EDF Trading. To Rail or Not to Rail. Crude By Rail & Intermodal Supply Chain Optimization and Opportunities. August 2013

Transcription

1 EDF Trading To Rail or Not to Rail Crude By Rail & Intermodal Supply Chain Optimization and Opportunities August 2013

2 EDF Organization Overview EDF S.A. Europe s largest electricity producer with 37.9 million customers Headquartered in Paris with approximately 160,000 employees globally 72.7 billion in sales and 8.2 billion in operating profit in 2012 EDF Trading EDF Trading In North America Operates in the Coal, Electricity, Environmental Products, Freight, Natural Gas, Oil markets Headquartered in London with approximately 1,000 employees worldwide Shareholders equity of over 2.3 billion in 2012 Wholly Owned by EDF SA; Moody s A3 Credit Rating Specializing in Natural Gas, Crude, Power, Coal and Environmental Products Headquartered in Houston with 325+ employees Began crude marketing, transportation, and trading in

3 EDF Trading Power Footprint in North America EDF Trading Power Team: Manages approximately 28,500 MW of third-party capacity with 24,000 MW of power generating assets and 4,500 MW of peak commercial, industrial or aggregated load. Optimizes customer portfolio via term, monthly, day-ahead, and intra-day markets using physical and financial instruments. Provides risk management, hedging, logistical, and credit services, as well market access for our customers. Wide presence: ERCOT, PJM, MISO, SERC, VACAR, SPP, FRCC, NYISO, ISO NE, WECC, CAISO. Top North American Power Marketers* Company 3Q 2012 MWhr Sold 1. Exelon Generation 119,256, Shell Energy 70,037, Calpine Affiliates 44,045, EDF Trading 42,756, JP Morgan 36,689,837 3 *Source: Platt's Megawatt Daily

4 EDF Trading Gas Footprint in North America EDF Trading Gas Team: Moves 7.6 BCF of natural gas daily in North America. Holds firm transportation on 72 pipelines throughout the US and Canada. Manages 48 BCF of natural gas storage. Manages fuel supply for 8,000 MW of electricity generation. Trades with over 1,000 wholesale and production counterparties. EDFT NA is well equipped to assist our customers with any North American related price discovery and position management. PG&E San Francisco Mist SoCal BC Aitken Creek ALBERTA SASK BC Pipeline Current Gas Storage Current Transport Asset Management EDFT NA Office LNG Regas Capacity Calgary CIG Northwest El Paso Rockies Express Pipeline Atmos Hill Lake Tres Palacios MANITOBA TransCanada NGPL Great Lakes Moss Bluff Houston ANR Top North American Gas Marketers* Company 4Q BP ConocoPhillips Shell Energy NA Macquarie Energy EDFT 6.7 ONTARIO Egan ANR Chicago MGT Columbia Valley SONAT ANR Steckman Ridge Transco FGT QUEBEC TCO Dawn DOM Iroquois Baltimore Algonquin Dominion 4 *Source: NGI Ranking of Gas Marketers

5 EDF Trading Coal Footprint in North America EDF Trading NA Coal Team: Is one of the largest global coal traders and logistics service providers in the world with deliveries of 61 MM tons to consumers in To South Korea, Japan, China and Taiwan Major Export Coal Flows Exported in excess of 9 MM short tons of thermal coal from the US in Optimizes extensive rail contracts, barging capacity, terminal storage space and terminal throughput capacity throughout the US. To Europe, North Africa and Asia Is a leading trader of NYMEX and OTC physical and financial products. Is capable of providing a wide range of products to North American coal producers and consumers ranging from coal sourcing and fuel switching to inventory and position management. 5 To Europe, North Africa and Asia

6 Who is EDFT Crude Logistics? " A newly-formed business unit, focused on providing purchasing and transportation services to oil producers " We have a highly experienced team with over 100 years of combined industry experience in marketing and logistics " Four areas of commercial activity: 1. Lease purchasing 2. Truck Transportation 3. Pipeline and Bulk Trading Crude Logistics Activities 1. Lease Purchasing -Currently purchases 6,000 BOPD from 20 E&P companies in TX, OK and LA Customers: 2. Truck Transportation -Provides third party transportation services to producers, marketers and refineries Customers: 3. Bulk Pipeline Trading EDFT has begun shipping on 6 pipelines with volumes up to 10,000 BOPD EDFTNA Pipeline Ac/vity: 6 4. Crude by rail transportation " Depth of expertise in all major US basins (Bakken, Eagle Ford, Granite Wash, Permian, Uinta) Crude Oil Logis/cs Ac/vity to Date: Strategy Volume Q Q Q Lease Purchasing (bpd) 739 3,487 5,695 Truck Transportation (bpd) 6,304 6,933 7,656 Pipeline & Bulk (bpd) 907 6,859 6,616 Total (bpd) 7,950 17,279 19,967

