In 2007 NOVA Chemicals delivered the best operating results in our history, outperforming our peers and most observers' expectations. We demonstrated that our feedstock advantage in Western Canada is not only significant to our bottom line, but also will expand with higher crude oil prices. Consequently, we believe the Company is positioned for success despite economic uncertainty, and that we will be able to generate cash and grow earnings over the next few years. In short, I think the best is yet to come for NOVA Chemicals.

During the past year, performance in almost every part of our company was exceptional. EBITDA¹ reported from our businesses totaled $987 million compared to our previous best of $787 million in 2004. We also set records for polyethylene total sales and export volumes. As a result of our investments in plant modernizations, we enjoyed sharply improved manufacturing reliability and energy efficiency.

While the styrenics markets have not yet shown much improvement, our cost reduction work, both before and after the expansion of our joint venture with INEOS, resulted in positive EBITDA performance for the first time since 2004.

Our safety record continued to improve (as described on page 18), and was again the best I have experienced in the chemical industry — something all of us are very proud of. Our technology organization developed new high-value products and process and catalyst technology that will help us further expand production capacity. We also grew our sales in new market segments and in many regions of the world.

It is very gratifying to see that the changes we've made over the past few years have resulted in lower costs, faster work processes and higher quality throughout the organization. Our people could easily have wilted under the strain of rapid change, high energy prices and an uncertain U.S. economy. Instead they focused on what they could control, became energized by new challenges and delivered outstanding performance.

Polyethylene — Strong Market Outlook

As we begin 2008 amidst concerns about the economy, as well as continuing high crude oil prices, we remain confident that NOVA Chemicals will continue to outperform in both the short- and long- term. Ethylene and polyethylene remain the core of our company. And we believe the global supply/demand balance will remain strong for polyethylene in 2008 and beyond because supply expansion will lag demand growth — even if there is a U.S. recession.

Polyethylene is the most basic global plastic and is used for food production and packaging in every part of the world. As developing nations like China and India work to increase agricultural production yields and reduce food spoilage losses, they increasingly turn to polyethylene packaging. Consequently, demand grows at much higher multiples of GDP in the developing world than it does in developed economies. Most industry experts expect global polyethylene demand outside of the U.S. to continue to grow at more than 1.8 times GDP growth.

On the supply side of the equation, I believe new capacity delays will continue to surprise many analysts. As industry professionals know, construction and equipment availability problems are commonplace everywhere in the world, and they certainly don't appear to be letting up.

The world is short of experienced construction labor, engineering and supervision and is even shorter of experienced chemical plant start-up and operating capability. Once ethylene and polyethylene plants have been built, they are complex and difficult to operate reliably, especially by new operators like those in the developing world and parts of the Middle East.

In Figure 1 we show our latest view of the expected global polyethylene supply/demand balance. We use Global Insight's February 14, 2008 GDP forecast, which calls for a U.S. recession in the first half of 2008.

As you can see, even with a significant U.S. economic slowdown, we expect a strong global supply/demand balance. The industry usually cannot maintain 90% utilization of installed capacity for a sustained period. We saw a peak in ethylene and polyethylene margins in 1995 at only 88% utilization and have had very strong markets at about 93% utilization in recent years. In addition to new capacity delays, the tight supply of naphtha, which is used for about two-thirds of global ethylene production, also contributes to our strong outlook. The supply situation has not only curtailed some ethylene and polyethylene production but also raised naphtha prices versus other feedstocks.

More than two-thirds of U.S. production is based on natural gas liquids feedstock and is now lower cost than most other production. As a consequence, North American polyethylene products can be exported quite profitably. In 2007 the North American industry exported 20% of its polyethylene production, an all time record.

These export volumes allowed very high production rates for North American producers and importantly, kept inventory levels quite low. This allowed most producers to make solid returns, even though it was hard for the industry to raise prices fast enough in the second half of the year to keep up with rising feedstock costs. For 2008, we expect our industry to continue operating at high utilization rates and to be able to raise prices to expand margins.

NCX — Positioned for Success

NOVA Chemicals is positioned to take advantage of these strong global supply/demand balances with a product portfolio and cost structure that will continue to allow us to export profitably to all of the world's key markets. Our Advanced SCLAIRTECH™ technology is delivering polyethylene resins that are rapidly penetrating high value markets around the world and our standard resins are among the lowest cost in the world. In response to growing demand for our products, we are planning to complete the addition of 500 million pounds of new polyethylene capacity by the end of 2009.

Following the successful completion of an extensive modernization, the Corunna flexi-cracker can now use an expanded mix of light feeds and crude oil and is one of the lowest cost facilities of its type. We had record earnings contributions from our eastern Canadian operations in 2007 and we believe that Corunna's margins in the future should stay ahead of similar facilities around the world over the long term.

Alberta Advantage — New Higher Range

Our Alberta operations have an exceptional performance history and I believe they are uniquely valuable assets. At Joffre, we run the world's largest ethylene and polyethylene complex with state-of-the-art plants that are larger and more energy efficient than just about every similar facility in the world. On top of that, we have the Alberta Advantage, which provides NOVA Chemicals a significant ethylene cash cost advantage over similar U.S. Gulf Coast facilities.

Since the company started up, our Alberta assets have generated a 27% EBITDA margin including corporate charges. We have significantly outperformed our North American commodity peers. In fact, our Alberta-based business as shown in Figure 2, has regularly earned EBITDA margins well above the average of the largest U.S. specialty chemical companies.