FUELSNews 360° - Q1 2017 by FUELSNews

M A R K E T

N E W S

1st QUARTER

I N F O R M A T I O N

Table of Contents FUELSNews 360° Quarterly Report Q1 2017 FUELSNews 360°, published four times annually by Mansfield Energy Corp, analyzes and summarizes the prior quarter’s activity in the oil, natural gas, and refined products industries. The purpose of this report is to provide industry market data, trends, and reporting both domestically and globally as well as provide insight into upcoming challenges facing the energy supply chain.

Executive Summary

Regional Views continued

Overview

6 9

Economic Outlook 9

U.S. Economic Outlook

Global Economic Outlook

Fundamentals 14 15

January through March 2017

Global Oil Discoveries Are Finally Rising

28 30 32

Policies Support U.S. Production

Producers Are Hedging Their Market Risk

U.S. Production Is a Mixed Bag

34 37 40

PADD 1C East Coast

Renewable Fuels

Commentary: Sara Bonario

Natural Gas

Commentary: Martin Trotter

Power & Supply

Commentary: Keith Crunk

Making Transportation Great Again Driver Recruitment and Retention in a Truck Driver Shortage

By Elma Tepic

Commentary: Matthew Smith

Canada

Commentary: Nate Kovacevich

By Nikki Booth

PADD 1A & 1B, Northeast & Central Atlantic Commentary: Chris Carter

PADD 5, West Coast, AK, & HI

Commentary: Amy Nguyen

Viewpoints 40

Regional Views

PADD 4, Northern Plains

Commentary: Dan Luther

Alternative Fuels 32

Inventories Were Mixed, a Common Theme in Q1

PADD 3, Gulf Coast

Commentary: Nate Kovacevich

PADD 2, Great Lakes

Fuel Taxes in 2017– Managing Tax Expenses

By Alan Apthorp

Commentary: Dan Luther

FUELSNews 360˚ Supply Team

Q1 2017 Executive Summary The first quarter of 2017 began with a rare bit of calm in fuel markets. Crude prices remained stable through January and February in the low-$50s range before dropping in early March to $47, only to recover by the end of the quarter. Looking towards the remainder of the year, news from OPEC will likely continue driving oil prices. Markets took a “wait-and-see” approach to OPEC production cuts and a new U.S. political administration. High compliance from OPEC and non-OPEC members put upward pressure on prices, while a March interest rate hike and oil-friendly political appointments and policies in the U.S. applied downward price pressure. Market-driving news was limited throughout the quarter, leading markets to turn their attention to macro issues. While international events and politics drove NYMEX prices, regional fluctuations in refined product prices were moderated by high inventories. Diesel prices in the Midwest and Great Lakes were temporarily propped up by unplanned refinery outages, but other regions have seen only small changes in basis levels during Q1. As refining capacity in the Great Lakes region has increased, suppliers have been forced to find a home for excess fuels in Northeastern states, keeping fuel prices in the Northeast unusually low for the winter. Mixed with low demand from a warm winter and imports from Europe, the Northeast has become a dumping ground for refined products, freeing up supply throughout the East Cost to keep prices subdued. Geopolitical factors are likely to play a significant role in fuel prices in Q2. With a new administration in the White House and many new diplomats, including former ExxonMobil CEO Rex Tillerson serving as Secretary of State, markets and foreign nations will be watching the U.S. response to major events. An uptick in international instability, combined with the uncertainty of a new administration, could increase market volatility once again. While international instability and OPEC dominate the oil headlines, fundamentals are still somewhat bearish. OECD crude inventories remain elevated, standing at 3 billion barrels, roughly 275 million barrels above five-year averages. With production cuts of 1.2 million

barrel per day and rising U.S. production, OPEC has their work cut out for them in trimming down global inventories. Markets are anxiously awaiting OPEC’s decision in late May on whether to stay the course on production cuts, which have seen 90% compliance rates so far. Global demand is increasing, albeit at a moderate rate, driven by growth in the U.S., China, and India. The IMF revised its 2017 global growth forecast up to 3.4% in 2017. U.S. unemployment dropped to its lowest rate since 2007, indicating strong demand and higher prices. On the flip side, the Fed raised interest rates again in March, and markets expect two or three more hikes throughout the year, which would be bearish for fuel prices. Going into Q2, regional factors should play a minimal role in driving local fuel prices, as refineries expect below-average repair downtime this year. The exception to this may be the East Coast, where refinery utilization rates have declined dramatically this quarter. Overall, the market appears neutral heading into Q2 2017. Expect crude prices in April to trade in mostly the same low-$50s price band, with prices in May and June highly responsive to news about a potential extension of OPEC’s production cut. A price range of $55-$57 is likely should the OPEC and NOPEC deal be extended. Hedge funds have taken a net-long position for 2017, but analyst forecasts vary greatly. In the short-term, expect market sentiment to continue waiting on more definitive news to give the market direction. Such news is likely to take the form of an OPEC deal extension (or not), but could also come from bearish inventory reports or bullish geopolitical uncertainty. In this edition of FUELSNews 360°, we’ve taken a deep-dive into fuel taxes and how they affect consumers. Be sure to check out Alan Apthorp’s analysis on page 42 to gain better perspective on the evolving fuel tax landscape in the U.S. We hope you enjoy this quarter’s issue of FUELSNews 360°. Please feel free to email us at fuelsnews@mansfieldoil.com with feedback, questions, or simply to request additional copies. Thanks for reading!

Overview January 2017 through March 2017 WTI Crude Oil Futures

Source: New York Mercantile Exchange (NYMEX)

Leading up to the end of 2016, fuel prices were a roller coaster. Crude prices ranged from $45 to nearly $55, driven by the market’s fixation on OPEC’s announced production cuts and the cuts from the Non-OPEC 11. The beginning of Q1 2017 struck a markedly different tone – a rare bit of calm, with crude prices remaining roughly between $51–$54 throughout the beginning of the quarter. That range held until mid-March, when prices unexpectedly took a nosedive and fell below the $50 market floor to a low of $47.01. Prices remained in the $47–$49 range until the last week of March, when prices rose slightly above the psychological $50 level. As the quarter began, markets were characterized by uncertainty. OPEC’s production cuts went into effect on January 1, and the markets eagerly waited for evidence of compliance. Just a few weeks later, President Trump was sworn into office, bringing a new wave of uncertainty to the market. While uncertainty is often reflected in market volatility, this time the market took a “wait and see” approach, keeping prices uncharacteristically steady. Within a week of Trump’s inauguration, he had issued a series of policies meant to support America’s oil production capabilities. Throughout Q1, Trump has pursued a pro-oil policy agenda, lifting regulations on emissions and drilling and promising further changes. Given Trump’s campaign promises to reduce dependence on foreign oil and increase U.S. production, these policies were not a surprise to the market. By February, news had turned from the new administration to OPEC compliance rates. In mid-January, market analysts began speculating whether OPEC could achieve a 50-60% cut, and many began to assert that such moderate cuts would be enough to prop up the market. By the end of January, the expected compliance rate had risen to 70-80% based on OPEC reports. On February 10, the International Energy Agency reported that OPEC had achieved a 90% compliance rate in January, with Saudi Arabia making even deeper cuts than promised. Crude markets rose $2/bbl in response to the reported compliance. 6

From February 10 through March 7, prices mostly hovered between $53–$54 before dropping rapidly to the $47– $49 range. Explanations of why crude prices fell vary, but many attribute the drop to the ninth consecutive build in crude inventories reported on March 3. Prices remained in the $47–$49 price range until the end of March, when prices surged above $50/bbl once more on talks of an OPEC deal extension. All eyes are now turned to OPEC’s meeting in May, when OPEC members will decide whether to continue production cuts in the second half of 2017. NYMEX diesel and gasoline prices tracked crude’s movements for most of Q1. Diesel prices traded higher than gasoline until March 1, when gasoline prices jumped 15 cents upwards in response to normal spring gasoline formulation requirements. Outside of that price change, refined products have largely tracked crude prices. NYMEX diesel prices began the quarter near $1.70 and remained between $1.60 and $1.70 until falling to $1.50 in March, a 6.25% drop, only to rise again at the end of the quarter to $1.57. NYMEX gasoline prices began the quarter at $1.62, and spent most of the quarter between $1.50 and $1.60. On March 1, as NYMEX gasoline futures changed to April’s summer gasoline formula, prices surged over $.15 to $1.68. From here, prices fell to $1.60 as crude markets fell, and rebounded to end the quarter at $1.70. •

Overview

Summary, First Quarter, 2017 $1.5736 $1.7001

$50.60

20659

Source: New York Mercantile Exchange (NYMEX), Dow Jones Industrial Average

ÂŠ 2017 Mansfield Energy Corp

Overview The 3:2:1 crack spread mostly tracked Q1 2016’s pattern of falling throughout the quarter until jumping up on March 1, driven by summer gasoline changes. The 3:2:1 crack spread roughly represents a refiner’s margin, and loosely shows the gross profit a refinery would receive per barrel from turning 3 barrels of crude into 2 barrels of gasoline and 1 barrel of diesel. For consumers, the 3:2:1 crack spread is a good index of how closely refined products are tracking underlying crude prices. For perspective, the ten-year average crack spread has been around $17. With crack spreads for 2016-17 mostly hovering below $15, refined products appear to be slightly cheaper relative to crude than in the past decade.

3:2:1 Crack Spread EIA Weekly Retail Prices

Source: New York Mercantile Exchange (NYMEX)

At the retail level, prices also experienced a relative calm. Following a 15-cent price climb in the final quarter of 2016, retail diesel prices moved lower throughout the quarter, falling just over 5 cents from $2.58 to $2.53 per gallon. Gasoline saw a similar trend, falling roughly 6 cents from $2.38 to $2.32, a sharp contrast to NYMEX gasoline price gains.

