On June 3, 2013, Gordon Heisler, Senior Consultant at PLG Consulting presented at the American Railway Development Association’s 107th Annual Meeting in San Francisco, CA. Gordon’s presentation, entitled “The Energy Opportunity in Oil & Natural Gas. Crude Oil is Only the Beginning,” analyzes and forecasts the dramatic impact of shale oil and gas which has upended traditional logistics and trading patterns in the energy industry, starting an industrial renaissance in the US.
PLG Presents to Midwest Association of Rail ShippersPLG Consulting
On July 9, 2013, CEO Graham Brisben presented PLG’s perspective of the shifting economy by examining the impact of crude by rail in today’s marketplace. More specifically, Graham discussed the impact of shale oil and gas which is upending traditional logistics and trading patterns in the energy industry which has started an industrial renaissance in the U.S.
PLG Provides Industry Update to Stifel Nicolaus InvestorsPLG Consulting
On May 24, 2013, PLG CEO Graham Brisben and President Taylor Robinson presented to industry investors and analysts via teleconference sponsored by Stifel Nicolaus Capital Markets. Graham’s presentation was entitled “Crude by Rail Update.” Taylor’s presentation was entitled “Shale Gas – Driver of Reshoring.” The presentations addressed the current crude-by-rail market in the US, as well as industry trends leading to a renewed reshoring focus for US manufacturers.
Topics to be discussed include:
• Impact of shale oil and gas on U.S. industry competitiveness
• Growth expectations for unconventional oil and natural gas production
• Competitive dynamics between pipelines and crude-on-rail
• Related opportunities / challenges for the rails & equipment companies
• Time for Q&A will be allotted at the end of the call
Oil & Natural Gas. The Evolving Freight Transportation ImpactsPLG Consulting
On July 30, 2013, CEO Graham Brisben presented at CIT’s Rail Resources Conference in Jackson Hole, Wyoming. Graham’s presentation, entitled “Oil & Natural Gas. The Evolving Freight Transportation Impacts,” analyzes and forecasts the dramatic impact of shale oil and gas which has upended traditional logistics and trading patterns in the energy industry, starting an industrial renaissance in the U.S.
PLG Presents to Midwest Association of Rail ShippersPLG Consulting
On July 9, 2013, CEO Graham Brisben presented PLG’s perspective of the shifting economy by examining the impact of crude by rail in today’s marketplace. More specifically, Graham discussed the impact of shale oil and gas which is upending traditional logistics and trading patterns in the energy industry which has started an industrial renaissance in the U.S.
PLG Provides Industry Update to Stifel Nicolaus InvestorsPLG Consulting
On May 24, 2013, PLG CEO Graham Brisben and President Taylor Robinson presented to industry investors and analysts via teleconference sponsored by Stifel Nicolaus Capital Markets. Graham’s presentation was entitled “Crude by Rail Update.” Taylor’s presentation was entitled “Shale Gas – Driver of Reshoring.” The presentations addressed the current crude-by-rail market in the US, as well as industry trends leading to a renewed reshoring focus for US manufacturers.
Topics to be discussed include:
• Impact of shale oil and gas on U.S. industry competitiveness
• Growth expectations for unconventional oil and natural gas production
• Competitive dynamics between pipelines and crude-on-rail
• Related opportunities / challenges for the rails & equipment companies
• Time for Q&A will be allotted at the end of the call
Oil & Natural Gas. The Evolving Freight Transportation ImpactsPLG Consulting
On July 30, 2013, CEO Graham Brisben presented at CIT’s Rail Resources Conference in Jackson Hole, Wyoming. Graham’s presentation, entitled “Oil & Natural Gas. The Evolving Freight Transportation Impacts,” analyzes and forecasts the dramatic impact of shale oil and gas which has upended traditional logistics and trading patterns in the energy industry, starting an industrial renaissance in the U.S.
PLG Consulting’s CEO, Graham Brisben presented his presentation Shale Developments: The Evolving Transportation Impacts to the Broe Group on June 23, 2014.
The economics of industrial CCS projects at existing UK sites by 2025: Our approach, some findings and some questions - plenary presentation given by Harsh Pershad at the UKCCSRC Cardiff Biannual Meeting, 10-11 September 2014
Uncertainty is Clouding the Energy Trading OutlookCTRM Center
As the United States continues to rapidly grow its production of oil and gas from shale, and Canada increases production from its oil-rich tar sands, these new volumes are helping to support world oil markets as crude production outside the US declines due to increasing conflict in the Middle East and North Africa. Should these conflicts widen, the global markets will be increasingly volatile as supply disruptions outpace the growth in North American production.
