Liquefied Natural Gas (LNG) for Commercial Applications. David Jaskolski Senior Account Manager Pivotal LNG September 2014

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1 Pivotal LNG 1

2 Liquefied Natural Gas (LNG) for Commercial Applications David Jaskolski Senior Account Manager Pivotal LNG September 2014

3 Forward Looking Statements and Supplemental Information 3

4 Pivotal LNG is an AGL Resources Company TRUSSVILLE LNG Jacksonville, FL New Build 4

5 Natural Gas Delivery System 5

6 Pivotal LNG in the LNG Value Chain AGL Companies Serving the Market To vehicles To stationary use Natural Gas Supply Sequent Energy Management Feed Stock Liquefaction Plants Pivotal LNG LNG Supply Transportation and Dispensing Pivotal LNG LNG Logistics Market 6

7 Key Success Factor Multiple LNG Plants for Supply 7

8 Key Success Factor The Ability to Provide Firm Supply vs. Interruptible Most utility LNG plants provide supply on an interruptible basis. Their primary function is to supply gas back to the pipeline when pipeline demand exceeds pipeline supply Trussville, Alabama LNG Plant 100% Merchant plant (not a utility peak shaver) 60,000 gallons per day plus expansion option 5 million gallons of storage 100% merchant plant with large storage provides long term firm supply for our customers Trussville LNG 8

9 Key Success Factor - An accessible truck loading rack with an accurate scale is critical to a successful commercial operation Gas to Heat Exchanger LNG to Storage Tank LNG to Tanker Loading Tanker Loading Facilities

10 Pivotal LNG is Off to a Good Start On-Highway UPS Nashville and Knoxville, TN LNG deliveries began September 2013 from our Chattanooga LNG facility UPS Jacksonville, FL LNG deliveries began Q Sales through retailers for multiple on-highway customers Marine industry Pivotal and WesPac have entered into a partnership to build a new facility in Jacksonville to serve TOTE s two new state-of-theart container ships and other LNG markets Oilfield operations Deliveries of LNG to gas production companies in various regions for use in fracking equipment 10

11 Target Market Segments for LNG On Highway Heavy Duty Trucks Marine Rail Oil and Gas Exploration and Production Mining and Aggregates Asphalt Production

12 Natural Gas as a Vehicle Fuel is only 0.13% of the total consumption of natural gas Source - US DOE Alternative Fuels Data Center

13 Heavy trucks, rail and marine are likely to adopt LNG Source US DOE Alternative Fuels Data Center

14 Intermodal Points Can Be a Good Place to Deploy LNG Intermodal transportation points such as ports and rail yards are excellent places to deploy LNG to serve the marine, rail and the on-highway markets Economies of serving multiple markets in one location help make the case for the investment in the fueling infrastructure, including building LNG plants Intermodal transportation points represent a significant opportunity to reduce diesel emissions

15 On Highway Market Heavy Duty Trucks

16 Daily Truck Freight Tons

17 U.S. Natural Gas Pipeline Network

18 Class 7 8 On-Highway Market Class 7-8 combination trucks include all trucks designed to be used in combination with one or more trailers with a gross vehicle weight rating over 26,000 lbs. The average vehicle travel of these trucks (on a per truck basis) far surpasses the travel of other trucks due to long-haul freight movement. The data series was recently changed by the FHWA back to Table 5.2 Summary Statistics for Combination Trucks, Registrations Vehicle travel a Average annual Fuel use Fuel economy Year (thousands) (million miles) miles per vehicle (million gallons) (miles per gallon) , ,199 69,905 30, , ,826 71,113 30, , ,100 64,234 28, , ,789 68,856 29, , ,692 66,759 28, Average annual percentage change % 3.8% 1.3% 3.3% 0.5% % 1.8% 0.5% 1.0% 0.7% Source US DOE Transportation Energy Data Book

19 Energy Demand in the Transportation Market TCF Source: EIA 19

20 Characteristics of Truck Fleets Likely To Convert to LNG Reasonable distance to an LNG production facility Large overall fleet size gives them the financial means to make the investment in fueling infrastructure and incremental tractor costs Regular route High fuel consumption heavy loads, multiple shifts Long equipment trade cycles (5+ years) A Green Shipper that influences the carrier

21 The LNG CNG debate CNG A good choice compared to LNG when: Ample pipeline supply is available Electricity from the utility is cheap (and no peak demand charge please) Fuel consumption is low (less than 65 gallons a day) Space for numerous tanks is available on the vehicle (twice the space volumetrically as LNG ) Vehicle weight is not important (1,000 lbs. 2,000 lbs.) Wheelbase does not have to be kept to a minimum The time to refuel is not a concern, such as vehicles that can refuel overnight Vehicle may sit idle for long periods (municipalities) Cars, light trucks, buses and refuse trucks are good candidates for CNG

