From Upstream to Downstream: Opportunities and Challenges for Rail

Experience // Expertise // Excellence 1
From Upstream to Downstream
Opportunities and Challenges for Rail
Experience // Expertise // Excellence
Prepared For:
Rail Equipment Finance Conference 2019
March 5, 2019 Graham Brisben, CEO
La Quinta, CA PLG Consulting

Experience // Partial List
CORE EXPERTISE SERVICES INCLUDEPLG TEAM
§ Surface transportation
and logistics
§ Chemicals
§ Oil and Gas
§ Bulk commodities
§ Manufacturing
§ Mining and minerals
§ Assessment and
optimization
§ Due diligence
§ Operations
§ Logistics procurement
§ Marketing analysis
§ Engineering
§ Business strategy
§ Site selection
§ Technology
§ Supply chain design
§ Real-world, industry
veterans
§ Over 50 logistics and
supply chain strategists,
operations experts,
analysts and project
managers
§ Delivering value to over
200 clients since 2001

Our Clients // Partial List

The Energy and
Chemicals Value
Chain1
Today’s
Presentation
Agenda
2
Upstream: Frac
Sand Dynamics
Impacting Rail
3 Midstream: Crude-
by-Rail Revival
4
Downstream:
Refined Products,
Chemicals, and
Plastics
Presentation available for download now at:
https://plgconsulting.com/presentations/

Proppants
OCTG
Chemicals
Water
Cement
Gas
NGLs
Crude
Electricity
Generation
Feedstock
(Ethane)
Byproduct
(Condensate)
All
Manufacturing
Steel
Fertilizer
(Ammonia)
Methanol
Plastics
Petroleum
Products
Petrochemicals
Propane
Butane,
Pentane
Distillates
Gasoline
MACRO IMPACTS TO-DATE INCLUDE
Dramatic reduction in crude imports, lower electricity costs,
lower gasoline prices, increased refined products
THE WAVE CONTINUES
U.S. petrochemical expansion based on
abundant, low cost energy and feedstocks is impacting other
manufacturing industries
Inputs Wellhead Direct
Output
Power Fuels Raw Materials Downstream
Products
Chemicals
Process
Feedstocks
The Energy & Chemicals Value Chain

Source: EIA/RBN Energy, February 2019
US Hydrocarbon Production at Record Highs
Production for Domestic
Consumption
Production for
Exports
Exports % of Production

Crude prices of at least $40/
bbl will support continued
production growth
$40 $60
“Stable” Price / Rig Count Environment

Upstream Sand Dynamics

Source: Wall Street Research, Rystad Energy, Spears & Associates (from Emerge November 2018 presentation)
Continued Production Growth Led to Record Frac
Sand Consumption in 2018

PLG Sand Shipments Chart Presented to REFC March 2018
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
180,000
200,000
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)
U.S. Horizontal, Land Rigs
Source: STB (STCC 14413 – Industrial Sand: includes frac sand and other industrial sands), Baker Hughes, February 2018
Carloads
Originated Rigs
Frac Sand Frenzy 3.0
Oil Price
Recovery at
$50+bbl.
Sand shipments up 30+% over
previous 2014 peak

Regional Sand Development in the Permian Basin
Permian Mines in Production
1.  Hi-Crush - Kermit
2.  Aequor - Burro
3.  Alpine Sand - Kermit
4.  Black Mountain - Vest
5.  Wisconsin Proppants - Kermit
6.  Vista - Kermit
7.  Signal Peak Silica - Monahans
8.  Black Mountain - El Dorado
9.  Covia - Kermit
10.  US Silica - Crane County
11.  Wisconsin Proppants - Monahans
12.  Covia - Crane County
13.  Atlas - Kermit
14.  Badger - Kermit
15.  Capital Sands - Monahans
16.  US Silica - Lamesa
17.  Atlas - Monahans
18.  Black Mountain - Sealy-Smith
19.  High Roller Sands - Penwell
20.  High Roller Sands - 115*
Source: Baker Hughes (6/15/18 rigs), EIA, Infill Thinking, PLG Analysis, Feb. 2019 *Scheduled to open in Q1 2019

