FN360 Q2 2015

56
Q2 Q3 Q Q Q4 Q1 2nd QUARTER APRIL MAY JUNE 2 0 1 5 M A R K E T N E W S & I N F O R M A T I O N

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FUELSNews 360°, published four times annually by Mansfield Energy Corp., analyzes and summarizes the prior quarter’s activity in the oil, natural gas and refined products industries. The purpose of this report is to provide industry market data, trends and reporting both domestically and globally as well as provide insight into upcoming challenges facing the energy supply chain.

Transcript of FN360 Q2 2015

Page 1: FN360 Q2 2015

Q2

Q3QQQ4

Q1

2nd QUARTER

A PR I L MAY JUNE

2 0 1 5

M A R K E T N E W S & I N F O R M A T I O N

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At the close of 2014, analysts claimed $75 a barrel signified shale oil’s breakeven point. But oil field service providers have sincetightened their belts and slashed drilling costs, lowering the industry’s breakeven closer to the current $60 a barrel range. Consequently,the second quarter kicked off with notable gains only to stall in May as drillers struck a balance. Of course, the industry’s acclimated to$60-a-barrel crude oil just in time for global production to receive its next shock.

Crude oil rig counts continued their first quarter decline, shedding over 21 percent of remaining wells to only 628 — representing a 5-year industry low — yet domestic drillers still maintained record-high rates of 9.6 million crude oil barrels a day. Unfortunately, after sixmonths of dwindling rig counts and strong OPEC output, Big Oil analysts anticipate American production to finally fall from record highs,easing the global supply imbalance by an estimated half a million barrels a day.

Offsetting the bullish effects such a cut would produce, Gulf oil producers increased output to their highest levels since 2012, overshootingquotas by 1.58 million barrels a day with no signs of stopping. Already, Iraqi producers increased second quarter production 3.2 percentto a record 3.145 million barrels a day. Meanwhile, Saudi production averaged an estimated 10.3 million barrels a day this quarter,setting a 13-year high, while exports soared to as much as 8.5 million barrels a day, a 10-year record. OPEC leaders made it clear inNovember. This is a battle of market share, which Gulf producers aren’t willing to lose — even to their own.

Case in point, politicians set ambitious goals for Iran’s nuclear debate this spring, promising to withdraw debilitating sanctions if a dealpassed, but fellow OPEC nations snubbed the group’s second-largest producer when asked to make space for potential post-sanctionbarrels. Iran’s oil minister fired back, telling reporters “If OPEC members want to keep prices at the same level, we expect them to makeroom for Iranian oil.” In the second quarter alone, the nation’s oil producers increased offshore crude inventories by approximately 19million barrels, or 76 percent, in preparation for easing sanctions. Now, with barrels loaded and ready to travel, Iran poses possibly thegreatest threat to the market’s recovery.

While Iran threatens to impact supply, Greece most certainly undermines demand. “Grexit” rhetoric hit its peak during the second quarterafter the nation’s anti-austerity government went toe-to-toe with European finance ministers and lost. Convinced the mere threat ofleaving the common-currency bloc would force creditors to compromise, Prime Minster Alexis Tsipras took a hard line against economicreforms in his January campaign, but after a five-month impasse, Greek banks were compelled to close their doors and impose capitalcontrols to halt bank runs.

In the third quarter, watch for the anticipation of a sanction-free Iran to weigh on crude oil prices while Greece picks up the piecesfollowing its June 30th default. Global demand should show minimal recovery late in the third before picking up in the fourth whileglobal crude oil production maintains gluttonous rates, despite what talking heads want you to believe.

Q2 2015 Executive Summary

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Q3Q44

Q1

2nd QUARTER

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FUELSNews 360° Quarterly Report Q2 2015

Index

FUELSNews 360°, published four times annually by Mansfield Energy Corp., analyzes and summarizes the prior quarter’s activity

in the oil, natural gas and refined products industries. The purpose of this report is to provide industry market data, trends and

reporting both domestically and globally as well as provide insight into upcoming challenges facing the energy supply chain.

4 Overview

4 April through June, 2015

5 Second Quarter Summary

6 Economic Outlook

6 Global Economic Outlook

8 U.S. Economic Outlook

10 Fundamentals

10 Fracklog Fuels Production

12 Iranian Stockpiles Build

14 Domestic Energy Demand Shifts

16 Federal Reserve Readies Rate Hike

18 House Debates Crude Ban

20 Regional View

20 PADD 1A, NortheastCommentary–Evan Smiles

24 PADD 1B & 1C, Central & Lower AtlanticCommentary–Chris Carter

28 PADD 2, MidwestCommentary–Dan Luther

30 PADD 3, Gulf Coast

32 PADD 4, Rocky MountainCommentary–Nate Kovacevich

34 PADD 5, West Coast, AK and HICommentary–Lynn Argianas

36 Canada

38 Renewable Fuels

42 Natural Gas

46 Electrical Power

48 Transportation Logistics

50 Diesel Exhaust Fluid (DEF)

52 Fuel Taxes

54 FUELSNews 360˚ Supply Team

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Wrapping up an uncharacteristically quiet quarter, crude oil futures rose steadily in April before coasting through the next two months, never straying farfrom $60 a barrel for long. Global crude oil production held strong near record rates while the value of the dollar versus foreign currencies added volatility.Fundamental concerns of rising OPEC production — particularly Iran — provided downward pressure while Greece and Ukraine both threaten the EuropeanUnion’s economic recovery and, consequently, demand for crude oil.

Overview

April 2015 through June 2015

4 © 2015 Mansfield Energy Corp.

Dollar sheds 4% vs. the Euro ISIS attacks cause heavy casualties in Baghdad

Crude inventories post lowest weekly gain of 2015

Domestic crude oil inventories jump by 10.9 million barrels

p y g

OPEC nations maintain 30mmbbl/d quotas

WTI Crude Futures

Source: New York Mercantile Exchange (NYMEX)

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Overview

Second Quarter Summary

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Summary, 2nd Quarter 2015

$59.47

$1.8866

Source: Bloomberg Finance L.P.

17599.96

$2.0896

Refined products experienced seasonal gains on rising demand with a little added help from unexpected refinery issues. Strong first quarter 3:2:1 crackspreads — a rough estimate of refiners’ margins — bled into the second, encouraging some refiners to forego spring maintenance projects in favor ofincreased production. In some cases, that came back to bite them, as production disruptions strained their local markets even further. Gasoline production, inparticular, struggled through the second quarter as drivers took full advantage of lower energy prices and several regionally-significant facilities experiencedissues with their fluid catalytic crackers (FCC), a key unit in the gasoline manufacturing process.

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The World Bank recently downgraded global economic growthpredictions for the second half of 2015 as emerging marketsrecorded significantly slower growth. In June, the organizationadjusted its January forecast of 3.0 percent down two-tenths of apercent to 2.8 percent. Economies across Europe and Asia continueto suffer as Russia systematically unravels every diplomatic tieforged over the last quarter of a century. Meanwhile, China’sfinancial markets began showing cracks in the second quarter asequities soared to record heights while production and economicgrowth slipped below targets. Finally, Greece created considerabledoubt of a European economic recovery this year and still casts apall on neighboring EU economies.

Though Russia’s covert conflict with neighboring Ukraine fell fromheadlines as soon as ISIS took the spotlight last summer, fightingcontinues throughout Ukraine’s eastern region. Russian-supportedseparatists undermine EU-brokered ceasefires, escalating tensionsbetween their benefactors and EU trade partners. The Kremlinclaims companies have suffered the worst of the economic cooldown, but the nation’s former finance minister, Alexei Kudrin, fearsRussia’s just entered “a full-fledged crisis.” Widely expected tocontract by roughly 4 percent this year, the Russian EconomyMinistry predicts a milder 2.8-percent 2015 contraction beforeexpanding by 2.3 percent next year. Russia’s economic slowdownalso hinders European economies — most notably, Germany.

According to German newspaper Die Welt, EU sanctions targetingRussian businesses and members of Putin’s inner circle costEuropeans as much as €100 billion and could result in roughly 2 million job losses.

The People’s Bank of China lowered its 2015 economic forecast toonly 7 percent in early June, citing falling industrial production,exports and property investments. Consequently, inflationprojections fell 8 percentage points to 1.4 percent, fueling concernsof a spending and investment cooldown in the world’s second-largest economy. China’s equity traders also noticed cracks forminglate in the quarter as the Shanghai Composite Index fellprecipitously halfway through June — down nearly 30 percent andfitting the criteria of a bear market. Doubling in only seven shortmonths, investors couldn’t look past potential gains in an otherwiseslow global economy. Many investors have already lost fortuneswhile others lost their life savings and more after wagering trillionsin borrowed cash against the world’s top-performing index.

Beyond this year, World Bank analysts anticipate faster growth of3.3 percent as the U.S. Federal Reserve raises interest rates andbond repurchasing programs in Europe and Japan fuel growthamong developed nations. As a leading exporter, China willcontinue to struggle until wealthier nations resume spending, but first they’ll endure the pain of a bursting bubble. •

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Global Economic Outlook

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“Many investors have already lost fortuneswhile others lost their life savings and moreafter wagering trillions in borrowed cashagainst the world’s top-performing index.”

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After winter weather chilled the domestic first quarter economy— expanding GDP by a meager 0.2-percent — supportivemonetary policies and lower energy expenses increased overalldemand for goods and services in the second quarter, fueling jobgrowth, but risking the formation of yet another equity bubble.Federal Reserve policymakers held interest rates near zero foranother quarter, dashing earlier estimates of a summer rate hike infavor of continued job growth and potential business investments;though analysts found investors more likely to put their money inequities than new business ventures.

Both the Nasdaq Composite and S&P 500 hit record highs in thesecond quarter. Good news, right? Maybe not. While NobelLaureate and Yale professor of economics Robert Shiller hasn’t seenthe typically exaggerated expectations found in a “classic bubble,”elements of a stock bubble exist in today’s market. A traditionalbubble forms as a result of heightened expectations, but

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U.S. Economic Outlook

shareholders report waning confidence in the market’s currentvaluation. Investors would normally reallocate their wealth to saferinvestments in this situation, but with the Fed suppressing interestrates, few alternatives exist, encouraging further investment in whatbuyers consider overvalued stocks. So, while the Fed’s concerned anearly rate hike could stifle long-term economic growth, theguaranteed short-term losses grow by the day. At the same time,Federal Reserve policymakers are sure to apply the brakes slowly,easing the market towards fair value.

