FUELSNews 360 - Q4 2012

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

2 0 1 2

OCTOBER - D E C EMBER

The fourth quarter of 2012 witnessed continued global instability as many world economies struggled to stimulate

growth and activity during uncertain economic times. The U.S. Presidential Election and the looming Fiscal Cliff

significantly impacted energy commodities, with speculation and concerns increasing over time, fearing a recession could

be next. Additionally, disappointing global oil demand and geopolitical events continued to affect the market, though

some of these events offset each other and crude managed to trade within a tight range during the fourth quarter.

On October 29th, the Northeastern U.S. was bombarded just south of Atlantic City, NJ when Hurricane Sandy made

landfall. Many Northeastern states declared a State of Emergency in the storm’s wake, and supply was extremely scarce

for subsequent weeks. Many terminals, refineries and pipelines were shut down due to damages, power outages and

scarcity of product, causing disruptions on product movement and reduced rates.

With the Northeast struggling, the Southeast and Midwest markets stepped up to help resupply areas in need, but it was

the Southeast who took it the hardest as terminals were left dry after most of its product was shipped North. Today,

supply is returning to pre-hurricane conditions, though there remain a handful of terminals and suppliers still feeling the

after-effects of Hurricane Sandy.

With the new year approaching, Congress finally began to address legislation needed to avoid the looming Fiscal Cliff

and sliding back into another U.S. recession, but faces a long and trying road ahead. The following report summarizes

the collective judgment of our supply team and the industry analysts at large.

Q4 2012 Executive Summary

FUELSNews 360° Quarterly Report Q4 2012

Index

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

4 Overview

4 October 2012 through December 2012

5 Fourth Quarter Summary

6 International

6 Price Forward Thoughts

7 Europe, Middle East, China

8 Brazil, OPEC

9 Domestic

9 Economic

10 Economic Drivers; PPI, CPI, GDP

11 Fundamentals; U.S. Demand, Crude Oil Inventories

12 Fundamentals; U.S. Refinery Production,Days of Supply

13 Fundamentals; U.S. Refinery Inputs

14 Fundamentals; U.S. Crude Oil Imports,U.S. Crude Oil Exports

15 Fundamentals; U.S. Crude Oil Imports,U.S. Crude Oil Exports

15 FUELSNews 360° Commentaries

15 Commentaries; Andy, Sara and Dan

16 Commentaries; Hannah, Jorge, Chris

17 Commentaries; Evan, Scott

18 Regional View

18 PADD 1, A Northeast22 PADD 1, B Southeast24 PADD 2, Midwest25 PADD 3, Gulf Coast27 PADD 4, Rocky Mountains28 PADD 5, West Coast, AK and HI29 Canada

32 Alternative Products

32 Natural Gas35 Renewable Fuels

37 Price Trends Charts

41 FUELSNews 360˚ Supply Team

Crude prices were rather passive this quarter as fundamental reports and independent events continued to impact prices.However, it was technical inventory reports that made the difference this quarter as inventory levels remained historically high,

with local production reaching record highs, and demand softening. Following a drop in mid-October, WTI crude trading wasplacid, trading between the $85 and $92 range to finish the year at $91.82, 66 cents below October 1st's $92.48.

Overview

0ctober 2012 through December 2012

4 © 2013 Mansfield Energy Corp.

Source: Bloomberg Finance L.P.

91.82

Fourth Quarter 2012

Overview

Fourth Quarter Summary


304.51

Summary, Fourth Quarter, 2012

Heating Oil (red), RBOB gas (green), Crude (white), and the DOW (purple) all decreased in the 4th quarter of 2012.Domestically, the market was affected by Hurricane Sandy, contributing to higher prices and supply issues that rannumerous markets dry of diesel and gas for several weeks. In December, despite positive economic projections

suggesting the global economy would be picking up in 2013, the market remained cognizant of the abundance ininventories, which managed to keep crude prices fairly leveled between the $84 to $93 range.

281.20

91.82

13104.14



The year 2012 came to an end with the fourth quarter bringing muchanticipated volatility to the market. Geopolitical concerns remained aninfluencing factor, with the market continuing to focus on Middle Easternconflicts, while other events captured the spotlight including the U.S.Presidential Election, Hurricane Sandy and the U.S. Fiscal Cliff.

Accordingly, economic reports suggested the U.S. and China are takingadequate measures to financially recover from the global crisis, while theEuropean Union continues to show weakness across the board. Despitefavorable fundamental data in the fourth quarter, the crisis is far from overas the global economy remains delicate, reflecting slow economic growthand ultimately causing soft oil demand. As a result, the market continuedto follow the situation, reacting quickly and often reflecting high instabilityas news sources reported a story of economic recovery. With that said,the following economies and organizations remained imperative to themarket, making headlines and releasing economic data that influencedmarket trends during the fourth quarter of 2012.

Price Forward Thoughts

“Despite favorable fundamental data in the fourth quarter, the global crisis is far from over as the global economy remains delicate, reflecting slow economic growth and ultimately causing soft oil demand.”

The European region continues to suffer from the economic crisis. The global crisis is evident,and Europe appears to be lost in the middle of it. The European Union remains affected by theirdebt issues, while economic growth is at a halt. Instability plagues the entire continent withcontinued concerns in Spain and Greece and even Germany, seen as a stronghold in pastmonths, has begun to show signs of weakness. Italian Prime Minister Mario Monti’s resignationin late December after passing the 2013 budget demonstrated the immense pressure onpoliticians across the EU. Other economic leaders in the Eurozone continue to disagree aboutpotential solutions to the crisis, resulting in a lack of action. Though there are signs the globaleconomy will pick up in 2013, the reality is that Europe needs to improve in many areas beforethey get back on track.Since Europe is a key trading partner for the U.S. and Asia, sloweconomic growth in the EU ultimately translates to lower oil demand for its partners.

Europe

Middle East

Much like the global economy, it is no secret that the Chinese economy also underperformed in2012. However, the fourth quarter showed signs of improvement ahead of 2013. As expected,the Chinese economy appears to be regaining strength, with the world’s second largest economygaining positive momentum ahead of Q1 2013. In fact, Chinese industrial production inNovember reached an estimated 10.1% increase over 2011, while producer prices were down2.2% on a yearly comparison to 2011. In terms of energy demand, China’s demand is expectedto continue increasing, but at a slower pace over the next few years. Following a growth rate of6.7% from 2006 to 2011, China’s energy demand growth was revised down to 4.7% per yearuntil the year 2015. The main reasons for the reduction in demand include the European debtcrisis, fragile banking systems around the world and high unemployment, as these issues haveaffected the global economy and China’s economic growth. Although the short-term outlook forChina is positive, it is important for China’s main trading partners’ situations to also improve forChina’s growth expectations to be met and for oil demand to continue upward.

China

The Middle East conflict persisted during the fourth quarter. However, the Iranian oil embargotook a back seat as Israel and Hamas were in the spotlight. With tensions running high at thebeginning of the quarter, fighting between Israel and Hamas quickly evolved into multipleairstrikes from both sides, causing dozens of deaths and massive destruction. Though the conflictremained on the Northwestern side and away from the oil producing countries of the MiddleEast, the market quickly reacted and imposed a premium on crude prices, as almost 20% of theworld’s oil is transported through the Strait of Hormuz in Iran.