Source: Energy Information Administration (EIA)

Retail prices are sharply higher for both gasoline and diesel across the U.S. compared to this time last year. Quarterly average prices were roughly $.45–$.50 higher in Q1 2017 than in Q1 2016. Nationally, retail prices for both diesel and gasoline rose 24% between Q1 2016 and Q1 2017. Retail diesel prices averaged $2.57 this past quarter, a $.50 rise over Q1 2016. Retail gasoline prices averaged $2.33 in Q1 2017, up $.44 from Q1 2016. •

EIA Retail Price Changes

Source: Energy Information Administration (EIA)

IIIII II

IIII II I

IIIII II

U.S. Economic Outlook

IIII II I

U.S. GDP Growth

The U.S. economy continued its upward trek during the first quarter of 2017, with all indicators pointing towards continued economic growth. In December, the Federal Reserve raised interest rates for the second time in the last few years. In March, the Fed raised interest rates once again by another quarter percentage point, to a range of .75% to 1%. Statements from Dr. Janet Yellen show that the Fed expects more interest rate hikes this year amid a much stronger economy. The economy appears to be growing steadily, with Q4 2016 gross domestic product estimates now showing higher growth than previously estimated. Growth in Q4 was revised upwards to 2.1% in March, up from the previous 1.9% estimate from the Commerce Department.

Source U.S. Department of Commerce

ÂŠ 2017 Mansfield Energy Corp

U.S. Economic Outlook

U.S. Unemployment Rate

The steady growth translates to strong demand for refined products, putting upward pressure on prices. While consumption has been mostly flat so far in 2017, the EIA expects demand to grow year-over-year due to economic growth. Manufacturing and industrial growth, along with increases in rail and freight transportation, have pushed U.S. fuel consumption higher, leading to above-average diesel consumption rates in February. U.S. gasoline demand has been on an upward trend in recent years, driven by lower fuel prices; this quarter, however, rising prices at the pump have caused consumption to fall. Consumers have more ability to cut back on consumption, making gasoline demand more flexible. While gasoline demand is generally consumer-driven, diesel demand tends to be driven by the economy. Companies must continue to use rail and freight to ship goods to consumers, using significant amounts of diesel fuel along the way. For this reason, diesel consumers tend to have less capacity to reduce consumption in response to high fuel prices. Gasoline demand does appear to be experiencing a dip. Demand has been rising since 2013, but since 2016 demand has been mostly flat. Looking at deseasonalized data, gasoline demand has been falling since late 2016, and in January demand fell to levels not seen since 2015. Gasoline demand appears to be negatively correlated with oil prices; demand began rising while crude prices were plummeting in 2014-15. Controlling for seasonality, demand peaked in February 2016, while gasoline prices bottomed out in the same month. Low gasoline demand will help reign in rising prices.

Source: Bureau of Labor Statistics

The University of Michigan, who publishes the Consumer Sentiment Index, was quick to caution readers about these high results. While it’s true that consumers have high expectations of the future, a large part of the enthusiasm relates to recent economic trends. Growth has been sluggish in recent years, so expectations are not as high as they once were. The researchers indicated that, while consumers used to consider 3.0% growth to be weak, they now consider anything over 2.5% to be optimistic. Still, higher consumer sentiment will drive consumers to buy more, creating more demand for goods.

U.S. Gasoline Demand (Deseasonalized)

Source: Energy Information Administration (EIA)

Unemployment has remained mostly unchanged since 2016, hovering in the 4.7%–4.9% range. In February, the U.S. economy added 235,000 jobs. The continued robust rates were a major contributing factor in the Federal Reserve’s decision to raise interest rates. Consumer sentiment in the U.S. soared following the U.S. elections to the highest rate seen since January 2004. The high levels show how confident consumers are in near-term economic growth. Part of this is a response to Trump’s promises of economic development. 10

U.S. Economic Outlook

Trimmed Personal Consumption Expenditures (PCE) Percentage of Change

Source: St. Louis Federal Reserve

The U.S. Dollar surged higher following the November elections, then continued rising to fifteen year highs following the Fed’s decision to increase interest rates in December. The USD Index remained above 100 for most of Q1. A strong dollar is often a sign of economic growth, particularly compared to international competition. In general, the strength of the dollar is negatively correlated with commodities such as oil. Since oil prices are denominated in dollars, a rising value of the dollar means fewer dollars are needed to buy a barrel of oil. In addition, as the value of the dollar falls, foreign traders have more purchasing power, increasing demand and prices.

Consumer Sentiment Index

Interestingly, in Q4 2016 and Q1 2017, changes in the dollar have not appeared to have had a large effect on crude prices. In fact, between October 2016 and January 2017, both the dollar and crude prices rose, and in February and March both fell together. These trends should not be interpreted to mean that the dollar has not been influencing crude prices, but rather that crude prices have moved as they did despite significant headwinds from currency movements. The market’s fixation on inventory movements and OPEC cuts has temporarily outdone the U.S. Dollar as a market mover. •

NYMEX vs USD: 2016 – Today

Source: University of Michigan

Headline inflation rose from 2% to 2.1% between January and February, showing progress in economic growth. Twelve-month Core Personal Consumption Expenditures, which removes volatile components such as food and energy from the equation, rose in January from 1.86% to 1.88%, then fell in February to 1.87%. The Fed, who has a target of 2.0% inflation, prefers to use core inflation rather than the headline inflation rate in its decision-making process. While core inflation has not yet hit 2.0%, the Fed still may raise interest rates 2-3 times this year. 11

Source: NYMEX, ICE

IIIII II

Global Economic Outlook

IIII II I

After years of tempered growth and tepid investment, the global economy is finally beginning to pick up steam in 2017. The IMF expects global growth to reach 3.4% growth in 2017, compared to 3.1% growth in 2016. This growth is mainly driven by developing economies, with China and India showing improvements in their outlook.

Global Growth Long-Term Forecast

OPEC’s March report noted that world oil demand grew 1.38 million barrels per day (MMbpd) in 2016, averaging 95.05 MMbpd. Demand growth in 2017 is expected to grow by 1.32%, or 1.26 MMbpd, to 96.31 MMbpd. One third of this growth will be driven by China and India. North America will contribute 16% of the demand growth. Rising oil prices have been generally positive for the global economy, with higher revenues propelling growth in numerous producer countries. Rising commodity prices, including metal and oil, will help currencies close in on international inflation targets. Currencies in many advanced economies, particularly the U.S. and Great Britain, have grown stronger over the past quarter, while the euro has continued to weaken amid Brexit concerns. The withdrawal process officially began as Q1 ended, adding uncertainty to the market. Great Britain wants to leave with favorable trading terms, but the EU may choose to punish Great Britain for leaving the group by revoking many trade privileges.

Source: International Monetary Fund (IMF)

Advanced economies, while stronger than 2016, are only forecast to grow 1.9% in 2017 and 2% in 2018. The United States is expected to lead the growth, with growth rates of 2.3% and 2.5% in 2017 and 2018. While below long-term averages of 3%, current growth in advanced economies is still an improvement from the meager 1.6% growth seen in 2016.

IMF Global Growth Projections

Chinese growth appears set to be 6.5% in 2017, albeit far lower than experienced a decade ago. The Chinese economy is transitioning from an investment-driven economy to a consumption-driven economy, which will significantly affect how they consume fuel in the future. As consumers earn more disposable income, they will consume more energy, which will dramatically change the energy landscape over the next decade and beyond. One alarming trend internationally is the slowdown of investment growth in emerging and developing economies (EMDEs). In their January 2017 report, the World Bank highlighted the decline in EMDE investment as a continuous trend over the past few years. Private investment plays a critical role in creating necessary infrastructure in developing countries. Given EMDE’s contribution to global economic growth, increased investment is critical if growth is to continue in an upward trajectory.

Investment Growth Source: International Monetary Fund (IMF)

Because the U.S. is such a major player in the international arena, its economic outlook plays a major part in international economics. With a new administration with little political experience, accurate forecasting is difficult. The IMF expects U.S. political activity to be mainly pro-growth, with strong economic activity and a rising U.S. Dollar. The organization warns, however, of the risk that protectionist policies roll back improvements in global growth. OPEC sees similar trends in the global economy, with world growth forecast to rise by 3.2% in 2017. OPEC’s expectations of the global economy and global oil demand is noteworthy because it is an important factor in decisions regarding production. 12

Source: World Bank

Global Economic Outlook

Trade Growth

Trade growth has remained steady and is expected to continue rising, despite the U.S.’s withdrawal from the Trans-Pacific Partnership trade deal and threats to renegotiate the North America Free Trade Agreement. Protectionist sentiment has been on the rise in recent years, and the World Trade Organization reports that while declining, trade-restrictive measures in 2016 were “alarmingly high.” Not only does trade promote economic growth worldwide, it also drives consumption as goods travel farther to be consumed. A decline in trade could raise consumer prices of imported goods, but could also contribute to low fuel demand and lower prices. •

Source: Organisation for Economic Co-operation and Development (OECD)

Fundamentals At a basic supply/demand level, markets moved closer to a balance in the first quarter of the year, away from the supply glut that has characterized the past two years. Predictions of future imbalances vary widely. The EIA expects a rough balance of supply and demand over the next two years absent an extension of OPEC supply cuts. Based on their forecast, prices should remain suppressed as inventories remain at their currently high levels.

EIA World Supply/Demand Forecast

On the other hand, groups such as Goldman Sachs expect demand to quickly outstrip supply moving into Q2 2017. These analysts warn that an extension of production cuts may send oil prices too high, triggering increased production from non-OPEC producers and once again flooding the market with product. Most likely, the outcome of fuel prices will be determined by the OPEC deal extension. U.S. and other non-OPEC production will likely cap crude prices around $60/bbl, meaning an extension will only have limited upward effect. However, if the deal is not extended and OPEC countries unleash their production capabilities once again, crude prices could fall into the mid-to-low $40s/bbl range. Numerous factors play into the OPEC extension. A joint committee of the deal’s member nations in late March found compliance to be 94% in February, but fell short of recommending an extension of the deal. Rather, they requested a technical review committee examine oil markets and make a recommendation for the organization.

