Biodiesel Supply Chain Oilseed Crush RBD or Crude Oil Animal Fat Co-location Truck Rail Barge Ship Transportation Transportation Renewable Fuels March 26, 2007 Oilseed Continuous Flow Process Large Customer s Fuel System Biodiesel Plant Distributors or Refineries Truck Rail Barge Ship B-100 Or Biodiesel Blends Fuel Terminals and Refineries Biodiesel Consumer Retail Location 2 3 4 U.S. Ethanol Bio-refinery Locations US Freight Railroad Network courtesy of CSX Source: RFA Industry Outlook 2006, Pg 2 5 6 1
Legend Netherlands Dry Bulk Locations Ferro Operation Locations Petcoke Operation Locations Product Pipelines Locations Liquid Locations Transload Operations (4) 7 Louisiana Terminals Myrtle Grove to Baton Rouge (4) (4) U.S. INLAND WATERWAY SYSTEM courtesy of ACL 7 8 Kinder Morgan Terminal Locations US Pipeline and Market Access: (CPP) NWE Pipeline Routes: Kinder Morgan CALNEV, CFPL, PLANTATION KMP (WEST) Orion Colonial Explorer TEPPCO Longhorn Centennial Seaway Phillips Kaneb & Chase Williams Aspen Eagle/Citgo Marine Routes Ven/Caribs 9 10 Ethanol Overview Approximately 114 operational ethanol plants in 21 states currently producing approximately 5.6 billion gallons annually. Another 78 plants are under construction; seven existing plants are being expanded and an estimated 200+ plants are under consideration. Iowa, Nebraska, South Dakota, Minnesota, Indiana and Illinois control 75+ percent of all U.S. ethanol production. Domestic production will likely double in the next 24 months and the EIA expects U.S. ethanol consumption to jump to 11.2B gallons in 2012 and to 15.9B gallons by 2015. Ethanol is currently blended into approximately 40% of all U.S. gasoline. Ethanol producers consume almost 20% of the U.S. corn crop. Potential federal legislation to extend tax credits and increase the renewable fuels standard to 30B gallons by 2020. 11 12 2
Ethanol Demand Market Kinder Morgan West Pipelines California (5.7% - 10%) Northern Southern Central/Southwestern Florida Southeast (excluding Virginia) Southeast (with Virginia) 17,000 B/D 26,000 B/D 35,000 B/D 100,000 B/D 130,000 B/D 13 14 Ethanol Production by Railroad (MM GPY) California Low Carbon Fuel Standard (LCFS) 6000 5000 4000 3000 2000 1000 By June 30, 2007 Cal EPA shall draft a compliance schedule to meet 2020 target (reduce carbon intensity of CA transportation fuels by 10%) California Energy Commission shall incorporate LCFS into State Alternative Fuel Plans Air Resources Board (ARB) shall consider initiating regulatory proceedings to establish and implement the LCFS Draft a compliance schedule for LCFS by June 30, 2007. June 2007 CARB will issue proposed rulemaking for a new Predictive Model (calculates air emissions from automobiles with ethanol blends greater than 5.7% and a maximum of 10%). Final rulemaking expected in early 2008. Increasing ethanol concentrations will increase NOx emissions. To offset NOx emissions, ARB will mandate sulfur reductions (CAP 20 ppm Average 6 ppm) Refiners given 2 years to make changes for sulfur reductions 0 BN CN CP CSX KCS NS UP Shortlines Kinder Morgan 7 target states including KS, IA, IN, NE, MN, IL, and SD Expected implementation date for 10% ethanol: 2010 no later than 2012 Figures include double counted gallons when site is served by more than one railroad Shortline sites are those that are not served by Class 1 roads 15 16 SoCal Ethanol Hub - Lomita Rail Terminal SoCal Hub #2? Current Situation Facility has averaged 625,000 bbls/month of throughput (21K bbls/day, or nine 96-car trains per month) since March, 2004 on a 5.7% ethanol mandate. Service area (via Shell rack at Carson) is in excess of 120 mile radius. Facility solely served by the BNSF. Contract with Shell governs KM operation Post-standard change Mandate (voluntary or otherwise) goes to 7.7%; 8% or 10%... At 10%, volume to the existing base of customers would go to 1.1 million bbls/month, 36K bbls/day. BNSF/KM now studying running of 128 car trains vs. current 96. Volume could be handled in 12-13 trains per month. With capital for infrastructure improvements, KM could accommodate the volume. History Union Pacific/KM unsuccessfully studied this as a possible unit train site three years ago. No current UP unit train facility in SoCal. Project Re-look at land available to run UT operation. Connect UT operation to storage via pipe Build storage on existing SFPP/CalNev acreage. Expand rack to accommodate volume. 17 18 3
Future Unit Train Hub for NoCal Bartow, FL Unit Train Handling Facility History Shell acquired an option on 66 acres of land from USD, and structured an arrangement to develop with BNSF as joint owner - which did not happen. No current BNSF or UPRR unit train facility in Northern California. History Former CF Industries site, now in the process of being acquired. No ethanol consideration initially, now one of a very few sites being considered by CSX. Target market is the I-4 corridor from Orlando- Tampa and further south Project Take advantage of existing Shell 12 black oil line to access storage (or build). Implement rail infrastructure to handle unit train volume. Implement rack to accommodate volume. Project Implement rail infrastructure to handle unit train volume. Construct and deploy storage (200K bbl). Implement two bay rack to accommodate volume. Push connection to Central Florida Pipeline for gasoline blending on site. Factors.. Competition form Selby (UP) and possible unit train site in Stockton. Factors.. Water competition via Tampa a factor. Permitting promises to be a major challenge. 19 20 Central Florida Ethanol Opportunity Plantation Pipeline Gasoline volumes Central Florida Gasoline Demand 350kBD (35kBD Ethanol @ 10% blend) CFPL 140kBD (14kBD Ethanol @10% blend) Other Florida Gasoline Demand 450kBD (45kBD Ethanol @ 10% blend) Issues Imports No mandate (market driven by price) Potential cannibalization of CFPL volumes 21 22 Plantation Potential Ethanol Market Detail Ethanol Shipments By Pipeline Quality Concerns TOTAL GASOLINE IN MARKET KMST Terminal Shell Capacity By Market (000 barrels) BARRELS PER DAY (000's) Total KINDER Market TOTAL Demand, Estimated Gasoline @ 68% Estimated Gasoline Demand MORGAN MARKET BPD of Market based on KMST in 2007 (assumes 1.5% Potential Ethanol Blend Direct Indirect SOUTHEAST TANKAGE (000'S) actuals (2004) Growth '04-'07) Opportunity (10% Blend) Served Served Market TERMINALS Collins 70 450 60 41 43 4 4 Meridian 550 35 24 25 2 2 Birmingham 164 2200 95 65 68 7 7 Montgomery 950 35 24 25 2 2 Columbus 350 22 15 16 2 2 Macon 1100 45 31 32 3 3 Chattanooga 656 40 27 28 3 3 Knoxville 339 2300 150 102 107 11 11 Atlanta (DV, 72 3476 200 136 142 14 CJ, PS) 14 Athens 389 700 45 31 32 3 3 Belton 750 30 20 21 2 2 Spartanburg 165 2000 60 41 43 4 4 Charlotte 675 2482 130 88 92 9 9 Greensboro 1114 3300 110 75 78 8 8 Roanoke/Montvale 423.3 1550 95 65 68 7 7 Nashville 2050 130 88 92 9 9 N. Augusta 640 1300 70 48 50 5 5 Albany 93 500 30 20 21 2 2 Bainbridge 650 55 37 39 4 4 Richmond 705 3400 150 102 107 11 Washington/Fairfax 808 3600 160 109 114 11 Selma/Apex/Fayetteville(4) 618 2801 120 82 85 9 Norfolk/Chesapeake 366 3300 95 65 68 7 Multi-Products Pipeline Initial Ethanol Shipments Unusable Ethanol removes the oxide scale, gums and debris inside pipeline Continued ethanol filtration or decanting to remove finite particles The greater the frequency of batches transported = fewer quality concerns Ethanol s Affinity For Water Ethanol and water mixtures cannot be easily separated Phase separation = Blending Problems Environment For Corrosion (SCC) Pipe walls without oxide scale, ethanol and water Ethanol tank problems at SFPP Dedicated Pipeline Initial Ethanol Shipments Unusable Oxide scale removal from existing pipeline Construction debris from new pipeline Ethanol s Affinity For Water Concerns decrease with dedicated pipeline Environment For Corrosion (SCC) Concerns decrease with dedicated pipeline Totals 6,641 40,806 1,962 1334 1395 140 48 55 23 24 4