International

Much like other economies, Brazil’s economy was affected by the global crisis in the lastquarter and throughout all of 2012. At the end of Q4, Brazil’s $2.5 trillion economyexperienced the slowest growth rate in almost a decade. The reason for this is an evidentreduction in investments, which fell for the fifth consecutive quarter, while inflation remainedabove the 4.5% target and consumer prices reached the highest point in almost 19 monthsin Q4. Despite the difficult situation, Brazilian leaders remain hopeful the world’s sixthbiggest economy will turn things around in 2013, targeting an increase in internationalinvestments, cutting energy costs and reducing taxes and interest rates to spur economicgrowth. Despite their economic struggles, Brazil represents the 10th largest energy consumerin the world (and the largest in South America), which means their economic progress willcontinue to affect oil prices.

Brazil

The Organization of the Petroleum Exporting Countries (OPEC) continued to impact oilprices during the fourth quarter, with the OPEC Basket Price dropping almost $2. Crude oillevels were high around the world, and the U.S. level also remained above historical limits.With some of the biggest economies struggling throughout 2012, all eyes were set onOPEC’s December 12th meeting in Vienna as they prepared to make decisions for theupcoming year. Previously setting a 30 MB/d production target for the last two quarters of2012, OPEC overproduced in the third quarter, while production in the fourth quarter wasalso above the target level despite Saudi Arabia’s production level dropping to the lowestlevel in over a year. Despite this drop, OPEC produced an average of 31.4 MB/d in thefourth quarter, setting the stage for a reduction in production levels for 2012. However,with low demand and an abundance in crude oil stocks, OPEC kept production targets at30 MB/d for the first two quarters of 2013 on projections the global economy is showingsigns of recuperation. If the global economy begins to recover in 2013, OPEC expects anincrease in demand in numerous regions, allowing OPEC to be prepared for such scenariosby keeping production levels steady.

OPEC

OPECEstablished in 1965, consisting of12 member countries andheadquartered in Vienna; Goal oforganization is to ensure oil outputand prices remain stable globally.Currently, OPEC members include:Algeria, Angola, Ecuador, Iran,Iraq, Kuwait, Libya, Nigeria, Qatar,Saudi Arabia and Venezuela. Source: OPEC

OPEC Basket Price


Domestic

Economic The fourth quarter was action-packed for the U.S. economy with multiple events transpiringincluding the Presidential Election, Hurricane Sandy, and the Fiscal Cliff situation. As therest of the world continued its path of global economic recovery, the U.S. had its own domestichiccups to consider, including important political decisions and dealing with a natural disasterthat affected nearly every sector of the U.S. economy. The U.S. economy showed it remainsvunerable, with sentiment levels reflecting volatility. On the positive side, the U.S.demonstrated determination to recover from the economic crisis and from Hurricane Sandy,with numerous economic sectors bouncing back up, to end the year on a positive note. Fromthe financial side, the Federal Reserve announced interest rates will remain low as long as theunemployment rate remains above 6.5% and inflation projections remain under 2.5% over aone-to-two year period. Additionally, Operation Twist (which ended December 31st) wasreplaced by a new round of quantitative easing, which will initially buy an estimated $45billion dollars per month of long-term treasury securities. Referred to by some as “QE4,” theFed will also be printing $85 billion dollars per month starting in January to ensure liquidity inlong-term bond markets. Additionally, the Fed announced their support to aid the U.S.economy and help the labor sector stabilize, adding more transparency to programs by linkingunemployment to interest rates and the QE programs.


“On the positive side, the U.S. demonstrated determination to recover from the economic crisis and from Hurricane Sandy, with numerous economic sectors bouncing back up, to end the year on a positive note.”


CPI Consumer price inflation eased during the fourth quarter of 2012. Despitethe upward trend in Q3, lower energy costs influenced lower consumer prices, leavingmore money in consumers’ pockets. Despite the latest drop in prices, consumer pricesclosed the year a little over 1.5% above last year’s prices.

GDP The U.S. Department of Commerce reported output of goods and servicesimproved 3.1% in the third quarter in comparison to Q2. The increase is animprovement from the 1.3% reported from Q1 to Q2. The improvement was due to anincrease in personal consumption, exports, government purchases and non-residentialfixed investments, while demand also showed a boost. Overall, the latest revision setsup improving expectations for Q4, though Hurricane Sandy is expected to have itsshare of impact.

Economic

Domestic

PPI Following a surge in Q3, production prices fell in the fourth quarter of 2012despite disruptions from Hurricane Sandy. The drop was mainly attributed to lowerenergy costs. In comparison to 2011, production prices increased a little over 1% in2012 despite the positive drop in production prices during Q4.“The improvement in the output of

goods and services was due to an increase in personal consumption, exports, government purchases and non-residential fixed investments, while demand also showed a boost.”

Fundamentals

Source: U.S. Energy Information Administration


U.S. DemandU.S. oil demand remained soft during the fourth quarter of 2012 as thecurrent economic crisis continues to affect consumption. In fact, fueldemand dropped to the lowest level in 17 years during the month ofNovember, with petroleum deliveries dropping 3.3% to 18.5 MB/d incomparison to last year. Furthermore, consumption in 2012 was down2.1% in comparison to 2011, averaging 18.6 MB/d.

Crude Oil InventoriesAs shown in Graph 1, crude oil stocks remained above historical limits.Inventories remained on the higher side throughout most of 2012 asdomestic production continues to increase over time, while refineriesoperate at high rates. Despite the 5-year trend reflecting inventoriesshould fall as the heavy winter months kick in, inventory levels havemanaged to remain high.

Average U.S. Crude Oil Ending Stocks Excluding SPR (Million Barrels)Graph 1

Fundamentals


U.S. Refinery Production Graph 2 reflects an evident increase in U.S. crude production through 2012, remaining on the higher side of the 5-year range. As discussedpreviously, one of the reasons inventory levels remain above historical limits is due to higher production volumes and rates through 2012.

Average U.S. Crude Oil Production (Million Barrels)

U.S. Days of SupplyAs shown in Graph 3, the Days of Supply (DOS) average remained close to the top of the 5-year range during Q4. Despite a minor drop inNovember (likely influenced by Hurricane Sandy), the U.S. crude DOS finished Q4 comfortably on the upper side of the 5-year range.

Graph 2

Average U.S. Crude Oil Days of Supply Excluding SPR (Million Barrels)Graph 3



Fundamentals


U.S. Refinery Inputs As portrayed in Graph 4, refiner net input moved to the higher side of the 5-year range during Q4. Compared to the yearly average of 14.9MB/d, the third quarter’s average of 15.2 MB/d inputs was followed by an also strong 15.06 MB/d in Q4, increasing inputs to move tothe upper side of the range.

Average U.S. Crude Oil Refiner Net Input (Million Barrels)Graph 4


Fundamentals


U.S. Crude Exports The upward momentum in U.S. crude oil exports continued in Q4. As depicted in Graph 6, exports in the fourth quarter increased by 4.8% incomparison to Q3, proving U.S. domestic production growth remained steady during 2012.

