J-Loving-MontanaPetroAssocFinalJune2013Inonotes

Transcript J-Loving-MontanaPetroAssocFinalJune2013Inonotes

Jim Loving Senior Vice President Refining, Pipelines and Terminals

A bit about our refineries and our company

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Energy

Nation’s largest cooperative refiner and connected to an extensive network of crude and products pipelines and terminals Leading wholesaler/retailer of more than 3 billion gallons of refined fuels annually Supplies more than 1,400 branded outlets, including 800 Cenex® convenience stores One of the U.S. largest propane retailers A manufacturer of high-quality lubricants under the Cenex brand and other labels

CHS Energy Locations

Employee Safety  Lost Workday Case Rate

2.63

4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00

Lost Workday Case Rate

Lost Workday Case Rate * Data includes all areas of Energy and NCRA

Fleet Safety • Miles traveled per DOT recordable accident

2,099,160

2 120 000 2 100 000 2 080 000 2 060 000 2 040 000 2 020 000

Miles travelled per DOT accident

Miles travelled per DOT accident * Data includes CHS Transportation and NCRA Transportation

What’s on the energy horizon?

Bakken production takes off

North American Shale Oil

U.S. crude oil imports/exports

Source: CAPP

Ft. McMurray Vancouver Heartland

Edmonton Hardisty Regina Keystone Construction Phasing Winnipeg Keystone XL 2014 Construction Keystone 2008 / 2009 Construction Cushing Expansion 2010 / 2011 Construction Chicago Wood River Patoka Cushing Keystone XL Gulf Coast 2013 Construction Houston Nederland New Orleans

• • What’s all this about RINS?

RINS (Renewable Identification Numbers): Serial number assigned to a batch of biofuels to track production, use and trading; part of compliance with Renewable Fuels Standard 2 – It is “attached” to a gallon of renewable fuel at production – It can be “detached” from the gallon when the fuel is blended, or an obligated party takes title.

Refiners and refined fuel importers are “Obligated Parties” and must retire a certain number of RINS per year.

Renewable Fuel Standard

Non-cellulosic Advanced: Sugar Ethanol Co-processed Renewable Diesel Biomass Based Diesel: Biodiesel - Ester Standalone Renewable Diesel Advanced Cellulosic Biofuel RFS1 Conventional Renewable Fuel Corn Ethanol 50% GHG Reduction 50% GHG Reduction 60% GHG Reduction 20% GHG Reduction (For new construction only. Existing corn facilities grandfathered.)

Impact of the RFS2 Plus CAFE

2007 EIA Projection 2012 EIA Projection 12,0 11,0 10,0 9,0 8,0 7,0 6,0 12,0 11,0 10,0 9,0 8,0 7,0 6,0 2005 2010 2015 2020 2025 2005 2010 2015 2020 2025

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Refined Gasoline Ethanol Refined Gasoline Ethanol

The RFS2 was passed when demand was projected to increase every year….indefinitely

 The RFS2 was the response to a presidential goal to reduce gasoline consumption by 20% in 10 years (2007 – 2017)  The current EIA projections indicate that a reduction in refined gasoline consumption of about 13% will be achieved by 2017, and the full 20% by 2022, and 30% by 2030

Hydrocarbon demand trend in Transportation Fuels reversed in less than 5 years

$1,20

Corn Ethanol RIN Price History

Corn Ethanol RIN Credit Price Source: OPIS Biofuels Update $1,00 $0,80 $0,60 $0,40 $0,20 $0,00 2012 RIN 2013 RIN

RIN Price Spike due to E-10 Blend Wall Constraint

RIN Prices Likely to Escalate Further due to the Infeasibility of the RFS2 Caused by the E-10 Blend Wall

Future Fuel Regulations

EPA Tier 3 Regulation • 10 ppm sulfur yearly average (currently 30) • Compliance begins in 2017. Small refinery and small volume refiners begin in year 2020.

EPA Tier 3 Regulation (CAFÉ) • Sets new vehicle tail pipe emissions std and evaporative emission std to be phased in starting 2017 • Emission standards are modeled after CARB • Emissions test fuel to include E15 © 2011 CHS Inc.

Future Gasoline Requirements • ASTM is currently voting on a ballot that would require gasoline to have a 87.0 min octane. Rocky Mountains are excluded but most likely will be be added in near future.

• Engine OEM’s state they will need to produce higher compression engines to meet new CAFÉ standards. These higher compression engines will need a higher octane fuel (>87.0).

Future Diesel Requirements • • • There are no known EPA proposals Diesel engine manufactures continue to push for a diesel fuel cleanliness requirements. Diesel engine manufactures continue to push for higher cetane limit. Due to the diesel engines high pressure common rail fuel delivery systems Diesel could end up having a detergency requirement similar to gasoline.

The Future: Always volatile, but CHS is positioned to be a strong, dominant force in rural America through member co-ops, its own retail and independents.