Operating Costs =
$10 - $30 / ton
Transload
Facility Fees =
$7 - $20 / ton
Freight + Railcar Leases + Fuel
Surcharges + Logistics =
$30 - $60 / ton
“Last Mile”
Trucking Costs =
$15 - $50 / ton
Frac Sand Supply Chain Overview
The Northern White supply chain is long and complex – Logistics makes up about 3/4
of the total delivered cost
Mining Processing Rail
Load-out
Long Haul Rail Transloading and
Storage
Trucking to Well
Northern White
Regional Sand
X X X X X X
X X X Some forward staging

Frac Sand Rail Shipments Peaked in May 2018
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
180,000
200,000
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)
U.S. Horizontal, Land Rigs
Source: STB (STCC 14413 – Industrial Sand: includes frac sand and other industrial sands), Baker Hughes, February 2019
Carloads
Originated Rigs

Small Cube Hoppers Driving Uptick in Cars-In Storage

Regional Sand Growth – Not Just the Permian

Energy By Rail Developments

US Crude and LPG Carloads Originated
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000 Feb-2012
May-2012
Aug-2012
Nov-2012
Feb-2013
May-2013
Aug-2013
Nov-2013
Feb-2014
May-2014
Aug-2014
Nov-2014
Feb-2015
May-2015
Aug-2015
Nov-2015
Feb-2016
May-2016
Aug-2016
Nov-2016
Feb-2017
May-2017
Aug-2017
Nov-2017
Feb-2018
May-2018
Aug-2018
0
U.S. Quarterly Carloads Originated for Liquified Petroleum Gases (STCC 2912)
U.S. Quarterly Carloads Originated for Petroleum (STCC 131)
CarloadsOriginated
Source: STB, PLG Analysis, Feb. 2019

From PLG’s March 2018 REFC Presentation: Western Canada
Crude by Rail Opportunity
Western Canada CBR has two
to three year window for
significant volume
§  Sunk capital costs of Oil
Sands projects necessitate
continued production
§  Pipelines and local refineries
at or near capacity plus facing
renewed political opposition
§  CBR potential for ~500 kbpd
range
§  Primarily USGC and west
coast destinations
§  Additional flex volumes +/- 150
kbpd range due to pipeline
issues, differentials,
production issues/surges, and
other factors
Source: RBN Energy, January 2018

Differentials Drove Canadian CBR to Record High in 2018
Source: RBN Energy, February 2019

However, Differentials Also Prompted Market Intervention by
Government of Alberta
§  December 2018 mandated curtailment of
about 9% of production (325 k/bpd)
§  To be reviewed again in March 2019; goal is
to end intervention by Q4 2019
§  Dramatically reduced differential vs. WTI to
less than $10/bbl., reducing CBR volumes
by about 50%
§  February 2019 announcement of plan to
lease up to 4,400 railcars
Source:http://www.history.alberta.ca/energyheritage/bitumount/oil-
sands/where-are-the-oil-sands.asp

Canadian Production Increasing Amid Ongoing Pipeline Uncertainty
Source: Canadian Association of Petroleum Producers, 2018 Crude Oil Forecast Markets & Transportation

Continued Pipeline Delays are Extending the Canadian
CBR Opportunity
0
200
400
600
800
1000
1200
1400
1600
1800
2019 2020 2021 2022 2023 2024
Incremental Capacity at 95% Utilization (Kbpd)
Line 3 Keystone XL Trans Mountain
Peak to-date of Canadian
CBR (Dec. 2018)
2020 2021 2022 2023 2024 2025
Enbridge has just announced
a one year delay on Line 3
expansion (to Q4 2020)

US & Canadian Crude By Rail Growth
Crude by Rail Volumes (monthly)

Industry is Working Ahead of Regulatory Deadlines
§  Transport Canada separately has accelerated
timeline to phase out Non-Jacketed CPC-1232
for crude oil movements 17 months sooner than
planned (from April 1, 2020 to November 1,
2018) further limiting railcar supply in the short
term for crude movements
§  BNSF rate penalty for 117R
Source: U.S. Dept of Transportation (BTS) Fleet
Composition 2018 Report
Phase out Schedule for Tank Cars Carrying Class 3 Flammable
Liquids
Source: Railway Supply Institute

Retrofit Production by Month
Based on 1/1/2019 UMLER
0
200
400
600
800
1000
1200
1400
1600
1800
DOT111 Jacket Retrofit CPC1232 Jacket Retrofit CPC 1232 BOV Mod Retrofit