Even after interest rates return to normal, IHS analysts expect thenation’s GDP growth to maintain uncommonly low rates, calling 3-percent growth “a relic of economic history.” Between 1980 and2000, the U.S. economy grew by an average 3.4 percent as morewomen returned to the workforce and the nation generated greaterrevenues with substantially less government debt, but IHS suggesteda considerably slower long-term forecast of 2.3 percent in mid-June,blaming Baby Boomer retirement and weak corporate investments.

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April May June95.9 90.7 96.1

Consumer Sentiment Index

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Consumer Sentiment Index

U.S. Economic OutlookThe University of Michigan’s monthly Consumer SentimentIndex rose to a five-month high of 96.1 in June aftershedding 7.4 points from its 11-year high of 98.1, recordedin January. Survey director and chief economist RichardCurtin said “Consumers voiced in the first half of 2015 thelargest and most sustained increase in economic optimismsince 2004.” Greater consumer optimism translates toincreased consumer spending, which Curtin expects to growby 3.0 percent this year, driving better-than-expectedeconomic growth.

Federal Reserve members clearly intend to raise interestrates in 2015, but dovish updates coupled withChairwoman Yellen’s insistence on a 2-percent inflationrate leave the date and rate of increase a source ofspeculation. In June, the IMF lowered its growthexpectations for the U.S. from 3.1 percent to only 2.5percent, citing a stronger dollar, falling energy prices andbad weather. The agency recommended an interest ratehike be put on hold until next year, believing the threat ofweak economic growth outweighs that of a financialbubble fueled by near-zero interest rates. Regardless oftiming, an interest rate hike would likely trigger a“significant and abrupt rebalancing of internationalportfolios with market volatility and financial stability,”according to the IMF. This would likely drive investors backto commodities, adding to crude oil prices.

The Federal Reserve’s plan to raise interest rates hinges ona few key indicators — consistently lower unemploymentrates, rising consumer spending, improving new homeconstruction, and two-percent inflation rates. Unfortunately,that last one’s eluded the nation for more than three yearsnow. Lower inflation rates tend to suppress economicgrowth and the Fed’s been consistent in its message ofraising interest rates only when they’re certain theeconomy’s in the clear. Falling energy prices beginning lastsummer, however, stalled advancements recorded earlier in2014. With energy stabilizing in the first half of 2015,expect to see PCE gains through the end of the year andan interest rate hike should follow closely. •

Trimmed Personal Consumption Expenditures (PCE)

Source: Federal Reserve Bank of Dallas

April May June2.26 2.32 1.75*

Headline Personal Consumption Expenditures (PCE) MoM Change

*projection

Source: University of Michigan

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Fracklog to FuelDomestic ProductionGrowth through 2016

Fundamentals

10 © 2015 Mansfield Energy Corp.

Operational Rig Counts

ource: Baker Hughes

So far, headlines this year focused on the industry’s rapidly declining rigcount, tumbling more than 55 percent since its mid-October peak to a six-yearlow. With producers shuttering rigs at such an alarming rate, market watchersexpected production to follow closely, but operators instead hit record highs atthe start of June and continued strong through the end of the quarter. How’sthat possible?

The story weekly rig counts can’t tell is that of the fracklog. While crude oilreaped more than $100 a barrel, producers completed wells as quick asthey could. Still, drillers outpaced completion crews last year by almost 3:1,boring holes faster than frackers could tap wells. Once prices started to slip,however, producers stopped completion crews from “turning on the spigot,”leaving an estimated 300,000 barrels of daily crude oil production trappedunderground and giving rise to the fracklog.

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Source: Bloomberg Intelligence

Untapped Well Inventory Builds Across U.S.Since oil prices began to slide in 2014, U.S. energy companies

have delayed completing wells.

Uncompleted well inventory by basin (Jan. 2013 - Feb. 2015)

324

0

500

1,000

2013 2014 ’15

Ohio

1,540

0

500

1,000

1,500

2013 2014 ’15

Permian

341

0

500

1,000

2013 2014 ’15

Oklahoma

243

-500

0

500

1,000

2013 2014 ’15

Denver-Julesburg

632

0

500

1,000

2013 2014 ’15

Bakken

401

-500

0

500

1,000

2013 2014 ’15

Pennsylvania

1,250

-500

0

500

1,000

2013 2014 ’15

Eagle Ford

11 © 2015 Mansfield Energy Corp.11 © 2015 Mansfield Energy Corp.

Fundamentals

So, it’s no surprise production rates have yet to decline. Better still, they likely won’t decline until later this year, if at all. To offsetproduction losses from aging horizontal wells, producers in the three aforementioned regions must complete approximately 500 wells amonth. With nearly 4,000 already drilled and ready to go, producers could stop drilling new wells today and still have enough oil in thefracklog to see the industry through to New Year’s Eve. •

Consequently, nearly 4,000 wells across the nation’s three most rapidly expanding shale developments — Bakken, Eagle Ford, and thePermian Basin — sat, waiting to be fracked, at the start of June. Once fracked, most wells begin producing within three weeks ofcompletion. That’s a lot of oil waiting for signs of a rally.

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Fundamentals

The self-imposed June 30th deadline came and went with little progress towards a nuclear deal after another three months of negotiationbuilding on a multi-national accord struck this spring. Now, it’s unclear if Secretary of State John Kerry will even get the chance to presentIranian leaders with a proposal as Republican opposition eagerly wields veto authority and Iran’s supreme leader, Ayatollah Ali Khamenei,wages war on negotiation proceedings. In a late-June broadcast, Ali Khamenei again demanded the lifting of international sanctions prior tothe dismantling of his nation’s nuclear infrastructure, a hardline requirement set forth by all nations in April negotiations.

Iranian Offshore Oil Inventories Build even as White House Deal Delayed

According to OPEC, Iran’s proven oil reserves total more than157 billion barrels, earning it the No.4 spot, globally.However, the nation’s oil production falls roughly 8 to 10percent each year due to declining well pressure. Withoutenhanced oil recovery (EOR) techniques pioneered by Westerncompetition, Iran could slip from the seventh-largest globaloil producer to thirteenth, below Brazil and Nigeria, by 2020.

? Did You Know?

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Fundamentals

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Iranian producers have been busy since negotiators inked April’spreliminary agreement, however, storing an estimated 44 millioncrude oil barrels on offshore tankers belonging to the nationalcarrier, NITC. According to a former official with the State’s oilcompany, “the first thing [NIOC officials] will try and do is offloada lot of that storage. Oil Minister Bijan Zanganeh has warnedOPEC to make room for us. In other words, we are going to sellthis oil at any price.””

Iran Crude Oil Exports by Destination (2011-2014)

Source: Energy Information Administration (EIA)

If by some chance, miracle, or mistake a deal is ratified, theNational Iranian Oil Company’s (NIOC) Director for InternationalAffairs, Mohsen Qamsari, told interviewers in May significantEuropean demand already exists and Tehran could increase oilfieldoutput to pre-sanction levels “provided that the Europeans are readyfor it.” Iranian drillers produce an estimated 3.6 million barrels ofcrude oil each day, according to OPEC, but exports suffer underWestern sanctions, slashed by nearly half in a four-year period.

Obviously, a 44-million barrel deluge would weigh on crude oil futures worldwide. At the same time, consistently stronger production ratesfrom fellow OPEC nations reiterate their Thanksgiving Day refusal to “make room” for other producers, including their own. Therefore, ifSecretary of State Kerry pulls off an Iranian deal, dismissing sanctions, domestic crude oil producers will eventually be the ones to reduceoutput as prices fall to unsupportive levels once more. •

Sanctioned Crude Oil Rapidly Fills Iranian Cargo Vessels

Source: HeffX-LTN via Hellenic Shipping News

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Fundamentals

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Shifting Demand and RisingSupplies Point TowardsEnergy Independence

Total Energy Production and Consumption1980-2040 (quadrillion Btu)

Source: Energy Information Administration (EIA)

Total Energy Consumption by End-use Sector, 1960-2040 (quadrillion Btu)

Source: Energy Information Administration (EIA)

According to the Energy Information Administration’s (EIA) 2015Annual Energy Outlook, domestic energy consumption should growby only 0.3 percent each year through 2040, less than half thepopulation growth rate and roughly a third of the industry’s annualgrowth over the past thirty years. At the same time, the nation’srecent energy renaissance reduced net energy imports from 30percent of total consumption in 2005 to only 13 percent in 2013.As a result, the nation’s expected to achieve true energyindependence around 2028.

By sector, the agency expects industrial and commercialconsumption to gain as much as 0.7 percent each year — drivenby increasing economic activity — while consumption stemmingfrom transportation and residential applications remains flat oreven declines slightly.

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Fundamentals

More homeowners taking up residents in warm climates

Source: US Census Bureau

Declining transportation consumption results from federal policy promoting greater fuelefficiency and strong consumer demand sparked by rising fuel costs. At the same time,technological advancements (email, teleconferencing, social media, etc.) reducedconsumer energy demand in recent decades and the EIA expects the trend to continue,suppressing transportation demand.

Regardless of the industry’s recent decline, production remains comparatively strong towhere it was a decade ago and will likely continue its upward trajectory in the years tocome. Increasing volumes of natural gas and crude oil will flow to coastal markets, readyfor export, while gasoline consumption, accounting for 58 percent of transportationconsumption in 2013, declines by 21 percent over the next 27 years. Energy demandsmay be changing, but the nation’s abundant natural resources should easily meet thosedemands. However, while abundant, those resources will come at an increasing price asdrillers exhaust existing shale plays and move on to costlier formations, forcing Brentcrude oil higher to $141 a barrel by 2040, according to EIA estimates. •

Meanwhile, the U.S. Census Bureau reports a steady shift in population over the lastdecade as residents migrated to warmer climates. Consequently, electrical consumption,which analysts expect to grow by 0.5 percent each year between 2013 and 2040, coolsan increasing number of homes at peak day-time rates while heating fewer homes.

