FUELSNews 360 - Q4 2012 by FUELSNews

M A R K E T

N E W S

I N F O R M A T I O N

OCTOBER-DECEMBER

Q4 2012 Executive Summary The fourth quarter of 2012 witnessed continued global instability as many world economies struggled to stimulate growth and activity during uncertain economic times. The U.S. Presidential Election and the looming Fiscal Cliff significantly impacted energy commodities, with speculation and concerns increasing over time, fearing a recession could be next. Additionally, disappointing global oil demand and geopolitical events continued to affect the market, though some of these events offset each other and crude managed to trade within a tight range during the fourth quarter. On October 29th, the Northeastern U.S. was bombarded just south of Atlantic City, NJ when Hurricane Sandy made landfall. Many Northeastern states declared a State of Emergency in the stormâ&#x20AC;&#x2122;s wake, and supply was extremely scarce for subsequent weeks. Many terminals, refineries and pipelines were shut down due to damages, power outages and scarcity of product, causing disruptions on product movement and reduced rates. With the Northeast struggling, the Southeast and Midwest markets stepped up to help resupply areas in need, but it was the Southeast who took it the hardest as terminals were left dry after most of its product was shipped North. Today, supply is returning to pre-hurricane conditions, though there remain a handful of terminals and suppliers still feeling the after-effects of Hurricane Sandy. With the new year approaching, Congress finally began to address legislation needed to avoid the looming Fiscal Cliff and sliding back into another U.S. recession, but faces a long and trying road ahead. The following report summarizes the collective judgment of our supply team and the industry analysts at large.

Index FUELSNews 360° Quarterly Report Q4 2012 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.

Overview 4

October 2012 through December 2012

Fourth Quarter Summary

International 6

Price Forward Thoughts

Europe, Middle East, China

Brazil, OPEC

Economic

Economic Drivers; PPI, CPI, GDP

Fundamentals; U.S. Demand, Crude Oil Inventories

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

Fundamentals; U.S. Refinery Inputs

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

Commentaries; Andy, Sara and Dan

Commentaries; Hannah, Jorge, Chris

Commentaries; Evan, Scott

Regional View 18 22 24 25 27 28 29

Domestic 9

FUELSNews 360° Commentaries

PADD 1, A Northeast PADD 1, B Southeast PADD 2, Midwest PADD 3, Gulf Coast PADD 4, Rocky Mountains PADD 5, West Coast, AK and HI Canada

Alternative Products 32 35

Natural Gas Renewable Fuels

Price Trends Charts

FUELSNews 360˚ Supply Team

Overview 0ctober 2012 through December 2012 Crude prices were rather passive this quarter as fundamental reports and independent events continued to impact prices. However, it was technical inventory reports that made the difference this quarter as inventory levels remained historically high, with local production reaching record highs, and demand softening. Following a drop in mid-October, WTI crude trading was placid, trading between the $85 and $92 range to finish the year at $91.82, 66 cents below October 1st's $92.48.

Fourth Quarter 2012

91.82

Source: Bloomberg Finance L.P.

ÂŠ 2013 Mansfield Energy Corp.

Overview Fourth Quarter Summary Heating Oil (red), RBOB gas (green), Crude (white), and the DOW (purple) all decreased in the 4th quarter of 2012. Domestically, the market was affected by Hurricane Sandy, contributing to higher prices and supply issues that ran numerous markets dry of diesel and gas for several weeks. In December, despite positive economic projections suggesting the global economy would be picking up in 2013, the market remained cognizant of the abundance in inventories, which managed to keep crude prices fairly leveled between the $84 to $93 range.

Summary, Fourth Quarter, 2012

304.51 281.20

91.82

13104.14

Source: Bloomberg Finance L.P.

ÂŠ 2013 Mansfield Energy Corp.

Price Forward Thoughts The year 2012 came to an end with the fourth quarter bringing much anticipated volatility to the market. Geopolitical concerns remained an influencing factor, with the market continuing to focus on Middle Eastern conflicts, while other events captured the spotlight including the U.S. Presidential Election, Hurricane Sandy and the U.S. Fiscal Cliff. Accordingly, economic reports suggested the U.S. and China are taking adequate measures to financially recover from the global crisis, while the European Union continues to show weakness across the board. Despite favorable fundamental data in the fourth quarter, the crisis is far from over as the global economy remains delicate, reflecting slow economic growth and ultimately causing soft oil demand. As a result, the market continued to follow the situation, reacting quickly and often reflecting high instability as news sources reported a story of economic recovery. With that said, the following economies and organizations remained imperative to the market, making headlines and releasing economic data that influenced market trends during the fourth quarter of 2012.

