plg union league railway supply group luncheon
Post on 14-Jul-2015
204 Views
Preview:
TRANSCRIPT
Logistics Engineering Supply Chain
The North American Energy Revolution: Implications for Rail
Prepared for:
Railway Supply Group
Graham Brisben CEO, PLG Consulting
February 20, 2015
2
Boutique consulting firm with team members throughout North America
§ Established in 2001
§ Over 100 clients and 250 engagements
Practice Areas § Logistics § Engineering
§ Supply Chain
Consulting services § Strategy & optimization
§ Logistics assets & infrastructure development § Supply Chain design & operationalization
§ M&A/investments/private equity
Industry verticals § Energy § Bulk commodities
§ Freight rail
§ Institutional investors and private equity
About PLG Consulting
The North American Energy Revolution: Implications for Rail
Partial Client List
3
Deep rail industry experience • Operational
• Commercial
• Design & engineering
• Equipment market
Broad shale development industry client experience over past four years
• E&P companies
• Refiners
• Terminal developers
• Investors – private equity, hedge funds, investment banks
• Government agencies, industry trade groups
• Equipment leasing
PLG’s Industry Qualifications
Diverse projects • Frac sand supply chain design & implementation
• CBR supply chain optimization
• Rail commercial negotiations
• Rail car acquisition – commercial & technical inspection
• Comprehensive design & engineering – rail, marine, tankage, product handling, and related facilities
• EH&S training
• Investment advising
• Industry’s only long term, CBR volume forecast with complimentary rail tank car forecast
Recognized industry thought leader on CBR and tank car markets
• Numerous industry presentations, articles and advising
The North American Energy Revolution: Implications for Rail
4
s s Source: CAPP, About Oil Sands
Source: EIA, May 2014
US Shale
Unconventional Energy Resources and Extraction Technologies
The North American Energy Revolution: Implications for Rail
Western Canadian (WC) Oil Sands
Source: www.epmag.com
SAGD Horizontal Drilling & Hydraulic Fracturing
Source: Marathon, February 2014
“Moore’s Law” at play:
Exponential advances in technology, resulting in
Declining costs
Surging production
5
• New extraction technologies resulting in record production of gas, natural gas liquids (NGL), and crude oil
• Water-‐borne imports of crude being displaced by domestic production
• North America on pace toward full “energy independence” by 2020
The North American Energy Revolution
The North American Energy Revolution: Implications for Rail
Source: CAPP Report, June 2014
Source: RBN Energy, December 2014
6
Correlation of Operating Rig Count With Sand & Crude Carloads Handled
The North American Energy Revolution: Implications for Rail
0
200
400
600
800
1,000
1,200
1,400
1,600
0
50,000
100,000
150,000
200,000
250,000
Ope
rating
U.S. L
and Oil Rigs
Carloa
ds Han
dled
U.S. Land Oil Rigs
All Sand Carloads
Petroleum Carloads
7
2009-‐2011 • CBR developed from the
Bakken to bridge the gap until pipelines are built
• First unit train shipment in Dec. 2009
• Destination market: Cushing, OK WTI trading hub
2011-‐2013 • Ascendancy of trading as main growth driver in
CBR; WTI-‐Brent-‐LLS differentials are key
• St. James, LA LLS hub becomes most attractive destination
• Coastal refineries begin rail receipt infrastructure build-‐out
• Tank car market overheats, becomes main growth constraint
2013-‐current • CBR from Bakken assumes long-‐term
structural role in crude oil market
• Bakken CBR transitioning to east and west coast markets; LLS and WTI converge as Permian and Eagle Ford growth floods USGC
• Canadian CBR build-‐out begins; tank car market reorienting to coiled/insulated car types (~2/3 of CBR fleet order backlog)
Historical U.S. Crude-‐by-‐Rail Growth
0
200
