PLG president, Taylor Robinson spoke on May 5, 2015 at the 65th annual Appalachian Logistics League meeting. Mr. Robinson presentedThe North American Energy Revolution: The Implication for Logistics. The meeting was an opportunity for members to network and discuss the ever changing industry of Supply Chain and Logistics with a primary focus on the impacts to the region.

1. Logistics Engineering SupplyChain
The North American
Energy Revolution:
Implications for
Logistics
Prepared for:
Appalachian Logistics League
Taylor Robinson, President, PLGConsulting
May 5, 2015

2. 2
Experience
 Delivering value to over
200 clients since 2001
 Real-world, industry
veterans
 Logistics, engineering &
supply chain experts with
operational experience
Core Expertise
 Bulk Logistics
 Freight Rail
 Energy & Chemical
Markets
 Investment Advisory and
Corporate Development
Partial Client List
Services
 Diagnostic assessments &
optimization
 Logistics Infrastructure
design
 Supply chain design &
operational improvement
 Investment strategy, target
identification, due diligence,
post-transactional support
 Crude by rail (CBR) and rail
tank car (RTC) forecasts
 Independent technology
assessment &
implementation
 Hazmat training, auditing &
risk assessment
About PLG Consulting
The North American Energy Revolution: Implications for Logistics

3. 3
ss Source: CAPP, About Oil Sands
Source: EIA, May 2014
US Shale
Unconventional Energy Resources and ExtractionTechnologies
The North American Energy Revolution: Implications for Logistics
Western Canadian (WC)
Oil Sands
Source: www.epmag.com
SAGD
Horizontal Drilling &
Hydraulic Fracturing
Source: Marathon, February 2014
“Moore’s Law”
at play: Exponential
advances in
technology, resulting in
Declining costs
Surging production
Representative Producer Gains, Eagle Ford
Source: RBN Energy, December 2014

4. 4
New extraction technologies resulting in record production of gas, natural gas liquids
(NGL), and crude oil
Water-borne imports of crude being displaced by domestic production
North America on pace toward full “energy independence” by 2020
Source: CAPP Report, June 2014 Source: RBN Energy, December 2014
The North American Energy Revolution
The North American Energy Revolution: Implications for Logistics

5. 5
Shale Supply Chain and Downstream Impacts
Feedstock (Ethane)
Byproduct
(Condensate)
Home Heating
(Propane)
Other Fuels
Other Fuels
Gasoline
Gas
NGLs
Crude
Proppants
OCTG
Chemicals
Water
Cement
Generation
Process Feedstocks
All Manufacturing
Steel
Fertilizer (Ammonia)
Methanol
Chemicals
Petroleum Products
Petro-chemicals
Inputs Wellhead
Direct
Output
Thermal Fuels Raw Materials
The next wave:
Manufacturing renaissance in the US based on abundant, low cost
energy and feedstocks
Impacts to-date include:
Dramatic reduction in crude imports, lower electricity costs, lower
gasoline prices, increased refined products exports
Downstream
Products
The North American Energy Revolution: Implications for Logistics

6. 6
0
2,000
4,000
6,000
8,000
10,000
12,000
1970
1972
1974
1976
1978
1980
1983
1985
1987
1989
1991
1993
1996
1998
2000
2002
2004
2006
2009
2011
2013
U.S.Crude Oil Production (kbpd)
Source: EIA, February 2015
U.S. crude oil production growth
 Crude oil production over 9 MMbpd, up from 5
MMbpd in 2008
 Growth has come primarily from shale oil
production of light crude
 2015 production close to US record of 1970
Decrease in crude oil imports
 Shale crude has been pushing out light crude
imports
 Heavy sour crude imports have been steady, with
Canada growing to become the primary US
supplier
 North America now supplies 2/3 of the U.S. crude
demand
0
2,000
4,000
6,000
8,000
10,000
12,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
U.S.Crude Oil Imports (kbpd)
Source: EIA, February 2015
Historical U.S. Crude Oil Production and Imports
The North American Energy Revolution: Implications for Logistics