22 The LNG - CNG debate LNG - A good choice when: Distance to the LNG supply is reasonable Fuel consumption is high (65 DGE+) Maximum available range is needed Vehicle weight needs to be at a minimum The wheelbase needs to be kept as short as possible The time to refuel is an important consideration The fleet may have both LNG and CNG vehicles at one location (L-CNG) Class 8 tractor trailers are usually good candidates for LNG 22

23 The simplicity of an LNG station 23

24 Adequate pipelines and electrical infrastructure are not available everywhere truck fleets operate that need to fast fill large volumes of CNG For locations where high volume fast fill CNG is desired and the pipeline or electric utility capacity is not sufficient, L-CNG can be the solution. L-CNG Fast fills well without the heat of compression No pipeline is needed Electrical demand is minimal 24

25 The simplicity of an L-CNG station 25

26 Who are the likely early adopters for LNG? Generally wherever you have a concentration of day cab class 8 tractors. Regular route applications such as distribution centers that already fuel on site and return to base nightly are an example Hub and Spoke Node to Node Regular route Centrally Fueled LNG applications are likely to be hot seat (multiple shift) operations that burn high volumes of fuel and are able to get an acceptable break even point 26

27 Guiding the truck customer through the process starts with asking the right questions LNG Fuel Cost Savings Model Input Data This worksheet will allow us to start collecting data specific to your operation at a specific location. If you don t know the answer for a value, just leave it blank for now. Items in brown are related to diesel tractors Items in blue are related to LNG tractors Cells in yellow are for you to input information specific to your fleet at a particular location Typical Your Variable Fleet Fleet Desription of the data value Location Name Plant #1 Your plant or terminal name Average Annual Tractor Mileage 100,000 How many miles per year do you average per tractor at this location? Number of Tractors 10 How many tractors in total operate from this location? Weeks of operation per year 52 How many weeks per year do the tractors usually operate? For instance do you have an annual plant maintenance shut down? Days of operation per week 5 How many days per week do the trucks operate? 5,6,7? Shifts per Day 1 On the average, how many shifts per day do the tractors operate? 1,2,3? Acquisition Cost - Diesel Tractor $ 100,000 Estimated cost of a new 2013 model year diesel tractor including FET and local taxes if applicable Current Diesel Cost ($ per gallon) $ 4.00 Your current cost per gallon for diesel fuel including federal and state taxes, include station maintenance costs if centrally fueled Estimated Annual Diesel Cost Increase % 10% Your estimate as a percent as to how much diesel fuel will increase in cost annually over the next ten years Average Fuel Mileage (MPG) Diesel 6.5 Your fleets average MPG at that location Current Diesel Exhaust Fluid Cost ($ per gallon) $ 3.00 Your current cost of DEF (Diesel Exhaust Fluid - Applies to all EPA 2010 diesel engines except Navistar) Estimated Diesel Exhaust Fluid Consumption % 2% How much DEF are your trucks using as a percentange of diesel fuel consumed? For example 2 gallons of DEF per 100 gallons of diesel? Estimated Annual Diesel Exhaust Fluid Cost Increase % 2% Your estimate as a percent as to how much diesel exhaust fluid will increase in cost annually of the next ten years Acquisition Cost - LNG Tractor $ 150,000 Estimated cost of a new 2013 model year LNG tractor including FET and local taxes if applicable Single Fuel or Dual Fuel Single Will the engines be single fuel (spark ignited) or dual fuel (compression ignition) Current LNG Cost ($ per DGE) $ 2.50 Cost per DGE (diesel gallon equivalent) of LNG fuel Estimated Annual LNG Cost Increase % 2% Your estimate as a percent as to how much LNG fuel will increase in cost annually over the next ten years Average Fuel Mileage (MPG) LNG 6.2 Your estimate for fuel mileage with LNG fueled tractors

28 Crunch the numbers for them

29 Telling our story Some facts that surprise fleets LNG is not explosive or flammable LNG is not corrosive LNG will not mix with water (it floats) If LNG is spilled, it quickly vaporizes and rises into the air There is no residue after a LNG spill on water or soil LNG is odorless and non-toxic 29

30 Marine Market

31 LNG Marine Fuel Trends Growing interest in Marine LNG Emission Control Area compliance option Cost savings due to natural gas abundance Experience to date primarily in Europe New and unique projects in the U.S. Harvey Gulf OSV Fall TOTE container ships to JAX FL Images from Off Shore Energy Today and JOC.com 31

32 LNG Marine Supply Issues LNG as marine fuel has unique challenges Bunker volumes are larger than land based LNG uses > 200,000 LNG gals per event Simultaneous Operations SimOps Passenger or cargo loading during bunkering Safety and Security Enhanced requirements at Port facilities 32