Average U.S. Crude Oil Exports (Million Barrels)Graph 6

U.S. Crude ImportsWith high inventory levels and local production on the rise, the reduction in imports is increasingly evident over time. As depicted in Graph 5,the fourth quarter was no different from the other months except for December, when imports increased by 3.7% in comparison to November.

Average U.S. Commercial Crude Oil Imports Excluding SPR (Million Barrels)Graph 5



During the fourth quarter of 2012, we ended up staying between the low $90s and the low $80s(WTI) and never really deviated from that band. I expect the market to bounce out of that bandand trend upward, so I’m bullish to begin the first quarter of 2013. Demand is rebounding onproducts year-over-year even though gasoline will be hitting the seasonal demand low in January.In addition, initial jobless claims hit lows in September and December that we haven’t seen sinceApril 2008. Also, consumer confidence reports trended higher in 2012 and are starting to reachearly 2008 levels as well. Gasoline stocks are at high levels, yet distillate stocks are nearing 10-year lows, also something the market will take into account.

One point to note is to watch what happens with the U.S. dollar and if we can finally see somepositive traction. If, and it’s a big if, we can recover the value in the dollar, this will help subduecrude prices. Finally, seasonally speaking, we tend to see higher values in February and Marchthan what we trade in December, so Andy’s Answer is that we will break out of the $90-$80 bandon crude, trading higher in the first quarter of 2013.

Andy’s Answer

FUELSNews 360˚ Commentaries


Neither the U.S. Presidential Election nor the looming Fiscal Cliff seemed to impact energycommodities positively or negatively during the fourth quarter. In fact, even though crude posted ahigh of $109.77/b in 2012, it continued to trade within a tight range during the fourth quarter.During that time, we saw crude trade at a high of $92.48/b and a low of $84.44/b with anaverage of $88.23/b. Additionally, disappointing global demand and quiet geopolitical concerns did nothing to widen it.

As for the new year, the same rules will continue to apply. With Congress finally passing legislation,the world’s biggest economy should be able to avoid sliding back into a recession includingavoiding a spike in unemployment and the subsequent reduced demand for energy. With favorablemarket sentiment, the dollar may weaken and make investing in crude more attractive to tradersusing other currencies. Even though this points to a potential for higher crude with refined productsfollowing suit, I remain market neutral. Oil markets are balanced, global oil demand is holdingsteady, and U.S. inventories are high. Only unexpected supply outages or geopolitical tensions willbreak us out of our current range-bound trading as seen in the last quarter of 2012.

Sara’s Synopsis

BULL

Brent crude prices will trade down slightly over Q1 2013, though staying mostly range-bound, asprices remain high enough to encourage supply, but low enough to not weaken the worldeconomy. In mid-December, OPEC members agreed to leave the current production quota of 30MB/d intact and the organization has hinted they approve of current crude values.

Weighing on domestic crude prices is swelling U.S. production, which increased to 6.5 MB/d inSeptember – 900,000 b/d more than the prior year according to EIA data. Additionally, domesticpolicy debates, such as extending the debt ceiling, may add negative sentiment to the market asgovernment inaction and uncertainty are perceived to threaten a still fragile U.S. economy.

Dan’s DissertationBEAR

FUELSNews 360̊ Commentaries

As we begin a new year, I am leaning towards the bullish side for the first quarter of 2013.With the latest macroeconomic data suggesting the global economy is showing signs ofrecovery, I expect oil demand to increase, causing upward pressure on oil prices. However, itis important to point out that the global economic crisis is far from over, and economicgrowth will remain sluggish until the European economy improves. As predictions for 2013point towards a better year, I still expect the U.S. dollar, the Euro, OPEC, jobless claims andinternational geopolitics to all impact oil prices in Q1 2013.


Sustained price appreciation through Q1 2013 seems unrealistic, barring heightenedtensions in the Middle East, so I am somewhat bearish/neutral flat price for the next threemonths. While the economy is showing signs of a slow recovery, the macroeconomiclandscape and current fundamentals do not support crude breaking through the $100/bmark. For these reasons, a continuance of range-bound flat price activity through the nextquarter seems most likely.

Hannah’s Hypothesis

Jorge Pradilla’s Predictions

As we move into the first quarter of 2013, I expect the market to start to trade at current levelsand then trend up. Heating oil closed the fourth quarter with a 4-year high average, and since2009, the first quarter has supported higher levels than the previous quarter. At the end of thefirst quarter, the “spring rally” for RBOB should begin as markets are preparing for summer RVPchanges. As always, uncertainty prevails with Iran and North Korea, which always increasesvolatility in the market. Washington passed a scaled down version, but the majority of pressingissues will have to be addressed by February. Credit rating agencies are watching Washington forthe new spending cuts and tax reform plans before they issue a new rating. Considering all ofthese factors, I believe that money will still be poured into commodities during the first quarter.With all that said, I still remain bullish for the start of 2013.

Chris’s Concept

BULL

BEAR

BULL

FUELSNews 360̊ Commentaries


The prediction for the Canadian economy is very mediocre growth in 2013, which will bedictated by a weak world economy and an absence of key economic indicators at home. Iexpect we will see less than the anticipated 2% growth, and land closer to 1.7%.

Escaping economic mediocrity will depend on the kindness of strangers, with exports andrelated capital spending critical to Canada’s fate in 2013 and 2014. Expect significanteconomic headwinds to continue to slow the global economy. It’s too early to get the fullbenefit of policy stimulus in Asia; Europe is too stubborn to soften its fiscal drag enough, andWashington is locked on solving the fiscal tightening stateside, if not the full Fiscal Cliff.

Scott’s Sixth Sense

However, the majority of Canadians remain optimistic about the country's fiscal fortunes heading into 2013. A recent Ipsos Reid poll found that an overall60% of respondents didn’t believe Canada would enter a recession next year. This general sense of optimism is a continued trend where Canadians haveshown more confidence in their economy versus respondents from other countries. In the last monthly Ipsos Reid poll of consumer confidence in 24 countries,Canadian respondents edged past the people of Germany in terms of economic optimism.

I also expect Canadian oil sands prices to remain lower, given the majority of exports end up in the U.S. and the industry cannot access new markets in Asiaas the pipeline projects to the Canadian West Coast languish in regulatory complexity. Apart from the boom in U.S. production, and a strong Canadian dollar,Alberta oil sands players are also threatened by escalating costs that show a break even cost for steam-driven projects at $65-$70 per barrel, with miningdevelopments requiring at least $90-$100 oil.

BEAR

Over the first quarter of 2013, there are a few factors that will impact the direction the markettakes. The U.S. and Canada increased their production significantly, resulting in a yearly loss for WTIcrude (the first time in four years WTI crude concluded the year in the red). This intensification inproduction led to some significant builds in gasoline (over 23 MB in the last 5 weeks) to end 2012and I expect these builds to last over the next few months since this is the time of year when gasdemand is down. There is also an international increase in the production of oil, not just specific toNorth America. Another consideration affecting the market in early 2013 are the exceptionalconditions encountered in 2012. Some Middle Eastern countries significantly increased revenue,one example being Saudi Arabia recording a budget surplus of $103.2 billion in 2012. Iran hasalso been relatively quiet recently, which is keeping prices from rising dramatically. I’m expectingthis to roll over into 2013. With all of these factors above taken into consideration, I am expectinga bearish market for the first quarter of 2013.