KMST Ethanol Opportunities 7 PPL Directly Served Terminals Collins, Doraville (30%) Athens, Spartanburg, Charlotte, Greensboro 85 kbd Gasoline (8.5kBD Ethanol @ 10% Blend) 9 PPL Indirectly Served Terminals Birmingham, Knoxville, Albany, North Augusta, Roanoke, Selma 92.8 kbd Gasoline (9.2kBD w/ EtOH 10% Blend) Additional Ethanol Projects New builds and additional rail infrastructure at KMT Chicago, Argo, Carteret, Philadelphia, Harvey, Pasadena, Galena Park and Deer Park, TX. Manly Terminal Mid Continent Pipeline US Development Linden, Baltimore and DFW Dallas Pipeline Unit Trains Motiva Sewarren, Providence, Atlanta, Albany 25 26 Risk Factors Distillate Fuel Throughput by Region Gallons in Billions Federal mandates and tax credits Local, state and federal legislation Import duties Grain prices and feedstock avails Project financing Cellulosic ethanol production Biodiesel specs 18 16 14 12 10 8 6 4 2 0 NE MidA SE OV/Mid Gulf West WC 27 28 Estimated U.S. Biodiesel Production 1999 2006 Estimate for 2007 Million Gallons 900 800 700 600 500 400 300 200 100 0 0.5 2 5 15 20 25 1999 2000 2001 2002 2003 2004 Calendar Year 2005 75 900 480 2006 2007*F Note: Percent change refers to total petroleum product demand growth Source: AFOA 2006 presentation by John C. Baize and Associates 29 30 5
Biodiesel (KM Focus) California Low Carbon Fuel Standard (LCFS) Strategy take advantage of KM s terminals to site biodiesel production plants, build B-100 tanks, veg oil storage tanks and truck rack blending facilities for credit worthy counterparties. Galena Park, Harvey, Carteret, Linnton, LA Harbor, Charleston. Fairless, ST. Gabriel, Richmond, Vancouver, Plantation Pipeline terminals, New York Harbor, Houston, Lower River Kinder Morgan rack terminals and transload sites. Estimate 3B gpy required to satisfy a B5 national mandate. (9.5MM metric tons) Biodiesel Projected rulemaking process initiated for 2008. Projected 18 to 24 month implementation period (2010 no later than 2010) Projected blends between B5 and B10 (average B5 and upper limit of B20). Production & Distribution Method: B100 goes into the refinery Refinery hydro-treats B100 B100 blended into diesel at the refinery to produce B5 or B10. Biodiesel shipped on existing pipelines to terminals *The information contained in this slide is speculative and should only be used for discussions 31 32 Bio Diesel Quality Concerns Concerns Facing the Biodiesel Market No Standard Specification For Biodiesel Blends (B5, B10, B20) Current ASTM specification only for B100 (ASTM 6751) Trail Back Concerns Into Jet Limit Pipeline Distribution Identical to lubricity issues raised during ULSD implementation Cold Flow Concerns Limit Fungibility Palm vs. Soybean vs. Vegetable Thermal Stability Concerns Breakdown at high temperatures Impact on Transmix operations Cold Flow Concerns Limit Fungibility Palm vs. Soybean vs. Vegetable Standardized specs(b5, B10, B20) Current ASTM specification only for B100 (ASTM 6751) Development of large end user markets Big Oil acceptance Feedstock pricing and availability Lack of accepted Crack spreads, Hedging tools Engine manufacturer warranties Federal and state credits and mandates Trail Back Concerns Into Jet Limit Pipeline Distribution Identical to lubricity issues raised during ULSD implementation Logistics Import threat 33 34 6