Source: Energy Information Administration (EIA)

Russia has said discussions of an extension are too early at this point. Saudi Arabia has indicated that cuts would be extended if inventories remain above their five-year averages. Other OPEC producers fear that U.S. production will offset their cuts, causing them to lose market share. •

Global Oil Discoveries Are Finally Rising As noted in the Q3 2016 edition of FUELSNews 360°, oil exploration activity has been declining since prices collapsed in 2014, leading to low oil discovery rates. New oil discoveries fell from 90 in 2014 to 70 in 2015; just 20 discoveries were made in 2016.

Discoveries in 2016 were heavily weighted towards the second half of the year, with over 90% of the volume from the 2016 oil and gas finds found in September or later. Higher crude prices certainly contributed to this uptick. The most notable discovery, Alpine High in Texas, was announced in September, and is thought to contain 3 billion barrels of crude oil and 75 trillion cubic feet of natural gas. Three different discoveries in Alaska, announced in October, January, and March, hold nearly 4 billion barrels of recoverable crude oil. So far, nine discoveries have been announced in 2017, putting producers on schedule to rise above 2016’s low discovery rate. Crude prices above $50 will be necessary to continue driving exploration. As warned in the Q3 edition, without growing oil discoveries, supply could tighten over the next decade as no new production is brought online to replace retired wells. Of course, production in the U.S. continues to remain focused on the Permian Basin, which has some of the lowest production costs in the country. As the Dakota Access Pipeline and Keystone Pipeline come online, the U.S. will also have cheaper access to Canadian crude and Bakken crude from the Dakotas, providing plenty of production options in the U.S. in the short- and medium-term. • 14

Inventories Were Mixed, a Common Theme in Q1

As is common for the first quarter of the year, crude inventories have been on the rise. Refineries across the country are beginning spring maintenance in preparation for summer gasoline requirements, causing crude to sit in inventory while existing refined product stocks are drawn down.

Refined product inventories have been far tamer. Diesel inventories this quarter averaged just 3% higher than Q1 2016. In fact, in early March diesel inventories fell below the 2016 level. Inventories ranged from 136–149 million barrels and ended the quarter 1.8% below the beginning level of 138.5 million barrels.

Diesel Inventories 5-Yr Range

Crude Inventories 5-Yr Range

Source: Energy Information Administration (EIA)

Gasoline inventories in Q1 2017 moved in lockstep with Q1 2016 changes. Inventories began the quarter at 235 million barrels, rose to 259 million barrels, and fell back to 240 million barrels. These movements were nearly identical to 2016, and are still far higher than the 2012–2015 range. •

Twelve of the thirteen weekly EIA inventory reports showed a gain. Notably, on February 3, the market experienced the second largest crude stock build since the EIA began reporting inventory levels in the 1980s. Inventories ended the quarter 11.5% above their opening level of 479 million barrels.

Gasoline Inventories 5-Yr Range

Although similar in direction, this quarter’s crude inventory rise was far higher than Q1 2016 levels. Inventories averaged 7% higher than Q1 2016, putting downward pressure on crude prices. At the end of Q1, crude inventories stood at 534 million barrels. The highest recorded fuel inventory was set in 1929, at 545 million barrels. Given that inventories typically continue to rise through May each year, it will be interesting to see whether U.S. crude inventories will surpass their all-time highs. The highest inventory report in 2016 was 512 million barrels—if 2017 inventories remain 7% above 2016, we could reach up to 548 million barrels. 15

Source: Energy Information Administration (EIA)

Fundamentals

Policies Support U.S. Production The changing political landscape will bring mixed results for the oil industry. The day after taking office, President Trump signed an executive order to advance the Keystone XL and Dakota Access pipelines. The next day, Trump sent out a memo freezing certain energy regulations before they could go into effect.

Rex Tillerson, Secretary of State

Scott Pruitt, EPA

Rick Perry, Secretary of Energy

President Trump has appointed several pro-oil individuals to highranking positions, including former ExxonMobil CEO Rex Tillerson to Secretary of State, former Oklahoma Attorney General Scott Pruitt to lead the EPA, and former Texas Governor Rick Perry to Secretary of Energy. Pruitt was a particularly controversial appointment, given his ties to the oil industry and past doubts about the legitimacy of climate change. The White House has been actively lifting regulations on emissions.In March, Trump’s administration repealed the Clean Power Plan, a bill which restricted power plants’ carbon emissions. The bill, passed during President Obama’s administration, drastically reduced coal usage in the U.S. and promoted natural gas. Despite the repeal of the CPP, few expect a major resurgence in the coal industry given the relative cheapness of natural gas.

The new administration also repealed a particularly controversial SEC regulation requiring that oil companies disclose payments to foreign governments. During his time at ExxonMobil, Rex Tillerson was a vocal opponent of the regulation. Supporters worry that the repeal may facilitate fraud and corruption in other countries. These pro-energy appointments and policies appear to foreshadow more pro-fossil fuel policies in the future. While oil production has recently been influenced more by crude prices than by domestic politics, the administration’s policies will likely benefit the oil companies behind the production, freeing up funds to be used for new exploration and production. •

Producers Are Hedging Their Market Risk With OPEC cuts reducing supply in the market, many expect U.S. producers to be swing producers, increasing supply whenever the market rises too high. Most producing companies in the U.S. have indicated they plan to increase production whenever it is profitable to do so. Others, however, have opted to increase output regardless of price movements by hedging their production. Coming out of Q4, companies had hedged approximately 27% of their planned oil production in 2017 at an average price of $54/bbl, according to research from Wood Mackenzie. At the end of Q4 2015, producers had hedged only 17% of their production, at an average price of $42/bbl. Aggressive producer hedging has two implications. One, producers appear less confident of rising prices, since they are paying 16

to lock in current prices rather than waiting for prices to rise. Second, producers will have more revenue protection if prices fall, allowing them to continue their production and investment activities regardless of price environment. Both factors should be considered bearish for fuel prices in 2017. These hedges generally do not extend into 2018, meaning they only affect short-term production. If prices stay below $50 throughout 2017 and 2018, producers will not be able to re-lock their hedges and will be forced to cut production. If, on the other hand, prices rise above $50 during 2017, producers will produce at full capacity to capture the higher revenues. American production typically has a breakeven price around $55; if prices rise higher than this level, expect American production to soar, putting somewhat of an upper ceiling on prices. •

Fundamentals

U.S. Production Is a Mixed Bag

U.S. production levels over the past year tell a mixed story. The general narrative is that production rates fell in conjunction with prices, as oil drillers were forced to take unprofitable wells offline, then rebounded as prices began to rise.

Looking at rig counts, this story appears to be accurate; rig counts turned around in May 2016 and have risen steadily since then. Looking at production, however, yields a slightly different story.

U.S. Rig Count vs. Production

Many analysts pointed to rising rig counts and higher production as evidence that U.S. producers are gearing up to take advantage of the new higher price environment, and are betting that production will continue to grow. Given that most production growth has been from offshore wells commissioned long before OPEC’s production cuts, it appears too early to say that U.S. producers are raising production in expectation of higher prices. With that in mind, producers do seem optimistic about prices towards the end of 2017. A March survey of oil producers from the Federal Reserve Bank of Dallas indicates that crude prices are expected to end the year at an average price of $53.49/bbl. Over one third of respondents expected prices to end the year between $50–$54 per barrel, while another third see prices between $55–$59. The survey also revealed improved producer economics in major U.S. crude basins. To cover operating expenses at existing wells, producers only need prices between $25–$30/bbl for most shale plays. For new wells, the break-even price ranged between $46/bbl in the Permian Basin, the most prolific and low-cost production region in the U.S., and $55/bbl for other shale regions. With end-of-year prices forecast to be above break-even levels, expect onshore production to grow over the next few months. Onshore production growth will quickly overshadow offshore production growth as shale basins see substantially higher production rates. •

Source: Energy Information Administration (EIA) and Baker Hughes

U.S. production did not begin rising until September, rising from below 8,570 kbpd to a high of roughly 8,870 kbpd in November. Most attribute this growth to shale producers, but the truth may lie elsewhere. Between September and December 2016, onshore production (predominantly shale producers) remained mostly flat, while offshore production soared. Onshore production netted just 50 kbpd growth between September and December. Offshore production, on the other hand, soared higher by over 200 kbpd.

U.S. Crude Oil Production (kbpd)

Refinery Maintenance Should Not Disrupt Supply In the mid- and downstream petroleum markets, refined product flow has been mostly smooth with a few bumps along the way. The EIA published a Refinery Outages report in February 2017 detailing past and expected refinery maintenance and outages.

Given the fuel transportation logistics in the United States, national level supply/demand statistics can mask regional variations. Refined products must either be refined locally or shipped in by pipeline or barge. Given this dynamic, refinery outages tend to have a strong regional effect, and a weaker national effect.

Source: Energy Information Administration (EIA)

Offshore wells require more long-term investment than shale wells, given their remote location. Two new offshore rigs came online during Q4 2016, contributing to the higher production rates. 17

Overall, each region is expected to have sufficient supply to meet demand for the first half of 2017. Planned outages will be above average in the Gulf Coast, but below average for the rest of the country. The Golf Coast is a net exporter of product to other regions of the U.S., so other regions will rely on above-average local production and high inventories to offset lower Gulf Coast production. Where refined product production slips too low, inventories will take their place. Across the U.S., inventories are still quite high, ensuring local outages have a minimal impact on consumer fuel prices. •

PADD 1

East Coast PADD1A & 1B Northeast & Central Atlantic

Regional Views OUTLOOK:

Bullish

Chris Carter, Supply Manager See his bio, Page e 46

PADD 1A and 1B Outlook

For the second quarter of 2017, I’m bullish for both diesel and gasoline prices in the Northeast. Gas prices will rise due to seasonal RVP changes, but will also be driven higher as demand continues to increase. New York Harbor diesel prices should also gain strength. As planting season draws closer and refiners begin a few turnarounds in Chicago, basis levels should increase enough to cause fuel to once more move west towards Pittsburg. As the arbitrage reopens, rising demand from planting season will keep volumes elevated. •

PADD 1A Wholesale vs. DOE Retail Diesel (dollars per gallon) “ I’m bullish for both diesel and gasoline prices in the Northeast. Gas prices will rise due to seasonal RVP changes, but will also be driven higher as demand continues to increase.“

Source: Energy Information Administration (EIA)

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

Source: Energy Information Administration (EIA)

Colonial Pipeline Line Space

The Colonial Pipeline delivers most of the product shipped from the Gulf Coast to the Northeast. Line space costs to ship on the pipeline often reflects changing supply and demand dynamics between the two regions; therefore, line space values can be used as an indicator of relative prices.