â&#x20AC;&#x153;Despite favorable fundamental data in the fourth quarter, the global crisis is far from over as the global economy remains delicate, reflecting slow economic growth and ultimately causing soft oil demand.â&#x20AC;?

ÂŠ 2013 Mansfield Energy Corp.

International

Europe

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

Middle East

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

China

Much like the global economy, it is no secret that the Chinese economy also underperformed in 2012. However, the fourth quarter showed signs of improvement ahead of 2013. As expected, the Chinese economy appears to be regaining strength, with the world’s second largest economy gaining positive momentum ahead of Q1 2013. In fact, Chinese industrial production in November reached an estimated 10.1% increase over 2011, while producer prices were down 2.2% on a yearly comparison to 2011. In terms of energy demand, China’s demand is expected to continue increasing, but at a slower pace over the next few years. Following a growth rate of 6.7% from 2006 to 2011, China’s energy demand growth was revised down to 4.7% per year until the year 2015. The main reasons for the reduction in demand include the European debt crisis, fragile banking systems around the world and high unemployment, as these issues have affected the global economy and China’s economic growth. Although the short-term outlook for China is positive, it is important for China’s main trading partners’ situations to also improve for China’s growth expectations to be met and for oil demand to continue upward. 7

Brazil

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

OPEC

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

OPEC Basket Price

OPEC Established in 1965, consisting of 12 member countries and headquartered in Vienna; Goal of organization is to ensure oil output and prices remain stable globally. Currently, OPEC members include: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia and Venezuela.

Source: OPEC 8

Domestic

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

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

Domestic

Economic

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

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

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

GDP The U.S. Department of Commerce reported output of goods and services improved 3.1% in the third quarter in comparison to Q2. The increase is an improvement from the 1.3% reported from Q1 to Q2. The improvement was due to an increase in personal consumption, exports, government purchases and non-residential fixed investments, while demand also showed a boost. Overall, the latest revision sets up improving expectations for Q4, though Hurricane Sandy is expected to have its share of impact. 10

Fundamentals U.S. Demand U.S. oil demand remained soft during the fourth quarter of 2012 as the current economic crisis continues to affect consumption. In fact, fuel demand dropped to the lowest level in 17 years during the month of November, with petroleum deliveries dropping 3.3% to 18.5 MB/d in comparison to last year. Furthermore, consumption in 2012 was down 2.1% in comparison to 2011, averaging 18.6 MB/d.

Crude Oil Inventories As shown in Graph 1, crude oil stocks remained above historical limits. Inventories remained on the higher side throughout most of 2012 as domestic production continues to increase over time, while refineries operate at high rates. Despite the 5-year trend reflecting inventories should fall as the heavy winter months kick in, inventory levels have managed to remain high.

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

Source: U.S. Energy Information Administration 11

ÂŠ 2013 Mansfield Energy Corp.

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

Average U.S. Crude Oil Production (Million Barrels) Graph 2

Source: U.S. Energy Information Administration

U.S. Days of Supply

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

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

Source: U.S. Energy Information Administration 12

ÂŠ 2013 Mansfield Energy Corp.

Fundamentals

U.S. Refinery Inputs As portrayed in Graph 4, refiner net input moved to the higher side of the 5-year range during Q4. Compared to the yearly average of 14.9 MB/d, the third quarterâ&#x20AC;&#x2122;s average of 15.2 MB/d inputs was followed by an also strong 15.06 MB/d in Q4, increasing inputs to move to the upper side of the range.

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

Source: U.S. Energy Information Administration 13

ÂŠ 2013 Mansfield Energy Corp.

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

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

Source: U.S. Energy Information Administration

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

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

Source: U.S. Energy Information Administration 14

ÂŠ 2013 Mansfield Energy Corp.

