North American Energy & Petchem Markets-Future Imapct To Rail

1Experience / Expertise / Excellence www.plgconsulting.com
NORTH AMERICAN ENERGY & PETCHEM
FUTURE IMPACT TO RAIL
PREPARED FOR:
16th Annual CIT Rail Resources
Customer Conference
July 27, 2017 Taylor Robinson
Carlsbad, CA PLG Consulting

Partial Client List
Experience
About PLG
PLG Team
▪ Real-world, industry
veterans
▪ Over 40 logistics, supply
chain, market, and
engineering experts
▪ Delivering value to over
200 clients since 2001
Core Expertise
▪ Bulk commodity logistics
▪ Surface transportation
and logistics
▪ Energy and chemical
market intelligence
▪ Investment strategy and
corporate development
▪ Logistics infrastructure
design
Services Include
▪ Supply chain design
and operational
improvement
▪ Market analysis &
strategy
▪ Investment thesis,
target identification, due
diligence, post-
transactional support
▪ Diagnostic
assessments and
supply chain
optimization
▪ Independent logistics
technology assessment
and implementation
▪ Site selection

Today’s Presentation Agenda
I. N.A. Oil & Gas Overview
and Impact to Rail
II. N.A. Petchem Overview
and Impact to Rail
III. Mexican Energy Reforms
and Impact to Rail
IV. Big Picture Rail Summary

I. NORTH AMERICAN OIL & GAS OVERVIEW AND
IMPACT TO RAIL

Crude Oil: $50/bbl Supporting a Return to Growth
Crude oil (WTI) stuck in $45~$55 range
▪ EIA forecasts crude oil to be at $53 end of 2017 and $57 end of
2018 (EIA Short Term Energy Outlook, May 9, 2017)
U.S. crude oil production at 9.3 million barrels
per day (EIA)
▪ Up from 8.5 million barrels per day in September 2016
▪ Canadian crude oil production is currently estimated at 3.7
million barrels per day (NEB)
Shale oil continues to improve competitiveness
globally and grow share
$0
$20
$40
$60
$80
$100
$120
0
2,000
4,000
6,000
8,000
10,000
12,000
1/3/2012 1/3/2013 1/3/2014 1/3/2015 1/3/2016 1/3/2017
U.S. Crude Production vs.. WTI
U.S. Crude Oil Production (kbpd) WTI ($/bbl)
$/bblkbpd
Source: EIA, May 2017
Source: Rystad Energy research and analysis, cited in: IMF. World Economic Outlook –
Gaining Momentum? April 2017

Shale Activity Focus Moving South
Permian is the focus
for growth:
▪ Six layers of shale
▪ Thicker layers
▪ More productivity potential
▪ Growing infrastructure
▪ Close to half of onshore rigs
Texas/Oklahoma/New
Mexico now have 60%
of horizontal rigs
▪ Permian
▪ Eagle Ford
▪ SCOOP/STACK
Producers continue to
focus on sweet spots
0
100
200
300
400
500
U.S. Land, Horizontal Rig Count Permian
Eagle Ford
Cana Woodford
Marcellus
Williston
Haynesville
DJ-Niobrara
Utica
Others
Source: Baker Hughes, May 2017
Nov. 21, 2014 May 19, 2017
$0
$20
$40
$60
$80
$100
$120
0
200
400
600
800
1,000
1,200
1,400
1,600
U.S. Land, Horizontal Rig Count vs.. WTI ($/bbl)
Others
Cana
Woodford
Williston
Marcellus
Permian
DJ-Niobrara
Eagle Ford
WTI ($/bbl)
Source: Baker Hughes, EIA, May 2017
rigs ($/bbl)