Evan’s EstimationBEAR

Regional ViewPetroleum Administration for Defense Districts

On October 29, 2012, Superstorm Sandy made landfall just south of Atlantic City, NJ. This stormcreated numerous supply issues in the Northeast region, shutting down refineries, pipelines andterminals. Weeks after Sandy made landfall, the region continued to suffer greatly from the damagesincurred.

This act of nature prompted many states to declare a State of Emergency (Connecticut, Delaware,Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia andWashington, D.C.). High winds left many residents, terminals, refineries, and parts of the pipelineswithout power for extended periods of time. Extreme storm surges flooded surrounding areas, haltingthe delivery of fuel to many sites.

In preparation for the storm, many refineries reduced rates or shut down entirely as a precaution. TheHess Port Reading and Phillips 66 Bayway refineries, which equate to 26% of the 1.17 MB/drefining capacity represented in the six refineries, were temporarily shut down. The PBF DelawareCity refinery, PBF Paulsboro refinery, and Delta Trainer refinery reduced their rates. The PESPhiladelphia refinery shut down many processes and put others on standby. The PES Philadelphiarefinery, Delta Trainer refinery, PBF Delaware City refinery and PBF Paulsboro refinery circumventeddamage and maintained power supply. The Phillips 66 Bayway and Hess Port Reading refineries werenot as fortunate and subsequently lost power. All refineries resumed normal operations within weeksof the storm’s passing, except for the Phillips 66 Bayway refinery, which took approximately fiveweeks to recover.

PADD 1 A Northeast


Although the merger of Sunoco and Energy Transfer Partners was finalized by the end of the year,most oil traders were split into two teams until mid-September. PES will not only have the refineryworkers, but also 32 employees that will transfer from Sunoco’s trading and supply team. PES traderswill trade for the Philadelphia refinery while other employees who were previously Sunoco traders willnot trade under the name ETP/Sunoco. These employees will trade for Sunoco branded retail. Both ofthe companies will post daily prices at the rack for jobbers in the market.

PADD 1 A Northeast


The Colonial, Buckeye and Sunoco Pipelines experienced partial shutdowns to cope with inclement weather conditions. The ColonialPipeline temporarily shut Line 3 when it became evident that many receiving terminals would be closed in preparation for HurricaneSandy. This line serves the Philadelphia, New Jersey and New York Harbor markets. The shutdown prompted many shippers todivert product originally scheduled to hit the Linden Junction to other markets further south. Line 3 was restored (with generators dueto the loss of power) within days of the shutdown. While the storm was wreaking havoc on the Northeast, the remainder of theColonial Pipeline ran normally. The combination of terminal closures and absence of product to ship halted movement on the BuckeyePipeline. Included was the pipeline connecting to Long Island (including JFK, LaGuardia and Newark airports), as well as the LaurelPipeline and its Eastern pipeline system. Buckeye’s pipelines resumed operation when line integrity was verified and product wasavailable to ship. The storm also incited the shutdown of the Sunoco Logistics Pipeline, along with the Harbor Pipeline (in whichSunoco owns a 2/3 interest). Both of these, however, were restored in a timely manner.

Supply was extremely scarce when the storm made landfall and persisted for subsequent weeks. Many terminals were shut down dueto damages, power outages, paucity of product and general pipeline and refinery disruption, causing halts on product movement andreduced rates. Waivers were passed by the Environmental Protection Agency (EPA) to help relieve some of the shortage issues. Oneof these allowed the use of high-sulfur heating oil in New Jersey in mobile non-road generators to provide for emergency purposes.Later, they would allow on-road disaster recovery vehicles to use this high-sulfur heating oil in New Jersey, Pennsylvania and the fiveboroughs of New York. On November 1st, a waiver passed to allow the use of conventional gasoline in markets which previouslyrequired reformulated gasoline. The Jones Act waiver also passed to allow extra barges to arrive in the Northeast from the Gulf Coastto relegate supply complications. A waiver was also passed to allow the use of non-biodiesel in Pennsylvania, a state where there hasbeen a 2% biodiesel mandate for years. The State of New Jersey also allowed the use of off-road diesel in on-road vehicles.

Today, supply is returning to pre-hurricane conditions. There are still some terminals and suppliers that are feeling the effects ofHurricane Sandy, but in ensuing weeks the symptoms of the affected regions will be clearing.

Refineries in the Path of Hurricane Sandy, October 29, 2012

PADD 1 A Northeast

Motiva Enterprises Seawaren, NJ Diesel Spill from Hurricane Sandy


Delta’s Trainer refinery is currently up and running, and has been since lateSeptember/early October. This refinery was purchased for $180 million (excluding fuelinventory) from ConocoPhillips in June of 2012. The refinery is expected to have an outputof 80,000 b/d of gasoline, 30,000 b/d of diesel and 30,000 b/d of jet fuel (which isexpected to increase to 52,000 b/d of jet fuel). Delta is analyzing the logistics of receivingBakken crude directly into its Trainer, PA refinery in early 2013, but will need to sort out afew challenges before this can take place. They will need to determine the necessary steps toprocure the required amount of crude from North Dakota for delivery into Trainer and build arail rack at the refinery. The diesel and gasoline produced at this refinery will be received byPhillips 66 and BP in exchange for jet fuel in other locations through negotiated agreements.

Delta’s Trainer Refinery

Trainer Output CurrentCrackSpread

“Delta is analyzing the logistics of receiving Bakken crude directly into its Trainer, PA refinery in early 2013.”

PADD 1 A Northeast

Energy Transfer Partners/Sunoco MergeEnergy Transfer Partners, L.P. (ETP) and Sunoco, Inc. completed a merger in which Sunocois now a subsidiary of ETP, with an overwhelming 97% approval from voting stockholders.Each Sunoco shareholder received $25 and 0.5245 of an ETP common stock. This mergerincudes all of Sunoco’s logistics and retail assets, but does not include any refining sinceSunoco exited the Northeast refining market in early September after selling their refinery toPhiladelphia Energy Solutions.

United Refining Buys Riverhead TerminalPhillips 66 has agreed on the sale of the Riverhead, NY terminal to United RiverheadTerminal, Inc., an affiliate of United Refining Company. Some suspected thatConocoPhillips was looking to sell this terminal since 2008, as it is has never been integralto their operations on the East Coast. The offshore marine platform is the only deep-waterloading/unloading platform on the East Coast which can handle Suezmax and VLCC vessels.Some are puzzled as to why United Refining, a company which owns and operates a 70,000b/d refinery in Warren, PA, would be purchasing this terminal. Traders surmised UnitedRefining may be seeking to increase their presence on the East Coast. This terminal currentlyhas 250,000 bbl storage tanks (altogether 5 MB of storage) on 280 acres of land.

Heating OilThe State of New York is taking a strong move for pollution control by passing several newmandates for heating oil. Back in July, the state required that all heating oil delivered withinNew York must be ultra-low sulfur (15 ppm sulfur), instead of high sulfur. This was the firststep to try to clean up the pollution problem in New York. To keep the clean air effort going, anew mandate was enacted that required all grades of heating oil in New York City to containat least a 2% biodiesel. Marketers who sell heating oil into NYC are forced to comply withthis new biodiesel mix, which is also known as Bioheat. To put into perspective the impactthis will have on air quality, this is the “carbon equivalent of taking 30,000 cars off the roadin New York City,” according to City Councilman James F. Gennaro.

