Energy and commodity price benchmarking and market insights

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1 Energy and commodity price benchmarking and market insights London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg

2 US Jet Fuel: Market signals in a rising price environment Markus Wimmer Editor, Argus Jet Fuel Louise Burke Strategic Business Development September 25, 2013

3 Presentation overview About Argus US jet fuel: Market signals in a rising price environment The impact of shifting crude oil fundamentals and refinery economics on jet fuel Supply and demand factors in different regional US jet fuel markets Jet fuel market signals to watch in upcoming months Argus methodology and usage

4 Who is Argus? Argus reports on every global energy market. A world leader in energy price indexation. Owned by the family of the founder and by the employees. Over 500 employees. 18 offices. Recent acquisitions FMB (Fertilizers) DeWitt (Petrochemicals) Recent expansions US Natural Gas Base Oils Indexation US Crude oil Global NGLs US Clean products

5 Argus Media London Houston Washington New York Portland Calgary Santiago Bogota Rio de Janeiro (New) Singapore Beijing Tokyo Sydney Dubai Moscow Astana Kiev Porto Johannesburg

6 Argus corporate governance Follow strict corporate ethics policies Enforce a compliance program with regular internal and external audits Compliance with IOSCO s Principles for Price Reporting Agencies Publicly available Global Compliance Policy, Code of Conduct

7 1. The impact of shifting crude oil fundamentals and refinery economics on jet fuel

8 $/bl Jet up with crude in 2H2013, but bearish factors remain Feb-May: Overproduction pressures prices May-Aug: Steady price increases due to seasonal demand and crude oil strength Sep: Price drop as Syria tensions ease, refiners continue to overproduce Jan-Feb: Post-Sandy tightness in USAC WTI USGC Colonial jet 85 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

9 Main drivers for WTI strength since May 1. Important crude pipeline startups south of Cushing, Oklahoma (Seaway reversal, Permian Express) 2. Reduction in Canadian imports due to unplanned outages in Canada 3. Strong midcontinent refinery run rates since the end of the turnaround season in June 4. Increased geopolitical risk due to political and military unrest in Egypt and Syria 5. Crude oil supply disruptions in Libya, Iraq, and other countries

10 $/bl Jet fuel cracks down from last year and vs. ULSD Gasoline crack ULSD crack Jet fuel crack Q Q Q Q Q Q Q3 2013

11 Thousand b/d US refiners produce above 5-year highs in the Spring and Fall 2013 why? US jet fuel production 1,800 1,750 1,700 1,650 1,600 1,550 1,500 1,450 1,400 1,350 1,300 1,250 1,200 1,150 1,100 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5-year spread 5-year average 2013

12 b/d US refinery expansions 10,000,000 9,000,000 Crude distillation Catalytic cracking Coking Hydrocracking 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,

13 '000 bl Expansions driven by product exports, now 16pc of total production, up from 5pc in ,200,000 1,000,000 US products exports US domestic products demand 7,000,000 6,800, ,000 6,600,000 6,400, ,000 6,200, ,000 6,000, ,000 5,800, ,600,000

14 US shale boom impacts crude slate

15 Shale boom lightens US crude diet 31.2 US refinery crude feed API Gravity (Degrees)

16 Bakken yields more jet fuel than WTI and LLS Refinery Yield, Volume % LLS (35.6 ) WTI (39.6 ) Bakken (41 ) Eagle Ford (47 ) Gasoline/ Naphtha Jet/ Kerosene Diesel VGO Residual Fuel Oil

17 Bakken reaches all three coasts Bakken now even with imports on east coast Competing flat with LLS / Eagle Ford at Gulf coast West coast prefers Bakken s improved margin over ANS

18 Will EPA & Congress fix RFS-2?

19 Blendwall fears push up cost for RINs in 2013, encourage production of jet fuel RVO $/bl Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

20 USGC jet fuel production 000 b/d RIN costs and jet fuel production levels show a 25% correlation USGC jet fuel production (Thousand b/d) Linear (USGC jet fuel production (Thousand b/d)) RVO $/bl R 2 = 25%