Productivity increases have
continued beyond
expectations due to:
▪ Producers are still exclusively drilling
sweet spots (known high production
areas)
▪ Utilizing pad drilling and high
intensity fracking in growing scale
▪ Permian has steepest productivity
improvement curve as they
transitioned to horizontal drilling in
2014/2015 (see chart)
Producers will face some
headwinds to further improve
productivity
▪ Oil field services suppliers still are
operating at break even/negative
margins – price increases are being
demanded by OFS suppliers
▪ Increased penetration of high
efficiency techniques leave fewer
areas to improve
2017 expectations
▪ Permian likely to see continued steady growth as major producers
have bought considerable acreage for long term production
▪ Eagle Ford has lost most volume, most rapidly. Possible growth in the
“wet” portion (NGL rich) later in the year and 2018.
▪ Bakken will likely see further volume decrease due to decline curve
loss in existing wells and low rig count/drilling activity
▪ SCOOP/STACK and Niobrara seen as potential growth areas
Productivity Improvement Is
Critical To Enable Shale Growth
FUTURE
TREND?

Natural gas remains oversupplied in U.S.
Natural gas demand will grow due to:
▪ Coal-fired generation plant retirements
▪ More industrial use – fertilizer, methanol feedstock
▪ Pipeline exports to Mexico and Canada; LNG export
overseas
E&P companies have driven phenomenal
efficiency gains in past five years
▪ 30+ year supply at ~$4 mm/btu; cost of production
continues to fall
US Shale Gas (Natural Gas)
Background and Future
0
10
20
30
40
50
60
70
80
90
2012 2013 2014 2015 2016 2017 2018
U.S. Natural Gas Production (Bcf/day)
Historical Projection
$0
$2
$4
$6
$8
$10
$12
$14
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Natural Gas Price at Henry Hub ($/MMBTU)
Historical Futures
Source: EIA for historical, CME Group May 19, 2017 settlements for futuresSource: EIA, May 2017

Upstream to Downstream –
Rail Volume Trends
Feedstock (Ethane)
Byproduct
(Condensate)
Home Heating
(Propane)
Other Fuels
Other Fuels
Gasoline
Natural
Gas
NGLs
Crude
Proppants
OCTG
Chemicals
Water
Cement
Generation
Process Feedstocks
All Manufacturing
Steel
Fertilizer (Ammonia)
Methanol
Plastics
Petroleum Products
Petrochemicals
Inputs Wellhead
Direct
Output
Thermal Fuels Raw Materials
THE WAVE CONTINUES
U.S. petrochemical expansion based on
abundant, low cost energy and feedstocks is impacting other
manufacturing industries
MACRO IMPACTS TO-DATE INCLUDE
Dramatic reduction in crude imports, lower electricity costs, lower
gasoline prices, increased refined products exports
Downstream
Products
Chemicals
(Coal)
Covered in the
presentation

0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
% of Total U.S. Class I Carloads Originated for Coal and “Other”
Industrial-Related STCCs
STCC 1121 - Bituminious Coal
STCCs 10, 13, 14, 28-30, 32-36, 40
Description
2- Digit
STCC
Metallic Ores 10
Crude Petroleum,
Nat Gas & Gasoline
13
Nonmetallic
Minerals
14
Chemicals And
Allied Products
28
Petroleum And
Coal Products
29
Rubber And
Miscellaneous
Plastic
30
Stone, Clay, Glass,
Concrete Products
32
Primary Metal
Products
33
Fabricated Metal
Products
34
Machinery, Except
Electrical
35
Electrical
Machinery,
Equipment &
Supplies
36
Waste And Scrap
Materials
40
Included in “Other
Industrial Related” STCCs
Shale Growth Oil Downturn Impact
Source: Surface Transportation Board, June 2017; excludes intermodal, autos, food, ag
~25% of all
carloads
~23% of all
carloads
~16% of all
carloads
~25% of all
carloads
Carloads
Rail “Industrial Commodity” Volume Reality –
Past and Future