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Growth

Decline

Annualpercentagechange inpopulation

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Fundamentals

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Federal Reserve to SapEnergy Prices Later this YearSince Janet Yellen assumed the role of Federal Reserve Chair last

year, financial policy makers have scrutinized the nation’seconomic data, preparing for the first benchmark interest rate hikein nearly a decade. After almost seven years of near-zero ratesfollowing the global financial crisis, the topic’s raised significantdebate as many analysts and government officials see more roomfor the economy to grow before the Fed applies the breaks. Butwhile reduced interest rates stimulate economic growth, rising ratestend to increase the dollar’s value versus foreign currencies,reducing import costs and boding well for energy prices.

US Dollar–Euro Exchange Rate vs. WTI Crude Futures

Source: Bloomberg

Crude oil barrels are valued in U.S. dollars, creating an inverserelationship between petroleum products and the economy asa whole. As the dollar weakened prior to the Fed’s 2008interest rate reduction, fuel prices surged to record highs evenas equity markets imploded. Conversely, the dollar’s significantgains since last summer only magnified the energy market’sdecline while equities extended their recovery.

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US Dollar–Euro Exchange Rates

Just before Memorial Day, Federal Reserve Chair Janet Yellen told the Providence, RI Chamber of Commerce, “If the economycontinues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal fundsrate target.” As expected, the value of the U.S. dollar rose over the long weekend, applying renewed pressure to the crude oil market’sstruggling recovery.

If the Fed raises rates too soon, the nation’s recovery could stall, contributing to higher unemployment rates (an important measure forthe Federal Reserve) and reduced economic growth. Too late and the Fed risks inflation, which can easily be controlled. So, expect apatient approach and watch for a rate hike later this year, most likely after the construction season ends and home building slows. •

Source: Bloomberg

“ If the Fed raises rates too soon, the nation’srecovery could stall, contributing to higherunemployment rates (an important measurefor the Federal Reserve) and reducedeconomic growth.”

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So, where were the additional gallons going? Overseas. Refined product exports rose considerably as producers found more favorableprices in Latin America, Europe, and Africa. As a result, lifting the crude oil ban represents little financial threat to domestic consumers.

On the other hand, lifting the nation’s long-standing crude oil ban presents a significant threat to energy-dependent rivals overseas,such as Iran and Russia. The United States leads the globe in year-over-year production growth and releasing American barrels into analready depressed market just as Iran tries to muscle its way back in could drop the Brent-WTI spread to as low as $3 a barrel,according to Bank of America forecasts, slowing their recovery and reducing their influence.

Since the shale oil boom began nearly a decade ago, refiners made good use of growing petroleum resources during recent years,ramping up refining operations just as fuel prices reached all-time highs. Unfortunately, domestic consumers saw little or no savings inconjunction with production increases. Instead, average crack spreads — a common measure of refining margins — more than doubledin the last five years, suggesting refiner profits grew while consumers paid record rates for fuel.

House Debates CrudeOil Ban as RefinersEnjoy Lucrative Exports

Fundamentals

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3:2:1 Crack Spreads

Source: Energy Information Administration (EIA)

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With the global supply imbalance and threat of abundant Iranian barrels in mind, House Energy and Commerce Committee Chairman Fred Upton (R-MI) told subcommittee attendees in early June, “It’s time that Congress considers revising the ban on crudeoil exports,” suggesting both consumers and foreign allies could benefit from easing the 40-year-old restriction. ThoughRepresentative Upton stopped short of endorsing fellow Republican Joe Barton’s (R-TX) proposed repeal, Upton’s comments markeda definitive change in his public opinion, moving him off the fence and into the fray.

Ban supporters, including much of the refining community, maintain the legislation’s repeal would ultimately raise domestic fuelprices as cost-advantaged barrels make their way overseas, but Upton countered, arguing increased exports would stimulate jobcreation with minimal impact to fuel prices while extending our geopolitical influence. In fact, an IHS study published last yearconcluded crude oil exports would lead to further increases in domestic oil production — actually lowering fuel prices — whilesupporting almost one million new jobs. The firm estimated total investments stemming from increased exports at $746 billion bythe end of 2030 while saving motorists approximately $265 billion over the next 15 years. Still, public opinion hasn’t been swayedand, for that reason, Bank of America analysts only give the ban’s repeal a 50/50 chance of passing within the next 24 months. •

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Brent–WTI Spread

Source: Bloomberg

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PADD 1 East CoastPADD 1A Northeast

Regional Views

Northeast Acquisitions Reshape the Face of Fuel

PADD 1A Wholesale vs. DOE Retail (dollars per gallon)

Source: Energy Information Administration (EIA)

BEAR

Evan’s Estimation I

Several notable Northeast acquisitions took place in the second quarter thisyear. The beginning of April, ArcLight Capital Partners finalized the purchaseof Petroleum Products Corporation (PPC), gaining nearly 9 million barrels ofrefined product storage capacity at terminals throughout Pennsylvania. Thepreviously PPC-owned terminals and wholesale business now operate underthe name Pyramid Petroleum Terminals LLC (PPT).

In addition to the PPC acquisition, ArcLight purchased Gulf Oil and its fleetfor an estimated $1 billion, introducing ArcLight to the Northeast’s brandedgasoline market.

Expect a bearish third quarter in the New York Harbor area this year as strong Gulf Coast andEuropean gasoline production outpaces demand and surplus barrels spill over into Northeast marketsvia the Colonial Pipeline and barges. This should steady gasoline prices or even reverse late-springgains, despite peak driving demand. Similarly, distillates should see downward pressure as Northeastrefinery utilization stays strong and demand weak. Tropical storms, of course, represent a wild card,given the Northeast’s limited distribution infrastructure. Any disruption in pipeline shipments frompower outages or storm damage could easily drive wholesale prices higher for weeks at a time.

Evan Smiles, Supply SupervisorSee his bio, page 55

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Meanwhile, the Red Apple Group expanded its Northeast footprint, buying out the petroleum side of PPL EnergyPlus Retail LLC. Thispurchase comes after the Red Apple Group acquired the Riverhead Terminal on Long Island in 2012 and the assets of Metro Fuel Oil andMetro Terminals in 2013. The refined products wholesale business of PPL EnergyPlus Retail will now be marketed under the name ofUnited Energy Plus Terminals LLC (UEPT). Though its roots lie in grocery store management, the Red Apple Group’s acquisitions in retaildistribution, wholesale fuel storage, and refining illustrate a growing trend within the industry — downstream vertical integration.

Dating back to the industry’s infancy with Standard Oil (SO), those extracting the crude also refined, distributed and sold fuel directly toend users. This model continued even after anti-trust laws shattered John D. Rockefeller’s empire into 34 smaller companies which,ironically, later merged into what’s known now as “Big Oil.” Today, Big Oil’s largely retreated from the high-touch, high-cost retailmarket in favor of more attractive upstream margins, leaving behind a void, or opportunity, depending on your outlook.

Delta, Red Apple, and a slew of independent refiners/distributors pounced on Big Oil’s withdrawal from the market, gobbling updownstream assets and controlling their fuel expenses with an iron fist. Of course, what these refiner-users gain in control, they sacrificein flexibility and overhead expenses. Delta’s a prime example of an end user searching for price and product security. While they found itin an aging Pennsylvania refinery, justifying the purchase after heavy first-year losses proved difficult. Though the refinery’s turning aprofit today — thank you, falling crude oil prices! — Delta and its Monroe Energy subsidiary, the poster child for downstream verticalintegration, have a long way to go before this investment pays off. •

? Did You Know?The word “petroleum” comes from the Greek word “petros” (oil) and the Latin “oleum” (rock). Fifth-centuryGreek historian Herodotus first told of the Babylonians using asphalt to construct walls and towers whilethe Chinese drilled the first well in 347 AD, but it wasn’t until German mineralogist Georg Bauer coined theterm “petroleum” in 1556 that people stopped calling it “rock oil.”

“Dating back to the industry’s infancy with Standard Oil(SO), those extracting the crude also refined, distributedand sold fuel directly to end users. This model continuedeven after anti-trust laws shattered John D. Rockefeller’sempire into 34 smaller companies which, ironically, latermerged into what’s known now as “Big Oil.”

Standard Oil Refinery, circa 1911

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PADD 1 East CoastPADD 1A Northeast

22 © 2015 Mansfield Energy Corp.

As of June 1st, all counties surrounding the Portland, Maine area — once consuming conventional low-RVP gasoline blends (CBOB)through the summertime — transitioned to a year-round reformulated gas (RFG) mandate. State regulators, in conjunction with the U.S.Environmental Protection Agency (EPA), enacted the RFG obligation to reduce frequent price spikes associated with low-RVP CBOBconsumption in a largely RFG region. The seven Southern Maine counties were the only New England districts requiring low-RVP CBOBbetween May and September each year and the only Northeast markets outside of Pittsburg retaining the obligation.

Even though reformulated gas historically collects a 10-cent per gallon premium over summer CBOB, analysts expect the RFG spec changeto benefit consumers. Regarded as a specialty blend in the Northeast, CBOB gasoline often proves hard to come by with few refinersproducing the conventional blend and recurrent supply disruptions sapping inventories. With the Southern Maine counties now observingthe same mandate as other New England metropolitan areas, including Boston, Providence, New Haven and Springfield, supply issuesshould prove less frequent.

Product specifications throughout the rest of Maine remain unchanged, consuming high-RVP CBOB products year-round. •

Portland, Maine WelcomesNew Gasoline Specifications

Source: mainemap.facts.co

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How Northeast Refiners got their Groove BackAccording to the Energy Information Administration’s (EIA) monthly crude-by-rail data, refineries along the East Coast (PADD1) receivedmore than half their February crude oil inputs by railcar.