FUELSNews 360˚ Commentaries Andy’s Answer

BULL

Sara’s Synopsis

During the fourth quarter of 2012, we ended up staying between the low $90s and the low $80s (WTI) and never really deviated from that band. I expect the market to bounce out of that band and trend upward, so I’m bullish to begin the first quarter of 2013. Demand is rebounding on products year-over-year even though gasoline will be hitting the seasonal demand low in January. In addition, initial jobless claims hit lows in September and December that we haven’t seen since April 2008. Also, consumer confidence reports trended higher in 2012 and are starting to reach early 2008 levels as well. Gasoline stocks are at high levels, yet distillate stocks are nearing 10year lows, also something the market will take into account. One point to note is to watch what happens with the U.S. dollar and if we can finally see some positive traction. If, and it’s a big if, we can recover the value in the dollar, this will help subdue crude prices. Finally, seasonally speaking, we tend to see higher values in February and March than what we trade in December, so Andy’s Answer is that we will break out of the $90-$80 band on crude, trading higher in the first quarter of 2013. Neither the U.S. Presidential Election nor the looming Fiscal Cliff seemed to impact energy commodities positively or negatively during the fourth quarter. In fact, even though crude posted a high of $109.77/b in 2012, it continued to trade within a tight range during the fourth quarter. During that time, we saw crude trade at a high of $92.48/b and a low of $84.44/b with an average of $88.23/b. Additionally, disappointing global demand and quiet geopolitical concerns did nothing to widen it. As for the new year, the same rules will continue to apply. With Congress finally passing legislation, the world’s biggest economy should be able to avoid sliding back into a recession including avoiding a spike in unemployment and the subsequent reduced demand for energy. With favorable market sentiment, the dollar may weaken and make investing in crude more attractive to traders using other currencies. Even though this points to a potential for higher crude with refined products following suit, I remain market neutral. Oil markets are balanced, global oil demand is holding steady, and U.S. inventories are high. Only unexpected supply outages or geopolitical tensions will break us out of our current range-bound trading as seen in the last quarter of 2012.

BEAR

Dan’s Dissertation

Brent crude prices will trade down slightly over Q1 2013, though staying mostly range-bound, as prices remain high enough to encourage supply, but low enough to not weaken the world economy. In mid-December, OPEC members agreed to leave the current production quota of 30 MB/d intact and the organization has hinted they approve of current crude values. Weighing on domestic crude prices is swelling U.S. production, which increased to 6.5 MB/d in September – 900,000 b/d more than the prior year according to EIA data. Additionally, domestic policy debates, such as extending the debt ceiling, may add negative sentiment to the market as government inaction and uncertainty are perceived to threaten a still fragile U.S. economy.

FUELSNews 360˚ Commentaries Hannah’s Hypothesis

BEAR

Sustained price appreciation through Q1 2013 seems unrealistic, barring heightened tensions in the Middle East, so I am somewhat bearish/neutral flat price for the next three months. While the economy is showing signs of a slow recovery, the macroeconomic landscape and current fundamentals do not support crude breaking through the $100/b mark. For these reasons, a continuance of range-bound flat price activity through the next quarter seems most likely.

Jorge Pradilla’s Predictions

BULL

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

Chris’s Concept

BULL

As we move into the first quarter of 2013, I expect the market to start to trade at current levels and then trend up. Heating oil closed the fourth quarter with a 4-year high average, and since 2009, the first quarter has supported higher levels than the previous quarter. At the end of the first quarter, the “spring rally” for RBOB should begin as markets are preparing for summer RVP changes. As always, uncertainty prevails with Iran and North Korea, which always increases volatility in the market. Washington passed a scaled down version, but the majority of pressing issues will have to be addressed by February. Credit rating agencies are watching Washington for the new spending cuts and tax reform plans before they issue a new rating. Considering all of these factors, I believe that money will still be poured into commodities during the first quarter. With all that said, I still remain bullish for the start of 2013. 16

FUELSNews 360˚ Commentaries Evan’s Estimation

BEAR

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

Scott’s Sixth Sense

BEAR

The prediction for the Canadian economy is very mediocre growth in 2013, which will be dictated by a weak world economy and an absence of key economic indicators at home. I expect we will see less than the anticipated 2% growth, and land closer to 1.7%. Escaping economic mediocrity will depend on the kindness of strangers, with exports and related capital spending critical to Canada’s fate in 2013 and 2014. Expect significant economic headwinds to continue to slow the global economy. It’s too early to get the full benefit of policy stimulus in Asia; Europe is too stubborn to soften its fiscal drag enough, and Washington is locked on solving the fiscal tightening stateside, if not the full Fiscal Cliff. However, the majority of Canadians remain optimistic about the country's fiscal fortunes heading into 2013. A recent Ipsos Reid poll found that an overall 60% of respondents didn’t believe Canada would enter a recession next year. This general sense of optimism is a continued trend where Canadians have shown more confidence in their economy versus respondents from other countries. In the last monthly Ipsos Reid poll of consumer confidence in 24 countries, Canadian respondents edged past the people of Germany in terms of economic optimism. I also expect Canadian oil sands prices to remain lower, given the majority of exports end up in the U.S. and the industry cannot access new markets in Asia as the pipeline projects to the Canadian West Coast languish in regulatory complexity. Apart from the boom in U.S. production, and a strong Canadian dollar, Alberta oil sands players are also threatened by escalating costs that show a break even cost for steam-driven projects at $65-$70 per barrel, with mining developments requiring at least $90-$100 oil.