Presently, no other Northeastern cities have implemented the Bioheat mandate. However,several states have passed requirements that will go into effect when neighboring states pass similar laws. The Northeast is characteristically proactive when it comes to cleaning upheating oil pollution, especially considering their regional consumption of heating oil isequivalent to about 70% of the country’s total use. If states do not switch to the biodieselmix, many may soon consider enacting an ultra-low sulfur heating oil mandate to create acleaner environment.


“To put into perspective the impact the Bioheat mandate will have on air quality, this is the carbon equivalent of taking 30,000 cars off the road in New York City.”

PADD 1 B Southeast

In the last weeks of fourth quarter, the Southeast PADD experienced the repercussions ofHurricane Sandy. Sandy’s impact to the Southeast included intermittent disruption of theColonial Pipeline. This interference continued through a combination of both power outagesas well as terminal shutdowns, precipitating their subsequent inability to receive product.Ultimately, the resulting damages caused the Colonial Pipeline to cease operations on line 3.As the HO market came out of backwardation, many suppliers had not shipped on recentcycles providing less than suitable inventory levels. In addition, the spread between New YorkHarbor basis and Gulf Coast basis, .18-.20 cents, enticed shippers to send all the barrelsthey could to the New York Harbor markets to capitalize on the attractive arbitrageopportunity. Further deteriorating the supply of the Southeast, the Colonial Pipeline cyclesexperienced a delay of receipts, delivering 7-9 days apart as opposed to the standard 4-5days. As these forces combined, a storm-time dynamic materialized that would ultimately beresponsible for the supply shortage in the Southeast. The results varied by state, but similarsymptoms prevailed in all: terminals experienced sporadic physical outages of ULSD and/orgas for several days. Initially, the terminals that felt a supply crunch were terminals inNorthern Virginia and Maryland. Quickly following suit, terminals located in Georgia,Tennessee, North and South Carolina felt the supply shortage caused by pipeline delay andthe arbitrage opportunity to send product to NYH. Diesel and gas supply remained restrictedthroughout most of November. The initial signs of relief were first experienced during theThanksgiving holiday when the Colonial Pipeline reestablished its normal delivery period.


Did you know?Line 3 delivers intoPhiladelphia, Linden and otherNew York Harbor markets whileLines 1 and 2 deliver tomarkets between Houston, TXand Greensboro, NC. The final,Line 4, delivers into Virginia.

Source: OPIS

NYH vs. GC Basis Spread

The fourth quarter also witnessed fundamental changes initiated in the East Coast port terminals.Historically, Caribbean refineries have supplied the Southeast port terminals. However, withterminals in Aruba and Hovensa closing, the demand for ‘Jones Act’ approved vessels has neverbeen higher. With vessels limited by these requisites, shipping costs are rising to all-time highs andthe burden is being realized by the customers. On Dec 1st, suppliers changed their pricing structureto New York Harbor. Jacksonville, Charleston and Savannah are the terminal marketsexperiencing the most substantial effects from this restructuring. Gulf Coast refiners have gained anadvantage with the price structure change; however, it’s expensive to move product across the oceandue to increased shipping costs. Pipeline-fed terminals are seeing increased demand due to the factthat they are now competing at unprecedented levels with waterborne terminals.

As mentioned in the previous issue of FUELSNews 360°, Western and Glencore are currentlyworking on supplying product at the Epic terminal in Savannah. Western is projecting to haveproduct in 2013. It is unclear how Western and Glencore will be supplied, but it is expected that theproduct will be priced competitively to pull customers away from other terminals.

PADD 1 B Southeast


Did you know?The Jones Act mandatesthat 75% of the crew mustbe U.S. citizens, the vesselitself must be at least 75%owned by U.S. companiesand the vessel must bebuilt or rebuilt in theUnited States.

PADD 2 Midwest

Hurricane SandyWhile the dramatic effects of Hurricane Sandy on East Coast petroleum supply stunned many in the directlyaffected areas, distributors and end users in PADD II found themselves in a similar, though somewhat slightlydelayed, predicament.

Soon after the hurricane made landfall in late October in the Northeast, gasoline and diesel trucks beganhauling out of Pennsylvania and Ohio to supply the disaster zone, with many carriers even displacing truckssemi-permanently to serve as dedicated resources to the areas in need. While Chicago-fed Ohio and westernPennsylvania barrels served as a steady supply source for a short period of time with only driver hourscreating reason for worry, an issue at Husky’s Lima, OH refinery on November 8th (amid an on-goingturnaround at Marathon Detroit refinery) made relief barrels as scarce as the directly affected areas. Allover Ohio, terminals observed wholesale racks being shut off entirely, with cities such as Cleveland having nodiscretionary gallons for days on end. Paired with the tight allocations on the Buckeye Pipeline, whichpumps barrels from Chicago into Ohio and Indiana, resupply simply couldn’t keep up. The existing demandand spreads between Chicago bulk barrels and local rack barrels went as high as 45 cents. After almost fourweeks of scrambling for product, the area found a semblance of normalcy with discretionary rack barrelsonce again available and pricing coming back down to Earth.


Affected refineries during this time period included BP Whiting, Citgo Lemont, Husky Lima, Exxon Joliet, and Marathon Detroit, withthe most extensive turnaround occurring to the latter. Marathon Detroit has since completed the tie-in of a new 28,000 b/d coker after a70-day full plant shutdown. The addition increases the nameplate capacity of the refinery to 115,000 b/d.

Chicago Refinery DisruptionsThe Chicago market was the land of refinery turnarounds and glitches in the last quarter of 2012. Seemingly back-to-back outages—bothplanned and unplanned— helped Chicago fetch the second highest premiums in the nation for ULSD in Q4, with only the distressed NYHregion pricing higher. Fourth quarter 2012 also marked the highest seasonal levels for Chicago ULSD basis in five years.

Chicago ULSD Basis

Source: OPIS

PADD 3 Gulf Coast

Seaway Pipeline UpdateThe Seaway Crude Pipeline, a joint venture between Enterprise Products Partners andEnbridge, completed the reversal project in May of 2012 in an effort to bring land-locked,Midcontinent crude oil south to supply Gulf Coast refineries to ease the glut in Cushing, OK.Starting its first deliveries in June 2012, the line has a current capacity of 150,000 b/d.Currently, the company is working on pump station additions and pipeline modifications that willbe completed in early 2013 and allow for an additional 250,000 b/d to flow south, for a totalof 400,000 b/d out of Cushing, OK, the delivery point for NYMEX crude futures. Recent FERCfilings by the company suggested that the expansion will be completed as early as the end ofJanuary. It has since been reported that a large number of advance shipper nominations make anear 100% run-rate promising. To support demand beyond this point, Seaway is also working ona brand new loop pipeline that would run parallel to the existing pipeline – more than doubling2013 capacity for a total of 850,000 b/d. The twin pipeline is projected to be completed bymid-2014, which will work to significantly ease Cushing connectivity woes and flatten the WTI-Brent spread in the future.