400
600
800
1,000
1,200
2010
-‐Q1
2010
-‐Q2
2010
-‐Q3
2010
-‐Q4
2011-‐Q
1 20
11-‐Q
2 20
11-‐Q
3 20
11-‐Q
4 20
12-‐Q
1 20
12-‐Q
2 20
12-‐Q
3 20
12-‐Q
4 20
13-‐Q
1 20
13-‐Q
2 20
13-‐Q
3 20
13-‐Q
4 20
14-‐Q
1 20
14-‐Q
2 20
14-‐Q
3 20
14 Oct
2014
Nov
U.S. Crude by Rail Volumes (kbpd)
US Crude Originations Bakken Crude Originations
0
200
400
600
800
1,000
1,200
1,400
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
US Bakken Basin Crude Production and Rail Transport (kbpd)
Production Crude by Rail
Source: NDPA, PLG Analysis, February 2015
The North American Energy Revolution: Implications for Rail
8
2014: Oversupply Has Caused Precipitous Price Declines
Source: RBN Energy, January 2015
WTI, Brent & Natural Gas 2014 and 2015
Citibank cut its crude price forecasts, saying West Texas Intermediate (WTI) could go as low as the $20 per barrel range before recovering to reach a new equilibrium. (Reuters, 2/09/2015)
The market doesn’t understand just how quickly oil companies are scaling back their activities, and as a result, oil prices could rebound faster than many observers expect. -‐ Continental Resources CEO Harold Hamm (Fuelfix, 1/28/2015)
• U.S. shale oil industry has now entered uncharted territories in its brief history
• Natural Gas and NGL pricing has also dropped dramatically in a similar timeframe…due to oversupply and NGL ties to oil prices
• Market experts have widely varied opinions on what the rest of the year holds for pricing -‐ $10 ~ $70 per barrel…
The North American Energy Revolution: Implications for Rail
9
Source: Baker Hughes, February 2015
…Shale Oil Rigs Are Falling Quickly…
• Producers have taken the following measures:
• Slashed their CAPEX by 30-‐50%+ for 2015
• Stopped drilling exploratory wells
• Focus drilling on known “sweet spots”
• Requesting suppliers for price reductions up to 30%
0 200 400 600 800
1,000 1,200 1,400 1,600 1,800
U.S. Land Oil Rigs
The North American Energy Revolution: Implications for Rail
• Will continue to drill “held by production” wells to maintain land assets – but no production
• Conversely, Canadian oil sands producers are completing in-‐process wells as they already have significant investments made
10
…However, Crude Oil Production Will Continue To Grow
0
1
2
3
4
5
6
7
8
9
Lower 48 States (excl GOM) Crude Oil Production (MMBPD), Includes Lease Condensate
Source: EIA, February 2015 Source: CAPP, January 2015
• ~$50 WTI price is very challenging for all producers right now
• Cost reduction focus and “sweet spot” drilling will continue to lower break even cost
• Smaller, weaker players will fall while stronger producers will actually grow during downturn
• Oil sands has a 20-‐50 year view on projects
• Have also cut R&D budgets and delayed new greenfield projects
• SAGD wells also has lower break even costs compared to shale wells
• Current pricing is a short term issue from their perspective
The North American Energy Revolution: Implications for Rail
11
Shale Supply Chain and Downstream Impacts
Feedstock (Ethane)
Byproduct (Condensate)
Home Heating (Propane)
Other Fuels
Other Fuels
Gasoline
Gas
NGLs
Crude
Proppants
OCTG
Chemicals
Water
Cement
Generation
Process Feedstocks
All Manufacturing
Steel
Fertilizer (Ammonia)
Methanol
Chemicals
Petroleum Products
Petro-‐chemicals
Inputs Wellhead Direct Output Thermal Fuels Raw Materials
Downstream Products
Impacts to-‐date include: Dramatic reduction in crude imports,
lower electricity costs, lower gasoline prices, increased refined products exports
The next wave: Manufacturing renaissance in the US based on abundant, low cost energy and feedstocks
The North American Energy Revolution: Implications for Rail
12
Over $120B of New Shale-‐Related Manufacturing Investments Have Been Announced
The North American Energy Revolution: Implications for Rail
Ethylene and Propylene