Colonial line space values for 2017 started off much weaker than most would have anticipated. Several factors contributed to the depressed values. A warm winter led to reduced demand in the Northeast, reducing the need to ship product from the Southeast to the North.

Colonial Line 2 Space Value – Diesel

Additionally, the continued push of refined products from Chicago into western Pennsylvania supplied the Northeast with ample fuel. Chicago ULSD has traded seven cents cheaper than New York Harbor ULSD for Q1 2017, meaning shippers could earn seven cents (less shipping costs) by shipping fuel from one location to another. Moreover, more American-made Jones Act vessels, the only vessels licensed to carry products between American ports, have come online to service the Gulf and Southeast. With Jones Act vessels keeping Southeast ports amply supplied, European cargo ships have been forced to send their fuel shipments to the Northeast, adding to the Northeast supply glut.

Colonial Line 1 Space Value – Gasoline

Oil Price Information Service (OPIS)

As shown above, line space values have been far below 2015 and 2016 levels. The question presents itself: is this the new norm? Will supply from Chicago continue adding downward pressure on refined product prices along the east coast? Securing line space on the Colonial Pipeline is often difficult. Nonshipping players crowd out traditional shippers by buying line space, hoping to resell at a future higher price. If line space continues to stay negative due to abundant Northeast supply, will we see nontraditional players leave the market and reduce shipping competition?

Oil Price Information Service (OPIS)

It’s too early to understand the full repercussions of evolving supply dynamics, but the changes are certainly worth watching, as they will affect regional prices in the years to come. •

PADD 1

East Coast PADD1C

Lower Atlantic

Regional Views OUTLOOK:

Bearish

Matthew Smith, Supply Supervisor See his bio, page 46

PADD 1C Outlook

The first quarter of 2017 came with high inventory levels and minimal supply disruptions in PADD 1C Lower Atlantic. The product price spread between Gulf Coast and New York Harbor ULSD averaged just thirteen points in January and twelve points in February, compared to the .0450 needed to ship from the Gulf Coast to New York Harbor. Since shippers would lose money by shipping north, more ULSD was kept in the Southeast. Due to nationwide warm weather, power plants did not require as much diesel fuel to run generators; natural gas was sufficient to support the needs of Northeast power consumers. Lowered Northeast demand contributed to lower basis values and high inventories in the Southeast.

“Due to nationwide warm

weather, power plants did not require as much diesel fuel to run generators; natural gas was sufficient to support the needs of Northeast power consumers. Lowered Northeast demand contributed to lower basis values and high inventories in the Southeast. .

Expect bearish movement for most Southeast diesel prices relative to national prices. In the market’s current state, higher regional prices would require an above-average number of refinery turnarounds or an early hurricane. Unlike the rest of the Southeast, consumers in Florida’s barge-fed market could be particularly hard-hit by rising crude prices following OPEC’s production cut. Some vessels currently carrying refined product into Florida could transition back to crude oil to capitalize on the higher price environment, which would reduce supply and put upward pressure on refined product prices in the state. •

“

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

Source: Energy Information Administration (EIA)

Regional Views

Low RVP Season

As we move from winter to spring, gasoline consumers can brace for higher prices in the coming months. EPA regulations require that gasoline’s Reid Vapor Pressure be reduced to 7.8 psi or 9.0 psi, depending on the area. The regulation prevents gasoline from evaporating at summer temperatures and helps reduce harmful ozone emissions, in compliance with the EPA’s National Ambient Air Quality Standard (NAAQS). Most areas across the country only require 9.0 psi gasoline, but certain regions are required to meet 7.0 or 7.8 psi. These areas can seek a relaxed requirement by changing their city infrastructure to better distribute ground ozone to comply with the NAAQS; cities in North Carolina and Florida have already pursued this route. With the 2015 relaxation of LRVP gasoline in Shelby County, AL and Miami, Tampa, and Jacksonville, FL, only thirteen counties in the greater-Atlanta area and six counties in Tennessee have a 7.0 or 7.8 psi requirement in the Southeast. This could potentially

2017 Hurricane Season Forecast The 2016 Atlantic hurricane season was the first above average season since 2012. The season produced fifteen named storms—seven hurricanes and four major storms. Hurricane Matthew, a category five hurricane and the strongest storm of the year, was responsible for 1,657 deaths and, according to Forbes magazine, $4–$6 billion in damages. It’s beneficial to reflect on the 2016 season, especially with so much activity; however, now is the time to look at 2017’s forecast.

For the past thirty-three years, Colorado State University has published a qualitative discussion on the upcoming hurricane season, and in December 2016 they published their 2017 forecast. They report the highest probability scenario, with a 40% likelihood, would yield six to eight hurricanes this season, with two or three major hurricanes. The university only places a 20% likelihood on a heavy hurricane season, characterized by nine to eleven named storms and four to five major hurricanes. In markets such as Florida, which is 100% fed by vessel, the 2017 hurricane season is something to monitor closely. When a system approaches, preparations start days or weeks in advance. Colorado State University’s updated forecast was published April 6, giving us a better picture of the coming hurricane season. • 21

DID YOU KNOW?

Reid Vapor Pressure is the pressure of fuel at 100° F. Remember, the earth’s natural air pressure is 14.7 psi.

create supply concerns—if, for example, the Tennessee area requiring 7.0 RVP gasoline experiences a supply outage, they cannot use gasoline from surrounding counties; they must ship their fuel all the way from Atlanta. Low RVP fuel already has a higher cost than winter gasoline. The refining process of LRVP gasoline is more expensive, and requires refineries to be taken offline temporarily to make the switch. On top of these costs, consumers in areas requiring 7.0 and 7.8 psi fuel are subject to supply concerns that can increase prices. •

U.S. Summer Gasoline Requirements

Note: This map is adapted from a 2013 map of RVP requirements. No warranty, express or otherwise, is made regarding the accuracy or completeness of this map. Source: Energy Information Administration (EIA)

PADD 2 Great Lakes

“ While diesel values may move

lower, watch for gasoline to tick upward given the start of the summer driving season.“

Regional Views OUTLOOK:

Bearish

Dan Luther, Sr. Supply Manager See his bio, page 46

PADD 2 Outlook

Given the price increase in March, expect Midwest ULSD values to decrease relative to NYMEX futures to begin the second quarter. Seasonally, this movement is unusual as diesel prices typically strengthen this time of year. However, very little midcontinent refinery maintenance is scheduled, keeping supply levels high. Further, crack spreads at many Midwest refineries have improved, so expect utilization to run at a high level. However, expect ULSD basis to increase by the end of Q2 as demand picks up on the back of planting season. While diesel values may move lower, watch for gasoline to tick upward given the start of the summer driving season. Much has been said about historically high gasoline inventory levels, and PADD 2 has not been immune to that—but much of the overhang has been priced into current values. Don’t be surprised to see PADD 2 gasoline prices, relative to NYMEX futures, increase during the second quarter. •

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

Source: Energy Information Administration (EIA)

Regional Views

February Storms Cause Chicago Area Consumers to Mourn Chicago Basis

On February 28, strong storms rolled through northern Illinois, causing problems for two area refineries. ExxonMobil’s 260,000 bpd Joliet refinery and Citgo’s 185,200 bpd Lemont plant reported issues related to the severe weather. While both companies refused to offer details regarding operations, consumers in the Chicago area have felt the pinch of reduced supply.

Initially, the biggest movement was seen in Chicago gasoline prices, with prices relative to the NYMEX jumping $.1050 per gallon. However, gas premiums subsided a few days later— dropping $.19 per gallon on March 2—when the market realized the true issue was diesel supply. Diesel prices had already been increasing in the Chicago market relative to NYMEX futures, but basis jumped $.05 per gallon on the day the refinery issues were announced.

Oil Price Information Service (OPIS)

During the same time, P66 took units offline at their 330,000 bpd Wood River, IL refinery outside of St. Louis for planned maintenance. One of the units shut was a diesel hydrotreater, further reducing ULSD supply options in the region. Luckily for buyers, the issues only lasted a couple weeks. By mid-March much of the refining capacity was back online, and ULSD basis values began to ease. • 23

PADD 3 Gulf Coast

“ Gulf Coast diesel prices took

a turn for the worst to end the first quarter as planned and unplanned refinery maintenance caused several locations in Texas to be short product. West and North Texas saw the biggest increases in diesel prices.“

Regional Views OUTLOOK:

Bearish

Nate Kovacevich, Sr. Supply Manager See his bio, page 46

PADD 3 Outlook

Gulf Coast diesel prices took a turn for the worst to end the first quarter as planned and unplanned refinery maintenance caused several locations in Texas to be short product. West and North Texas saw the biggest increases in diesel prices. Albuquerque, Amarillo, and El Paso have had severe supply issues and will likely remain tight to start the second quarter. Supply should begin to normalize towards the end of April as refineries scattered throughout TX, NM, and LA return from maintenance and begin replenishing supplies. •

PADD 3 Wholesale vs. DOE Retail Diesel

(dollars per gallon)

Source: Energy Information Administration (EIA)

P66 Refinery Maintenance at Borger Refinery Phillips 66 told state regulators in late February that its 35,000 bpd catcracker at its 146,000 bpd Borger, TX refinery was shutting down for planned maintenance. The refinery is expected to come back online in mid-April, but total output losses will likely reach 1 million barrels of gasoline and 550,000 barrels of diesel. Additionally, a major 45- to 50-day overhaul is being planned for March 2018 that will involve most of the Borger refinery.