21 '000 b/d US budget cuts reduce military demand by 20% in 2013, total US demand by 2.4% 170 US military jet fuel production (4-week average) May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 US military jet fuel production (4-week average)

22 Jet fuel at 4-year lows versus ULSD 8 USGC jet fuel minus ULSD c/usg Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 4-year spread 4-year average 2013

23 2. Supply and demand factors in different regional US jet fuel markets

24 USAC breaks out post-sandy, but remains below transportation costs for most of NYH minus USGC c/usg Transportation Houston-Linden, NJ Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

25 Refinery closures reduce Atlantic coast capacity 38% in 4 years Owner City State Capacity b/d % of Region Status Philadelphia Energy Solutions Philadelphia PA 335,000 17% operating after ownership change Phillips 66 Linden NJ 238,000 12% operating Monroe/ Delta Trainer PA 185,000 10% operating after ownership change PBF Delaware City DE 182,200 9% operating PBF Paulsboro NJ 160,000 8% operating United Refining Co. Warren PA 65,000 3% operating American Refining Bradford PA 10,000 1% operating Ergon Newell/Congo WV 20,000 1% operating Hovensa St. Croix US Virgin Islands 350,000 18% shut 2/2012 Sunoco Marcus Hook PA 178,000 9% shut 12/2011 Sunoco Eagle Pt/Westville NJ 145,000 7% shut 2/2010 Western Refining Yorktown VA 66,300 3% shut 9/2010 Hess Port Reading NJ 0* 0% shut 2/2013 Capacity ,934, % Capacity ,195,200 62% Capacity Lost 739,300 38%

26 '000 bl East coast production now only accounts for 10% of supply, imports for 4% - 86% are shipped from the Gulf 250, , , ,000 50, USAC receipts from other PADDs USAC production USAC imports

27 Colonial pipeline at capacity

28 Colonial pipeline at capacity Demand in New York has filled the pipeline Almost continuously allocated for 2 years Plans to expand to 2.4 mn b/d in 2013 with expansions aimed at easing bottlenecks into NYH Colonial and Buckeye Pipeline also completed a NYH pipeline tie-in to ease shipping transfers Jones Shipping Act discourages spot cargo movements between USGC and USAC

29 C/USG Chicago market realigns with Gulf after refinery after a heavy maintenance schedule in 1H Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 USGC Colonial jet Chicago jet

30 Chicago Chicago prices were the highest in the country between February and July Three area refineries have (BP, Citgo, ExxonMobil) have most of their production under contract Very little storage available Spot arbitrage on the Explorer pipeline is risky and not being worked

31 '000 b/d Gulf coast supply goes into export market rather than to the East coast or Chicago US Imports US Exports

32 $/bl West coast margins supported by diesel, jet Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 LA Carbob crack LA Carb diesel crack LA jet fuel crack

33 US West coast: Shutdowns, soft Asian market opens arbitrage from South Korea Sep, 13 Aug, 13 Jul, 13 Jun, 13 May, 13 Apr, 13 Mar, 13 Mar, 13 Feb, 13 Jan, 13 Dec, 12 Nov, 12 Oct, 12 Sep, 12 Aug, 12 Jul, 12 Jun, 12 May, 12 Apr, 12 Mar, 12 Mar, 12 Feb, 12 Jan, 12 West coast jet fuel imports '000 b/d

34 US West coast Tesoro now the largest PADD 5 refiner with 716,500 b/d nameplate capacity (ahead of Chevron 485,000 b/d, Phillips ,000 b/d). Tesoro has sold its Hawaii downstream business, including the shuttered 95,000 b/d Kapolei refinery, to a subsidiary of Par Petroleum Corp. in June 2013; Par is currently restarting the refinery.