Cars Required for CBR and Other Flammable Service
§  DOT-117J and 120J200 fleet size as of December
2018 is 22,078
§  DOT-117J and 120J200 annual production in 2018
was 3,750 cars or 313 cars/month
§  DOT-117R fleet size as of December 2018 now
stands at 19,760 railcars
§  DOT-117R annual production in 2018 was 11,862
cars or 989 cars/month
§  Total DOT-117J/R fleet size is 41,838 as of December
2018 and is being utilized for all types of flammable
liquids (not just crude)

Mexican Crude Production Has Declined Sharply in the
Past Four Years

US Refined Products Exports Meeting the Growing Demand for
Energy in Mexico
0
200
400
600
800
1,000
1,200
1,400
1,600
Jan-2015
Mar-2015
May-2015
Jul-2015
Sep-2015
Nov-2015
Jan-2016
Mar-2016
May-2016
Jul-2016
Sep-2016
Nov-2016
Jan-2017
Mar-2017
May-2017
Jul-2017
Sep-2017
Nov-2017
Jan-2018
Mar-2018
May-2018
Jul-2018
Sep-2018
Nov-2018
Other Petroleum Products
Kerosene-Type Jet Fuel
(Thousand Barrels per Day)
Petroleum Coke (Thousand
Barrels per Day)
Conventional Gasoline
Blending Components
Liquified Petroleum Gases
Distillate Fuel Oil (Thousand
Barrels per Day)
Conventional Motor Gasoline
Source: EIA, February 2019
U.S. Exports to Mexico

Mexico Represents Significant New Potential for Diesel, LPG,
and Gasoline Rail Shipments
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Feb-2016 May-2016 Aug-2016 Nov-2016 Feb-2017 May-2017 Aug-2017 Nov-2017 Feb-2018 May-2018 Aug-2018
U.S. Quarterly Carloads Originated for Liquified Petroleum Gases (STCC 2912)
U.S. Quarterly Carloads Originated for Petroleum (STCC 131)
U.S. Quarterly Carloads Originated for Distillate Fuel Oil (STCC 29113)
U.S. Quarterly Carloads Originated for Gasoline, Jet Fuel (STCC 29111)
CarloadsOriginated
Source: Surface Transportation Board, February 2019
U.S. Class I Carloads Originated for Crude and Selected Petroleum Products

Build-Out of New Liquid Bulk Rail Terminals Continues, but
Additional Infrastructure is Needed
Legend
FXE Railroad
New Liquid Bulk Rail Terminals
Major Liquids Ports
KCS deM Railroad
Short Line Railroad
Proposed refined products
pipelines

US Chemical Industry Build-Out
and Resulting Rail Impacts

Phase II -
Downstream
Products:
Petrochemical
s, Resins
Phase III –
Manufacturing:
Raw material
cost driven
Phase I –
Gas & Power-
intensive
Industries:
Fertilizer,
Methanol, DRI
pellets
2008
2010
2012
2014
2016
2018
2020
Industries using natural gas as primary
feedstock have global cost competitiveness;
new US factories built or in progress
Phase I
Downstream products require significant
processing facilities investment and lead time –
in the middle of the first wave build-outPhase II
Phase III
U.S. material cost advantage will enable
traditional manufacturing to return to the North
America as about 65% of the cost of
manufactured product is material cost and the
U.S. has a very efficient workforce
Shale Gas Phased Impact To U.S. Industrial Renaissance

Shale-Driven Industrial Investment Forecast
•  The North American petrochemical industry
will invest ~$200B in industrial facilities as a
result of shale gas by 2025
•  Processed gas, ethylene, methanol, and
resins account for >80% of product volume
output
Ethylene and
Derivatives
$94.4B
Ammonia and
Derivatives
$67.9B
Polymers and
Resins
$45.8B
Methanol and
Derivatives
$38.7B
Propylene
and
Derivatives
$19.0B
Gas
Processing
and
Fractionation
$14.5B
Gas to
Liquids
$7.0B
Other
$9.6B
// All Announced Industrial Projects in SHIELD

34
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
0
10,000
20,000
30,000
40,000
50,000
60,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Capacity Production Operating Rate Source: Townsend Solutions
US Ethylene Capacity & Production (KTPA)

35
U.S. Polyethylene Production (KTPA) Capacity
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Capacity Consumption Exports Production Imports Operating Rate
Source: Townsend Solutions