CBR volume has
dropped by 63%
since peak
▪ Pacific Northwest
has remained
steady
▪ East & Gulf Coast
shipments will be
minimal
▪ Western Canada
growth story
coming
LPG surpassed
crude by rail in
carloads in 2016
with continued
growth expected
▪ NGL production
expected to grow
30% in
Marcellus/Utica
▪ New opportunities
in Mexico
Correlation of Operating Rig Count With Crude
and LPG Carloads Originated Quarterly
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
0
500
1,000
1,500
2,000
2,500
3,000
U.S. Class I Carloads Originated for Crude and LPGs with U.S. Horizontal Land Rigs
U.S. Horizontal, Land Rigs
U.S. Quarterly Carloads Originated for Petroleum (STCC 131)
U.S. Quarterly Carloads Originated for Liquified Petroleum Gases (STCC 2912)
CarloadsOriginated
U.S.LandRigs
Source: Surface Transportation Board, Baker Hughes, June 2017

12 www.plgconsulting.com
0
200
400
600
800
1,000
1,200
1,400
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
U.S. Bakken Region Crude Production and PADD 2 Crude by Rail (kb/d)
Bakken Region Production (kb/d)
PADD 2 Crude by Rail (kb/d)
Source: Data from EIA DPR and EIA Crude Oil by Rail, May, 2017
Historical Bakken CBR and Production
Bakken CBR share has decrease significantly
since 2013 peak due to pipeline development
and foreign import competition on the East
Coast
Pacific Northwest market remains viable
CBR: 71%
CBR: 29%
2013
Last 6 Months
Price environment will limit Bakken production as
it has highest cost structure of big three shale
crude plays (Permian, Eagle Ford, Bakken)

Western Canadian Crude by Rail – Growth
Window Expected in 2018 - 2019
Numerous production expansions expected
over next 24 months that will add ~500k bpd
including:
▪ Suncor Fort Hills
▪ Canadian Natural Horizon
▪ Imperial Kearl Phase III
Pipelines are currently at or near capacity
Next pipelines are slowly moving along
approval and then construction process
▪ TransMountain will add 450k bpd of capacity likely during 2019
▪ Enbridge Line 3 will add ~350k bpd of capacity also by 2019
▪ Keystone XL is a possibility after 2020 – 400k bpd of capacity
So, as new production comes online over next
two years, CBR is the only alternative to move
the crude
▪ PLG predicts that WC CBR volume will increase from the
current ~125k bpd level to over 300k bpd in 2018 through
portions of 2019 until the pipeline expansions are complete
0
50
100
150
200
250
2013 2014 2015 2016 2017
Canada to U.S. Crude by Rail
(kbpd)
Source: EIA, July 2017

Materials
Chemicals
Clean Water
Proppants
OCTG (Pipe)
Railcars to
Transloading
5
From local
reservoir /
well
Avg - 55
Largest - 240
5~8
Trucks to
Wellhead Site
20
~300,000
barrels
water / job **
Avg – 220
Largest - 960
20~32
Avg – 260
Up to 1,000
Truckloads Oil / Gas / NGLs
Pipeline, Truck, Rail
Waste Water
Pipeline
Truck
Avg – 65
Up to 250
Railcars
* Example is for rail-delivered supply chain ** Horizontal/Directional well average in last 6 months (Energent Group)
Each well drilled requires:
Shale Operations Are Logistics-Intensive
– Sand and Water Dominate Volume

Longer
Laterals
MoreStages
Overpacking
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2012 2013 2014 2015
Average Sand per Well
(Permian/ Bakken/ Eagle
Ford)
CloserWell
Spacing
>2xincrease
2016to2018
0
5,000
10,000
15,000
20,000
25,000
2014 2016 2017 2018
# Horizontal Wells
0
500
1,000
1,500
# Active
Horizontal Rigs
• Increase in frac sizes
per stage
• Increased interest in
utilizing finer mesh
sand (40/70 & 100
mesh)
Source: Goldman Sachs Global Investment Research (July
2016), Bloomberg Intelligence
0
500
1,000
1,500
2,000
Permian Williston Eagle
Ford
Average Pounds Sand
Per Lateral Foot
2012 2016
Completion Trends Creating New
Proppant Demand Drivers
“High Intensity” fracking is a gamechanger
and continues to grow in application