35 US West coast crude sourcing to continue to shift Bakken now 17% of Washington State crude slate Washington refineries Capacity b/d Coking b/d Rail Crude b/d BP Cherry Point 225,000 58,000 20,000 P66 Ferndale 101, ,000 Shell Anacortes 145,000 25,300 0 Tesoro Anacortes 120, ,000 US Oil Tacoma 40, ,000 California has room for margin improvement: 1% Bakken, but 342,000 b/d of rail expansion planned until ,700 83, ,000 Proposed crude-by-rail facilities Capacity (b/d) Timeframe PAAP - Bakersfield, California 70, Valero - Wilmington, California 60, Valero - Benicia, California 70, Tesoro - Vancouver, Washington 120, Alon USA - Portland, Oregon 10,000 Sep-13 P66 - Rodeo, California 12,000 end ,000

36 3. Jet fuel market signals to watch in upcoming weeks and months

37 $/bl 3/2/1 crack spread run cuts? Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 WTI 3/2/1 LLS 3/2/1 WTI 3/2/1 minus RINs LLS 3/2/1 minus RINs

38 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 US products exports stall in 2H ,000 U.S. Exports of Petroleum Products (y/y change in Thousand Barrels) 25,000 20,000 15,000 10,000 5, ,000-10,000

39 04-Jan 11-Jan 18-Jan 25-Jan 01-Feb 08-Feb 15-Feb 22-Feb 01-Mar 08-Mar 15-Mar 22-Mar 29-Mar 05-Apr 12-Apr 19-Apr 26-Apr 03-May 10-May 17-May 24-May 31-May 07-Jun 14-Jun 21-Jun 28-Jun 05-Jul 12-Jul 19-Jul 26-Jul 02-Aug 09-Aug 16-Aug 23-Aug 30-Aug 06-Sep 13-Sep Jet fuel production surplus keeps jet cracks down? 1,800 US jet fuel production & demand '000 b/d 1,500 1, Production surplus Production Demand

40 RINs high enough to incentivize jet fuel production on the expense of gasoline and diesel? Biodiesel RIN Advanced RIN Ethanol RIN Cellulosic RIN Jan Feb Mar Apr May Jun Jul Aug-2013

41 $/bl Narrow Brent-WTI spread shifting crude scale in favor of imported crudes? Brent-WTI spread Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Brent-WTI spread

42 % Jet yields fall after Brent/ WTI spread narrows US refinery product yield Nov-2012 Dec-2012 Jan-2013 Feb-2013 Mar-2013 Apr-2013 May Kero/ Jet Distillates

43 Summary A rise in crude oil pushed jet fuel prices up since May, before pressures softened in September Overproduction depressed jet fuel crack spread US refinery expansions US shale boom impacts crude slate Blendwall encourages production of jet fuel US budget cuts reduce military demand by 20 Signals to watch 3/2/1 crack spread run cuts? US products export growth stalling? Jet fuel production surplus keeps jet cracks down? RINs high enough to incentivize jet fuel production? Narrow Brent-WTI spread shifting crude scale in favor of imported crudes?

44 4. Argus methodology and usage

45 Argus Methodology Argus seeks to be inclusive, reporting the entire physical market the way it actually trades. Argus methodology increases the participation of users in price formation. It is the source of transparency, accuracy and integrity. Argus methodology is less likely to become distorted as it incorporates a broader base of liquidity. In the US, prices reflect low and high of deals done over an entire trading day. Differentials indexed to CME (Nymex) settlement price.

46 Argus Methodology Argus methodology reflects transactions all day long Alternative methodology reflects deals done at 3:15, with prices indexed to an assessment of futures 45 minutes after the settlement Argus adopted the International securities regulators organization(iosco) Principles for Oil Price Reporting Agencies (the PRA principles) Ensure transparency of information in a timely and usable manner Ensure transparency of process through compliance Train and supervise staff Compliance Procedures - Collect, collate and clarify market information Define the methodology of published prices and ensure it is transparent Define the basis, location, size, time period, specification of the contract being assessed or reported Verify and validate all market information received Explain and justify decisions

47 Argus in global energy and jet markets Global jet prices are indexed on Argus Argus indexation is used by end-users globally; major global airlines and airlines throughout North America, Europe and Asia Argus indexation is used by refiners in transfer pricing for clean products, including jet fuel Argus is the leading index for US domestic and imported crude

48 Argus price and business intelligence reports

49 Any questions?

50 Markus Wimmer Editor, Argus Jet Fuel Phone: Louise Burke Strategic Business Development Phone: Copyright notice All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, FMB, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Ltd. Visit for more information. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.