Shenhua Group and The Dow Chemical Company to Sign Co-operation Agreement on Coal-To-Chemicals Project

Project represents win-win economic partnership between leading U.S. and China companies

The Shenhua Group (Shenhua) and The Dow Chemical Company (Dow) today will sign a cooperation agreement and announce plans for a detailed feasibility study, bringing the two parties one step closer to building a world-scale coal-to-chemicals complex in Shaanxi Province, People’s Republic of China.

“We are delighted to see the project moving to the next phase with a great partner like Shenhua, which is truly a global leader in coal mining,” said Andrew Liveris, chairman and CEO of Dow. “This project aligns with Dow’s strategy to invest in growth geographies like China, and will build Dow’s competitive position to serve customers in Asia with locally produced products and solutions.”

Chen Biting, chairman of Shenhua Group, said, “It is of great significance for the world to produce the oil substitute converted from coal and it is the case for China in particular, The building of the world scale coal chemical plant jointly with Dow will make full use of the respective advantages of the two companies. This project will form a commercially competitive industry, which will have a positive impact on the local economic growth.”

The project will use “clean coal” technologies that convert coal to methanol to produce ethylene and propylene, the building blocks to make various plastics and chemical products. The complex will include a chlor-alkali unit, enabling the production of products such as caustic soda, vinyl chloride monomer and chlorinated organics. Other derivative products being planned for the complex include glycols, amines, solvents, surfactants, acrylic acid and derivatives and propylene derivatives.

The feasibility study will encompass environmental impact assessment, water supply, front-end loading engineering design, market and product mix, logistics and supply chain, and economic evaluation. The feasibility study is expected to take approximately two years. The two companies then will compile a project application report based on the completed positive feasibility study and submit that to the Chinese government for approval.

Benefits for China and U.S.

The agreement was signed just prior to the second U.S./China Strategic Economic Dialogue, which is to be held in Washington on May 22-23, 2007. The SED was established under the support of both President George W. Bush and President Hu Jintao in 2006 as a further commitment to strengthen cooperation and positive relations between the U.S. and Chinese economies.

The Dow-Shenhua project is a tangible demonstration of closer economic co-operation and interdependence between China and the U.S. The project will establish substantial benefits to citizens of both nations.

The project echoes the Chinese government’s national strategy of “Going West” by making a significant contribution to the regional economy and creating high quality jobs in Shaanxi Province. Workers and communities there will benefit from a safe, high-standard production facility as Dow will bring its advanced know-how in environmental protection, worker safety, and energy efficiency to the joint venture. The success of this project will prove a new and viable way for China to produce chemical products from its indigenous coal and salt resources, which will help China reduce its reliance on imported oil and maintain sustainable economic growth.

Stakeholders in the U.S. will also benefit from the project. With Dow’s participation as a direct contributor to the fast-growing market of China, the U.S.-based company can remain globally competitive and profitable, better positioned to maintain its U.S. job base and provide solid financial returns to shareholders. U.S. workers will contribute directly to the project, providing expertise and services to establish this world-scale facility.