7. 7
Source: RBN Energy, January 2015
WTI, Brent & Natural Gas 2014 and 2015
Citibank cut its crude price forecasts, sayingWestTexas
Intermediate (WTI) could go as low as the $20 per barrel range
before recovering to reach a new equilibrium.
- Reuters (2/9/2015)
The market doesn’t understand just how quickly oil companies
are scaling back their activities, and as a result, oil prices could
rebound faster than many observers expect.
- Continental Resources CEO Harold Hamm (Fuelfix,
1/28/2015)
• U.S. shale oil industry has now entered
uncharted territories in its brief history
• Natural Gas and NGL pricing has also
dropped dramatically in a similar
timeframe…due to oversupply and NGL
ties to oil prices
• Market experts have widely varied
opinions on what the rest of the year
holds for pricing - ~$10-$70 per barrel…
2014: Oversupply Has Caused Precipitous Price Declines
The North American Energy Revolution: Implications for Logistics

8. 8
Producers have taken the following
measures:
• Slashed theirCAPEX by 30-50%+ for 2015
• Stopped drilling exploratory wells; focus drilling
on known “sweet spots”
• Requesting suppliers for price reductions up to
30%
~55% decline in onshore operating rigs
Conversely, Canadian oil sands producers are
completing in-process projects as they already
have significant investments made
…Shale Oil Rigs Are Falling Quickly…
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
U.S. LandOil Rigs
Source: Baker Hughes, April 2015
4/24/15 = 676 U.S. LandOil Rigs
The North American Energy Revolution: Implications for Logistics

9. 9
…However, Crude Oil Production Will Continue at High Levels
0
1
2
3
4
5
6
7
8
9
Lower 48 States (excl GOM) Crude Oil Production
(MMBPD), Includes Lease Condensate
Source: EIA, February 2015 Source: CAPP, January 2015
Cost reduction focus and “sweet spot” drilling will
continue to lower break even cost
Held by Production (HBP) lease clauses will help
support production
Smaller, weaker players will fall while stronger
producers will actually grow during downturn
Oil sands has a 20-50 year view on projects
R&D budgets cut; new greenfield projects delayed
SAGD wells have lower break even costs compared to
shale wells
Current pricing is a short term issue from their
perspective
The North American Energy Revolution: Implications for Logistics

10. 10
Source: RBN Energy, February 2015
At $50/bbl oil, producers are mostly at or below breakeven
Producer Rates of Return by Play and Product
(Before Cost Reductions)
The North American Energy Revolution: Implications for Logistics

11. 11
Producer Rates of Return by Play and Product
(After Cost Reductions)
Source: RBN Energy, February 2015
Producers can be profitable at $50/bbl oil with cost reductions
The North American Energy Revolution: Implications for Logistics

12. 12
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2015 2016 2017 2018 2019 2020 2025
WTI (Cushing) Forecast Pricing ($/bbl)
Source: Turner Mason, February 2015
Crude oil prices forecasted
to improve as supply
contracts, global demand
increases over several
years
2015 will be very
challenging
Return of $100/bbl. oil:
don’t hold your breath
However, forecasted price
levels for 2017 and beyond
will sustain continued
growth in production (and
frac sand, CBR)
Crude Oil Price Forecast
The North American Energy Revolution: Implications for Logistics

13. 13
NA Crude LogisticsToday
Sources: EIA, PLG analysis (Google Earth)
Light/Sweet
Heavy/Sour
Pacific
Northwest
Refiners
California
Refiners
2,525
kbpd
PADDV
Demand
Midwest
Refiners
3,375
kbpd
PADD II Demand
East Coast
Refiners
PADD I Demand
1,075
kbpd
LA Gulf Coast
Refiners
TX Gulf Coast
Refiners
PADD III
Demand8,150
kbpd
Eagle Ford
Permian
Bakken
Rail
Pipeline
Marine
OilSands
GOM
The North American Energy Revolution: Implications for Logistics

14. 14
New tank car standard (DOT 117)
 9/16” shell, jacketed, full-height head
shield
 Retrofit timeline 2018 – 2025
depending on Packing Group (“PG”)
and CPC1232/non-CPC1232
 ECP braking required for unit trains
2021 for PG I and 2023 for PG II & III
Other parts of the ruling
 Ruling restricts flammable trains to 50-
mph in all areas and if train contains
any new non-enhanced tank car then
speed is restricted to 40-mph in high-
threat urban areas
 Document sampling and testing
program for all unrefined petroleum-
based products, such as crude oil
 Railroads operating flammable trains
required to perform a routing analysis
that considers, at a minimum, 27 safety
and security factors and select a route
based on its findings
DOT Final Flammable Trains Final Ruling
The North American Energy Revolution: Implications for Logistics