Though US natural gas production has not yet impacted the global market space via LNG exports, there is no doubt that those exports will happen. While the impact on US prices is unclear at this time, these exports will be yet another variable with which to content in a US market already unsettled by increasing regulations that will, by design, reshape the US energy mix.
Dealing with this uncertainty will require increasing market vigilance, with a constant view on both the near and longterm energy outlook, and supported by a commodity trading and risk management solution that facilitates analytics, market visibility and regulatory compliance, such as Eka Energy.
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The 25-page executive summary for a study published in January 2014 by IHS titled "Fueling the Future with Natural Gas: Brining it Home." The new study finds that because of the ongoing rush of new natural gas supplies from shale drilling, the Henry Hub benchmark price will likely stay between $4-$5 per Mcf until 2035. It also finds homeowners will save a signifcant amount of money by heating with natural gas.
The US Coal Crash – Evidence for Structural Change (PDF) finds that, in the last few years, US coal markets have been pounded by a combination of cheaper renewables, energy efficiency measures, increasing construction costs and a rash of legal challenges, as well as the rise of shale gas.
“US Shale Gas Industry Analysis” Report Highlight:
US Shale Gas Industry Overview
Shale Gas Exploration, Technical and Technology Aspects
US Shale Gas Reserve Analysis: Technical & Recoverable Reserves
Investments in Shale Gas Exploration & Production
US Shale Gas Sector Dynamics
Shale Boom to Drive LNG Export Projects
PLG Consulting’s CEO, Graham Brisben presented his presentation Shale Developments: The Evolving Transportation Impacts to the Broe Group on June 23, 2014.
The economics of industrial CCS projects at existing UK sites by 2025: Our approach, some findings and some questions - plenary presentation given by Harsh Pershad at the UKCCSRC Cardiff Biannual Meeting, 10-11 September 2014
Uncertainty is Clouding the Energy Trading OutlookCTRM Center
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Though US natural gas production has not yet impacted the global market space via LNG exports, there is no doubt that those exports will happen. While the impact on US prices is unclear at this time, these exports will be yet another variable with which to content in a US market already unsettled by increasing regulations that will, by design, reshape the US energy mix.
Dealing with this uncertainty will require increasing market vigilance, with a constant view on both the near and longterm energy outlook, and supported by a commodity trading and risk management solution that facilitates analytics, market visibility and regulatory compliance, such as Eka Energy.
Richard Clark, Senior Technical Specialist at Morgan is at the 2016 International Lithium & Graphite Conference in Shenzhen today to discuss the exponential growth of the lithium-ion battery market and its impact on global graphite supply.
The 25-page executive summary for a study published in January 2014 by IHS titled "Fueling the Future with Natural Gas: Brining it Home." The new study finds that because of the ongoing rush of new natural gas supplies from shale drilling, the Henry Hub benchmark price will likely stay between $4-$5 per Mcf until 2035. It also finds homeowners will save a signifcant amount of money by heating with natural gas.
The US Coal Crash – Evidence for Structural Change (PDF) finds that, in the last few years, US coal markets have been pounded by a combination of cheaper renewables, energy efficiency measures, increasing construction costs and a rash of legal challenges, as well as the rise of shale gas.
“US Shale Gas Industry Analysis” Report Highlight:
US Shale Gas Industry Overview
Shale Gas Exploration, Technical and Technology Aspects
US Shale Gas Reserve Analysis: Technical & Recoverable Reserves
Investments in Shale Gas Exploration & Production
US Shale Gas Sector Dynamics
Shale Boom to Drive LNG Export Projects
Robinson presents shale gas implactions for US manufacturing renaissancePLG Consulting
PLG President Taylor Robinson presents "Shale Gas Implications For US Manufacturing Renaissance" at Reinvesting in American Manufacturing conference in Houston, TX.
PLG 2013 State of Freight Summit PresentationPLG Consulting
PLG Consulting presented an overview of the current flows of materials needed to support shale oil development. This is the fifth presentation that PLG has done on the subject in the last 8 months. The company has worked with some of the largest players in the oil & gas industry to help them gain an advantage through logistics. Contact us at www.plgconsulting.com for more information.
PLG Provides Industry Updates to GE CapitalPLG Consulting
On October 15, 2013, PLG CEO Graham Brisben presented to GE Capital in New York, New York. Graham’s presentation addressed transportation updates in the Oil & Gas market which have upended traditional logistics and trading patterns in the energy industry, starting an industrial renaissance in the U.S.