33 LNG Marine Supply Issues Bunkering Methods Dockside Truck to Ship Dockside - Tank to Ship Dockside ISO containers as portable fuel tanks Water side Bunker barge (Tanks, ISOs or membrane) Key Selection Criteria Bunker volume SimOps Physical space available Ease and speed of implementation 33

34 Dockside Truck to Ship Well suited to small volumes, < 30,000 gals Temporary use of dock space Challenges for safeguarding bunkering zone Need to be close to vessel impact to SimOps Photo from MaritimeExecutive.com 34

35 Dockside Tank to Ship Well suited to large volumes Located further away from ship Permanent installation good control of bunkering zone Dock/terminal space is valuable (tank filling) Siting regulations may impact dock/terminal area Image from FleetsandFuels.com 35

36 Dockside ISOs as portable fuel tanks ISOs already approved for LNG service Easily filled at remote location Readily loaded at container terminal Large volumes are challenging Multiple ISOs to lift Each ISO must disconnected and new ISO connected 36

37 Waterside Bunker Barge Storage options pressurized tanks, ISOs and membrane Capable of large volume bunkering Conceptually similar to petroleum bunkering Practically very different- design, materials, procedures and training New process and regulatory oversight is under development Infrastructure to refill barge can be significant Images from MarineLink.com and ArgentMarine.com 37

38 LNG Regulatory Issues LNG marine fuel is different than LNG bulk Much smaller volumes, frequent events SimOps Numerous vessel types w/ variety of LNG fuel storage options Need for LNG fuel specific regulations Coast Guard recognizes the need for flexibility CG-OES LNG Fuel Transfer Operations and Training of Personnel CG-OES Vessels and Waterfront Facilities for LNG Bunkering LNG Industry has an excellent Safety and Security history 38

39 The Challenges Going Forward

40 LNG Transportation The main mode of delivery for domestic LNG is on-highway by a tractor truck and a tanker trailer On-highway transportation of LNG is very expensive, averaging about $7.00 per mile one way per tanker load A tanker load is about 10,000 gallons but can vary by 500 gallons or more depending on the empty weight of the tractor trailer combination (GCW) 40

41 The cost of on-highway transportation on LNG 100 Miles X $5.00 = $ $500/10,000 gallons = $ 0.05 $0.05 X 1.7 gallons/dge = cost per DGE for transportation Cost per mile for transportation Miles $ 5.00 $ 5.50 $ 6.00 $ 6.50 $ 7.00 $ $ 0.09 $ 0.09 $ 0.10 $ 0.11 $ 0.12 $ $ 0.17 $ 0.19 $ 0.20 $ 0.22 $ 0.24 $ $ 0.26 $ 0.28 $ 0.31 $ 0.33 $ 0.36 $ $ 0.34 $ 0.37 $ 0.41 $ 0.44 $ 0.48 $ $ 0.43 $ 0.47 $ 0.51 $ 0.55 $ 0.60 $ $ 0.51 $ 0.56 $ 0.61 $ 0.66 $ 0.71 $ $ 0.60 $ 0.65 $ 0.71 $ 0.77 $ 0.83 $ $ 0.68 $ 0.75 $ 0.82 $ 0.88 $ 0.95 $ $ 0.77 $ 0.84 $ 0.92 $ 0.99 $ 1.07 $ $ 0.85 $ 0.94 $ 1.02 $ 1.11 $ 1.19 $ 1.28

42 Federal and State Tax Penalties on LNG A gasoline gallon equivalent (GGE) measurement was adopted in 1994 by the NCWM to allow for a reasonable and understandable basis of measurement and taxation for CNG as compared to gasoline. Currently no national standard exists for a Diesel Gallon Equivalent (DGE) for LNG Therefore LNG is taxed at 1.7 times the rate of diesel on a federal level and in most states. The concept of a DGE for CNG and LNG was introduced to the National Conference on Weights and Measures (NCWM) about a year ago but has not been approved. Many in the NCWM want LNG and CNG sold in kilograms while diesel and gasoline would continue to be sold in gallons..

43 The Federal Excise Tax (FET) Penalty Fuel Tax Penalty 100,000 miles per year /6.5 MPG = 15,385 Gallons per truck per year Published Effective Rate Multiplier Rate Gasoline $ $ 0.18 CNG $ $ 0.20 $ 3,097 Diesel $ $ 0.24 $ 3,754 LNG $ $ 0.41 $ 6,355 Purchase Tax Penalty FET on a new class 8 tractor is 12% Cost FET New Diesel Tractor $ 100,000 $ 12, New Natural Gas Tractor $ 150,000 $ 18,000.00

44 And what happened to diesel prices? Source US DOE Alternative Fuels Data Center

45 Pivotal LNG Natural Gas Fuel David Jaskolski Senior Account Manager