthe early 2000s. The Geological Survey ofCanada calculates that natural gas producesheat at a cost of US$9.52 per gigajoule versusonly US$0.42 to US$2.17 per gigajoule forcoal. Oil-fired heat costs US$9.69. Richard Paton, president of the Canadian

Chemical Producers’ Association, is askinggovernments to consider the value-addeduses of natural gas. “If you use that naturalgas to make chlorine, sodium chlorate andpolyethylene, you end up with 40 times thevalue that you began with,” he says. “That’s40 times the value that Canada can get outof that product.” Paton says energy policymakers have failed

to recognize chemical producers as value-added industries. “Governments see chemicalsas ‘old economy’,” he says. “But the fact isthat we transform natural resources intoproducts through chemistry.” In doing so, chemical producers contribute

about $47 billion a year to the Canadianeconomy, converting natural energy resourcesinto many of the components and materialsfor the auto, clothing, fertilizer, food andpharmaceutical industries. That activity represents about 9.5% of the value-addedmanufacturing sector, according to CanadianManufacturers and Exporters figures,approaching the auto industry’s 14%.But high natural gas prices and closely related

electricity prices are threatening the chemical

industry’s place in the Canadian industrialfabric, Paton says. Closures during the summerof the Canexus plant in Amherstburg, Ont., aMethenex plant in Kitimat, B.C., and ERCO

Worldwide in Thunder Bay, Ont., were allattributed to North American natural gas prices. “We are a resource-rich nation,” says Paton,

“but we find ourselves in a position wherethe key resource of natural gas has become

too expensive to use. The same is happeningwith electricity, which is the means by whichwe transform products such as sodium chlorate.”Why do North American prices make

producers here uncompetitive? Because thoseprices are not reflected elsewhere. Naturalgas is not widely traded internationally dueto the difficulty in transporting it. And othercountries have not broadly adopted naturalgas for heating, electricity-generation fuel orfor their chemical industries. While NorthAmerican chemical manufacturers use naturalgas as the base for 70% of their upgradingproduction, producers in China, Japan andEurope use oil for 70% of their production.Oil, of course, is globally priced. Chemical producers would like to see

governments promote more balance in energysources and a lessening of dependence on

Burn or Build? Getting the Most from Natural Resources

Governments seechemicals as ‘old

economy’. But the fact is that we transform naturalresources into productsthrough chemistry.

the valuable ethane – of the 420,000 barrelsof ethane available from production eachday, only 220,000 barrels are extracted.Industry leaders say industry-government

co-operation needs to be brought to bear onthe situation with an eye to upgrading valuablenatural resources in-country as much as possible. “The markets are great for pricing and

establishing the value of commodities,” saysNOVA’s Val Mirosh, “but it doesn’t give a goodsignal of what you should do on a long-termbasis in terms of developing these resources.It’s reactive instead of proactive.”Ramachandran is touting a model similar

to royalty relief on capital and operating costsfor the Alberta oil sands projects, which arealso highly capital intensive. Such a policy forpetrochemicals, he says, would help raise themassive amounts of capital needed to bringnew ethane derivative plants on stream, andwould also help supplement ethane extractioncapabilities. “This would include negotiating with our

colleagues in the gas industry to add anextraction plant straddling the Alliance pipe -line,” he says, “a plant that would capturethe huge amount of Alberta ethane that exitsthe province on its way to Chicago.”While he supports stripping out more of

the valuable feedstock components of naturalgas to address the availability of ethane,Mirosh points out that government must alsotake the lead to lessen the unrealistic over-dependence on natural gas and encouragethe use of other natural resources such as coal,nuclear, hydro and alternative energy resources. “Canada has tremendous opportunities,”

Mirosh says, “because it is blessed with somany energy resources. We have to exploitthose resources in a systematic and measuredway. We have to look for new forms of energyand conservation.”

6 C A N A D A ’ S C H E M I C A L P R O D U C E R S

natural gas. “The federal government can workwith the provinces to get a clear idea of energysupply and demand,” says Paton, “and workout ways we can meet demand using all theresources available to us.”

He also urges provincial policymakers,especially in Ontario, to revisit energy andelectricity policies that have largely eliminatedcoal as a fuel for generating plants in spite ofits low costs.

“We’re looking for strong leadership onenergy,” says Paton, “and not platitudes,wishful thinking and naiveté while industryleaves for lower-priced markets.”

Putting Science to Work

At DuPont, we are striving to be the world’s most dynamic science company.

We’re working to address some of the toughest challengesand endeavouring to meet human needs for a safer world,effective communication, healthy, safe and affordable food,lightweight and durable materials, bio-based technology, and brilliant colours that decorate and protect.

In 2005 we introduced more than 900 new products.Future innovations will focus on energy efficiency in buildings, alternative energy technologies, electronic materials and components, agricultural biotechnology, and biomaterials and biofuels.

How we achieve our goals is important to us. Our actionsare guided by our company’s Core Values. We’re also a member of the Canadian Chemical Producers’ Associationand committed to its Responsible Care® principles and codesof practice.