0
200
400
600
800
1,000
1,200
1,400
1,600
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
U.S. CLASS I QUARTERLY CARLOADS ORIGINATED FOR INDUSTRIAL SAND AND U.S. HORIZONTAL
LAND RIGS
U.S. Quarterly Carloads Originated for
Industrial Sand (STCC 14413)
Source: STB (STCC 14413 – Industrial Sand: includes frac sand and other industrial sands), Baker Hughes, May 2017
Carloads
Originated
Rigs
Shale Gas Boom
Rig Shift From
Gas to Liquids
Shale Oil Boom
Oil Price
Collapse
High Intensity
Fracking
Frac Sand Volume Has Recovered from Trough
Back to ~Peak in Three Quarters
Frac Sand
Frenzy 3.0
Oil Price
Stabilizing
at ~$45-
$55/ bbl.

Sand Carloads Handled by Railroad
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
U.S. CLASS I QUARTERLY CARLOADS HANDLED FOR INDUSTRIAL SAND
BNSF
UP
CN
CPRS
NS
CSXT
KCS
Source: STB (STCC 14413 – Industrial Sand: includes frac sand and other industrial sands), June 2017

Source: Headwaters MB research, PLG Consulting
Northern White sand supply chain is long and complex
– 2/3 to 3/4 of the total delivered cost is logistics
Operating Costs =
$15 - $30 / ton
(depends on mine quality)
Transload
Facility Fees
=
$7 - $20 / ton
(depends on
regional
competition
and product)
Freight + Railcar Leases +
Fuel Surcharges +
Logistics =
$30 - $60 / ton
(depends on basin
delivered to and unit train
capability)
“Last Mile”
Trucking Costs =
$15 - $50 / ton
(dependent on
distance from
transload facility
to well site, driver
availability, and
truck demurrage)
Mining Processing Rail
Load-out
Long Haul
Rail
Transloading
and Storage
Trucking to
Well
Note: Transloading may be required for
trucking over ~150 miles from sand mine to
wellhead
Northern
White
X X X X X X
Regional Sand
X X ? X
Regional Sand Impact
Frac Sand Supply Chain – Lowest
Total Delivered Cost Wins

Source: Headwaters MB research (2016); U.S. EIA based on data from various published studies as of April 2015
Lower 48 Shale Plays and Major Sand Basins
Directional Total Delivered
Cost
Regional
Sand Direct
Truck
Regional
Sand Rail
Northern
White Unit
Train
Northern
White
Manifest
Frac Sand Sources Quickly Moving
Closer to Plays Due to Cost

Permian Regional Sand -
A “Gold Rush” of Activity
“Dune sand” developments since March 2017
• 13 announced mine sites – more rumored
• ~45MM tons/yr. of nameplate capacity
• Q4 2017 ~ Q2 2018 start-up
• Quality appears to be “good enough”
• Finer mesh sizes – mostly 100 mesh; some 40/70
Delaware
Basin
MIdland
Basin

$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
-
20
40
60
80
100
120
140
160
2013 2014 2015 2016 2017E 2018E 2019E 2020E
OilPrice(WTI,USD/barrel)
Proppant(MMtons)
Energent - actuals IHS Markit Tudor Pickering & Holt
Jeffries Goldman Sachs Wells Fargo
RBC Oil Price - EIA
Sources:
• IHS Markit, Energy Blog, May 3 2017
• Rich Shearer (President & CEO) Superior Silica Sand presentation at the Industrial Minerals 4th Frac Frac Sand Conference in Minneapolis Sept 13, 2016
• Wells Fargo, Oil Service Statistics and Valuation Handbook, January 6, 2017
• RBC Capital, Frac Sand Supply Demand Update, December 5, 2016
• Energy Information Administration, Short-Term Energy Outlook, as of January 10, 2017, and Annual Energy Outlook, Table: Petroleum and Other Liquids
Prices
Future Frac Sand Demand Forecasts
Predicated on Oil Price
▪ Projected proppant rebound to ~ 61 MM tons in 2017, followed by ~ 78 MM tons in 2018
▪ Oil price trajectory suggests proppant market predictions may be optimistic