7 Targeted Basins EDFT is currently focused on crude oil in East Texas, the Eagle Ford Shale in South Texas, the Permian Basin in West Texas, the Granite Wash in TX/OK and the Uinta Basin in Utah. Additional areas of opportunity include the Bakken Shale in ND, Mississippi Lime in OK/KS, and the Utica Shale in Ohio. Primary target basins map Current and Targeted Basins 7

8 Reasons To Rail To Rail or Not to Rail A study of EDFT s decision to pursue crude by rail Reason #1 Everyone else is doing it : 1. Enbridge building ND oil rail export terminal, May 31, 2012, Associated Press wire. Enbridge already had crude oil unloading stations at Berthold. The expected cost of the rail terminal was $102 million. 2. Phillips 66 orders 2,000 new oil tank rail cars, June 7, 2012; Financial Times. The purchase price of 2,000 rail cars would be ~$280,000, Rangeland Energy, LLC to Sell Large Crude Oil Rail Terminal in North Dakota s Bakken Shale to Inergy Reason #2 The customer is always right Producers are demanding a rail priced option in their basket approach to pricing in many markets (Bakken, West Texas, Niobrara, etc ). Reason #3 I ve gotta have it ~10% of all US production is transported by railcars Midstream, L.P. (aka The COLT Hub.it sold for a reported $425 million), November 12, 2012; Yahoo Finance article Rangeland Energy was only 3 years old. 4. Plains All American to buy crude oil rail terminals for $500 mln (from U.S. Development Group). December 5, 2012; Reuters article. 5. PBF Energy Completes Delaware City Rail Terminal for Bakken Oil (110,000 bopd capacity). February 4, 2013; Bloomberg article 6. Tesoro and Savage Announce Joint Venture to Construct and Operate Crude-by-Rail Unloading and Marine Loading Facility at Port of Vancouver USA, April 22, 2013; Business Wire. The facility is expected to cost ~$75-$100 million. Source: RBN Energy 8

9 Reasons To Rail Reason #4 Capture the arb : Reason #6 Planned pipelines are not enough $30 / BBL Peak There are approximately 3 million barrels per day of planned pipeline expansions over the next 4 years This is insufficient to handle the approximately 4-6 million barrels per day of growth from the US and Canada during the same time frame EDFT expects the majority of this shortfall to be filled by additional pipeline projects and crude by rail Reason #5 Pipelines have disadvantages 1. Long lead times Planned Pipeline Development 2. High costs 3. Regulatory approval Railcar advantages: 1. Locational optionality (Gulf coast, east coast, west coast) 2. Speed to market (no right-of-way, permitting, etc) 3. Multi-commodity (crude, ethanol, dilbit) 4. Maintain product quality 9 Source: Bentek Energy

10 Or Not to Rail? Oversupplied railcar market: the Rail Car Bubble? - Currently there is an month lead time for new tank rail car deliveries - There are 53,000 tank railcars on back order (FTR associates) - Spot rates hit all-time highs - $2,800-$3,500 per car per month Too late to the party? - 20 Transload sites are already built in North Dakota - Pipelines coming online in 2013 & 2014: 1. Seaway Expansion Rail transportation is expensive: origin: $1-2 / BBL Freight: $6-10 Railcars: $1-5 des@na@on: $ Longhorn West Texas Gulf expansion 4. Permian Express 5. Bridge Tex - LLS drops from $20 premium to $4 premium in 2013 Go big or go home Unit Train vs. Manifest Efficiencies are key to keeping costs competitive Unit train economics Faster turn times on railcars Efficient loading operations

