Changing Landscapes: Midstream Oil and Natural Gas Today and in the Future February 4, 2016

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1 Changing Landscapes: Midstream Oil and Natural Gas Today and in the Future February 4, 2016 Robin Rorick Group Director, Midstream & Industry Operations American Petroleum Institute

2 The U.S. has experienced a rapid increase in natural gas and oil production from shale and other tight resources 31.9%

3 Near term crude oil prices are difficult to predict in today s market but

4 Oil supply and demand begin to rebalance in 2016 world supply and demand million barrels per day (MMb/d) implied stock change million barrels per day Source: EIA, Short-Term Energy Outlook (November 2015)

5 Natural gas production is also expected to rise U.S. becomes a net exporter of natural gas in the near future U.S. dry natural gas trillion cubic feet per year History 2013 billion cubic feet per day Projections 100 Consumption 75 Production Net exports 0-25 Source: EIA, Annual Energy Outlook 2015

6 Despite short term price fluctuations, the industry plans long term for critical investments in infrastructure

7 Maritime, pipeline and rail infrastructures are all critical elements of the oil supply chain

8 As well as the Natural Gas Supply Chain

9 The U.S. oil and natural gas pipeline systems are the most sophisticated in the world There are approximately 510,000 miles of natural gas and petroleum liquids transmission pipelines in the US - enough to wrap around the earth 20 times

10 Industry has many methods to ensure and maintain pipeline operations Prevention Evaluating, inspecting, and maintaining pipelines through operator integrity management programs to prevent releases Billions are spent each year Smart pigs high-tech diagnostic devices that travel inside pipelines to identify pipe irregularities; 90% detection rate Mitigation 24/7 control room operators reviewing information from instruments along pipeline Shut-off valves to stop product flow within minutes and isolate pipelines where data indicates a possible leak Response Response Plans are completed and shared with responders to ensure appropriate action Drills are conducted to practice a response

11 Industry has many methods to ensure and maintain pipeline safety Safety Improvement Liquids pipeline incidents are down 50% since Specifically, releases caused by corrosion and third-party damage have decreased by 76% and 78%, respectively. Statistics show that incidents that do occur are very small in size and are contained in facilities, not along the right of way where public and the environment are impacted. 35% of releases in 2013 were smaller than 1 barrel and two-thirds of releases were 5 barrels or smaller 66% of incidents are within operator facilities such as pump stations or tank facilities, and one-third are along a pipeline right of way

12 Maritime transportation is a critical link to markets for petroleum products and crude oil 41 % OF ALL U.S. WATERBORNE TRADE (IMPORTS & EXPORTS) 36.8 % OF ALL DOMESTIC WATERBORNE TRADE 40 % OF ALL U.S. REFINERY RECEIPTS ARE CRUDE OIL OR PETROLEUM PRODUCTS 39.5 % OF ALL U.S. SELF- PROPELLED WATERBORNE TRADE 36.7 % OF ALL U.S. BARGE TRAFFIC

13 Waterborne Movements of Crude (in red) and Product (in blue) Between PADDs Millions of Barrels per Year Source: EIA

14 Safety is our top priority and the industry record reflects our commitment Since 1970, there has been a 98% reduction in oil spilled from tankers worldwide. In context, almost 3 billion tonnes of crude oil and petroleum products were delivered in 2012, or 1/3 of all seaborne trade.

15 However, investments are needed to maintain these critical public infrastructure systems Underinvestment in maintaining and improving maritime infrastructure could result in annual losses of as much as $49 billion in lost revenue for US businesses by 2024 Underinvestment in maritime infrastructure chokes the flow of commerce. This can lead to increased costs of everyday products, commodities, and raw materials for the end consumer. As a result, revenue decreases for local economies and businesses.

16 Railroads provide access to and from areas often inaccessible by other transportation systems The surge in domestic production is not only driving our energy security but has also created benefits for consumers through lower fuel prices and greater job opportunities. As production in shale plays has grown, producers have relied on rail to move crude oil to refineries on the East and West Coasts.

17 Rail Movements of Crude Oil Since 2008, transportation of crude oil by the six Class I railroads, considered the largest freight rails in North America, has grown significantly from 9,500 carloads in 2008 to 233,698 in 2012 and almost 500,000 in Last year, railroads transported approximately 8% of U.S. oil production. Infrastructure development has accompanied increasing movements.

18 Increasing Investments to Support Growth in Rail At the end of 2010, it is estimated that there were six dedicated crude-by-rail loading facilities (all in the Bakken in North Dakota), and four dedicated crude-by-rail offloading facilities. By year-end 2013, it is estimated that there will be 53 total loading facilities, and 64 total offloading facilities.

19 Shipments of crude oil by rail have grown exponentially while the safe delivery of hazardous materials by rail is % Since 2008, transportation of crude oil by the six Class I railroads, considered the largest freight rails in North America, has grown significantly from 9,500 carloads in 2008 to 233,698 in 2012 and almost 500,000 in Last year, railroads transported approximately 8% of U.S. oil production.

20 Industry is invested in the safe transportation of crude by rail API supports the Department of Transportation s (DOT) new rules that will improve the safety of railroad operations and mitigate the consequences of train accidents. New tank car performance standards and specifications are one way to achieve these goals. The oil and gas industry is working with regulators, the railroads, and other stakeholders to evaluate rail issues holistically. This includes reviewing regulations, evaluating track maintenance and train operations, providing guidance on crude oil classification and loading processes, and working to improve emergency operations.

21 Current Response Regulations Safety and environmental responsibility are fundamental principles across the oil and natural gas industry, as demonstrated by the standards, programs, and record of the industry, and as companies comply with the requirements in the Oil Pollution Act of 1990 (OPA 90). Taken as a whole, these principles have contributed to a dramatic decrease in crude oil releases. The five regulations below share the common objective of protecting the public and the environment from harmful discharges of oil on water and on land. These programs provide exhaustive detail as to how the regulated community is required to format FRPs, communicate with regulators, planning standards for contracted response resources, and training and exercise requirements. Regulation Primary Authority 30 CFR Part 254 Oil-Spill Response Requirements for Facilities Located Seaward of the Coast Line BSEE 33 CFR Part 154 Subpart F Response Plans for Oil Facilities USCG 40 CFR Part Facility Response Plans USEPA 49 CFR Part 130 Oil Spill Prevention and Response Plans PHMSA 49 CFR Part 194 Response Plans for Onshore Oil Pipelines PHMSA

22 The Industry s Safety Record Pipelines: Pipelines are one of the safest ways to transport energy. In 2013, % of crude oil and petroleum product barrels delivered by transmission pipeline arrived at their destination safely. Over the last 5 years, crude oil and petroleum product transmission pipelines have delivered their barrels safely at or above % of the time Marine: Rail: Since 1970, there has been a 98% reduction in oil spilled from tankers worldwide. For the last three and a half decades the average number of incidents involving large oil spills from tankers has reduced progressively and since 2010 stands at an average of 1.8 large oil spills per year. From 2000 through 2014, a period during which U.S. railroads terminated million carloads of crude oil, more than 99.99% of those carloads arrived at their destination without a release caused by an accident. Rail hazmat accident rates have dropped by 62 percent since 2000 alone.

23 Questions?