This year’s planned maintenance has caused supply tightness in the northern Texas markets, which has supported prices since the beginning of March. We expect prices to correct downwards following the return of Borger in mid-April. As we noted in FUELSNews Daily in early March, there has been an uptick in Group 3 ULSD basis as Oklahoma terminal markets have been used to assist suppliers in Northern Texas. • 24

Regional Views

Border Adjustment Tax (BAT) Could Benefit Gulf Coast Refiners This quarter, Republicans in the House proposed a border adjustment tax affecting goods imported and exported from the U.S. The border adjustment tax would be a mixed bag for the U.S. economy. The change could lead to higher diesel and gasoline prices along the Gulf Coast in the short run, but Motiva’s CEO Dan Romasko expects the move to help drive further increases in U.S. oil production and lead to an erosion in domestic demand over the longer-term. The border adjustment tax would place a tax on all imports, including crude oil. Higher crude prices would be passed on to consumers in the form of higher diesel and gasoline prices. Based on current crude oil imports, the “BAT” could create $30 billion in additional cost for consumers. Furthermore, the BAT would likely hurt East Coast refiners who depend on refined products and crude from the Gulf Coast.

PADD 3 refiners are expected to benefit the most from the move, as they can pass on their costs to consumers and other refiners. The border adjustment tax remains a political football. Chances of any legislation coming into law in the near-term remain low. Furthermore, even if the border tax adjustment is implemented, some believe the energy markets will be exempted, given that it would increase fuel costs and eat into disposable income. •

PADD 4

Northern Plains

Regional Views OUTLOOK:

Bullish

Dan Luther, Senior Supply Manager See his bio, page 46

PADD 4 Outlook

Product prices in most of the PADD 4 region will increase versus the NYMEX as the seasonally slow first quarter gives way to higher second quarter demand. The exception will be the Salt Lake City area, which, due to pipeline disruption, experienced an increase in diesel and gas prices. In that city, buyers can expect values to ease with the pipeline’s restart. •

“Product prices in most of

PADD 4 Wholesale vs. DOE Retail Diesel

(dollars per gallon)

the PADD 4 region will increase versus the NYMEX as the seasonally slow first quarter gives way to higher second quarter demand.“

Source: Energy Information Administration (EIA)

Regional Views

Crude Pipeline Shutdown Leads to Higher Product Prices In mid-February, refineries in Salt Lake City were forced to reduce production as a main crude supply artery into the region was shut for a month. Plains All American Pipeline’s 100,000 bpd Wahsatch crude oil pipeline was closed the week of February 6 due to a landslide in Utah. The Wahsatch pipeline is a 16-inch diameter line built in 2007 that transports crude from near Evantson, Wyoming to Utah’s capital. Some crude deliveries were made by truck, but area snow hampered the trek in February. Refineries in Salt Lake City, such as Chevron’s 45,000 bpd plant and HollyFrontier’s 45,000 bpd facility were forced to reduce production. Tesoro’s 63,000 bpd refinery was fully shut amid maintenance work until late February, when it resumed at reduced rates due to the pipeline downtime. Refined product prices in Salt Lake City increased in response to the outage. Diesel was the biggest mover, with netbacks increasing by over $.40 per gallon during the interruption. Gasoline netbacks also increased by about $.20 per gallon.

Salt Lake City Gas & Diesel Netbacks

Strong gasoline prices are uncommon in Salt Lake City this time of year, as that market is usually long gasoline in the winter. Area refiners typically ship from Salt Lake City to cities like Las Vegas via the UNEV pipeline. Repair of the pipeline was initially held up because an area landowner refused to let Plains crews on a privately-owned ranch. The pipeline was eventually restarted on March 10, but not before area fuel buyers felt the pinch of higher refined products prices versus the regional average. • Oil Price Information Service (OPIS)

Regional Views

PADD 5

OUTLOOK:

Bullish

West Coast, AK, & HI

Amy Nguyen, Supply Supervisor See her bio, page 46

PADD 5 Outlook

Retail gasoline prices in California rose nearly 40 cents in the quarter and have reached an average of $3 per gallon for the first time in over 18 months. Diesel prices in the state have remained just shy of the $3 mark.

“ A few days after OPEC’s announcement, prices began rising again, and for most of this quarter LA basis has been positive, a bullish indicator showing tightening regional supply. “

California’s average gas price per gallon was second only to Hawaii at $3.07 per gallon. So far this year, these two states have been the only ones to reach the $3 mark. The other states within the Pacific Northwest region, Washington, Alaska, and Oregon, also ranked among the top five highest gas prices in the country. The West Coast was hit particularly hard by OPEC’s production cuts. California imports a large supply of its oil from foreign countries due to its isolation from the rest of the United States’ fueling infrastructure.

California’s strict environmental laws make it difficult to access crude oil locally, forcing them to rely on imported product that are refined locally. These logistics issues caused prices to rise disproportionately on the West Coast following the OPEC supply cuts. In the final quarter of 2016, Los Angeles basis, the difference between spot prices in LA and the NYMEX in New York, dropped rapidly as inventories surged. A few days after OPEC’s announcement, prices began rising again, and for most of this quarter LA basis has been positive, a bullish indicator showing tightening regional supply. This trend should continue into Q2 as OPEC cuts continue to put pressure on supply inventories. •

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

Source: Energy Information Administration (EIA)

LA Basis

Source: NYMEX

31 28

Regional Views

Summer Gasoline Changes

In addition to the beginning of OPEC’s production cuts, this quarter also marks the start of the transition to summer gasoline for the U.S. The transition from winter blend to the more expensive summer blend takes place each spring and usually leads to an increase in gas prices.

The seasonal transition won’t be completed in all of California until mid-year, as Southern California must transition by April 1, Central California by May 1, and Northern California by June 1. This transition, along with the OPEC production cuts, has played a larger factor in bringing California’s average gasoline price up to $3/gallon. I expect gas prices to continue rising in the coming quarter and into the summer as more regions make the switch to summer fuels. •

PADD 5 Supply Troubles

For California, the first quarter of 2017 presents a strong contrast to the first quarter of last year. The first quarter of 2016 was characterized by ample supply of refined products within the region and few refinery issues. This year began with the opposite scenario – OPEC production cuts and numerous refinery issues.

In February, PBF’s Torrance refinery was disrupted by an explosion. Fortunately, no one was injured and firefighters were able to extinguish the fires. Prior to that, Phillips 66’s refinery in Ferndale, WA had a hydrofluoric

acid leak and had to shut down. There were also flaring incidents at Chevron’s Richmond refinery, Phillips 66’s refinery in Rodeo, and Shell’s Martinez plant. All these events have contributed to lower supply, increasing refined product prices. Furthermore, refineries are starting to go through their annual maintenance season, during which refinery units will be taken offline. This process will further limit supply and contribute to higher refined product prices over the coming months. •

Canada

Regional Views

Nate Kovacevich, Sr. Supply Manager See his bio, page 46

Canada’s Consumers Co-Op Will Be Down in Early April for Maintenance, Labor Dispute Persists The 145,000-bpd Consumers Co-Op refinery in Regina, Saskatchewan is planning a full-plant shutdown in early April for maintenance. The downtime comes even as the company continues to negotiate with Unifor, which represents 800 members at the Co-Op Refinery complex. The planned maintenance work will be done by outside contractors, but the labor dispute could still impact the length of the turnaround. Initial estimates are for the refinery to be down for 20 days. Negotiations between Consumers Co-Op and Unifor have gone on for over a year, but talks broke down in January, requiring a mediator to help avert a possible strike. The union claims the company is trying to impose lower wages on its members and contract out more jobs. •

Kinder Morgan Trans Mountain Pipeline Costs Rise to $7.4B Kinder Morgan has been planning to connect terminals and refineries in British Columbia, Washington, and possibly California with Canadian oil sands output for some time now. In mid-March, they announced plans for an open session for capacity on the pipeline system. The company increased its final cost estimate of the project to $7.4 billion, which represents a nearly 9% increase from its previous estimate of $6.8 billion back in 2015. The Trans Mountain expansion project faced many public and environmental hurdles as it underwent regulatory review, but the project has received some necessary permits and is moving ahead. Kinder Morgan’s plan is to increase crude takeaway capacity from 300,000 bpd to 890,000 bpd from its east-west crude delivery system. The project has been delayed many times over the years; however, Kinder Morgan is now estimating construction to begin in late 2017 and for the pipeline to be in service by the end of 2019. • 30

Alternative Fuels

Renewable Fuels

Sara Bonario, Supply Director See her bio, page 46

Renewable Fuels Outlook

Historically, the first quarter of the year is a difficult time for renewable fuel producers. Seasonally cold weather tends to reduce demand and increase feedstock costs relative to stronger diesel markets. This year has been particularly difficult for the renewable fuels market because of the uncertain political environment introduced by a new administration in the White House and new appointees to key positions, such as Rick Perry to Secretary of Energy and Scott Pruitt to Administrator of the EPA. Liquidity for physical transactions has been sluggish, and the financial RIN market collapsed under speculation about the future of the Renewable Fuels Program, including rumors about which companies would be responsible for meeting the Renewable Fuel Standards.