11 Mitigating Risks in Crude By Rail Mitigating rail car exposure 1. Avoid spot rail car rates - $2,800-$3,500 PCPM 2. Secure specialized coiled & insulated rail cars as opposed to the standard GP30 s due to the flexible nature of the railcar 3. Stagger the timing of car lease signings; a long-term lease, a mid-term lease, and a short-term lease with various suppliers: EDFT railcar supply: a) Term Supplier A 108 cars on a 3 year term and 108 cars on a 5 year term (216 total) b) Mid-Term Supplier B 150 cars 9 month term c) Short-term supplier C 50 cars 3 month term Mitigating market risk 1. Identify locations with an entrenched takeaway needs 2. Identify crude supply points that had historically traded at a discount to Nymex WTI 3. Don t depend on the Brent/LLS Premium Mitigating rail freight exposure Identify locations that are direct served by the rail roads - dealing with a short-rail carrier can add to expenses Identify origin or destination trans-load sites that are served by multiple Class I s to create rate competition. Identify origin or destination trans-load sites that are unit train capable to take advantage of the cost savings Focus on efficient transportation runs: the length of the haul matters Niche opportunities or under-served markets only EDFT was too late to the game to consider opportunities in the Bakken or any other areas that were potentially over-served We looked for crude oil supply locations that were demanding takeaway capacity instead of price optimization 11

12 What was our target area? Oh Canada! The Bakken was over built - Rail loading capacity is serving almost half of forecasted Bakken production - The market for Bakken barrels is priced based off rail shipment costs to the gulf coast - 20 Transload locations operating Canadian Takeaway Capacity: So EDFT identified entrenched arbs requiring coiled and insulated railcars: Canadian Pipelines are facing regulatory hurdles 1. Keystone XL 2. Trans Mountain 3. Northern Gateway Bitumen and Canadian heavy require steam to handle 12 Source: CAPP

13 And Utah Growth in the Uinta Basin Utah oil production grew 15% in 2012 up to 82 Mbpd Wax currently made up ~70% of the 82 mbpd of 2012 Utah crude production Currently there are 25 rigs drilling for crude oil in Utah Developing new markets and takeaway capacity is key to continued growth BBL / Day 180, , , , ,000 80,000 60,000 Utah State Oil Produc/on Wax refining capacity Historical 15% Growth Rate 8.7% Growth Rate 8.7% CAGR 40,000 20,000 Refinery expansions subject to regulatory approval Source: Oil and Gas Investor

14 Utah demand constraints Utah refiners have traditionally run ~30% of their capacities on a local waxy crude. Due to production growth, refining capacity is insufficient to clear any more of the waxy barrels. Refinery expansion are facing regulatory hurdles and not sustaining the pace of production growth. Refining Capacity Company Refinery Capacity (BPD) Wax Capacity Expansions Est. Timing Holly Frontier Woods Cross 31,000 10,000 14, , 2016 Tesoro Salt Lake 57,500 10,000 11,000 1Q Chevron 45,000 15,000 Est. Flying J Big West Oil Co. 29,400 13,500 Silver Eagle Woods Cross 10,250 10,000 Total 173,150 58,500 25,000 Of the 173,000 bpd refining in UT, there is ~ 50-70,000 barrels per day of wax refining capacity Waxy crude production is exceeding this by up to 15,000 barrels per day Holly and Tesoro expansions could add up to 25,000 bbl/d. Most of this capacity is committed to Newfield. (20 of 25 mbpd) The model does not factor in planned or unplanned refinery downtime Holly s expansion is still awaiting regulatory approval 14

15 Utah Transload Terminal EDFT is working closely with Global One Transport and Watco Companies to develop the Price River Terminal (PRT), a premier rail trans-load site for Uinta production located near Wellington, Utah: Price River Terminal (PRT) advantages: Unit train capable load site 7 miles of existing track PRT Terminal Dual served by both UP vs BNSF No short line switching need vs. Utah RR ($1.00 per BBL savings) Close proximity to the producing basin, shorter truck hauls than SLC ($ per BBL savings) Competitive transload rates 365 days per year; 24/7 Phase II Phase I 4 kbd (October 2013) Phase II kbd with unit train 7 days of railcar storage capabilities Tankage planned in

16 Questions? 16

17 Contact Information EDF Trading 4700 W. Sam Houston Parkway N Suite 250 Houston, TX Tel: Jay Harbison: SVP Crude Logistics Jason Booth: VP Crude Oil Trading and Marketing John Jackson: VP Crude Truck Operations Zach Torkelson: Director Crude Supply Ross Weisser: Crude Originator Or visit our website : 17