At DuPont, we put science to work to create sustainablesolutions essential to a better, safer, healthier life for people everywhere.

© Copyright 2005. E. I. du Pont Canada Company. All rights reserved. The DuPont Oval Logo, DuPont™ and The miracles of science™ are trademarks or registered trademarks of E. I. du Pont de Nemours and Company.DuPont Canada is a licensee. Responsible Care is a registered trademark of the Canadian Chemical Producers‘ Association

Energy and Feedstocks cont’d from p.3

C A N A D A ’ S C H E M I C A L P R O D U C E R S 7

Simply put, Responsible Care began as thedesire for an industry to assume stewardship

of its products, the result of the strong leader -ship of chemical companies that recognizedthe industry had to make an unprecedented leapforward to adopt a different ethic in workingwith communities, governments and society. Responsible Care was conceived as a creative

response to challenges faced by Canada’schemical industry. Now, chemical industries inover fifty countries have adopted the ResponsibleCare formula.The seeds of Responsible Care were sown

well before India’s deadly Bhopal gas leak in1984. In 1977, the board of directors of theCanadian Chemical Producers’ Association(CCPA) approved the formation of an ad-hocgroup to draft a policy paper on manag inghazardous chemicals. CCPA’s directors endorseda set of guiding principles in May 1978. Shortly after the unthinkable happened

at Bhopal, CCPA’s board concluded thatcompanies needed to review their operationalprocedures to identify potential weaknesses.Several companies had already begun thisprocess, but the call went out for uniformaction across the membership. Meanwhile, political dynamics were

threat ening the chemical-producing sectorwith a legislative onslaught, fully supportedby a frightened public. Senior governmentofficials let industry leaders know that chem-ical producers were bound to face unprece-dented regulation without significant action.Something had to be done, and be seen tobe done.To that end, the board invited pollster Allan

Gregg (then head of Decima Research) togather data on public perceptions of theCanadian chemical industry. The national surveyresults discovered the most challenging anddifficult public attitudes that Decima had evermeasured relative to any industry. The perceivedlevel of risk from the chemical industry wassecond only to that of the nuclear industry. This volatile political atmosphere sustained

the momentum of the industry’s adoption ofResponsible Care, and industry codes of con-duct gained approval in November 1988. Thecodes that were so painstakingly developeddid not contain static requirements; instead,

they required continuous performance improve -ment. Today, there are those who claim thatCanada’s chemical industry really didn’t knowwhat it was getting into with Responsible Care.Had the ethic been presented to CCPA’smembership in its present-day form, it maynever have happened. Responsible Care represented a shift from

a legalistic to an ethical way of thinking. Thetough est part for members was that, for the

first time, they took the step of subjectingthem selves to scrutiny by outsiders, includingcommunity activists. They were no longerentitled to main tain secrecy about their internaloperations, but would have to report to CCPAon vital matters. With that action, a fundamental change in

corporate culture had definitely occurred —and it continues to this very day.

A Brief History of Responsible Care

CHEMICAL

Responsible Care®

Beyond what’s required.ISO 9000/14000

A grant from Imperial helped a wetlands society in Bonnyville, Alta., build a 10 kilometerwalking trail and viewing stands where hikers can take a break while reading about the floraand fauna of the surrounding wetlands.

When we manufacture and sell our products, we work to avoidupsetting that balance. It’s part of the Responsible Care Program. Itincludes our commitment to develop products that minimize risk topeople and to educate them on their use. Energy and petrochemicalsare essential to economic growth; however their production andconsumption need not conflict with protecting health and safety or withsafeguarding the environment.

*Trademarks of Imperial Oil Limited. Imperial Oil, licensee. ®Trademark of the Canadian Chemical Producers’ Association. Used under license by Imperial Oil.

Life is a delicate balance…

SODIUM CHLORATE SODIUM HYDROXIDE CHLORINE HYDROCHLORIC ACID

G R O W T H T H AT ’ S F I R M LY R O O T E D I N E X P E R I E N C E .

You knew us as Nexen Chemicals, a division of Nexen Inc.

Now we are Canexus.

Although our name has changed, we haven’t. We are the

same chemicals company with six plants across North America

and South America, and more than 400 employees.

We are proud of our outstanding record in health, safety,

and environmental performance. We continue to be active

members of the Canadian Chemicals Producers Association

and strong supporters of Responsible Care®. We carry with

us the same standards and values that have made Nexen

Inc. a Top 50 Employer for three years in a row.

Canexus is headquartered in Calgary, AB and manufactures

and markets inorganic chemicals including sodium chlorate,

chlorine, caustic soda and hydrochloric acid. Canexus is one

of the world’s largest producers of sodium chlorate, used as

an environmentally-preferred bleaching agent in the pulp

and paper industry; and also produce chlor-alkali products

for a variety of market applications.

We are aggressively growing existing facilities as well as

pursuing new international opportunities in South America

and Asia. As part of our business growth and leadership

succession plans, we are seeking to hire a number of

seasoned individuals with experience in the chemicals

industry for a variety of positions.

To learn more about us and these opportunities please

visit our web site.

www.canexus.ca

TSX: CUS.UN