BridgeTex PipelineAnother crude pipeline system looking to increase connectivity to GulfCoast refineries is the BridgeTex project, pioneered by MagellanMidstream Partners and Oxy Midstream Strategic Development.The 20-inch pipeline will originate at Colorado City, TX and stretchapproximately 400 miles to tie into the Houston area, with directconnections to many of the local refineries. BridgeTex is intended tocarry WTI (West Texas Intermediate) and WTS (West Texas Sour) crudegrades and will expand Magellan’s distribution system to 700,000 b/dfrom 350,000 b/d. Expansion of existing storage is also a part of theproject, with an additional 1.4 MB of tankage being constructed inHouston and 1.2 MB of tankage to be built in Colorado City. Operationsare expected to begin mid-2014, which will assuredly change the faceof how crude currently travels this route, reducing the number of trucksand railcars that are dedicated to the task.

Houston Gulf Coast Area DistributionBridgeTex Pipeline Project

PADD 3 Gulf Coast


North Texas Product SqueezeRefined products supply in North Texas has seen some tightness in the last few months, with cities likeAbilene, Amarillo, Lubbock and Sheerin experiencing huge product premiums for local barrels. Much ofthis can be attributed to generally low inventories across the system – especially in Magellan North,which can relieve tightness with Oklahoma barrels –and an extended turnaround at Phillips 66’s Borger,TX refinery. The 146,000 b/d refinery had a planned turnaround starting in late September that tooklonger than expected to return to full run rates, and was not yet fully operational until December 10th.During this period local prices soared, especially for unbranded customers, with spreads between localracks and GC bulk barrels doubling and even tripling from their previous levels. Since the resumption ofBorger production in mid-December, we’ve seen the spreads easing as supply returns to normal.

Local OPIS ULSD Averages - Gulf Coast ULSD


PADD 4 Rocky Mountains

It was relatively quiet in the Rockies this past quarter. Turnarounds were concluded and only negligibleglitches in supply occurred. One interesting spread continued to manifest itself in Denver: Denver arearacks blew out from their Mid-continent counterparts. The cost of shipping a barrel of gas or diesel fromthe heavily allocated Magellan Pipeline to Denver was substantially lower than actual rack prices aspublished in the area. This wreaked havoc with published indexes showing wide variances betweensuppliers in the area. Wide spreads remained the norm until year’s end when refiners begin “dumping”product to avoid tax implications as seen in the two charts below.

PADD 4 inventories, as reported by the Department of Energy at the end of December, were mixed from a year ago. Gasoline stocks inPADD 4 saw a build to 7.275 MB at the end of the quarter compared to 7.202 MB this same time last year. Distillate stocks reported at3.687 MB showed a slight draw compared to 3.779 MB one year ago.

In the retail world, the EIA reported the average retail price for gasoline in PADD 4 in December was $3.066/gal compared to$3.1119/gal one year ago. The average retail price in December for diesel was $3.7460/gal compared to $3.8610/gal one year ago.

Source: OPIS

Group 3 vs. Denver Gas

Source: OPIS

Group 3 vs. Denver ULSD

PADD 5 West CoastAK, HI

As the fourth quarter began, refinery issues in the west began to mount, and basis began itsmeteoric rise. California rack prices inverted and unbranded averages were substantially higher thanbranded prices even if unbranded supply was available. Los Angeles CARBOB Basis traded as highas $1.45/gal over the NYMEX related futures contract. Unbranded gasoline outages were rampantthroughout southern California. The Los Angeles spot mean for a gallon of CARBOB gasoline postedat $4.22/gal in early October. This was the highest mean price ever recorded, and shattered theprior record set in June 2008 by more than 30cts/gal. The California Air Resources Board (CARB)finally “spelled relief” and granted a waiver for the sale of off-spec gasoline with a higher RVP. Asalways, what goes up must come down, and the year ended with some of the best retail pricesCalifornia witnessed all year long.


As for the Bay Area, Chevron announced that its fire-damaged crude unit in Richmond, CA would restart operations sometime in the first quarter of 2013. This means the 245,000 b/d refinery will continue to run at about 60% capacity until then.

Finally, all eyes turned to the California Air Resources Board’s (CARB) first auction (Nov.14th) of carbon permits in compliance with California’s Low Carbon Fuel StandardProgram. Initially, CARB stated the Nov. 14th sale “went off without a hitch.” However, itwas soon discovered that Edison International unintentionally bid for twice as manyallowances as were for sale. Edison, the owner of California’s second largest utility, accountedfor nearly 72% of the offers at auction. Had Edison properly submitted its proposals,apparently 225,000 permits would have been unsold at auction. Instead, all permits weresold, and sold above the auction floor. The Federal Energy Regulatory Commission ismonitoring California’s emission-trading program to monitor its effect on West Coast utilitymarkets, and California’s Low Carbon Fuel Standard Program is still being challenged in court.

LA CARB ULSD

Source: OPIS

Source: San Fransisco Chronicle

CANADA

Canadian Oil Sands Driving Non-OPEC GrowthReal gross domestic product (GDP) in Canada edged up 0.1% in October, following no growth in September and a 0.1% decline in August.This is consistent with 0.1 % growth through the second quarter. The output of the services industries advanced 0.1% in October, primary aresult of the increases in wholesale and retail trade. The increases outweighed declines in transportation services and in the arts andentertainment sector. Goods production was unchanged in October. Increases in mining, oil, gas extraction and utilities were offset bydeclines in manufacturing and construction. The monthly GDP for all industries increased 1.1% from October 2011 to October 2012.


PADD 5 West CoastAK, HI

PADD 5 inventories, as reported by the Department of Energy at the end of December, showed astrong build from a year ago across the board. Gasoline stocks in PADD 5 were at 33.051 MB atthe end of the quarter compared to 28.216 MB this same time last year. Distillate stocks werereported at 14.620 MB compared to 13.480 MB one year ago.

As for retail, motorists in the U.S. paid record high prices for gasoline the last quarter of 2012 withHawaii, Alaska and California being the three most expensive states. The EIA reported theaverage retail price for gasoline in PADD 5 in December was $3.4570/gal compared to $3.5030one year ago. The average retail price in December for diesel was $3.9910/gal compared to$3.9780/gal one year ago.


CANADA As 2012 closed, analysts predicted it would become increasingly difficult for Canada to hold the top positionin the G7, for economic growth and job creation, with the U.S. and Germany narrowing the gap. While theU.S. economic data is improving, Canada’s GDP has caught up to pre-slump levels, whereas the U.S. may begrowing faster at the moment, but is still not back to its pre-recession peak. Another important area of relativestrength between the two countries is housing. Canada’s housing is near peaking, but because it is nowflattening out, it is not adding to economic growth. In the U.S., home construction remains near GreatDepression levels, but because it is rising from the ashes, it is contributing to growth.

Source: Statistics Canada

Real Gross Domestic Product Edges Up in October

Vancouver, CA

Canada’s economy is diversified and highly developed. The foundation of the Canadian economy is foreign trade and the United States isby far the nation’s largest trade partner. Foreign trade is responsible for about 45 % of the nation’s GDP. Exports to the U.S. account for75% of all foreign trade. Canada is one of the few developed nations that is a net exporter of energy.