In 2008, fewer than 10,000 carloads of crude oil traversed the nationand most travelled alone or in small numbers. Advances in drillingtechnology and elevated crude oil prices, however, soon presentedrefiners an opportunity to replace costly, complicated imports withcheaper domestic barrels, but nearly all lacked the infrastructure neededto unload unit trains hauling as many as 120 crude-laden cars. Over thenext five years, roughly 30 offloading facilities were constructed to

While railcar shipments from the nation’s booming shalebasins advanced President Obama’s calls for energyindependence — displacing waterborne imports from war-torn African nations — and supported regional refineries,an unrelenting string of highly-publicized railcar disasters haveled to increasingly tighter federal regulations and publicunease, costing shippers more to transport cost-advantagedbarrels. Additionally, barrels originating in the Bakken shaleformation — Northeast refiners’ primary source for crude-by-rail shipments — may grow scarce or lose their costadvantage as production rates taper in response to falling rigcounts. If Northeast refiners can survive the pinch betweenrising costs and lower product prices, perhaps they’ll doubledown on crude-by-rail shipments and expand production ratesin the coming years, providing consumers greater security ofsupply and possibly lower refined product prices. •

Share of net crude oil inputs to PADD 1 refineries by source(January 2010-February 2015)

Originated carloads of crude oil vs. terminated carloads of crude oil

On US Class 1 Railroads

Estimate based on preliminary data Source: American Assoc of Railroads, Federal Railroad Administration

23 © 2015 Mansfield Energy Corp.

accommodate unit trains and roughly a third of those poppedup around Northeast refineries. By 2014, an estimated halfa million cars connected cost-advantaged barrels to refininghubs across the nation and Northeast refiners had alleviatedtheir competitive disadvantage to Gulf Coast and Chicagoproducers.

Source: Energy Information Administration (EIA)

Page 24: FN360 Q2 2015

BULLChris’s Concept I

For the third quarter of 2015, I’m bullish on Gulf Coast products. Towards the end of the secondquarter Gulf Coast ULSD traded 9.5cpg under the July NYMEX heating oil contract. Refineryutilization remains at high levels and exports continue gaining strength from the Gulf. However, aswe enter the height of hurricane season, I believe we will see prices gain additional ground.

24 © 2015 Mansfield Energy Corp.

PADD 1B Wholesale vs. DOE Retail (dollars per gallon)

PADD 1C Wholesale vs. DOE Retail (dollars per gallon)

PADD 1 East CoastPADD 1B & 1C Central & Lower Atlantic

Chris Carter, Supply ManagerSee his bio, page 55

Source: Energy Information Administration (EIA)

Source: Energy Information Administration (EIA)

Page 25: FN360 Q2 2015

Florida continues to be a feast or famine market. As the second quarter began, wholesale diesel earned a significant premium over promptNYMEX heating oil contracts after shipping delays stemming from heavy March fog in the Houston channel drove local markets roughly 20cpghigher. Summer months historically benefit the state as warmer weather weakens Northeast shipping arbitrages (“arbs”). With the seasonalarb between New York Harbor and Gulf Coast finally closed, shippers are bringing additional product into the market, preparing for thehurricane season and easing spreads to the national diesel benchmark.

25 © 2015 Mansfield Energy Corp.

Florida MarketsRecover from WinterArb Just in Time forHurricane Season

The graph at left highlights Florida’s seasonalpattern of costly spring and late-fall basisspikes, but disappearing arbs don’t fullyexplain the state’s recent 30cpg plunge.

Capitalizing on cheaper crude oil and relativelyhigh refined product prices, refiners maximized facility output during the secondquarter, adding to domestic fuel stores. As aresult, Gulf Coast distillate inventories —origin for most Florida products — exceededthe region’s post-collapse seasonal average byalmost 8 million barrels (▲20%) and 2014volumes by as much as 9.8 million barrels (▲27%) during the second quarter.Consequently, shippers were inclined to sharesavings with Southeast consumers, includingFlorida.

Watch these volumes as we move closer tofall turnaround. If meteorologists are correctand el Niño weather patterns in the Pacificproduce another calm storm season, Floridaconsumers could enjoy weaker distillate prices this fall as Gulf Coast shippers liquidatedistillate inventories before year-end. •

Florida Diesel less NYMEX Heating Oil Futures

Source: Oil Price Information Service (OPIS) and New York Mercantile Exchange (NYMEX)

Gulf Coast Distillate Inventories

Source: Energy Information Administration (EIA)

Page 26: FN360 Q2 2015

A long-standing shortage of Jones Act vessels necessitates projects likethe Palmetto to transport refined product from Gulf Coast refineries tocoastal cities in the Southeast. The shortage frequently disrupts refinedproduct shipments into markets up and down the East Coast andthroughout Florida while encouraging demand for foreign importsdespite a surplus of domestic refined product. Consequently, coastalprices often exceed those in pipeline-fed markets by a substantialmargin, leading to price inefficiencies and ongoing arbitrageopportunities. Kinder Morgan had hoped to capitalize on theopportunity by July of 2017.

The $1-billion project would carry 167,000 barrels a day via anexpansion leased from Plantation Pipe Line Company between BatonRouge, LA and Belton, SC. The rejected segment was a part of KinderMorgan’s new 360-mile pipeline connecting Belton to Jacksonville, FL.

26 © 2015 Mansfield Energy Corp.

PADD 1 East CoastPADD 1B & 1C Central & Lower Atlantic

Southeast Pipeline Project Seeks Salvation in Atlanta CourtsAt the start of August last year, Kinder Morgan launched a binding open season soliciting

commitments for their proposed refined product pipeline connecting several traditionally barge-fedmarkets in the Southeast to the Plantation Pipeline. The Palmetto Project would carry gasoline, diesel,and ethanol to markets in South Georgia, Florida, and South Carolina, but Georgia’s Department ofTransportation denied permits for its 210-mile segment of the proposal in May. Now, the SuperiorCourt of Fulton County will review the case after Kinder Morgan appealed the DOT’s decision in June.

If Kinder Morgan manages to complete their pipeline project, itcould fundamentally change the pricing and security of supplywithin the region. Shippers are obviously interested, freeingNew York and Gulf Coast vessels to supply other markets,which is the only way to improve consumer pricing at thispoint. Despite increased domestic crude oil production, a 40-year-old ban on crude exports, and above-average refineryruns, benefits are moving overseas in the form of addedrefined product exports. Improving a market’s distribution costsis about the only surefire method of reducing product prices solong as buyers somewhere else in the country or world wouldpay a higher price for your gallons. •

“A long-standing shortageof Jones Act vesselsnecessitates projects likethe Palmetto to transportrefined product from GulfCoast refineries to coastalcities in the Southeast.”

Page 27: FN360 Q2 2015

“ Gas supplies along the Colonialpipeline’s path, on the otherhand, tightened as a result ofthe annual RVP transition.Memorial Day weekend provedextremely tight for majors asmany branded suppliersreportedly ran into issues.”

Colonial PipelineSecond quarter diesel shipments along the colonial pipeline proved fairly strong across the Southeast region. As winter thawed,

power plant demand decreased. Several terminals then found themselves long diesel, forcing suppliers to sell well below shippingcosts to make room for incoming batches. Consumers, of course, welcomed the price relief.

Gas supplies along the Colonial pipeline’s path, on the other hand, tightened as a result of the annual RVP transition. MemorialDay weekend proved extremely tight for majors as many branded suppliers reportedly ran into issues. Low-sulfur Atlanta-gradegasoline suffered similarly during the transition, but rumors suggest Atlanta suburbs could find relief from Low-sulfur requirementsbefore next summer as regulators consider abandoning the 7.0-lb. boutique blend in favor of a more ubiquitous product. At the endof the second quarter, Atlanta consumers paid roughly 16cpg more for low-sulfur, 7.0-lb. gallons than 9.0-lb. blends used outsidethe city’s 45 county perimeter while still saving 2cpg versus reformulated (RFG) blends used in the mid-Atlantic year-round. •

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28 © 2015 Mansfield Energy Corp.

The second quarter ended with two dramatically different supply situations across PADD 2.On Magellan’s Central system running northward from Oklahoma to Minnesota, dieselflowed abundantly due to strong production and unseasonably weak demand. The region’sdiesel days of supply, a measure of inventory on hand, hit 52 days — 17 days more thanthe same time last year and roughly 21 days over the five-year average.

PADD 2 Midwest

Abundant Midwest DieselSupply, but Tight Ohio and Michigan Supplies

PADD 2 Wholesale vs. DOE Retail (dollars per gallon)

BULLDan’s Dissertation I

Third quarter diesel supplies in the Midwest will remain plentiful and prices seasonally discountedrelative to NYMEX futures. However, toward the end of August and into September, supply will likelytighten ahead of the fall refinery maintenance season. Major projects scheduled for several keyMidwest refineries could impede production. Furthermore, the traditional harvest season shouldbegin mid-September, increasing demand and sapping supplies just as winter weather approaches.As a result, the third quarter of 2015 should close with a tight Midwest ULSD market — verydifferent from when it started, awash in product.

Dan Luther, Supply ManagerSee his bio, page 54

Source: Energy Information Administration (EIA)

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29 © 2015 Mansfield Energy Corp.

Magellan North Distillate Stocks

Source: Magellan

Ohio Valley Less Benchmark Chicago Diesel

Source :Oil Price Information Service (OPIS)

Most Midwest farmers made efficient work of the spring planting season with only a short spikein demand — certainly not enough to offset strong supply from refiners. As a result, GreatPlains diesel buyers enjoyed the cheapest fuel in the nation throughout much of the quarter.

Fuel buyers in Ohio and Michigan were not as lucky as refinery downtime tightened supply. The unexpected malfunction of a compressor at PBF’s 175,000-bpd Toledo refinery in late May left many key markets short product. Prices at the rack jumped soon after the incident,with prices in Toledo, OH rising over 8 cents per gallon, relative to the benchmark Chicago diesel contract, in just two days. Columbus, OH was not far behind with prices rising 11 centsper gallon against Chicago diesel within the week.