North American Energy & Petchem Markets-Future Imapct To RailTaylor Robinson
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North american energy & Petchem Markets Future Impact to railPLG Consulting
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PLG Headlines General Session at NAFTANEXT Conference
PLG Consulting’s CEO, Graham Brisben, and President, Taylor Robinson, delivered the General Session presentation entitled New Energy: The Game-Changer in North America on Thursday, April 24 at the 2014 NAFTANEXT Conference.
Held in Chicago, IL, NAFTANEXT is a tri-national summit focused on the future of North American supply chains. The agenda of this annual event touches on environmental, energy, safety, and profitability issues in the freight industry.
PLG Consulting "Crude By Rail Report" at RailtrendsPLG Consulting
On November 21, 2013, CEO Graham Brisben presented at Railtrends Conference in New York, NY. Graham’s presentation, entitled “Crude By Rail Report,” is a consolidated version of PLG’s well-known Energy Logistics presentation with an emphasis on the following topics:
• Shale oil and oil sands impacts on crude by rail, new rail terminals, and new pipelines
• Lac Megantic’s effect on crude by rail and the tank car market
• Future crude oil logistics and trading patterns
If you have specific questions on energy related logistics or need strategic advice on the fast changing shale oil and gas industry, contact Graham at gbrisben@plgconsulting.com.
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The Energy Opportunity in Oil & Natural Gas: Crude Oil is Only the Beginning
1. 1
The Energy
Opportunity in
Oil & Natural Gas.
Crude Oil is Only the
Beginning
Gordon R. Heisler
Senior Consultant, PLG Consulting
Online: PLGConsulting.com
Prepared for
American Railway
Development Association
June 3, 2013 San Francisco, CA
Professional Logistics Group
2. » Boutique consulting firm specializing in logistics, engineering, and
supply chain
Established in 2001
Over 100 clients and 250 engagements
» Headquarters in Chicago USA, with team members throughout
the US and with “on the ground” experience in:
North America / Europe / South America / Asia / Middle East
» Consulting services
Strategy & optimization
Assessments & benchmarking
Transportation infrastructure & engineering
Logistics operations
M&A/investments/private equity
» Key industry verticals:
Energy
Bulk Commodities
Manufacturing
Private equity
About PLG Consulting
2
3. Today’s Discussion
» Domestic Shale Play overview
» Shale drilling inputs and production – Natural Gas,
Natural Gas Liquids (NGLs) and Crude Oil
» Downstream products - growth opportunities
» Bakken Shale impact on Crude Oil by Rail
» Rail Development Opportunities
3
4. The Shale Development
Revolution – Big Picture
Disruptive
Technologies
-Hydraulic Fracturing
-Horizontal Drilling
Continuous
Evolution
-Constant Change
-Rapid Change
-Difficult to predict
Marketing
Dynamics
-Supply & Demand
-Customers
-Product Price
-Logistics
4
7. Shale Driving Growth in Natural
Gas and Crude Oil Production
» 1,769 onshore rigs in operation (May 10, 2013)
» Since 2010, crude oil production has increased 29%
and natural gas production has increased 16%
» Domestic oil production at 21-year high (7.2 MM bbl/d)
7Source: Baker Hughes 2013
Feb. 2013
7.18MM bpd
U.S. Crude Oil Production
Source: EIA
GAS OIL THERMAL
Source: Baker Hughes
GAS OIL THERMAL
Feb. 2013
1.85 MM cubic ft
U.S. Dry Natural Gas Production
Source: EIA
8. 8
Shale Development Supply Chain
and Downstream Impacts
Feedstock (Ethane)
Byproduct (Condensate)
Home Heating (Propane)
Other Fuels
Other Fuels
Gasoline
Inputs >> Wellhead >> Direct Output >> Thermal >> Fuels >> Raw Materials >> Downstream Products
Gas
NGLs
Crude
Proppants
OCTG
Chemicals
Water
Cement
Generation
Process Feedstocks
All Manufacturing
Steel
Fertilizer (Ammonia)
Methanol
Chemicals
Petroleum Products
Petrochemicals
» Shale development impact on the rail industry is long-term, wide-ranging, and positive with only one exception
9. Hydraulic Fracturing Materials Inputs
and Logistics – Per Well
9
Materials
Chemicals
Clean Water/
Cement
Proppants
OCTG (Pipe)
Source to
Transloading
2
Local source
40
5
Transloading to
Wellhead Site
8
~1,000
160
20
47 Total
Railcars
~1,200 Total
Truckloads
Oil/Gas/NGLs
Truck, Rail,
Pipeline
Waste Water
~500 Total
Truckloads
10. Shale Play Product
Flows Outbound
» Natural Gas
Majority via pipelines, some trucks
» Natural Gas Liquids (NGLs)
Requires processing (fractionation)
3-9 gallons/MCF (thousand cubic feet)
– Ethane ~42%
– Propane ~28%
– Normal Butane ~8%
– Iso-Butane ~9%
– Condensate ~13%
» Crude Oil
Bakken play as a model
Surging Permian and Eagle Ford development
10
11. Shale Development -Natural
Gas Impacts
» Shale gas is a game changer for US
Manufacturing
Fracking results in oversupply; gas prices down 33%