“While the U.S. economic data is improving, Canada’s GDP has caught up to pre-slump levels.”

Non-OPEC crude productionis set to outpace OPEC outputover the next decade, drivenby higher Canadian oil sandsand American shale oilproduction, according to theInternational Energy Agency(IEA). While Canadian outputis set to rise well past 2020,American and other non-OPECproducers will plateau or begindeclining. After growing slowlyin the next eight years, OPECproduction is forecast by theIEA to power ahead over thenext few decades until 2035,to retain its influence as theworld’s largest supply block inglobal markets.


CANADA

Source: International Energy Agency

Alternative Products

Natural Gas In mid-November, the natural gas market exited the annual “shoulder season”– early autumn between peak cooling and heating demand when moderatetemperatures cover most of the country – as the winter season got off to aquick start. Spurred by below-normal temperatures and speculation ofinventory draws, NYMEX natural gas for December delivery gained 4.73% onNovember 13th to settle at $3.7390 per MMBtu on the day. At the time, itwas the highest settle for front month natural gas in over a year.

Furthering the uptrend, toward the end of November several meteorologistspredicted a colder than normal December leading to speculation of increasedheating demand. On November 20th, Commodity Weather Group LLC calledfor lower temperatures in the mid-Atlantic, Great Lakes region and Southeastthrough the end of the year. On the news, December natural gas futuresgained 3.04% to settle at $3.8320. The following day, the contract gainedanother 1.85% to settle at $3.9030, the highest front month close of 2012.“When forecasters talk about cold weather at this time of year, traders listen,”said Tom Saal with INTL Hencorp Futures LLC. According to the EnergyDepartment, nearly 50% of U.S. households use gas for heating.

U.S. Natural Gas Inventory Forecast

Source: Bloomberg Finance, L.P.

“When forecasters talk about cold weather at this time of year, traders listen.”


Natural Gas The winter season is an important time for the natural gas market. The same period lastyear was unseasonably warm leading to an oversupplied market with record inventory;consequently, underground storage figures will be watched closely this year. According toBloomberg analysts, and as detailed in the below graph, a repeat of last year’s winter –light demand – would put inventories at record levels for 2013 while a normal winter wouldstill put inventories 236 Bcf, or 13.7%, above typical levels. In order for inventories to reachthe normalized level of 1.7 Tcf by April 1st, a 12% colder than average winter is required.

Despite the bullish news to start the winter season, natural gas futures tumbled in mid-December on an unexpected increase in the EIA’s weekly inventory report. This was thelatest calendar gain in inventory since the week-ended December 30th, 2005, according tothe Energy Department. On December 14th, natural gas futures for January deliverysettled at a 10-week low of $3.3140 on the news.


Natural Gas

InfrastructureAn often overlooked aspect of the natural gas supply chain is theinfrastructure required to move the commodity from relativelynew, inundated production points to traditional, constraineddemand regions. For instance, in the Marcellus Shale, where thenumber of wells drilled dropped over the course of 2012, therehas traditionally been limited pipeline capacity to take gas fromOhio, Pennsylvania and West Virginia to demand areas in theNortheast. But dynamics began to change in Q4, a trend thatshould continue into 2013, as inadequate transportationinfrastructure in the region improved. As reported by BloombergBusinessWeek, natural gas pipelines into service Q4 2012 andearly 2013 could increase Marcellus deliveries to the Northeastby 30%. According to government and pipeline-companyprojections, as much as 2 Bcf of new gas per day is set to flow


Average Monthly Receipts on AGT Pipeline, by SourceJanuary 2008 – December 2012

Source: BENTEK Energy, LLC

from the Marcellus Shale to the Eastern seaboard. “There are newpipelines coming up and more Marcellus gas is going to floodstorage into winter,”said Phil Flynn of Price Futures Group.

The uptick of Marcellus gas to the Northeast is already beingspotted in recent industry data. For example, Algonquin GasTransmission (AGT) Pipeline, which extends from NewYork/New Jersey to Boston, receipts are up 56% year-over-yearfrom two pipelines with access to the Marcellus formation. Whileoverall receipts on the AGT line are near 2011 totals, combinedreceipts from Millennium Pipeline Company and Tennessee GasPipeline Company increased .3 Bcf per day in December. As aresult, the combined share of total AGT receipts from the twooperators rose to 69%, compared with 44% for the same timeperiod last year.

Natural Gas IEA World Energy OutlookThe International Energy Agency released their World Energy Outlook in November,highlighting the noteworthy projection that natural gas will overtake oil as the most used fuelin the U.S. by 2030. The agency attributed the growth to a boom in domestic supplies, asunconventional resources from shale rock and coal beds will account for nearly half theincrease in global output of the fuel by 2035. The U.S., along with Canada, is expected tohave some of the cheapest global natural gas prices leading to the expectation of exports. Theagency expects the first U.S. exports to happen in 2018, reaching about 19 billion cubicmeters in 2020. However, the IEA noted, “The U.S. Department of Energy is waiting toreview the results of a price impact study before dealing with the pending export applications.”After a strong start to the quarter, ethanol values slipped in December with the January CBOTfutures contract falling 9.65% on the month to settle at $2.19/gal on the final trading day of2012. National ethanol inventories for the week-ending December 21st, the latest for whichdata was available, totaled 20.3 MB up 18% from a year earlier. Additionally, importsaveraged 28,000 b/d this year, up from 6,000 b/d in 2011. This abundance of supply, andstagnant domestic gasoline demand, translated to poor margins for producers. For instance,based on front month contracts at the time of writing, producers are set to lose over 30 centson each gallon of ethanol made, according to data compiled by Bloomberg. To note, thatnumber excludes revenue from the sale of dried distiller’s grains, a byproduct of ethanolproduction that can be fed to livestock. This highlights a similar trend over the course of Q4 asproducers wrestled with historically high input costs from the summer’s drought.

Renewable Fuels Waiver of Renewable Fuels StandardOn November 16th, the EPA denied requests to waive the Renewable Fuels Standard(RFS2). This was in response to governors from six states submitting petitions to the EPAclaiming the renewable mandate harmed their state’s economy. Record Midwest heat inJune and July sparked the worst drought in the U.S. since 1956, causing widespread cropdamage and a spike in agricultural commodity prices. In a press release, the EPA stated,“The U.S. Environmental Protection Agency today announced that the agency has not foundevidence to support a finding of severe 'economic harm' that would warrant granting awaiver of the Renewable Fuels Standard. The decision is based on economic analyses andmodeling done in conjunction with the U.S. Department of Agriculture and U.S.Department of Energy.” As mentioned in previous FUELSNews reports, the EPA set arelatively high threshold required to suspend RFS2, stating their waiver authority as having“to determine that the implementation of the mandate itself would severely harm theeconomy; it is not enough to determine that implementation of RFS would contribute to suchharm.” Accordingly, the EPA stated that on average, waiving the mandate would only reducecorn prices by approximately 1%. As expected, ethanol and corn industry groups lauded thedecision while a coalition of livestock, poultry and dairy groups were disappointed.


“ The U.S., along with Canada, is expected to have some of the cheapest global natural gas prices leading to the expectation of exports.”