To start the third quarter, inventories remained strong across the Great Plains while the supplysituation in Ohio and Michigan improved slightly as refining capacity returns to normal.Through July and much of August, diesel demand typically stabilizes as most of theagricultural fieldwork happens in the spring and fall. Watch for prices to come under pressurebefore the fall harvest, at which time bloated inventories will come in handy, easing demanddriven price hikes so typical for the region. •

“Fuel buyers in Ohio and Michiganwere not as lucky as refinerydowntime tightened supply. The unexpected malfunction of acompressor at PBF’s 175,000-bpdToledo refinery in late May left manykey markets short product.”

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30 © 2015 Mansfield Energy Corp.

Magellan Pipeline continued work on the $150 million project connecting North Little Rock, AR to its Central system pipeline network,temporarily closing its Ft. Smith, AR terminal in late May to upgrade pumping stations and work on the proposed line connecting the twocities. Magellan expects the closure to last nearly three months, halting refined product shipments to the only terminal in the Ft. Smith area.Consequently, fuel suppliers will instead long haul from terminals over an hour and a half away, costing consumers more per gallon andrisking supply disruptions.

PADD 3 Gulf Coast

48¢ 30¢ 34¢

Average Rack-to-Retail SpreadsRolling 12-mo. 2014 — Q2 2015 — Q2

0.00

0.20

0.40

0.60

0.80

1.00

1.20

$2.00$2.20$2.40$2.60$2.80$3.00$3.20$3.40$3.60$3.80$4.00

         

DOE Retail Wholesale Wholesale-to-Retail Spread (secondary axis)

PADD 3 Wholesale vs. DOE Retail (dollars per gallon)

Magellan will employ a 160-mile line leasedfrom Ozark Gas Transmission, requiring onlyabout 50 miles of new pipeline to connectFt. Smith with the existing line. The new linewill carry roughly 75,000 barrels ofgasoline, diesel, and jet fuel to North LittleRock each day from mid-continent refiners.

Up to this point, the only pipeline to supplyCentral Arkansas has been Enterprise’sTEPPCO line. Originating in Eastern Texas,TEPPCO shipments often prove unreliablegiven the pipeline’s severe constraints.Access to refineries in Oklahoma and Kansasshould improve flexibility and security ofsupply for area fuel buyers. The entire projectis expected to wrap up early next year. •

Ft. Smith, AR Terminal Temporarily Closed, Magellan Makes Progress toward North Little Rock, AR

Ft. Smith to Little Rock Pipeline Project

Source: Magellan

Source: Energy Information Administration (EIA)

Page 31: FN360 Q2 2015

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In a balanced supply situation, diesel in both markets typically sells for 5 to 6 cents per gallon over Gulf Coast diesel spotassessments. Recent discounts actually amount to upwards of 10 cents per gallon when compared to typical rates. In SanAntonio, buyers can expect lower prices to persist, likely as long as oilfield service demand deteriorates. In Dallas, pricing alreadyrecovered from its early-June lows, but could easily return to itsdiscounted level in the third quarter. •

Texas Diesel ShootoutA May standoff between rack suppliers in two Texas cities led to

deep discounts for consumers in Dallas and San Antonio this quarter.An abundance of diesel and weak demand — particularly from theoilfield services sector — led to falling prices as sellers sought toentice fuel buyers. In Dallas, local prices slipped more than 6 centsper gallon below the Gulf Coast diesel benchmark while discounts inSan Antonio reached nearly 5 cents per gallon against the sameindex for several days.

31 © 2015 Mansfield Energy Corp.

Texas Rack Diesel Less Benchmark Gulf Coast Diesel

Source: Oil Price Information Service (OPIS)

“ An abundance of diesel and weak demand –particularly from the oilfield services sector – led tofalling prices as sellers sought to entice fuel buyers.”

Page 32: FN360 Q2 2015

Recently, gasoline barrels were moved by truck from the Northwest Group region (i.e. ND) into Montana, Utah, Wyoming, Idaho, andeastern Washington as gasoline economics in the Group proved cheap compared to the Mountain region. Meanwhile, Denver gasolineinventories stayed in line with demand and prices remained relatively low. This fall, I’d expect a rebound in prices as refinery maintenancetakes its toll on production and overabundant Group 3 supplies ease once agricultural activity picks up during harvest season.

37¢ 21¢ 25¢

Average Rack-to-Retail SpreadsRolling 12-mo. 2014 — Q2 2015 — Q2

0.00

0.20

0.40

0.60

0.80

1.00

1.20

$2.00$2.20$2.40$2.60$2.80$3.00$3.20$3.40$3.60$3.80$4.00$4.20

         

DOE Retail Wholesale Wholesale-to-Retail Spread (secondary axis)

BULLNate’s Notion I

Diesel prices in the Rocky Mountain region should stay pressured this summer relative to the rest ofthe country as Group 3 inventories remain at historical highs. The Denver market — connected tothe Group via the Magellan pipeline — traded at discounts well below Group 3 pipeline economicsbecause the Group’s diesel oversupply combined with depressed values in the Mountain region toproduce significantly lower prices.

Nate Kovacevich, Supply ManagerSee his bio, page 55

Source: Energy Information Administration (EIA)

PADD 4 RockyMountain

PADD 4 Wholesale vs. DOE Retail (dollars per gallon)

32 © 2015 Mansfield Energy Corp.

Page 33: FN360 Q2 2015

Crack spreads in the Rocky Mountain region fell in the firstquarter as tepid demand during the winter and an oversupply ofdiesel in the Midwest this spring pushed product from PADD 2 intoPADD 4. Midwest refiners then ran at full speed in the secondquarter, with PADD 2 throughput rising to 2.7 million BP in May,up 3 percent from a year earlier. Obviously, those barrels need togo somewhere, and PADD 4 proved a valuable destination forrefiners in the Midwest. Group 3 distillate stocks ran at historichighs for the last six months and current stocks in the Magellannorth system measure near 8.4 million barrels, up 900,000barrels from last year and more than 3 million barrels since 2013.

31 © 2014 Mansfield Energy Corp.33 © 2015 Mansfield Energy Corp.

PADD 4 diesel markets traditionally underperform the nationalretail average through much of the first quarter, but this year, that weakness extended into the second quarter, as well. In fact,PADD 4 diesel prices averaged an 8-cent per gallon discount to the national mean through the first half of the year when pricestypically rebound during the second quarter. Obviously, theMidwest’s refined product glut impacted the Rockies and will likely continue until inventories in the Group drop to moremanageable levels. When will that happen? Well, the Midwestmarket just finished its spring agricultural push. So, a rebalancingof supply and demand isn’t likely until the fall harvest. •

Surging Inventories and Weak Demand Produce Rocky Mountain Savings

PADD 4 Distillate Inventories

Source: Energy Information Administration (EIA)

33 © 2015 Mansfield Energy Corp.

Page 34: FN360 Q2 2015

PADD 5 Crude Oil Inputs

Source: Energy Information Administration (EIA)

34 © 2015 Mansfield Energy Corp.

PADD 5 West Coast,AK, HI

PADD 5 Wholesale vs. DOE Retail (dollars per gallon)

Lynn’s Lessons IAt the start of the third quarter, it appears only two refineries will be conducting wide spreadmaintenance in July. Considering the import arbitrage closed in June while refinery maintenance and lowproduct inventories persisted, I expect to see prices rise again in July before tapering later in the month.Beyond July, refinery runs should pick up as maintenance plans remain limited and elevated refiningmargins ensure peak output, boosting uncommonly low refined product inventories and balancing supplywith demand for the first time this year.

Lynn Argianas, Director of Supply, WestSee her bio, page 54

Source: Energy Information Administration (EIA)

BULL

The West Coast suffered its most volatilequarter in many years. Even after theUnited Steelworkers settled their strike,numerous refinery issues — both plannedand unplanned — drove refinery runs totheir lowest level since 2010, propellinggasoline, diesel and jet fuel spot marketsto the highest in the nation.

West Coast Refinery Failures Produce More Opportunity than Fuel

Page 35: FN360 Q2 2015

Refinery issues fueled rising basis values, first in late-February then again in early-May, after more than a year of relative quiet. SpotCARB gasoline prices in Los Angeles rose from an April low of $1.80 a gallon to a high of $2.83 in May. At the same time, CARBdiesel prices in Los Angeles rose 43 cents per gallon.

35 © 2015 Mansfield Energy Corp.

A Tacoma oil refinery has burst into flames. Source: Tacoma Fire Department

On the bright side, lower crude oil prices softenedthe blow as both gasoline (▼11%) and diesel fuel(▼22%) fell short of prices recorded at the sametime last year.

Still, there is no quick fix for supply disruptions inthis part of the country. The California Air ResourcesBoard (CARB) maintains unique and strictspecifications for the state’s gasoline and diesel fuel,limiting the number of refineries capable of meetingCARB requirements. The only solution to high prices,of course, is high prices. By early June, importers— attracted by elevated fuel prices — deliveredseveral million barrels of jet fuel and gasoline,correcting California’s supply imbalance and,consequently, its prices.

Not to be outdone by California, the state ofWashington had two large refineries performingmaintenance between May and June. On May 6th,the U.S. Oil Refinery in Tacoma suffered a fire which shut down their 39,000 barrel per dayrefinery until sometime in July. •

California Spot Gasoline vs. NYMEX RBOB Futures

Energy Information Administration (EIA) and Oil Price Information Service (OPIS)

West Coast Retail Gasoline vs. National Average

Energy Information Administration (EIA)

Page 36: FN360 Q2 2015

Canada

36 © 2015 Mansfield Energy Corp.

Canadian Rig Counts Decline on Oil Market RoutAfter several weeks of downtime stemming from the northern Alberta wildfires,

Canadian oil sands producers returned to work in early June. Nearly 235,000 barrelsper day — roughly 10 percent of total oil sands production — dropped offline as aresult of the evacuations. Two major oil sands producers in the Cold Lake area,Cenovous Energy and Canadian Natural Resources, accounted for a combined 215,000crude oil barrels per day.