since 2010
Coal power plant closures, natural gas powered
electricity growth
» Low gas prices fueling industrial renaissance
Impacts overall manufacturing cost of electricity; “Re-
shoring”
Specific sectors that use natural gas as a feedstock
– Fertilizer
– Steel
11Source: EIASource: EIA
13. Shale Gas Driving Steel
Manufacturing Comeback in US
13
» Shale gas boom makes direct-reduced iron steel
economical
DRI plants viable with growth and reduced price of shale gas
Not new technology, but preferable with lower cost natural gas
DRI process uses natural gas in place of coal to produce iron
Cost of production 20% lower per ton vs. traditional blast furnace
DRI-derived steel is of higher quality than that created from recycled
scrap, further driving demand
» U.S. jobs and international investment
Steel production in the U.S has shrunk 16% since 2008
– Compare to 17% growth in steel production internationally
– Domestic steel industry capacity running at 74%
At least five new DRI steel plants being considered in the U.S. – now
economical for the first time in 30 years due to low cost of natural gas
» Announced new DRI plants
Nucor Corp. and Encana Corp. JV in Louisiana - $700MM
Voestalpine $700MM investment in Texas
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2008 2009 2010 2011 2012 2013
ThousandTonnes
U.S. Monthly Steel Production
Source: World Steel Association
14. Shale Gas Development Impact
on Fertilizer Market
» Natural gas - primary feedstock for ammonia &
Nitrogen fertilizer production
» Lower gas prices directly benefit American farmers
Increased demand for corn, soybeans has driven fertilizer costs
higher
Excess natural gas supply can be utilized to produce greater volumes
of fertilizer more economically
Increased domestic production displaces current imports
» Cheap U.S. natural gas means billions in investment
for new domestic fertilizer plants, displacing ~11 MM
m/t of imports
Orascom/Iowa Fertilizer Company - Wever, IA
CHS - Spiritwood, ND
Ohio Valley Resources - Spencer County, IN
Yara - Belle Plaine, SK Canada
North Dakota Grain Growers Association - Williston Basin, ND
CF Industries – expansions at Donaldsonville, LA and Port Neal, IA
PotashCorp - resumption of ammonia production at Geismar, LA
Koch Fertilizer – Enid, OK 14
15. Shale Development Impact:
Chemical Industry
» Abundant ethane supplies have sparked chemical
industry renaissance
Ethane is “cracked” to make ethylene, the most basic building
block in the chemicals supply chain
Over $95B in new announced petrochemical expansions will come
on-line over the next five years, increasing ethylene capacity by
33% (11 MMmt)
USA is now the low-cost producer of ethylene-based chemicals
due to abundant supplies of ethane from shale plays (up to 60%
raw materials cost advantage)
Domestic end-use of materials, i.e. plastics, will expand
significantly
Up to 40% of new petrochemical output will be for export
15Source: EIA
Sources: CMAI, TopLine Analytics,
and Alembic analysis, 2012
16. LNG Export Opportunity
» Political/policy battle between domestic
industrial users and producers
» Sabine Pass, LA and Freeport, TX now
permitted for exports; more terminals in
application phase
3.4 Bcf/day export capacity to come online by
2015
Represents ~5% of projected US dry gas
production
» 20 additional terminal applications
totaling 29 Bcf/day of export capacity
pending before FERC
16Source: Waterborne Energy Inc. Data in $US/MMBtu
17. Shale Development
Crude Oil Impacts
» Dramatic increases in US production due to fracking
7.2 MM bbl/day (2013 estimate)
Projected to grow by ~30% over next four years
Strong play in Bakken; surging Permian and Eagle Ford development
“Tight” oil sources driving overall North American growth
Production forecasts frequently revised upward
North America should be crude oil independent by 2018 (total bbls produced)
17
Source: Morgan Stanley, February 2013Source: Morgan Stanley, February 2013
20. Bakken Production vs. Total Takeaway
Capacity: 2013–2015 Projection
Year ND Production
Forecast (Bpd)
Pipeline
Capacity
Rail Terminal
Capacity
Rail Carrier
Capacity
ND Refinery
Consumption
Total
Outbound &
Refinery
Capacity
Excess Logistics
Capacity
2010 360,000 280,000 115,000 600,000 58,000 453,000 93,000
2013 850,000 565,000 990,000 1,300,000 68,000 1,623,000 773,000
2015 1,150,000 1,075,000 1,040,000 1,350,000 90,000 2,205,000 1,055,000
Source: North Dakota Pipeline Authority, PLG AnalysisBpd = Barrels per Day
20
21. Crude Oil Pipelines:
Existing and Planned
21
Source: CAPP Report, 2012
» Current pipelines ex. Bakken
operating below capacity
» Fixed routes and long lead times are
challenged by new dynamic NA oil
market
10 year+ commitments required for new
build pipeline projects
» Several natural gas pipeline
conversions planned
Trunkline (ETP) – Patoka, IL-St.