II. NORTH AMERICAN PETCHEM MARKET
OVERVIEW AND IMPACT TO RAIL

The ACC CAB Reflects Market
Dynamics; Output Increases
Underway
▪ 2017 U.S. chemical production and
consumption are lagging the 2015-2016
projections due to compounded domestic
and global market conditions
▪ The domestic growth and associated
stimulative consumer effect are coming
led by ethane demand and consumption
▪ Four U.S. ethane crackers start up in
2017 and five more will start up by the
end of 2019
▪ ACC projects U.S. basic chemical
production growth of 3.6% in 2017 and
4.8% in 2018
ACC Chemical Activity Barometer (CAB) Confirms
Lagging YTD Chemical Output; Growth Coming
ACC - American Chemistry Council
Source: American Chemistry Council, June 2017
Source: EIA, January 2017

Shale Gas Industrial Investment Forecast
As of 1Q 2017
PLG predicts that the North
American petrochemical
industry will invest ~$126B in
industrial facilities as a result
of shale gas by 2025
50
projects
Product Category Breakdown
All Announced Industrial Projects in SHIELD
Total Announced Projects - $229B
➢ Commissioned since 2011 - $31.9B of investment
➢ Likely start up by the end of 2019 - $62.8B of
investment
➢ 2nd Wave – Likely start-up between 2020 and 2025 -
$32.2B of investment
➢ Not Likely - $101.9B of announced investment

Growing Demand for U.S. NGLs Will Likely
Outstrip Supply In Coming Year
U.S. “liquids” shale plays currently have an abundance of
NGLs, especially ethane and propane
▪ Production rose by 1 MMbd over past five years driving widespread ethane rejection
▪ “Richest” NGL shale plays include Marcellus wet, Utica, and Eagle Ford wet
▪ NGL oversupply has led to low price NGLs in U.S.
▪ Gas processing, fractionation, and pipeline infrastructure mostly in place
▪ Gas processors will likely decrease ethane rejection by ~300 Mb/d as demand
grows over next five years
Current ethane oversupply will be reduced due to:
▪ Growing domestic petchem demand – 600 Mbd to be added in next three years
▪ Growing exports - 300 Mbd from 2016 to 2018
▪ Potentially flat/slowing production if in low crude price environment over next five
years (NGL is sympathetic to oil & gas volume)
NGL pricing expected to rise as supply/demand tightens which
raises new questions:
▪ If NGL prices rise significantly, will shale drillers be able to react and target NGL-rich
shale zones to drive higher overall returns?
▪ Will the increased supplies have pipeline access to adequate processing and
fractionating capacity? And have adequate pipeline capacity to Gulf Coast?
▪ Key opportunity – increase NGL pipeline capacity from Marcellus to Gulf Coast
U.S. ethane prices could rise significantly in 2018 which
will impact PE producers margins and challenge global
competitiveness
0.0
1.0
2.0
3.0
4.0
5.0
2013 2014 2015 2016 2017 2018
Production from Natural Gas Processing
Plants (MMbpd)Natural Gasoline
Butanes
Propane
Ethane
Source: EIA STEO, May 2017