The sudden drop in supply volumes buoyed Western Canadian Select (WCS) crude prices,which gained nearly $2.00 a barrel versus the U.S.-based West Texas Intermediate(WTI) crude contract as the ordeal unfolded in late March. While WSC still trades at a$7.50 per barrel discount to WTI, it’s in a much healthier place than June 2014 whenthe contract garnered a $20 per barrel discount to the U.S. benchmark. In fact, thecurrent differential to WTI represents a five-year high. •

WTI vs. WCSSimilar to their American counterparts, Canadian oil sands producers cut production in the last year and slashed capital spending as

crude prices plummeted. Canada’s oil exports to the United States suffered as a result. Last month, oil exports posted their largestmonthly decline on record, averaging less than 2.8 million bpd in May and a 360,000 (11.4%) barrel per day reduction from April. Atthe same time, syncrude output fell by more than half since the beginning of the year on planned maintenance.

Western Canadian Select (WCS) vs. WTI Crude

Source Bloomberg

Page 37: FN360 Q2 2015

2014 2015 2020 2025 2030 Eastern Canada 0.22 0.22 0.26 0.17 0.09 Western Canada 3.52 3.68 4.37 4.36 4.25 + Western Canada – – +0.01 +0.43 +0.98

TOTAL*CANADA 3.74 3.89 4.64 4.96 5.33*Totals may not add up due to rounding

Millions of barrels per day

37 © 2015 Mansfield Energy Corp.

CanadaConsequently, the Canadian Association of Petroleum Producers (CAPP) cut its 2030 oil production forecast by 17 percent, or 1.1 million barrels per day, to 5.3 million barrels. The drop in crude from over $90 per barrel last year to $40 per barrel this springcaused new investment in production growth to drop sharply in the country. Economics, rather than politics, limit the oil industry’sgrowth over the next decade. CAPP believes the majority of the nation’s growth over the next 15 years will come from oil sands innorthern Alberta, accounting for roughly 75 percent of production by 2030. Meanwhile, conventional oil production is expected to stay relatively flat during that timeframe.

Source: Canadian Association of Petroleum Producers Andrew Barr/National Post

Falling prices and a lack offundamental supply/demandsupport led to a gloomier outlookthan the organization’s previousforecast. But, since so many capitalspending decisions depend oncurrent economics, a price reboundin the coming months would likelychange the organization’s long-termproduction forecast. •

Canadian Crude Oil Production

Page 38: FN360 Q2 2015

After 18 months of delays, the Environmental Protection Agency (EPA) presented its long-awaited Renewables Fuels Standard (RFS2) for 2014and 2015 before throwing in a 2016 target for good measure. Extending debates down to the wire, the Agency published its proposal onebusiness day before the June 1st deadline. While the proposal remained open for comments through the end of July, the current timeline suggestsfinalized 2014, 2015, and 2016 targets, along with biomass diesel volume requirements for 2017, before November 30th of this year.

38 © 2015 Mansfield Energy Corp.

2014-2016 RFS2 Proposal

Both petroleum and renewable advocacy groups objected to the EPA’s previous and proposed volume obligations, each citing industry growth,economic impacts, and transportation fuel infrastructure as concerns. Following the EPA’s announcement, ethanol producers were expectedlydisheartened with the RFS proposal, suggesting a reduction in volume obligations versus statutory targets will negatively affect agriculturaleconomies and diminish industry related investments — all of which impede progress towards breaking the ethanol blend wall. Meanwhile,biodiesel producers and supporters appear indifferent: appreciative of the biomass diesel increase year over year, but not especially awe-struckby the numbers.

If the EPA can adhere to this schedule, the agency would be restoring the intended deadlines as defined in the statutory requirements, advancingthe renewable fuels industry into 2016 with clear goals and realistic expectations, absolved of volume obligation uncertainty and marketspeculation. •

Renewable FuelsJessica’s Judgment I Jessica Phillips, Renewable Supply & Distribution Supervisor

See her bio, page 55

BEAR

Just a few weeks since the EPA’s RFS2 proposal release and I can still hear the groans and grumbles. On the bright side, you won’t bereading any more ambiguous commentary from me blaming “the uncertainties surrounding the RFS” anytime in the foreseeable future.Guess I’ll need a new scapegoat.

In any event, I am bearish for Q3. I expect the ethanol industry will start pulling on the production reins in light of a reduced RVO and priceaggressively to reduce inventories. Corn will lose popularity to sugarcane, as Brazilian imports will likely increase.

Biodiesel powerhouses rejoiced at the growing volumes, but remain guarded as supporters await news of the blender’s tax credit. Fair-weather politicians are already starting to come out of the woodwork, advocating the return of the tax incentive and overall renewable fuelssupport ahead of the impending presidential election. Modest 2015 sales coupled with a higher RVO and building inventories should providebiodiesel price relief.

Volumes Used to Determine the Proposed Percentage Standards*

*All volumes are ethanol-equivalent, except for biomass-based diesel which is actual

Page 39: FN360 Q2 2015

“Ethanol RINs continued totumble once the EPA’sproposal confirmed lowerconventional biofuel targets,but prices mended in lateJune after bottoming outnear 36 cents per RIN,closing the month at roughly45 cents per RIN.”

39 © 2015 Mansfield Energy Corp.39 © 2015 Mansfield Energy Corp.

Renewable Identification Number Values

Source: Oil Price Information Service (OPIS)

This time last year, D4 Biodiesel RINs hovered around 80 cents perRIN while 2015 vintages averaged 85 cents per RIN. Biodiesel RINsspiked briefly following the EPA’s Renewable Fuels Standardproposal, which increased biomass-based diesel targets for 2014-2016, but prices normalized within a couple days.

Ethanol RINs remain the chief topic of conversation, however, asprices collapsed a day before the RFS2 announcement after abearish report from Citi Research predicted the contents of the EPA’sproposal. D6 RINs fell from 65 cents per RIN, losing more than 10

RIN Overviewcents per RIN within a few hours of the report’s release. Citianalysts suggested the RFS2 would hold D6 prices between 37and 70 cents per RIN, expecting the Renewable Volume Obligation(RVO) to fall well short of the statutory requirements. EthanolRINs continued to tumble once the EPA’s proposal confirmed lowerconventional biofuel targets, but prices mended in late June afterbottoming out near 36 cents per RIN, closing the month at roughly45 cents per RIN. Federal mandates fell 10.7 percent shy of theindustry’s estimates, creating a surplus of RINs in the marketplaceand driving D6 RINs to their lowest in years. •

? Did You Know?Unveiling his namesake engine at the 1911 World’s Fair in Paris,France, German scientist Rudolf Diesel predicted his invention“would help considerably in the development of agriculture of thecountries.” Why? The first diesel engine consumed fuel derivedfrom peanut oil. His original design was later modified to acceptpetroleum-based diesel due to its low cost

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Production and Consumption

40 © 2015 Mansfield Energy Corp.

Renewable Fuels

Accounting for the EPA’s recent RFS proposal, the U.S. Departmentof Energy (DOE) revised its 2015 and 2016 ethanol productionforecasts, suggesting a 936,000-barrel per day target this yearbefore declining slightly next year to 933,000 barrels a day. Whilethe EPA’s proposed volume obligations still require approval, mostindustry watchers agree volume reductions are inevitable.

Despite declining production rates, the agency anticipates ethanolconsumption to grow by approximately 891,000 barrels a day thisyear before gaining another 896,000 barrels a day in 2016.Unfortunately, demand growth will be driven by rising gasolineconsumption and not consumer demand for more concentratedethanol blend rates, such as the widely publicized and more widelydebated E15 and E85 blends. For now, the DOE expects the E10blend wall to hold.

First quarter production mimicked 2014 Q1, loggingapproximately 248 gallons and representing only moderate YoYgrowth. Regardless, inventories managed to grow by 25 percentfrom the same time last year, largely due to slow sales asbiodiesel marketers struggle to compete with cheaper distillateprices.

Biodiesel producers will likely record another modest yearwithout the biodiesel blender’s tax credit propping up demand.Producers and blenders operate at roughly breakeven ratesunder current market conditions, but many hold out hope foranother retroactive award, extending the program for itseleventh year. With this being an election year, politicians willlikely rally support for the agricultural community a little earlierthan normal. •

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Global GoalsRenewable Fuels

The United States is not the only country with renewable fuelstargets. In fact, 59 countries around the globe presently enforcerenewable transportation fuel mandates — more than twice thenumber recorded in 2005, according to the International RenewableEnergy Association (IRENA), an intergovernmental group supportingcountries seeking to lower their carbon footprints. Renewablemandates promote environmental preservation, economic growth,along with energy independence and security.

Agrarian societies, for instance, may find cellulosic or plant-basedproducts more economically viable than traditional petroleum-basedfuels. Brazil, the world’s thirteenth-largest crude oil producer,struggled to meet petroleum demands before embracing its No.1resource in the ‘70s. As the world’s largest sugarcane producer,ethanol quickly proved both a logical and profitable alternative to

increasingly scarce crude oil barrels. By the late ‘80s, retail ethanolsales surpassed gasoline at the peak of the Pró-Álcool Program andwould do it again in early 2008, becoming the world’s top ethanolconsumer, top exporter, and second-largest producer. Two out ofthree ain’t bad.

According to IRENA’s Renewable Energy Target Setting, 164countries — up from only 43 in 2005 — have adopted at leastone type of renewable energy target, including among otherelectric power generation, the heating/cooling sector, andtransportation. While more than 90 percent of 164 nationsestablished targets for their electric power generators, biofuelconsumption for both heating and transportation enjoys growingglobal demand and increased support among policymakers. •

Global Map of National Renewable Energy Targets of All Types, 2015

Source: IRENA based on REN21, 2014 and REN21, 2015.

Page 42: FN360 Q2 2015

Cash PriceFrom the start of the second quarter, cash prices followed the typical shoulder period trend of trading below the prompt month contract.

This trend continued into June until summer heat developed across the Southeast before spreading north and west. By the middle ofJune, cash Henry Hub prices traded 10 cents per dekatherm (DT) above the July contract — highly unusual pricing for this time of yearechoed by unusual weather.

Forward/Term PricesTerm pricing remained relatively stable over the April-June period while the Jul ‘15 contract bounced between $2.50 and $3.10/DTand Cal ’16 through Cal ’20 proved range bound, as seen in the chart below. •

NYMEX Natural Gas Foreward Pricing

Natural Gas

42 © 2015 Mansfield Energy Corp.