Ammonia and Derivatives
Methanol
Polymers and Resins
Chlor-‐alkali
Other Source: American Chemistry Council and PLG analysis
13
Small Covered Hoppers – Market Update
Current market is one of “mixed signals” § Significant activity in short-‐term subleasing and railcar storage
§ Some shifting of new-‐build delivery schedules
§ Minimal outright cancellations of car orders
§ “Mixed signals” should be expected due to oil price volatility and continual revisions to 2015 well completion plans
Availability positions are showing some “cracks” § A few late-‐2015 new-‐build slots are available
§ New-‐build production schedules are full through mid-‐2016….for now
§ Overriding attitude for 2016 production is “wait and see”
Typical full service lease rates are currently $650 -‐ $675, down from late Q3 2014 (was over $700)
Frac sand shippers/receivers will continue to move towards more efficient methods of rail transportation, especially with heightened pressure on frac sand delivered cost per ton
Cement consumption is expected to grow by 8%+ in 2015 § Cement railcar lessees are carefully watching the market for lease opportunities
Plastic pellet cars are successfully competing for small hopper build capacity
The North American Energy Revolution: Implications for Rail
14
Low Oil Price Case North American CBR Forecast Overview
The North American Energy Revolution: Implications for Rail
Source: PLG Crude by Rail & Tank Car Forecast, Feb. 2015
• Bakken & Oil Sands are main drivers of CBR volumes, accounting for ~87% of NA movements in 2017
• Other plays such as Niobrara and Permian are seeing increasing CBR activity but will be adequately served by pipelines long-‐term
-
100
200
300
400
500
600
700
800
900
2013 2014 2015 2016 2017 2018 2019
Scenario 3 WTI $52-64 & WCS $40-52 Crude by Rail Volumes
Bakken
Western Canada
Niobrara
Permian
15
Industry Awaiting U.S. DOT PHMSA Decision – May 2015
NPRM (July 2014) addressed following key areas: § Classification & characterization of mined gases and liquids
§ Rail routing risk assessment
§ Reduced operating speeds
§ Enhanced braking
§ Three tank car options announced for HHFT trains – Option 2 (9/16” tank, no enhanced braking) is likely the new standard
Recent accidents continue to put pressure on increasing tank car safety specifications
Rail tank car market conditions § New-‐build backlog is 20-‐24 months and most/all orders have “no cancellation”
clauses
§ New order active on “pause” till new rules announced in May
§ Some orders for 9/16” cars already on order books
§ Current lease price ~$1,900 / month
§ Spot market rate is ~$1,000/month or lower, very soft market
§ Numerous crude oil sets are in storage, leading to improved operations and availability of power which was in short supply
§ Industry in a holding pattern -‐ general sentiment is “wait and see”
Tank Car Insulation
Top Fittings Housing Manway
Tank Jacket
Tank Shell
Tank Head
Head Shield
Source: API with PLG simplification
Bottom Outlet Valve/Protection Skid
The North American Energy Revolution: Implications for Rail
16
Total Tank Car Fleet Forecast Under NPRM Option 2 and ~$58/bbl Oil
The North American Energy Revolution: Implications for Rail
CRUDE 45,644 13%
ETHANOL 26,920 7%
LPG 20,683 6%
CHEMICAL 158,424 43%
AG 76,579 21%
OTHER 36,595 10%
2015
CRUDE 32,277 8%
ETHANOL 26,795 6%
LPG 21,571 5%
CHEMICAL 168,269 40%
AG 79,864 19%
OTHER 40,566 10%
SURPLUS CRUDE 13,955 3%
SUBJECT TO RETIREMENT, STORAGE, OR
RESTRICTED USE DUE TO
REGULATION 40,100 9%
2019
Total Fleet:364,847 Total Fleet: 423,396
Logistics Engineering Supply Chain
Thank You ! For follow up questions and information,
please contact:
Taylor Robinson, President +1 (508) 982-‐1319 / trobinson@plgconsulting.com
This presentation is available for download at:
http://plgconsulting.com/category/presentations/
top related