James, LA
Freedom (KM) – Permian Basin-
Southern California
Energy East (TransCanada) – Hardisty,
AB-St. Johns, NB
22. Crude Oil by
Rail vs. Pipeline
$6.50
$12.00
$10.50
$15.00
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
Pipeline to
Cushing
Rail to
Cushing
Pipeline to
Pt Arthur
Rail to
Pt Arthur
DollarsPerBarrel
Source: PLG analysis
» Rail cost: 50-200% more expensive than
pipeline transport
» 70% of Bakken crude oil leaves ND via Rail
(March 2013),
» Existing Bakken pipelines under utilized
» Near-term offsetting rail advantages:
Site permitting, construction much faster
Lower capital cost
Scalable
Shorter contracts (2-3 year commitments vs. 10
years for pipeline)
Faster transit times
Access to coastal areas not connected via
pipeline
Origin/destination flexibility
Primary advantage: Tool of arbitrage for trading
desks
Cost Comparison: Bakken to Cushing and USGC
22
23. 23
Shale Development Impact on
Crude Oil Market Dynamics
» Price differentials driving trading and
logistics patterns
Bakken and WTI trading at ~$10-$15/bbl less than Brent;
Alberta Bitumen trading at ~$30/bbl less than Brent
E&P, midstream players willing to rapidly deploy significant
capital to enable access
– Multi-modal logistics hubs in shale plays
– New multi-modal terminals/trading hubs at destination markets (i.e.
Cushing, OK, St. James, LA, Pt. Arthur, TX, Albany, NY, Bakersfield,
CA)
Refineries installing unit train receiving capability -
particularly coastal refineries previously captive to
waterborne imports (i.e. Philadelphia, PA, St. John, NB,
Anacortes, WA, Ferndale, WA)
Constantly changing trading and logistics patterns for
light/sweet mid continent crudes
23
Key
Drivers
Destination
Markets
Oil
Price
Logistics
Capital
24. 24
Looking Ahead:
North American Crude Oil
» The gusher of new US light/sweet shale oil production made
possible by fracking has upended the traditional oil logistics and
trading patterns
» The biggest current bottleneck: Railcars
Current order backlog runs to mid 2015
Extremely tight market with very high lease rates
Current crude by rail fleet ~30,000 railcars, or 1-1.5 MM bbl/day equivalent
» A “new normal” in crude oil flows will emerge in conjunction with
continued North American oil production over the next five years
Continued shifts of mid-continent light/sweet to coastal destinations
New modes and infrastructure to get Canadian bitumen to USGC, with or without
Keystone XL
Permian, Eagle Ford to meet USGC light/sweet demand; Bakken flows primarily east-
west
Eventual government approval of crude oil exports on a limited basis, similar to LNG
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Source: CME and Morningstar
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Rail Site Development
Opportunities
» Fracking materials – transload sites
» Crude oil terminals – loading terminals $ 3-80MM
» Receiving terminals $ 25-75MM
» Downstream facilities
Steel production plants $700 million each
Fertilizer production plants $1 billion each
LNG export terminals $5 billion each
Chemical production plants $ ???
Fractionation (gas) plants $200MM+ each
» All facilities require inbound construction
materials, steel, fertilizer and chemical plants have
in/out bound rail carloads
27. Thank You!
For follow up questions and information, please contact:
Taylor Robinson, President
+1-508-982-1319 / trobinson@prologisticsgroup.com
Graham Brisben, CEO
+1-708-386-0700 / gbrisben@prologisticsgroup.com
Gordon Heisler, Senior Consultant
+1-215-620-4247 / gheisler@prologisticsgroup.com
This presentation is available at:
PLGConsulting.com
Professional Logistics Group
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