Source: New York Mercantile Exchange (NYMEX)

Page 43: FN360 Q2 2015

The U.S. supply picture is still developing as domestic production continues to grow. Increased shale supply in the near future will more thanoffset Gulf of Mexico and older dry gas reductions. Rig counts continue their decline. However, improved overall efficiency in production per rigcontinues to drive the supply picture. •

Natural Gas

43 © 2015 Mansfield Energy Corp.

Natural Gas Supplies

Weekly Natural Gas Rig Count and Average Spot Henry Hub

Source: Baker Hughes

US Natural Gas Production and Imports

Source: Energy Information Administration (EIA) Short-term Energy Outlook, 2015

Page 44: FN360 Q2 2015

44 © 2015 Mansfield Energy Corp.

Demand continues to grow with near-term pricing under $3.00 per million British thermal units (mmBtu). Power generation demand led thepack as hotter than normal June weather taxed electric cooling systems across the nation. As evidenced in the chart below, increased powergeneration and industrial consumption will more than offset residential and commercial sector reductions this year. •

Natural GasNatural Gas Demand

Natural Gas Consumed for Power Generation in the East (April-October)

Source: Bentek Energy via Energy Information Administration (EIA)

US Natural Gas Consumption

Source: Energy Information Administration (EIA) Short-term Energy Outlook, 2015

As discussed in last quarter’s FN360, natural gas is currently displacing all coal supply available, sans Powder River Basin.With term pricing hovering in the low $3.00/DT range, one would expect this trend to continue for the foreseeable future. •

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45 © 2015 Mansfield Energy Corp.

As expected, above-average natural gas production contributed to injection rates exceeding 5-year averages, but cannot fully explain suchstrong injection rates. The contango between cash/balance of summer prices and winter pricing provides storage players the added incentive toinject. Note in the chart below the steeper contango in the 2015 forward curve into next winter versus the forward curve at this time last year.

Natural GasNatural Gas Storage Inventory

NYMEX Natural Gas Foreward Pricing

Source: New York Mercantile Exchange (NYMEX)

Working Gas in Underground Storage

Source: Energy Information Administration (EIA)

However, the industry’s above-average injection rates have not translated into a significant increase in weekly buildsthis injection season versus last. In the chart below, the slope of the injection rate is not noticeably different year overyear, possibly due to increased natural gas demand from power generators. •

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“Considering mostnewly-built powerplants today consumenatural gas, it’s nosurprise DOE analystsexpect natural gasgeneration to surpasscoal as the nation’slargest electric powersource by 2040.”

Power Generation

46 © 2015 Mansfield Energy Corp.

The new paradigm in natural gas pricing improved gas-fired power generation’s competitive edge over coal power plants. The graph belowshows how coal generation continues to decline while natural gas sees steady increases.

Considering most newly-built power plants today consume natural gas, it’s no surprise DOE analysts expect natural gas generation to surpasscoal as the nation’s largest electric power source by 2040. Discouraging coal plant investments, federal and regional emission standardsincrease energy costs by an estimated 40 to 80 percent, according to DOE estimates.

Cash power prices proved largely muted in the April-May shoulderperiod thanks to warming spring temperatures. However, above-average June temperatures across much of the country increasedprice volatility. June PJM West daily cash pricing traded between$25 and $70/MWh while SP15 traded in a range of $20 to$75/MWh. The wetter weather in Texas kept a tight lid on pricingwhere daily cash traded from $20 to $55/MWh.

Gearing up for the hotter Jul-Aug period, summer pricing hasshown its fair share of volatility, as well. While PJM and ERCOTtrended down, SP15 moved higher as hotter weather is expectedto persist and drought-like conditions continue out west. •

Cash/SummerElectrical Power

US Net Electricity Generation by Energy Source (2010-2016)

Source: U.S. Energy Information Administration, Electric Power Monthly, Short-Term Energy Outlook

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US Electricity Consumption

Source: Energy Information Administration (EIA) Short-term Energy Outlook, June 2015

47 © 2015 Mansfield Energy Corp.

Source: IPPNY publication “15 Years of Competitive Markets”

New York State Power Plant Heat Rates (1999-2013)Electrical PowerFurthermore, deregulation encourages investmentin new generation technologies, improving heatrates in areas like New York. As indicated in thechart below, Empire State power providersimproved the “heat rate” — rate at which fuelsconvert to power — by 30-percent between2000 and 2013 while natural gas generationsurpassed that of coal during the same timeperiod – no coincidence. Consequently, producersnow generate the same amount of energy withtwo-thirds the fuel. •

Power DemandThe Southeast’s summer cooling season kicked off early while Texas/ERCOT has been dealing with abnormally high precipitation, suffering

flash floods in late May followed by Tropical Storm Bill in mid-June. NOAA projects a warmer summer than last with cooling degree days forthe June, July and August period up more than 7 percent year-over-year.

While seasonal conditions certainly impact consumption, the graph below depicts the formation of another clear trend. The commercial andtransportation sectors both show strong year-over-year demand growth, offsetting noise from other sectors with the expectation of sustainedgrowth in the coming years. •

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48 © 2015 Mansfield Energy Corp.

Transportation Capacity ConcernsWhile transportation capacity proved erratic over the past ten

years, carriers of late enjoyed a period of calm and opportunitiesfor business growth abound. Decreased fuel costs certainlycontribute to such opportunities, softening the impact of risingdriver pay and equipment costs.

Meanwhile, economist and transportation industry expert NoelPerry believes increased regulations and retirement will claimsome 700,000 licensed truckers this year, driving utilizationrates back to 2014 crisis levels within the next two years andlimiting load turns. Furthermore, CSA mandates, costlytechnology surrounding e-Logs, and strict hours of serviceregulations are expected to keep new drivers from filling rapidlygrowing vacancies. Unless shippers attract a new generation ofdrivers soon or demand declines due to slower economic growth,capacity should tighten significantly in the next 12 to 24 monthsand customers will suffer narrowed margins as distribution costsrise considerably.

How can shippers survive the shortage? With rates expected toincrease between 4 and 9 percent over the next 16 months,planning appropriately is the best solution. Establish budgets andnegotiate longer term contracts with carriers capable ofadvancing your business strategies. Contracting carriers nowshould guarantee the capacity you need down the road whileconsistent demand will promote stronger relationships andgreater quality of service. •

Transportation Logistics TSA Changes the TWIC ProgramAt the beginning of 2015, the Transportation Safety

Administration announced numerous enhancements to theTransportation Worker Identification Credential (TWIC) program,including increased proof of citizenship document requirements,fee structure changes, and improved card features.

Starting this month, all applicants born in the United States andclaiming citizenship must prove their citizenship using credentialsthat are in line with other TSA programs, like HazardousMaterial Endorsements and the TSA Pre-check program.Providing these details should ensure consistency in theprograms and the eligibility of all approved applicants. The feefor the TWIC program will also fall to $128, saving applicants$1.75 in FBI fingerprint processing charges.

Additionally, and after much criticism, the TSA increased themaximum number of allowable characters for a driver’s lastname by five letters. Since May of 2014, the TSA had onlyincluded the first 14 characters of a driver’s last name, causingconsiderable confusion as card holders tried to justify thedisparity between TWIC cards and their actual last names. Theagency hopes 19 is the magic number for those with longer lastnames.

The layout of the card has also been enhanced, changing theexpiration date format, separating the middle name, moving thecard version above the magnetic strip, altering card bar codes,and including previously omitted data.

Application and card updates should substantially enhance aprogram which ensures dangerous individuals do not gainunescorted access to secure areas of the nation’s maritimetransportation system, an area where many fuel and chemicalterminals exist. •

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49 © 2015 Mansfield Energy Corp.

What makes up only 4 percent of road traffic, but contributes one-quarter of the nation’s greenhouse gas emissions? According to theEnvironmental Protection Agency (EPA), Class 8 trucks. In lateJune, the Agency proposed regulations requiring newer modeltractors to improve their fuel efficiency by up to 40 percent before2027 and cut the industry’s fuel consumption by nearly a quarter.Current tractor-trailers average roughly 5 to 6 miles per dieselgallon and the EPA would see that average raised to 9mpg.

According to Forbes’ source with the Environmental Defense Fund,more aggressive fuel economy standards could reduce the cost toown and operate Class 8 diesel trucks by as much as 21 cents permile, saving shippers millions annually. While agreeing withpotential fuel savings and the need for MPG improvements,members of the American Trucking Association (ATA) argue theEPA’s timeline borders on too aggressive, suggesting manufacturers

New EPA Proposal Raises Cost of Class 8 TrucksTransportation Logistics

won’t have time to adapt without costing big rig operatorssignificantly more both on initial purchases and maintenance. TheEPA estimates compliant rigs would cost as much as $14,000more — a cost the Agency says owners would recoup in 18months through fuel savings.

The Energy Information Administration (EIA) currently expectsdistillate fuel consumption to rise by 90,000 barrels a day (▲2.3%) this year and another 50,000 barrels a day (▲1.2%) in 2016 as manufacturing output increases along with foreigntrade and marine fuel use. Meanwhile, distillate inventories areexpected to set 5-year highs by the middle of next year. Of course,the EPA’s proposed MPG improvements could reverse diesel’sgrowth forecast — as it has with gasoline — and lead to greaterrefined product exports as greater overseas demand and elevateddistillate inventories skew the nation’s supply balance.

Distillate Inventory Forecast

Source: Energy Information Administration (EIA)

Lastly, while rising miles per gallon directly impact the nation’s distillate fuel consumption, the increased cost of tractors could also driveshippers away from petroleum products all together and into the arms of alternative fuel sources, such as compressed natural gas (CNG).With rising diesel rig costs and improving CNG tractor prices reducing the differential between the two, the decision will eventually comedown to commodity price. •

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50 © 2015 Mansfield Energy Corp.