OPIS RIN Values

Biodiesel blending economics will remain under pressure, with limited incremental blending expected to occur during the second quarter of the year. This pressure is a result of the lack of a dollar per gallon tax credit and weak RIN values available to offset the physical cost of biodiesel product. Expect to see prices along the coasts remain low as cheaper imports from Argentina are brought into these markets. Midwest producers, who have reduced run rates during the first quarter due to the political climate, will need to discount their offers to compete with the imports and incentivize incremental blending. Integrated producers will be more competitive than those purchasing crushed soybeans to produce biofuels. â&#x20AC;˘

Source: Oil Price Information Administration (OPIS)

ÂŠ 2017 Mansfield Energy Corp

Why Renewable Volume Obligations Matter for Consumers In the last few months, you may have read about the EPA’s renewable volume obligation (RVO) under the Renewable Fuel Standard (RFS). You may be wondering – what is this regulatory change, and how will it affect consumers? The renewable volume obligation is based on a percentage of national forecasted diesel and gasoline consumption, and requires that a certain percentage of biofuels be blended into normal petroleum fuels. To satisfy the requirements, obligated parties must buy and submit (“retire”) Renewable Identification Numbers, or RINs, which are produced by biofuel producers. Currently, refiners and importers are required to meet RINs obligations. For every gallon of gasoline or diesel they refine, they must retire a certain number of RINs. The difficulty for these entities lies in the fact that RINs are created by biofuel producers, and the RIN is attached to the physical biofuel gallon. Only the entities blending biofuels and petroleum products at the rack can separate the RIN from the fuel and sell it to a refiner.

The first disadvantage deals with refiner blending incentives. Refineries can control how easily petroleum fuels blend with biofuels. If refiners are not incentivized through RIN obligations to produce products that mix with biofuels, they may opt to produce lower quality product to cut operational costs, making it difficult for downstream suppliers to meet their new RIN obligations. Such a scenario would cause two serious problems. First, making blending more difficult would reduce the total quantity of biofuels used, counteracting the very purpose of the RFS. Second, it would leave blenders responsible for a problem they cannot control. If this were the case, many suppliers would leave the “above rack” market (that is, they would cease owning inventory at terminals) and opt for simply purchasing from other blenders, reducing competition and raising prices. Another disadvantage to moving the point of obligation to blenders is regulatory compliance. There would be a tremendous increase in the number of obligated parties if the obligation point moved to blenders—from around 200 parties to over 1,000. This explosion in the number of obligated parties would lead to more errors, more audits, and more EPA expenses to facilitate those audits.

The EPA is considering a policy change where the point of obligation would shift from refiners and importers to at-the-rack blenders. Given President Trump’s relationship with Carl Icahn, a billionaire investor who owns an 80% stake in a small refinery, some suspect the White House may favor the change.

Most companies who currently blend biofuels do not have the regulatory knowhow to comply with RFS obligations. They will need to hire new resources and spend time and money on compliance. These costs will be passed along to consumers and will increase the government’s burden to manage the additional 800+ obligated parties.

For consumers, the issue appears prima facie to be neutral – whether refiners or blenders are obligated to buy RINs, the cost is passed down to consumers. Switching the point of obligation to blenders, however, would have numerous disadvantages, including contributing to the reduced use of biofuels.

Shifting the point of obligation from refiners to fuel marketers only re-shuffles the regulatory deck—it does not change any fundamental costs. Refiners are currently capable of meeting their obligations without issue. The transition costs, however, are likely to cause substantial short- and medium-term consequences for marketers and consumers alike. •

Alternative Fuels

Natural Gas Cash Prices

Martin Trotter, Pricing & Structuring Analyst See his bio, page 46

Cash prices opened the year strong, finding a high of $3.65 and averaging $3.32 in January. Despite a cold snap in early February that propped up cash markets, prices fell to $2.43 in late February, with an average price nearly 50 cents below January. Late season cold weather in mid-March saw prices peak above the $3.00 mark temporarily, but prices quickly retreated to the $2.85 mark. •

Forward Prices

Average prices for Calendar Year 2018 opened the quarter around $3.06 and quickly found their high for the quarter in mid-January, peaking at $3.13. The beginning of February saw prices seesaw on either side of the $3.10 mark before steeply declining to close the month. Cal’ 19 prices saw slightly more movement over the quarter than the outer years—settling within a 14-cent band between $2.80 and $2.95. Cal Years ’20 and ’21 prices saw little separation throughout the term, each settling only a couple of cents from where they opened 2017. •

Forward Prices

Source: NYMEX

Alternative Fuels

Natural Gas Fundamentals

Natural Gas

U.S. Net Electricity Generation (1980–2040)

DEMAND:

Natural Gas & Electricity Generation

In August 2015, President Obama, along with the EPA, announced the Clean Power Plan, touted as a plan to responsibly address the United States’ energy spend in the face of growing climate change concerns. The directive lowered carbon dioxide emissions by setting a national limit on the amount of carbon dioxide pollution resulting from power generation.

Source: Energy Information Administration (EIA)

Supressed natural gas prices resulting from mounting storage inventories and mild weather had already pushed natural gas to the top power generating energy source, and mandated tiered reductions paved the way for increased generation demand for natural gas. This quarter, however, President Trump signed an executive order to repeal the CPP, amid promises to revive the U.S. coal industry. The introduction of the 2018 fiscal budget for the United States raises questions as to the future of natural gas as an alternative. The proposed budget cuts nearly 31% of the Environmental Protection Agency’s budget, forcing cuts of roughly $2.5 billion. Even with orders signed and budgets proposed, though, implementation and execution are far from finalized. Natural gas prices remain lower than coal, preventing a rapid resurgence of the coal industry. Trump’s action may prevent coal from declining further, but natural gas is still growing rapidly as a power source. •

SUPPLY:

FERC Certifies Several New Natural Gas Pipelines in 2017

The opening quarter of 2017 proved a busy one for the Federal Energy Regulatory Committee. Thus far, seven projects—both new construction and expansions—touted to provide nearly 7 Bcf/d in additional capacity have received certification from the board. The additional infrastructure is concentrated on the Eastern portion of the United States, with some creeping towards Mid-Con. While many of the projects receiving certification will not come into service until 2018 or later, owners of two of the largest projects have confirmed that they will begin construction this year.

U.S. Natural Gas Pipeline Projects Certified in 2017

The Atlantic Sunrise Pipeline (Transcontinental Pipeline Company, LLC) will bring an additional 1.7 Bcf/d of capacity from the Marcellus Shale region into the Southeast and Mid-Atlantic states. The Rover Pipeline Project (Rover Pipeline LLC) will move gas out of the Utica shale play into Ohio, West Virginia, Michigan, and Ontario, Canada. The fate of further pipeline expansion certifications for the balance of the year remains uncertain as the FERC board was temporality immobilized when one commissioner stepped down. With just two of the five commissioner seats filled, the group lost their quorum in February. • 35

Source: Energy Information Administration (EIA)

Alternative Fuels

Natural Gas STORAGE:

Warm Weather Leads to First Recorded Natural Gas Storage Injection in February In the previous issue of FUELSNews 360°, we discussed the below-average Heating Degree Days (HHDs) in October and November, and speculated that winter may never come. While it wasn’t without cold snaps, heating demand across Q1 was certainly stunted by warmer weather.

been collected. Previously, the earliest in the year a net injection had been recorded was March 16, 2012, with injections typically not arriving until April. The season’s warm weather may be counteracted by late seasonal demand. Projections to close the quarter call for withdrawals stronger than 230 Bcf, compared to 5-year average withdrawals of 60 Bcf at this time of year. Should this trend come to fruition, inventories will close the season lower than 2015, but still slightly above the 5-year average. •

A glaring example of unseasonally warm weather came from the final storage report in February, which revealed a net injection of 7 Bcf. This represents the first time a net injection has been recorded in February since weekly storage data has

Alternative Fuels

Power

Keith Crunk, Power & Gas Supply Manager See his bio, page 46

PRICES:

Cash Prices

“ Warmer weather conditions over the course

of the first quarter drove a general decrease in forward prices in all regions of the country. “

Temperatures across the U.S. fluctuated significantly in the first quarter of 2017, but in most cases such fluctuations were between the levels of “normal” and “well above normal.” Throughout the mild winter that visited most of the country, only two extended periods of cold temperatures occurred.

The first came in early January, while the second did not arrive until the middle of March. Cash power prices, particularly at PJM West Hub, followed suit by staying depressed for most of the quarter in the $25–$39/MWh range. Only during cold periods did prices rise, with four days in March topping out over $50/MWh. Greater price volatility was seen, however, at Massachusetts Hub, where prices exceeded $60/MWh during the coldest stretches of the winter. •

Forward Calendar Year Strip Prices

In our first look at calendar year 2018 prices over the course of Q1, forward power curves showed less volatility than was seen last quarter in our final look at calendar year 2017 prices. Considering that 2018 is still months away, lighter volatility versus 2017’s final look is not a surprise. Warmer weather conditions over the course of the first quarter drove a general decrease in forward prices in all regions of the country. Prices in the Mid-Atlantic and Northeast regions were closer to flat during the quarter compared to prices in the Southwest, which exhibited a 7% decrease in prices. Interestingly, this outcome was the opposite of Q4 2016, when the winter outlook was colder for the Mid-Atlantic and Northeast. Moving into Q1, those regions were projected to be more volatile than the Southwest and Midwest. •

Calendar Year 2018 Wholesale Peak Power Prices

Source: Platts

Alternative Fuels

Power Supply

Power Fundamentals

FUNDAMENTALS:

Hydroelectric Generation Poised to Re-Take Title as Nation’s Largest Source of Renewable Electricity As 2016 came to an end, the additional wind capacity brought online in the United States during the year was enough for wind to exceed hydroelectric capacity as the nation’s largest source of renewable power. Over the course of the last fifteen years, electricity produced via hydroelectric generation has remained relatively consistent, while wind generation has gradually increased from near zero to approximately 23 million MWh.

U.S. Utility-Scale Wind and Hydro Monthly Electricity Generation (Jan 2002–Dec 2016)

Not surprisingly, hydroelectric and wind generation, compared to other forms of electricity generation, have a greater sensitivity to weather conditions, since these power sources rely on precipitation and wind patterns. Given recent above-average rainfall in the Pacific Northwest and California, which accounts for approximately 50% of United States’ hydroelectric power, hydroelectric generation will likely regain its position as the nation’s largest source of renewable electricity, despite the significant additions in 2016 to wind-powered capacity. • Source: Energy Information Administration (EIA)

Nuclear Plant Near New York City Set to Retire

The two nuclear reactors at the Indian Point plant, located just north of New York City, will be retiring in April 2020 and April 2021. The plants will be closed due to their proximity to New York City, as well as environmental and safety concerns.