Shale Gas Impacting Ethylene Feedstock Share
(Yield by weight) Ethane Propane Naphtha
Fuel Gas 13% 28% 26%
Ethylene 80% 45% 30%
Propylene 2% 15% 13%
Butadiene 1% 2% 5%
Mixed Butanes 2% 1% 8%
C5+ 2% 9% 8%
Benzene 0% 0% 5%
Toluene 0% 0% 4%
Fuel Oil 0% 0% 2%
Source: US Association of Energy and Economics,: Brooks, Robert ‘Modeling the North American Market for Natural Gas Liquids’ Published 31 May 2013
▪ Ethane as a feedstock drives tremendous ethylene yield, but
lower yields of other products (especially propylene)
▪ Shale NGLs produce between 42% to 65% ethane after
fractionation which has caused all new crackers in U.S. to be
100% ethane-fed
▪ Europe, Latin America, and Asia crackers are predominately
fed by naphtha; Middle East mostly uses ethane
U.S. shale NGLs have significant ethane volume and when used as a feedstock yield higher ethylene
volume vs. propane and naphtha feedstocks
Product yield from various ethylene cracker feedstocks:
Ethylene
Ethane Feedstock
Ethylene
Propane Feedstock
Ethylene
Naphtha Feedstock

Ethane Cracking Downstream Products and
Associated Logistics Modes
Ethane
Ethylene
80%
Fuel Gas
13%
Polyethylene
(LDPE, HDPE)
60%
Ethylene Oxide
14%
Ethylene
Dichloride
12%
Ethyl Benzene
7%
Others
7%
Ethylene
Glycol
Polyethylene
Glycol
Polyvinyl
Chloride (PVC)
Styrene /
Polystyrene
Steam Cracker
Flexible
Packaging,
Bottles, Bags
Rigid Packaging
Misc. Solvents
and
Intermediates
Others
7%
Construction
Pipes, Bottles,
Flexible Films
Pharmaceuticals,
Detergents,
Toothpaste
Anti-freeze,
Polyester Fibers,
Fiberglass
Pipeline Integrated Facilities / Pipeline -> Rail Rail / TruckTransportation
Continuum

North American Polyethylene Expansion
Plans (2016-2026)
Great majority of the new polyethylene facilities are integrated with new world scale crackers
▪ North America has never experienced such a dramatic polyethylene capacity growth (36%) in a three year period and that
amount of capacity growth cannot all be used domestically
▪ Developing export markets will be a critical relief valve for the new North American capacity
Source:
Townsend
Solutions &
PLG’s SHIELD
Producers considering
“Third Wave” PE
plants include:
▪ TOTAL
▪ Formosa
▪ Williams
▪ Badlands
▪ Braskem
▪ Exxon/SABIC
These projects
represent an
additional ~5 MTPA of
potential polyethylene
capacity during the
2024-2026 timeframe
PE export growth will challenge logistics chain – Alternatives to
Port of Houston will need to be developed
20.3 MTPA
7.3 MTPA
2.9 MTPA
30.4 MTPA
36%
50%
0%
20%
40%
60%
0
5
10
15
20
25
30
35
2015 Capacity 2016 - 2019 2020 - 2023 2023 Projected
Increasefrom2015Capacity
MTPA
First Wave Second Wave

NORTH AMERICAN POLYETHYLENE OPPORTUNITIES
Global Implications for Supply/Demand, Logistics & Economics
29
Townsend and PLG are leading authorities on the global polyethylene value chain, and
have collaborated to produce this comprehensive 110 page report containing the most
relevant data and real-world analysis including:
• Global Supply, Demand and Capacity Forecast (2017-2026)
• Regional Total Delivered Cost Comparisons
• Regional Trade Flow Forecasts
• International & Domestic Logistics Impact
• U.S. Export Packaging Expansion Forecast
For more information:
Susan Humerian
shumerian@plgconsulting.com
312-957-7757 x809
Go to: www.polyethylenereport.com