Diesel Exhaust Fluid (DEF)

Demand for DEF in North America is expected to continue itsstrong growth trajectory through 2025. Growth began in earnest in2010, with the implementation of the Environmental ProtectionAgency’s (EPA) EPA ’10 emissions standards, which imposedstringent NOx and particulate matter (PM) limits on both mediumand heavy-duty on-highway vehicles while necessitating theimplementation of Selective Catalytic Reduction (SCR) technologyfor new vehicles in these classes. SCR units reduce harmful NOxemissions and utilize Diesel Exhaust Fluid (DEF). In 2014, the EPArequired SCR technology on all newly manufactured off-road heavyduty equipment, as well. As of June 2015, nearly all newlymanufactured medium and heavy-duty trucks, buses, and off-roadequipment in North America are SCR-equipped.

Historically, there have been two important drivers of DEF demand.First, the adoption of SCR technology as heavy-duty enginemanufacturers’ only viable solution to meet NOx reduction targetsmandated by the EPA. Integer estimates that 15 to 20 percent ofthe current U.S. heavy duty on-road fleet is SCR-equipped todaywith typical DEF dosages ranging between 3 and 4 percent of dieselconsumption. Secondly, diesel consumption in the U.S. rose by 38percent between 2007 and 2014, according to data from theEnergy Information Administration (EIA). As a result, DEFconsumption grew with increased diesel demand.

However, going forward there is a third driver of DEF demand - fueleconomy and CO2 requirements. Phase 1 of fleet-wide CO2compliance is already in place, and voluntary fuel economystandards are already pushing engines to operate at optimal levels,requiring less diesel and producing less CO2. These operatingconditions will have to be further optimized when federal NHTSA(National Highway Transportation Safety Administration) fueleconomy standards become mandatory in 2016 and when limitsbecome stricter for MY 2017. Under these conditions, dieselconsumption is likely to stabilize, but higher combustiontemperatures and greater air intake needed to ensure better fuelefficiency will result in higher NOx emissions. Therefore, we expectgreater dependence on SCR units to achieve required emissionslevels, and increased DEF dosage rates – potentially increasing by asmuch as 50 percent over current levels.

DEF demand will continue to grow through 2025 as a result of thesethree demand drivers. Yet, North America’s urea production (DEF is32.5 percent technical grade urea produced by Nitrogen fertilizerplants) remains fragile. 40 percent of the DEF consumed in NorthAmerica is imported as urea concentrate or dry prilled urea. NorthAmerican domestic production remains short of demand and by thetime supply catches up we expect a step change in demand due to2017 NHTSA-mandated fuel economy standards.

DEF OUTLOOK

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51 © 2015 Mansfield Energy Corp.

Diesel Exhaust Fluid (DEF)Fertilizer plants that produce DEF are more accustomed to operating on a fertilizer production schedule, which means two key shippingseasons – spring and fall. They are still not accustomed to the 24x7 demands of the transportation sector. This year four of North America’slarge urea plants will go down for maintenance for 4 – 8 weeks apiece. Each one of these plants represents 10 to 20 percent of domesticproduction. These scheduled turn-arounds at four large production plants one after the other over the next four months will be equivalent tofour refineries going down, back-to-back and overlapping for four months. It’s a significant event, but these types of nitrogen plantmaintenance turn-arounds have become a regular occurrence.

Compounding the challenge of fragile supply is the fact that we have a DEF storage infrastructure across the supply and logistics chain that isunder-sized for the increased demand and protracted plant down-time cycles. We believe DEF demand will increase 3 to 4 times over the nextten years.

Furthermore, DEF storage needs across the supply chain are halfof what they should be for today’s DEF demand patterns. As aresult, the DEF supply system will need to build 6 to 8 times thestorage capacity that exists today. This storage will come in theform of larger storage tanks at marine terminals, larger storagecapacities at production plants, more rail terminals, greaterstorage at local distributors, and finally more storage capacity atcustomer locations.

End-customer locations should size their DEF storage capacities suchthat they receive one DEF delivery per week and as they approachtwo deliveries per week, those locations should be consideringexpanded storage options. The DEF supply and logisticsinfrastructure is still too small and fragile to be operating underanything more than twice per week deliveries. So, study your DEFdemand patterns, assume they will increase by 50 percent per truckalready equipped with SCR and by 3 to 4 times overall and map outa storage and replenishment plan that keeps each of your locationsbetween one and two DEF deliveries per week. •

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52 © 2015 Mansfield Energy Corp.

Diesel TaxesThe sum of city, state, and federal taxes in cents per gallon

Diesel tax change, cents per gallon

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53 © 2015 Mansfield Energy Corp.

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Dan Luther Supply ManagerDan is responsible for purchasing, hedging, and the distribution of natural gas and renewable fuels. Before joining Mansfield,Dan was Director of Operations at Aska Energy and also worked at RaceTrac Petroleum, where he helped manage all barge,rail, and truck fuel deliveries before assuming ethanol trading responsibilities, including purchasing product to fulfillRaceTrac’s demand while trading product across other U.S. markets. Dan holds a BSBA in Supply Chain Management andMarketing from Ohio State University and is currently working towards his MBA at Georgia Tech.

Lynn Argianas Director of Supply, West Lynn has a broad-based background in refining and trading. She began her career at ConocoPhillips where she traded,gasoline, distillate, ethanol, ngl’s and crude oil. She was a VP at Morgan Stanley and a Business Development Managerat Cargill before joining Mansfield Oil where she is Director of Supply West Coast. Lynn has a BA in Finance and Economicsfrom the University of Illinois Champaign and a MBA in from St. Mary’s College in Moraga, CA.

54 © 2015 Mansfield Energy Corp.

Mansfield’s National Supply Team

Andy Milton Senior VP of Supply and DistributionAndy heads the supply group for Mansfield and during his tenure the company has grown from 1.3 billion gallons to over2.5 billion gallons per year. Andy’s industry experience spans all aspects of the fuel supply business from truck dispatch,analytics, and index pricing to hedging and bulk purchasing. Prior to Mansfield, Andy worked at RaceTrac Petroleum. Andy’sexpertise in purchasing via pipeline, vessel, and the coordination via futures and options for hedging purchases enables himto successfully lead a team of experienced and motivated supply personnel at Mansfield. Andy’s team handles a widegeographic area of all 50 states and Canada, including all gasoline products, ULSD, kerosene, Heating Oil, biodiesel,Ethanol, and Natural Gas. Andy’s education began at Young Harris College and later at Georgia Southern University where hereceived a BS in Sports Management.

Mansfield’s supply team brings unique experience and industry expertise to the table. From contract pricing and hedging to trading of fuel,

renewables and alternatives such as CNG and LNG, the Mansfield supply team covers the gamut of knowledge that is required to manage

today’s complex national fuel supply chain. Although they work as a national team, each member’s regional focus enables Mansfield to

deliver geographic based supply solutions by more efficiently managing market specific refining, shipping and terminal/assets.

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Nate Kovacevich Supply ManagerBefore joining the company, Nate worked for Yocum Oil Company as a Senior Trader where his responsibilities includedmanaging the company's refined product and renewable fuels procurement, handling all hedging related activities, and providingrisk management tools and strategies to help customers mitigate volatility and price risk. Nate previously worked for FCStone,where he performed commodity research and analysis for customers with agricultural and petroleum related risk, devised andimplemented risk management programs and strategies, and executed futures and option orders on all the major exchanges aswell as any OTC related transactions. Nate earned his BA in Entrepreneurship and Economics from the University of St. Thomas.

55 © 2015 Mansfield Energy Corp.

Chris Carter Supply ManagerChris serves as the Southeast Supply Manager responsible for refined product purchases including contracts, day deals and rackpurchases. The Southeast region covers Florida, Georgia, Mississippi, Alabama, Tennessee, South Carolina, North Carolina,Virginia and Maryland. His responsibilities also include supply contracts and current bids. Chris manages pipeline shipments ofgas and diesel on the Colonial, Plantation and Central Florida Pipelines. Chris joined Mansfield in 2009 as a SupplyOptimization Analyst and earned his BA in Business Management from North Georgia College and State University.

Evan Smiles Supply SupervisorEvan began his career with Mansfield as an intern in the supply department back in the winter of 2011, assisting in theSoutheast region. Evan quickly advanced into the role of Northeast Supply Optimization Analyst and currently holds the positionof Northeast Supply Supervisor, handling various tasks including supply bids, day deal purchasing, long haul analysis, contractnegotiations/fulfillment and supply optimization. Evan earned a BS in Sports Management and BBA in Finance from theUniversity of Georgia.

Jessica Phillips Renewable Supply & Distribution SupervisorJessica is based out of Houston, TX and is responsible for nationwide purchasing, hedging, and the distribution of renewablefuels. Joining the Mansfield team in 2009, she has held multiple titles over the years: Contracts Coordinator, Regional SupplyAnalyst, Senior Strategic Supply Analyst, and as of late, Renewables Supply Supervisor.  Jessica has a strong background inrefined products scheduling, contracts, optimization and market analysis and is driven to continue to expand her knowledge inrenewable and alternative fuels.

Fernando de Agüero President, Mansfield Power & GasFernando possesses a broad energy industry experience ranging from regulated utilities to deregulated merchant and retailbusiness. He has launched five privately held energy ventures. Holding positions as CEO of a wholesale natural gas andelectric supplier, Chairman, CEO and President of a deregulated retail natural gas marketer, Manager and CEO of aderegulated retail electric provider, Co-Founder, Chairman and CEO of a leading smart grid-enabled prepaid utility solutions andsoftware development company and held various leadership roles spanning strategic planning, finance, business development,commercial operations and trading at AGL Resources, GenOn (formerly Mirant Corporation) and Southern Company.

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Mansfield Energy Corp.

www.mansfieldoil.com

www.fuelsnews.com

678.450.2000

1025 Airport Pkwy SW

Gainesville, GA 30501

United States of America

Disclaimer: The information contained herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. Furthermore,no responsibility is assumed for use of this material and no express or implied warranties or guarantees are made. This material and any view or comment expressed herein areprovided for informational purposes only and should not be construed in any way as an inducement or recommendation to buy or sell products, commodity futures or options contract.

©2015 Mansfield Energy Corp.

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