New York Monthly Capacity Factors for Select Generation Technologies (2013–2015)

Though the retirement of these plants will only reduce total installed capacity by 5% in the state of New York, it will result in a need for a much higher percentage (12%) of electricity to be generated from other sources. Due to the economics of generating nuclear power versus other power sources, nuclear plants are typically baseload generators, running around the clock at or near maximum load. The loss of these two units will be a significant decrease in supply for the state and the region, and other power sources will need to be brought online quickly to compensate. •

Indian Point Nuclear Power Plant, New York

Source: Energy Information Administration (EIA)

Hoover Dam, Nevada

Viewpoints By Nikki Booth, Carrier Relations Manager

Making Transportation Great Again With a new administration in the White House, the transportation industry has many expectations and concerns over what impacts new policies will have on the industry. During his campaign, President Trump promised to spend $1 trillion improving transportation infrastructure in the United States, in addition to promises of proposing an immense rebuilding project to Congress within his first 100 days in office. Since taking office, though, the President has said little on implementing his plans. Concrete action seems unlikely in the first trimester of his term.

Elaine Chao

President Trump’s first step was the appointment of Elaine Chao for Secretary of Transportation. The Office of the Secretary oversees national transportation policy and promotes intermodal transportation. Other responsibilities include negotiating and implementing international transportation agreements, assuring the fitness of U.S. airlines, issuing regulations to prevent alcohol and illegal drug misuse in transportation systems, and preparing transportation legislation.

The new administration has given the trucking industry hope for a loosened and more accountable regulatory environment. Late last year, the U.S. Department of Transportation (USDOT) finalized new training standards for entry-level truck drivers, effective February 2020.

Trump and Chao have been leaning towards funding from the private sector to pay for infrastructure priorities. The idea, known as a “publicprivate partnership,” would offer financial incentives to private companies that want to back transportation projects.

The ruling, which would have become law on February 6, 2017, has now been delayed by an order issued by President Trump on January 20. Trump’s order tells agencies like the Federal Motor Carrier Safety Administration (FMCSA) to postpone the effective date of such rules for 60 days from the date of the memo so the new administration can review new laws and alter them if necessary.

Private sector companies may have more flexibility in responding to projects than public government agencies. PPPs would give private companies an opportunity to influence our transportation infrastructure. These companies would bid on a project, build it, and maintain it for a set period, recovering their costs through state payments or tolls.

This move could help bridge the gap between the FMCSA and the trucking industry it regulates, which in recent years has had an adversarial relationship. Optimistically, the new administration will encourage improved regulations that are more unified between FMCSA and the trucking industry.

During her confirmation hearing, Chao indicated that the incoming administration may also be supportive of some direct federal spending on transportation. Additionally, the new administration wants to streamline the regulations required to get building projects underway. As Chao stated, “The issue is not only how to fund infrastructure projects, but how to increase the pipeline of available projects.”

It is too soon to tell if the new administration can implement significant changes to improve transportation infrastructure in the United States. Considering new building projects, infrastructure improvements, and regulatory changes, the trucking industry will hopefully benefit from the new administration. •

Secretary of Transportation

President Trump’s unwavering commitment to infrastructure is positive for most industries that rely on transportation. In theory, improving the infrastructure would help the U.S. economy progress by creating more jobs and allowing for faster and safer transport of goods. Transportation infrastructure is not limited to trucking—it encompasses cars, trucks, trains, transit, pipelines, and aviation. Infrastructure also is not limited to physical construction of roads, bridges, railways, and airports. Still, whether directly or indirectly, the new administration will have an impact on the trucking industry. 40

Nikki A. Booth Carrier Relations Manager Nikki manages the strategic direction of Mansfield’s full truck load network across the U.S. and Canada. Her team works closely with fuel transport companies to handle freight procurement, address logistical concerns, and identify cost-saving solutions. Nikki has been with Mansfield since 2007 and has over 14 years of experience in supply chain management, with 11 years focused on energy transportation and logistics.

Viewpoints By Elma Tepic, Carrier Relations Manager

Driver Recruitment and Retention in a Truck Driver Shortage

As the economy continues to recover, consumer demand for stocked shelves, actual and virtual, will continue to increase. According to a forecast released in October 2016 by the American Trucking Association (ATA), the amount of freight moved by trucks is expected to grow by 27% from 2016 to 2027.

We expect to see higher driver and equipment demand in the years to come. However, the trucking industry has experienced a severe driver shortage for the last few years, which will likely continue. So, what gives? Why do we have a driver shortage in an industry with high employment demand? Unfortunately, the list of answers can be lengthy. Regulations on hours of service have become complicated and provide less opportunity for driver earnings. Compensation doesn’t align with inflation, meaning drivers are often underpaid for what they do. The Bureau of Labor Statistics reports that the median pay for a tractor-trailer driver was $40,260 in 2015. Insufficient or non-competitive benefits have also been a culprit. Furthermore, an aging workforce and a lack of new qualified drivers have shrunk the potential pool of drivers. The average age of a truck driver was 49 in 2015, according to the ATA. Many current drivers are nearing retirement. The newest generation to join the workforce, Millennials, were raised in a world of technology and tend to prefer technology-heavy careers rather than driving careers. The Pew Research Center indicates Millennials surpassed Baby Boomers as the nation’s largest living generation in 2015. Difficulties in recruiting new drivers is not the only concern. High demand paired with low supply has led to ever-increasing driver turnover rates. With an expected 27% increase in freight movement over the next 10 years, the industry must re-evaluate not only their recruitment processes, but also their retention processes, and target the shortage head on. Driver recruiters have a hefty task ahead of them. Compensation is important and can be increased to attract drivers, but your competitors are also raising their compensation, leading to more industry turnover. Providing employment packages such as high pay and free CDL training may help with driver acquisition, but it won’t necessarily improve retention. If numerous employers offer the same benefits, drivers may still jump from employer to employer.

Several pre-employment assessments are available today to help narrow down desired qualities that fit the position and the culture of the company. Personality and behavioral assessments can provide insight into the applicant’s needs, which can be utilized to place the right person in the right role. Recruiting for desired behaviors and long-term matches not only aligns the applicant with the job they desire, but also aligns the employer with an ideal applicant. Employees who enjoy their jobs are generally more productive, capable, and loyal. Recruitment is not the only factor in hiring. Employers must continue to evaluate their part in the relationship and find ways to ensure employees are connected and have long-term plans to stay. Competitive benefits, good work/life balance, and impressive retirement plans are important, but they should not be the only consideration for employee retention. Creating a culture and environment that promotes positivity, appreciation, performance incentive, and career advancement is a necessity. Continuously ask employees for feedback and ideas on ways to improve as an organization, then develop plans to follow through. Utilize employee blogs or social media to form communities and discussion opportunities. The technology portion will be a crucial part of retention as Millennials make up a larger part of the workforce. As the transportation industry continues to grow, employers must address the driver shortage with proper recruitment and retention plans. Hire the right applicants by utilizing tools and assessments to better fit both employee and employer needs, and continue to differentiate as an employer by offering competitive incentives and a positive culture. Incentives do not always have to be monetary. Encourage employees through appreciation and career advancements, promote a positive environment, and allow their voices to be heard. •

Taking chances on a candidate is not a perfect science, and can be quite costly. Depending on the company and the complexity of the freight hauled, recruiting one employee can cost thousands of dollars in training expenses. To recruit long-term employees, companies must look beyond compensation and attract drivers who are invested in the relationship and love what they do. 41

Elma Tepic Carrier Relations Manager Elma manages the full truck load network for Mansfield in the Eastern U.S. and Canada. Her team is responsible for tracking carrier performance, freight procurement, and logistical risk mitigation. Elma has over 12 years of diverse logistics and operations experience, and has been with Mansfield since 2010. Prior to her current position, Elma led the Southeast operations team at Mansfield.

Viewpoints

Fuel Taxes in 2017– Managing Tax Expenses

By Alan Apthorp, Market Intelligence Analyst See his bio, page 46

With a new year comes many changes—including the implementation of numerous state motor fuel tax updates. Motor fuel taxes are a significant component of fuel prices, yet they are easily overlooked when evaluating fleet fuel budgets. Fuel taxes may seem like an undue burden, yet for many reasons U.S. consumers benefit from a tax regime that is far more consumer-friendly than those in foreign nations. Fuel taxes are a source of complexity for consumers, but with the proper tools, tax expenses can be effectively managed.

DID YOU KNOW?

The first fuel tax was implemented on June 6, 1932, with a gasoline tax of $.01 per gallon. Today, the federal gasoline tax is $.184.

Current Tax Landscape

Federal diesel and gasoline taxes have been 24.4 cents and 18.4 cents, respectively, since 1993, but states have discretion to set their own fuel taxes. Anyone who has travelled through different states has seen the wide variety in fuel prices due to state taxes.

Residents of Pennsylvania have the “privilege” of paying the highest fuel taxes in the nation: $.58 for gasoline and $.75 for diesel. Alaska, which pays just $.12 and $.13 for gasoline and diesel taxes, has the lowest fuel taxes in the U.S., thanks to high revenues generated from oil production. Generally, the Northeast and West Coast have higher tax rates, while the Midwest and Southeast have some of the lowest taxes.

Between the beginning of 2016 and 2017, 24 states made changes to their fuel taxes, 9 of which took place on January 1, 2017. Nationally, the average tax rate rose from $.4799 for gasoline to $.4944, an increase of $.0145. For diesel, average national rates rose from $.5378 to $.5541, an increase of $.0163.

State Tax Changes on Jan 1, 2017

Five Highest and Lowest State DIESEL Taxes

Source: American Petroleum Institute

Five Highest and Lowest State GASOLINE Taxes

Source: American Petroleum Institute

States that implemented fuel tax increases include: Nebraska, New York, Indiana, Pennsylvania, and Michigan. On the flip side, states who decreased fuel taxes include Georgia, North Carolina, and West Virginia.