Projected Rail Volume Impacts from Shale
Gas-Related Industrial Expansion
Source: SHIELD by PLG, March 2017
New Rail Carload Growth From Likely Projects, by Product, Through 2025
AnnualCarloads
Investment by State with Product Volume
Although rail impacts
from shale gas-related
expansion will provide
less of a “rush” than
CBR, the growth will be
▪ Steady
▪ Sustainable for the long-term
▪ Spread across diverse
sectors of the economy
0
50,000
100,000
150,000
200,000
250,000
300,000
Additional
Annual
Outbound Rail
Shipments
(Carloads) from
projects
commissioned
2021-2025
Additional
Annual
Outbound Rail
Shipments
(Carloads) from
projects
commissioned
2016-2020
Annual
Outbound Rail
Shipments
(Carloads) added
from projects
commissioned
2011-2015

III. MEXICAN ENERGY REFORMS IMPACT TO
RAIL

Mexico Energy Reform
75-year state monopoly over energy
has ended
▪ 2013 Constitutional amendment
▪ Affects all aspects: E&P, refining, distribution,
retail pricing
Reform objectives
▪ Move from state control to open market
▪ Tap foreign direct investment and expertise
▪ Meet growing consumer demand
▪ Strengthen the energy security of Mexico
Progress to-date
▪ Offshore E&P concessions
▪ Open season for third party use of PEMEX
pipelines and terminals
▪ Roll-back of price controls
▪ New entrants in retailing
▪ Onshore round recently awarded

Why Reform Was Necessary
PEMEX challenges
▪ Operating losses of $30B in 2015; debt
load of $80B
▪ Declining production – lowest output
since 1981 (currently 2.5MM bpd, down
from a high of 3.8MM bpd in 2004)
▪ Rising demand while declining
production
▪ Increasing reliance on imports
▪ Crude exports down 30% since 2004 to
1.2MM bpd
▪ Refinery under-utilization because of a
mismatch of refinery capability and local
crude supplies
▪ Older refinery technology; billions of
dollars required for upgrading
▪ Theft from pipelines and terminals
(~1.5MM gallons/day, nearly 7,000
illegal taps in 2016)
Source: Wilson Center using EIA & PEMEX data, October 2016
Source: Wilson Center using EIA data, October 2016

Mexico is Increasingly Dependent
on Energy Imports
Domestic production cannot keep pace with demand
▪ Petroleum demand expected to grow by 40% by 2029, mainly driven by transportation
▪ Record refined product imports in 2016 of close to 900k bpd; mostly gasoline
Source: Wilson Center using SENER data, October 2016 Source: Wilson Center using EIA & SENER data, October 2016

Meanwhile, U.S. Becoming a Refined
Products Export Powerhouse
Nearly 3MM bbl/day exports by 2020
▪ Represents a net swing of nearly 6MM bbl/day from imports to exports
Combination of factors support US refined products competitiveness
▪ USGC has largest, most sophisticated and efficient refinery fleet in the world
▪ Supplied by nearby Cushing hub, GOM, and highly productive shale formations: Permian, Eagle Ford,
Haynesville, SCOOP/STACK
▪ Robust midstream infrastructure
▪ Robust rail and waterborne transport options from U.S. refineries
Source: RBN and FGE, October 2016 Source: RBN and FGE, October 2016

