Crude by Rail Lower Cost, Lower Risk, Better Netback, Right Away

Transcription

1 Crude by Rail Lower Cost, Lower Risk, Better Netback, Right Away James Cairns Vice President, Petroleum and Chemicals Upgrading Crude by Rail Capacity Summit February 26-27, 2013 Houston, TX

2 FORWARD-LOOKING STATEMENTS Certain information included in this news release constitutes forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and under Canadian securities laws. CN cautions that, by their nature, these forward-looking statements involve risks, uncertainties and assumptions. The Company cautions that its assumptions may not materialize and that current economic conditions render such assumptions, although reasonable at the time they were made, subject to greater uncertainty. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results or performance of the Company or the rail industry to be materially different from the outlook or any future results or performance implied by such statements. Important factors that could affect the above forward-looking statements include, but are not limited to, the effects of general economic and business conditions, industry competition, inflation, currency and interest rate fluctuations, changes in fuel prices, legislative and/or regulatory developments, compliance with environmental laws and regulations, actions by regulators, various events which could disrupt operations, including natural events such as severe weather, droughts, floods and earthquakes, labor negotiations and disruptions, environmental claims, uncertainties of investigations, proceedings or other types of claims and litigation, risks and liabilities arising from derailments, and other risks and assumptions detailed from time to time in reports filed by CN with securities regulators in Canada and the United States. Reference should be made to Management s Discussion and Analysis in CN s annual and interim reports, Annual Information Form and Form 40-F filed with Canadian and U.S. securities regulators, available on CN s website, for a summary of major risks. CN assumes no obligation to update or revise forward-looking statements to reflect future events, changes in circumstances, or changes in beliefs, unless required by applicable Canadian securities laws. In the event CN does update any forward-looking statement, no inference should be made that CN will make additional updates with respect to that statement, related matters, or any other forwardlooking statement.

3 Rail Does Not Preclude Pipe 3

4 Rail Compliments Pipeline Growth Phases Pipeline capacity expansion is a step function Rail can provide a flexible solution to delay the expansion Rail Can Make Pipeline Projects More Economical 4

5 Crude Shipments Small Relative to Coal Brent and Western Canada Select vs West Texas Intermediate Crude Oil Prices (US dollars) 5

6 Precision Engineering:! Integrates visual / mechanized inspections and enhances defect identification, prioritization and resolution Track Geometry:! Track geometry testing increase quantity and quality! Focus on high risk areas Mechanical Initiatives:! North America s most advanced and densest network continues to improve: Investment in Safety! 799 wayside inspection detectors! More than any other class 1 RR! 39 Wheel Impact Detectors overload capacity! Other detectors: cold wheel; low hose; hunting; wheel spec; acoustic bearing; etc.)! Preventive data management 24/7! New broken wheel detectors installed Q

7 Rail Capitalizing on Crude Oil Price Spreads Brent and Western Canada Select vs West Brent Crude Oil Prices Texas Intermediate Crude Oil Prices vs WTI and Western Canada Select (US dollars) (US dollars)! Alberta heavy crude producers want better netback! Pipeline can t provide Brent pricing to mid-size Alberta producers! Bakken shale crude production is rising fast, pipeline capacity lags behind Differentials as of February 6 th, 2013 WCS v Brent $48.88 WCS v WTI $28.77 Brent v WTI $20.11 Jan 09 Jan 10 Jan 11 Jan 12 Dec 12!10.00 Brent vs WTI (Bakken producer s point of view) Brent vs Western Canada Select (Heavy crude producer s point of view) 7

8 Benefits of Shipping Crude by Rail Rail is lower cost, lower risk Better crude netback (the bottom line) Rail is speed to market Dispatchability (not locked into one geographic pocket) Scalability 8 8

9 Alberta Heavy Crudes! CN directly overlays the major heavy crude producing regions (Peace River, Athabasca, Cold Lake)! Significant investment on branch lines already made! The acquisition of the Athabasca Northern Railway (ANY) proved to be very strategic! Significant long-term potential at Lynton (Fort McMurray) loading point PEACE RIVER ATHABASCA COLD LAKE 9

10 Canadian Bakken Shale Crude! Strong presence in the Canadian Bakken light crude region, with 3 operating facilities and 2 more in development! Crude loading points evolving into oilfield service centers (for fracing and drilling materials) Edmonton Calgary Saskatoon Regina Operating Distribution Centers Future Development Light Crude Producing Regions BAKKEN 10

11 Direct Access to Gulf Coast PADD III Consumers! Single-line high-velocity turnaround service from Alberta / SK oilfields to PADD III refineries. Capacity available right away.! Access refineries directly from Baton Rouge to New Orleans corridor! Access refineries by barge / pipeline up to Houston ship channel via CN-served tidewater distribution terminals Lynton, AB to Natchez, MS 2,800 rail miles 11

12 Direct Access to Eastern Canada Consumers and Tidewater! Physical access to all Eastern Canada refineries; Sarnia. Nanticoke, St-John,...! Physical access to seaway distribution terminals; Tracy, Quebec City! Tidewater access to Padd 1, Padd3, Europe and India 12

13 Condensate by Rail for Heavy Crude by Pipeline Kitimat Fort McMurray (Cheecham) Edmonton Peak of 50,000 barrels per day Currently 30,000 barrels per day Rail is an element of the condensate supply strategy 13

14 Shipping Heavy Crude by Rail: No Dilution Cost! Pipelines ship dilbit, but refineries buy bitumen. Rail does not require condensate to facilitate the transportation of bitumen. Condi sells ~ WTI plus $15, while bitumen trades ~ WTI minus $35 Bitumen by rail 30% 70% Dilbit by pipeline BPD transported Pipeline Toll at $5 Bitumen 100,000 $ 500,000 Diluent blend 40,000 $ 200,000 Diluent return 40,000 $ 200,000 Total barrels transported 180,000 $ 900,000 Real cost per barrel of bitumen at a $5 pipeline toll = $9 per barrel Rail has a significant advantage when shipping heavy oil 14

15 Source: Bloomberg (based on average monthly prices, as at January ), CAPP and Cenovus. 1. Assumes blending ratio of 29%; assumes WCS:CLB differential from Bloomberg from Jan Dec and MEG AWB thereafter, assumes the last reported quarter. 2. Blending ratio assumed to be 0% (assumes the use of a DRU which eliminates need for diluent blending at a cost of $2.00/bbl included in dilbit transportation). 3. Assumes blending ratio of 17%. Neat bitumen pricing at US$4.00/bbl discount to Maya / Resid at USGC. Diluent haul back margin assumes Mt. Belvieu Natural Gasoline density of 664 kg/m3 (price calculated using CAPP s EQ), and diluent is backhauled only when profitable to do so utilizing all available rail capacity (~13% greater than bitumen/blend volume). Assumes transportation costs to Hardisty of $3.50/bbl and to USGC of ~$24/bbl 15

16 CN Crude by Rail Adoption Rate 25,000 20,000 15,000 10,000 5,000 0 Carloads - Thousands H1 H2 H1 H , , , ,000 80,000 60,000 40,000 20,000 0 Equivalent Barrels per Day H1 H2 H1 H Crude by rail is now a meaningful component of the crude supply chain 16

17 Crude By Rail Lower Cost, Lower Risk, Better Netback, Right Away 17" 17