15. 15
US gas demand will grow due to:
 Coal-fired generation plant converting to
gas
 More industrial use – steel, fertilizer,
methanol
 Mexican export via pipeline and LNG export
overseas
 Increasing use as transportation fuel
US gas cost competitiveness
is sustainable
 30+ year supply at ~$4 mm/btu; cost of
production decreasing
 Supply will overwhelm demand as prices
approach $5/
 US government will likely limit LNG export
to protect US from world gas market price
Low-cost gas and NGLs driving US
industrial “renaissance”
Source: EIA, February 2015
60
65
70
75
80
85
2008 2009 2010 2011
U.S. NaturalGas Production (Bcf/day)
Actual Forecast
0
2
4
6
8
10
12
14
NaturalGas Price at Henry Hub ($/MMBTU)
Historical Futures
Source: EIA for historical and CME Group for futures as of Jan. 14, 2015
US Shale Gas Background and Future
The North American Energy Revolution: Implications for Logistics

16. 16
Ethane and propane production growth with shale gas
 Raw NGLs (y-grade) are extracted creating dry gas and y-grade streams; dry gas primarily used as a fuel for heat and power
 Y-grade is sent to a fractionator where it is made into “purity” NGLs – ethane, propane, butane, iso-butane, natural gasoline
 Ethane and propane are the largest components of the y-grade and are therefore seeing large growth in the U.S.
 U.S. infrastructure build-out continues to process the huge low cost production volume increase in ethane and propane
Source: OPIS, December 2014 & CME Group, December 2014
GasValue Chain
Source: Bentek: North American NGLs 4Q2014
Shale Gas, NGLs, and Downstream Chemical Processing
The North American Energy Revolution: Implications for Rail

17. 17
Ethylene and Propylene
Ammonia and Derivatives
Methanol
Polymers and Resins
Chlor-alkali
Other
Source: American Chemistry
Council and PLG analysis
Over $135B of New Shale-Related CAPEX Investments Have Been Announced
The North American Energy Revolution: Implications for Logistics

18. 18
Abundant feedstock, structural cost
advantages, and domestic market growth
driving US petrochemical industry
expansion
Rate of expansion growth will be slowed by
 Lack of EPC capacity
 Shortage of craft labor resources in the U.S. Gulf
Coast
 Increasing regulatory hurdles and delays
Expansion peak will be dampened and
overall build-out will take longer than
announced schedules
U.S. chemical industry is entering a historic
growth period with incredible growth
opportunities and challenges Source: ACC and PLG Analysis, December 2014
ACC Estimate
PLG Estimate
U.S. Chemical Industry Capital Investment: Incremental
Due to Shale Gas
0
200
400
600
800
1,000
1,200
1,400
Saudi
Ethane
US Ethane US
Weighted
WE Low
Cost
Asia
Naphtha
US
Naphtha
Dec. 2013
Dec. 2014
Source: Townsend Solutions, December 2014
Cash Cost US$/ton (Ethylene)
US Chemical Industry Build-Out
The North American Energy Revolution: Implications for Logistics

19. 19
We are in the early innings of the North American
energy revolution
 Natural gas – the first shale “oversupply” example
 Crude oil – new shale and maturation of Canadian oil sands
 NGL – a valuable byproduct from natural gas and crude drilling
 Downstream chemicals and manufacturing – coming soon!
Lower hydrocarbon pricing environment is mainly
caused by oversupply
 Pricing will speed up cost reduction throughout supply chain
 Industry consolidation will ensure long term global competitiveness
 Lower oil prices will dampen growth profile for frac sand and crude
by rail volume in the short term
 Tank car and small covered hopper market has shifted gears to
“neutral” for now
Near-term (2015-2016) turbulence on the way to 10+
years of growth and industrial expansion
 Net positive for rail industry; growth opportunities for wide variety
of railcar types
Presentation Summary
The North American Energy Revolution: Implications for Logistics

20. Logistics Engineering SupplyChain
ThankYou !
For follow up questions and information,
please contact:
Taylor Robinson, President
+1 (508) 982-1319 / trobinson@plgconsulting.com
This presentation is available for download at:
http://plgconsulting.com/category/presentations/