U.S. Exports to Mexico Meeting the
Growing Demand for Energy
0
200
400
600
800
1,000
1,200
1,400
Jan-2015
Feb-2015
Mar-2015
Apr-2015
May-2015
Jun-2015
Jul-2015
Aug-2015
Sep-2015
Oct-2015
Nov-2015
Dec-2015
Jan-2016
Feb-2016
Mar-2016
Apr-2016
May-2016
Jun-2016
Jul-2016
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Sep-2016
Oct-2016
Nov-2016
Dec-2016
Jan-2017
Feb-2017
U.S. Exports to Mexico (kbpd) Other Petroleum Products
Kerosene-Type Jet Fuel
Petroleum Coke
Conventional Gasoline
Blending Components
Liquified Petroleum Gases
Distillate Fuel Oil
Conventional Motor
Gasoline
Conventional
Motor
Gasoline,
349
Distillate Fuel
Oil, 207
Liquified
Petroleum
Gases, 122
Conventional
Gasoline Blending
Components, 72
Petroleum Coke, 54
Kerosene-Type Jet Fuel,
35
Other
Petroleum
Products, 92
U.S. Exports to Mexico (kbpd) TTM
Mexico is a critical export market for U.S. energy products
▪ 2016 US LPG exports to Mexico of 108k bpd represents 50% growth over
three years
▪ 60% of US gasoline exports and 25% of US diesel exports go to Mexico
U.S. also the key supplier of natural gas
▪ Natural gas imports tripled to 3.6 Bcf/d from 2010-2016
▪ Electricity generation the key driver; switch from fuel oil
▪ Expected to exceed 6 Bcf/d by 2020
▪ Nearly 3,200 miles of new gas transmission lines being builtSource: RBN, December 2016

The New Opportunity for Rail: Filling the
Gaps in Supply and Geography
Source: IHS and CRE, April 2017
▪ Existing refined
product
pipelines at or
near capacity
▪ Significant use
of truck
deliveries
▪ “Bakken in
reverse”

Build-Out of New Liquid Bulk Rail
Terminals Now Underway
Legend
FXE Railroad
New Liquid Bulk Rail Terminals
Major Liquids Ports
KCS deM Railroad
Short Line Railroad
Proposed refined products
pipelines

Mexico Represents New Potential for Diesel/Gasoline
Rail Shipments and Increased LPG Volumes
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
0
500
1,000
1,500
2,000
2,500
3,000
U.S. Class I Carloads Originated for Crude and LPGs with U.S. Land Rigs
U.S. Quarterly Carloads Originated for Petroleum (STCC 131)
U.S. Quarterly Carloads Originated for Liquified Petroleum Gases (STCC 2912)
U.S. Quarterly Carloads Originated for Gasoline, Jet Fuel (STCC 29111)
U.S. Quarterly Carloads Originated for Distillate Fuel Oil (STCC 29113)
U.S. Quarterly Carloads Originated for Asphalt, Tar and Pitches (STCC 29117)
CarloadsOriginated
U.S.LandRigs
Source: Surface Transportation Board, Baker Hughes, May 2017

Refined Products by Rail (RPBR) to Mexico:
Interim Solution or Long Term Opportunity?
Big question #1: Can Mexican refineries
eventually modernize and expand enough to
diminish imports?
▪ Would require additional coking capacity and partnerships
▪ Would require US$ billions in upgrades
▪ Timing and partner interest is uncertain
▪ Local crude supply in doubt even if refineries upgraded
▪ Would still have to “compete” with the world’s most efficient
refineries on nearby USGC
Big question #2: Will refined product pipeline
infrastructure expand sufficiently from eastern
port(s)?
▪ Challenging topography
▪ Would require partnerships with capital and expertise
▪ Some projects under development
▪ Would still require expansion of distribution networks further
inland

Energy and Petchem Impact to Rail/Railcar
Markets
Commodity Future Outlook
Coal -“New normal” volume
Crude by Rail -Bakken to Pacific Northwest volume holds
-Western Canada to U.S. Gulf Coast, PNW, Midwest has
growth window until ~2020
Frac Sand -Robust 2017 volume growth
-2018 rail volume hinges on Permian dune sand
development
-Canadian shale growth coming
LPG -Continued steady growth
Chemicals/Plastics -Healthy growth forecasted
-Polyethylene export will drive some rail growth
Refined Products -Mexican export still in its infancy
-Size and timeframe of opportunity still unclear

Looking Forward To Your Questions!
Thank You!
For follow up questions and information, please contact:
Taylor Robinson
President
PLG Consulting
+1 (508) 982-1319 | trobinson@plgconsulting.com

North American Energy & Petchem Markets-Future Imapct To Rail

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