Viewpoints

Taxes Drive Significant Portion of Fuel Costs

According to the EIA, taxes made up 20% of refined product retail prices in January 2017. That’s higher than the 20-year historical average rate of 18%, and far higher than the 10-15% experienced between 2010 and 2014. That percentage is due less to high taxes, however, than to the relatively low oil price environment we’re experiencing.

Tax as a Percent of Retail Diesel Prices

Source: Energy Information Administration (EIA)

While prices may seem to be climbing higher every day, it was only a few years ago that $3.00 to $4.00 per gallon prices were common. Since taxes have remained relatively unchanged overall, their percent of price would naturally rise as overall fuel prices fell. While taxes are a substantial portion of fuel prices, those costs are only noticeable because fuel prices have dropped so low overall.

Regular Gasoline (January 2017) Retail Price: $2.35/Gallon Taxes

Marketing & Distribution

20%

Diesel (January 2017) Retail Price: $2.58/Gallon Taxes

20%

14%

Marketing & Distribution

18%

Refining

16%

Refining

15%

Crude Oil

51%

Crude Oil

47%

Fuel Taxes Benefit U.S. Transportation Infrastructure

Source: Energy Information Administration (EIA)

In the U.S., fuel taxes are used predominantly to fund transportation infrastructure. Federally, this spending is allocated to the Highway Trust Fund, the purpose of which is to keep our highways smooth and clear. Most state governments channel fuel taxes to roads and infrastructure as well. Fuel taxes in the U.S. are so low, however, that the Highway Trust Fund has an ongoing budget problem.

Federally, fuel taxes are imposed at a flat rate per gallon. This rate has not changed since 1993, but inflation has grown significantly since then. Consumers should count themselves lucky that they’ve received what amounts to a lower nominal tax rate each year, thanks to inflation. This dynamic puts pressure on infrastructure projects to reduce costs, at times causing delays or cancellation of improvement projects. Many states have a similar problem, particularly states imposing a fixed fuel tax. Nearly half of the states in the U.S. have not increased their tax rates a single time in the last decade, and sixteen have not increased their tax rate in over two decades. This may seem to be a boon to consumers, but what consumers save at the pump, they’re paying for in increased vehicle repairs and traffic congestion. 43

Viewpoints

U.S. Fuel Taxes Are Among the Lowest Globally

Another small comfort for U.S. consumers is that the United States has one of the lowest fuel taxes in the developed world. Among member nations of the Organisation for Economic Co-operation and Development (OECD), only Mexico has lower motor fuel taxes. In fact, the average OECD tax rate is a whopping $2.62 per gallon, including excise and sales taxes. Outside of the OECD, only a few major countries, including Russia and Brazil, have lower fuel taxes. The U.S. is also the only OECD nation that does not charge sales tax on motor fuels.

Fuel Taxes by Country

Source: U.S. Department of Energy

Our neighbor to the north, Canada, who has the next lowest tax rate in the OECD after the U.S., charges $1.19 in taxes per gallon of diesel fuel. Most European countries charge substantially higher fuel taxes than the U.S., as do many Asian nations. For many of these countries, carbon control initiatives lead to high taxes on fossil fuels. Rather than supporting infrastructure, this revenue supports carbon emissions programs or other environmental projects. Many other countries simply use fuel tax income as additional government revenue, to be spent wherever political leaders see fit.

Reducing Fuel Costs by Managing Taxes

When placed in context, the United States’ fuel tax is not quite as bad as many imagine it to be. Taxes make up a large percentage of fuel prices currently, but only because fuel prices have fallen so low. Those taxes are crucial to funding infrastructure projects throughout the U.S. that keep our economy moving. They are also much lower than the rates of our international peers.

Still, there’s no shame in cutting costs wherever possible, including mitigating fuel tax costs. Companies can claim fuel tax exemptions, or even credits, for certain uses and fuel types. The most well-known exemption from motor fuel taxes is off-road diesel. Construction companies, farmers, and even individuals with home generators have taken advantage of this tax policy to reduce fuel costs. There is some confusion surrounding the law, however, particularly concerning which type of off-road activity is included. A good rule of thumb is that if your vehicle has a license plate, it does not qualify for off-road diesel prices. 44

Another exemption applies to vehicles used for certain non-profit activities. While not all non-profit uses qualify, certain vehicles, such as blood mobiles, can use dyed fuel or apply for a tax refund on gallons consumed. Vehicles used exclusively by nonprofit educational organizations are also exempt from fuel taxes. Buses transporting students, whether owned by a non-profit school or not, may use offroad diesel in most states. If your organization is a non-profit, or engages in certain non-profit activities, you may want to consider the motor fuel tax implications of those activities. Finally, one of the easiest ways to reduce your fuel taxes is by consuming biodiesel. At the federal level, any biofuel blend below B85 is taxed no differently than normal diesel fuel. In the past, the federal government offered a $1 tax credit per biofuel gallon; if Congress extends these credits (a very large “if,” given the political landscape), biodiesel could see improved economics. Regardless of federal action, though, some states offer incentives to burn biofuels by providing tax credits or exemptions. Switching to biofuels in these markets is one way companies can reduce their fuel tax costs.

Successfully Managing Fuel Tax Expenses

No matter how you feel about taxes or what strategies your company employs to mitigate tax expenses, remember that your company is ultimately responsible for paying the correct taxes. If your fuel supplier charges you the wrong tax rate and you pay those rates in good faith, federal and state agencies will still hold you accountable, not your supplier.

For this reason, taking appropriate measures to audit fuel taxes is critical for companies. As a best practice, Mansfield provides its customers with detailed tax summaries and analysis through its online reporting platform. Tax departments must remain aware of all changing regulations to ensure that proper taxes are being paid. Regardless of how you receive your transaction details, check that you have a robust tax validation process in place to ensure you are paying the correct taxes. •

Mansfield’s National Supply Team Contributors Mansfield’s supply team brings unique experience and industry expertise to the table. From contract pricing and hedging to trading of fuel, renewables, and alternatives such as CNG and LNG, the Mansfield supply team covers the gamut of knowledge that is required to manage today’s complex national fuel supply chain. Although they work as a national team, each member’s regional focus enables Mansfield to deliver geographic-based supply solutions by more efficiently managing market-specific refining, shipping, and terminal/assets.

Andy Milton

Keith Crunk

Andy heads the supply group for Mansfield. During his tenure, the company has grown from 1.3 billion gallons to over 2.5 billion gallons per year. His industry experience spans all aspects of the fuel supply business from truck dispatch, analytics, and index pricing to hedging and bulk purchasing. Andy’s expertise in purchasing via pipeline, vessel, and the coordination via futures and options for hedging purchases enables him to successfully lead a team of experienced and motivated supply personnel at Mansfield. His team handles a wide geographic area of all 50 states and Canada, including all gasoline products, ULSD, kerosene, heating oil, biodiesel, ethanol, and natural gas. •

Keith Crunk is responsible for managing supply purchases for contracted customers in various markets, long-term physical and financial hedging, pipeline and storage asset management, and pipeline scheduling. Keith has over a decade of experience with analytics and forecasting in the power and gas industry. •

Senior VP of Supply & Distribution

Power & Gas Supply Manager

Martin Trotter

Pricing & Structuring Analyst

Martin is responsible for handling natural gas and electricity pricing, deal flow, and analytics for Mansfield’s Power & Gas division. Before his current role, he served as the Sales Analytics Supervisor and held various roles on the Risk & Analysis Team. •

Dan Luther

Senior Supply Manager

Dan is responsible for refined products supply and hedging in Mansfield’s region running from Texas north to Chicago. Before joining Mansfield, Dan managed barge, rail, and truck fuel deliveries as well as ethanol trading responsibilities across the U.S. •

Sara Bonario Supply Director

Nate Kovacevich Senior Supply Manager

Before joining the company, Nate worked as a Senior Trader, where his responsibilities included managing refined product and renewable fuels procurement, handling all hedging-related activities, and providing risk management tools and strategies. He performed commodity research and analysis for customers with agricultural- and petroleum-related risk, devised and implemented risk management programs, and executed futures and option orders on all the major exchanges. •

Chris Carter Supply Manager

Chris is responsible for refined product purchases, including contracts, day deals, and rack purchases in the Northeastern United States. His responsibilities also include supply contracts and current bids. Chris joined Mansfield in 2009 as a Supply Optimization Analyst. •

Sara manages the team responsible for procurement and optimization of all refined fuels for Mansfield’s Great Lakes, Central, and Western regions. She is also responsible for nationwide purchasing, hedging, and distribution of renewable fuels. Sara has an extensive supply and trading background, with over 25 years of experience in the oil industry. •

Matthew Smith

Supply Optimization Supervisor

Matthew is responsible for the procurement of refined products in the Southeast United States, as well as pricing, supply optimization, and risk management. Matthew also manages pipeline shipments of gas and diesel on the Colonial, Plantation, and Central Florida Pipelines. Matthew started his career with Mansfield in 2013 as a Logistics Analyst, and in 2016 transitioned to the Supply Department. •

Alan Apthorp

Amy Nguyen

Market Intelligence Analyst

Supply Optimization Supervisor

Amy is responsible for both refined product purchasing for contract customers and bulk pipeline movements within California, Oregon, Washington, Idaho, Nevada, and Arizona. She is also responsible for scheduling, hedging, supply bids, and other optimization efforts throughout the West Coast. Amy joined Mansfield in 2014 as an optimization analyst. •

Alan is responsible for content editing, research, and data analysis and visualization at Mansfield, and is an editor for FUELSNews Daily and FUELSNews 360°. He also works with Mansfield’s product marketing team to analyze trends to generate valuable insight for Mansfield’s customers. Alan joined Mansfield in 2015, and has served both as a customer relationship manager and as a supply scheduler with Mansfield’s Power & Gas division. •

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* Some of the information provided is owned and licensed by OPIS. In no event shall any user copy, modify, publish, retransmit, or otherwise reproduce information from OPIS. Copyright 2017. All rights reserved. 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 are provided 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.

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