Projected Rail Volume Impacts from Shale Gas-Related
Industrial Expansion
0
100000
200000
300000
400000
500000
600000
Polymers and
Resins
Ammonia and
Derivatives
Ethylene and
Derivatives
Chlor-Alkali Gas
Processing
and
Fractionation
Methanol and
Derivatives
Other Total
Additional
Annual
Outbound Rail
Shipments
(Carloads)
added from
projects
commissioned
2019-2025
Annual
Outbound Rail
Shipments
(Carloads)
added from
projects
commissioned
2011-2018
Largest rail volume impacts to occur
over next six years
AnnualCarloads
New Rail Carload Growth From Commissioned and Likely Products Through 2025

37
North American Resin Supply Chain
RESIN PLANT
STORAGE
YARD (ONSITE
OR OFFSITE)
BULK TRUCKING
10%
RAIL
90%
BULK TRANSLOAD
SMALL
CONVERTER
SMALL
CONVERTER
20%
PACKAGING
LARGE
CONVERTER
80%
BULK TRUCKING
PACKAGE
TRUCK

38
Plastic Resin Railcar Shipment Forecast
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Plastic Resin Related Railcar Originations
PLG SHIELD Estimated Additional Carloads Originated Each Year
Annual Class I Originations of Plastics Materials and Synthetic Resins, Synthetic Rubbers and Fibers (STCC 282)
Source: Surface Transportation Board, PLG Analysis, December 2018
*
*Q4 estimated as Q1-Q3 average (not yet published)

Increases in Outbound Logistics From Likely Projects
These forecasts are based
on initial product moves
from the production facilities.
Products and by-products
can be moved multiple times
downstream.
Project
Start
Year
Truck
Shipments
Annually
Rail
Shipments
Annually
(Carloads)
Railcar Fleet Required
Total
Large
Covered
Hopper
Small
Covered
Hopper
Tank
2017 183,500 30,800 5,200 4,700 900 500
2018 111,500 33,000 5,300 3,300 200 2,000
2019 46,200 66,800 10,400 5,600 - 4,800
2020 115,400 37,600 5,400 3,600 - 1,800
Total 456,600 168,200 26,300 17,200 1,100 9,100
Source: SHIELD by PLG, February 2019

Page 40 | Confidential & Proprietary
Domestic PE Consumption and Proposed Northeast PE Production
Texas
2,500 KT
Indiana +
Ohio
2,748 KT
Georgia
1,360 KT
Pennsylvania
1,007 KT
Top 5 US states
consume 33% of
PE resin in North
America
§  The large Midwest growth
and Marcellus gas supply
provides compelling case
for the proposed Northeast
crackers to be constructed
§  Up to 3,200kt nameplate
capacity has been
proposed

a. Major Global Polyethylene Trade Flows - 2026

6,625
N. America

-353
W. Europe

3,786
Asia Pacific

-906
Central South
America

-3,483
Africa
C.E. Europe

-19,239
China

57
Japan
Net Trade Balance

14,686
Middle East

-4,002
India
2,000-4,000
1,000- 2,000
500 – 1,000
>4,000

2,829
§  Global trade volume is expected to grow by an additional~17% between 2021 and 2026 to 36.9 MM tons annually
§  China becomes the mega trade destination with 52% of global trade volume with 5 regions shipping over 1 MM
tons per year
§  North America adds significant volume to four regions (China, WE, Africa, India) beyond current Central/South
America flow of over 1 MM tons per year
§  India and Africa will become 2nd and 3rd largest import regions with a combined volume of 7.5 MM tons per year
Source: Townsend Solutions
Global Impact/opportunities
annual volume
(kMT)
Net Importer
Net Exporter

North American PE Export Logistics Chain
•  Most PE exports are handled by
third-party packagers offsite
•  Adequate packaging capacity will
be available for first wave of
export growth through the end of
the decade; more facilities will be
needed for second wave,
including the Northeast
•  Packaging facilities expanding in
other markets to accommodate
growth and account for potential
constraints in Houston such as
congestion, container supply,
weather, and vessel sailings

Alternative Resin Export Routes in Place and
Under Development
DFW TO LA/LONG BEACH VIA INTERMODAL

Looking Forward To Your Questions!
Thank You!
For follow up questions and information, please contact:
Graham Brisben
CEO
PLG Consulting
+1 (312) 957-7757 | gbrisben@plgconsulting.com

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From Upstream to Downstream: Opportunities and Challenges for Rail