Source: Bloomberg Finance, L.P.

RenewableFuels

U.S Ethanol Blending Limit


E15Ethanol proponents received less positive news later in November. In a press release on November 20th,the AAA declared a “need for regulators and industry to suspend E15 sales to protect motorists.” Theassociation referenced a survey they completed which found a likelihood of consumer confusion around theappropriate use of E15 and the potential for vehicle damage and voided warranties. “It is clear that millionsof Americans are unfamiliar with E15, which means there is a strong possibility that many motorists mayimproperly fill up using this gasoline and damage their vehicle,” said AAA President and CEO RobertDarbelnet. “Bringing E15 to the market without adequate safeguards does not responsibly meet the needsof consumers. The sale of E15 should be suspended until additional gas pump labeling and consumereducation efforts are implemented to mitigate problems for motorists and their vehicles.”

U.S. gasoline blended with 15% ethanol was approved for sale by the EPA in June of 2012 for vehiclemodel years 2001 and newer. However, beyond AAA’s concerns, a bigger obstacle is that few carmanufacturers have approved E15 for use in their vehicles; so far, only GM and Ford permit the fuel andonly in the newest model years. In effect, this is a supply barrier for the ethanol industry as the U.S. nearsa blend wall – most gasoline is approved for only a 10% ethanol blend. Below is a graph showing theblend percentage of ethanol since the current Renewable Fuel Standard was signed into law in 2007.

In regard to the concerns over higher ethanol blends, the EPA responded by stating the agency “sharesAAA’s concern over consumer awareness of the use of E15.”

0.0952

Price Trends

22.563

321 WTI Crack for Q4


Ethanol (DL) versus RBOB (XB) for Q4


2.190

281.20


Seasonal DOE Gasoline Inventories, Total U.S.


Seasonal DOE ULSD Inventories, Total U.S.


Price Trends


Crude Futures Curve on the First and Last Day of Quarter


HO Futures Curve on the First and Last Day of Quarter


Price Trends




Price Trends

HO, Bean Oil, Biodiesel 2012 RINS for Q4

304.51


49.160.5650


Mansfield’s National Supply Team

Andy Milton VP of Supply & DistributionAndy Milton heads the supply group for Mansfield and during his tenure the company has grown from 1.3billion gallons to over 2.5 billion gallons per year. Andy’s industry experience spans all aspects of the fuelsupply business from truck dispatch, analytics, and index pricing to hedging and bulk purchasing. Prior toMansfield, Andy worked at RaceTrac Petroleum. Andy’s expertise in purchasing via pipeline, vessel, andthe coordination via futures and options for hedging purchases enables him to successfully lead a team ofexperienced and motivated supply personnel at Mansfield. Andy’s team handles a wide geographic areaof 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 SouthernUniversity where he received a BS in Sports Management.

Sara Hordinksi VP of Western US SupplySara Hordinski’s extensive background in supply and trading, futures hedging and rack marketing, bringsa unique perspective to Mansfield’s supply department. Although new to Mansfield’s supply department,Sara has more than twenty-five years’ experience in the oil & has refined products industry. She hasmarketed refined products throughout much of the United States by pipeline, truck, and rail. In addition,she worked with numerous suppliers, refiners, jobbers, c-store owners, and distributors nationwide todevelop competitive contract pricing and hedging programs individual to their needs.

Mansfield’s supply team brings unique experience and industry expertise to the table. From contract pricing and hedging totrading of fuel, renewables and alternatives such as CNG and LNG, the Mansfield supply team covers the gamut of knowledgethat is required to manage today’s complex national fuel supply chain. Although they work as a national team, each member’sregional focus enables Mansfield to deliver geographic based supply solutions by more efficiently managing market specific

refining, shipping and terminal/assets.


Dan Luther Manager of Supply & DistributionDan Luther is responsible for purchasing, hedging, and the distribution of natural gas and renewablefuels. Before joining Mansfield, Dan was Director of Operations at Aska Energy and also worked atRaceTrac Petroleum, where he helped manage all barge, rail, and truck fuel deliveries before assumingethanol trading responsibilities, including purchasing product to fulfill RaceTrac’s demand while tradingproduct across other U.S. markets. Dan holds a BSBA in Supply Chain Management and Marketing fromOhio State University and is currently working towards his MBA at Georgia Tech.

Hannah Hauman Manager of Supply & DistributionHannah Hauman serves as the Midcontinent Supply Manager, based out of Houston, TX. Hannah managesall refined products trading, supply distribution, contracts and daily rack purchases. In addition, Hannahmanages Mansfield’s fixed price shorts nationwide. Prior to joining Mansfield, Hannah worked for MarathonPetroleum Company, RaceTrac Petroleum, and Atlas Oil Company in a wide variety of functions ranging fromtruck dispatch to speculative futures trading. Hannah holds a BS in Business Management from TheUniversity of Findlay and is currently pursuing her graduate degree at the University of Houston.

Jorge Pradilla Supply Risk SupervisorJorge Pradilla started at Mansfield as an intern where he assisted with tracking supplier postings and marketanalytics. Jorge progressed to become a supply risk supervisor focusing on Mansfield’s futures and clearportactivities including reconciliation, broker dealings and trade executions. Jorge oversees the company’shedging portfolio as well as tracks liabilities, fixed price contracts and analyzes market trends. Jorge alsoauthors the FUELSNews Daily. Born in Colombia, Jorge holds a BS in Marketing from Piedmont College andan MBA in Managerial Leadership.


Scott Van Berkel Director of Canadian OperationsScott recently joined Mansfield after a 32 year career with Shell Canada Ltd. Scott’s broad expertise spansa variety of areas including marketing, sales, logistics and customer service. Scott held numerousmanagement positions with both Shell Canada and their parent company, Royal Dutch Shell. Scott’sextensive knowledge of the Canadian market, coupled with his experience working in the Commercial,Industrial and Retail businesses, makes him an invaluable asset to the supply team. Scott holds a BS inAgricultural Economics from the University of Manitoba.

Chris Carter Southeast Supply ManagerChris Carter serves as the Southeast Supply Manager responsible for refined product purchases includingcontracts, day deals and rack purchases. The Southeast region covers Florida, Georgia, Mississippi, Alabama,Tennessee, South Carolina, North Carolina, Virginia and Maryland. His responsibilities also include supplycontracts and current bids. Chris manages pipeline shipments of gas and diesel on the Colonial, Plantation andCentral Florida Pipelines. Chris joined Mansfield in 2009 as a Supply Optimization Analyst and earned his BA inBusiness Management from North Georgia College and State University.

Evan Smiles Northeast Supply SupervisorEvan Smiles began his career with Mansfield as an intern in the supply department back in the winter of 2011,assisting in the Southeast region. Evan quickly advanced into the role of Northeast Supply Optimization Analystand currently holds the position of Northeast Supply Supervisor, handling various tasks including supply bids, daydeal purchasing, long haul analysis, contract negotiations/fulfillment and supply optimization. Evan earned a BSin Sports Management and BBA in Finance from the University of Georgia.

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.

©2013 Mansfield Energy Corp.

FUELSNews 360°MARKET NEWS & INFORMAT ION

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FUELSNews 360 - Q4 2012