Regional View Petroleum Administration for Defense Districts

PADD 1 A Northeast

On October 29, 2012, Superstorm Sandy made landfall just south of Atlantic City, NJ. This storm created numerous supply issues in the Northeast region, shutting down refineries, pipelines and terminals. Weeks after Sandy made landfall, the region continued to suffer greatly from the damages incurred. This act of nature prompted many states to declare a State of Emergency (Connecticut, Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Rhode Island, Virginia and Washington, D.C.). High winds left many residents, terminals, refineries, and parts of the pipelines without power for extended periods of time. Extreme storm surges flooded surrounding areas, halting the delivery of fuel to many sites. In preparation for the storm, many refineries reduced rates or shut down entirely as a precaution. The Hess Port Reading and Phillips 66 Bayway refineries, which equate to 26% of the 1.17 MB/d refining capacity represented in the six refineries, were temporarily shut down. The PBF Delaware City refinery, PBF Paulsboro refinery, and Delta Trainer refinery reduced their rates. The PES Philadelphia refinery shut down many processes and put others on standby. The PES Philadelphia refinery, Delta Trainer refinery, PBF Delaware City refinery and PBF Paulsboro refinery circumvented damage and maintained power supply. The Phillips 66 Bayway and Hess Port Reading refineries were not as fortunate and subsequently lost power. All refineries resumed normal operations within weeks of the stormâ&#x20AC;&#x2122;s passing, except for the Phillips 66 Bayway refinery, which took approximately five weeks to recover.

ÂŠ 2013 Mansfield Energy Corp.

PADD 1 A Northeast

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

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

The Colonial, Buckeye and Sunoco Pipelines experienced partial shutdowns to cope with inclement weather conditions. The Colonial Pipeline temporarily shut Line 3 when it became evident that many receiving terminals would be closed in preparation for Hurricane Sandy. This line serves the Philadelphia, New Jersey and New York Harbor markets. The shutdown prompted many shippers to divert product originally scheduled to hit the Linden Junction to other markets further south. Line 3 was restored (with generators due to the loss of power) within days of the shutdown. While the storm was wreaking havoc on the Northeast, the remainder of the Colonial Pipeline ran normally. The combination of terminal closures and absence of product to ship halted movement on the Buckeye Pipeline. Included was the pipeline connecting to Long Island (including JFK, LaGuardia and Newark airports), as well as the Laurel Pipeline and its Eastern pipeline system. Buckeye’s pipelines resumed operation when line integrity was verified and product was available to ship. The storm also incited the shutdown of the Sunoco Logistics Pipeline, along with the Harbor Pipeline (in which Sunoco owns a 2/3 interest). Both of these, however, were restored in a timely manner. Supply was extremely scarce when the storm made landfall and persisted for subsequent weeks. Many terminals were shut down due to damages, power outages, paucity of product and general pipeline and refinery disruption, causing halts on product movement and reduced rates. Waivers were passed by the Environmental Protection Agency (EPA) to help relieve some of the shortage issues. One of these allowed the use of high-sulfur heating oil in New Jersey in mobile non-road generators to provide for emergency purposes. Later, they would allow on-road disaster recovery vehicles to use this high-sulfur heating oil in New Jersey, Pennsylvania and the five boroughs of New York. On November 1st, a waiver passed to allow the use of conventional gasoline in markets which previously required reformulated gasoline. The Jones Act waiver also passed to allow extra barges to arrive in the Northeast from the Gulf Coast to relegate supply complications. A waiver was also passed to allow the use of non-biodiesel in Pennsylvania, a state where there has been a 2% biodiesel mandate for years. The State of New Jersey also allowed the use of off-road diesel in on-road vehicles. Today, supply is returning to pre-hurricane conditions. There are still some terminals and suppliers that are feeling the effects of Hurricane Sandy, but in ensuing weeks the symptoms of the affected regions will be clearing.

PADD 1 A Northeast “ Delta is analyzing the logistics of receiving Bakken crude directly into its Trainer, PA refinery in early 2013.”

Trainer Output

Motiva Enterprises Seawaren, NJ Diesel Spill from Hurricane Sandy

Delta’s Trainer Refinery

Current Crack Spread

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

PADD 1 A Northeast

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

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

Heating Oil

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

The State of New York is taking a strong move for pollution control by passing several new mandates for heating oil. Back in July, the state required that all heating oil delivered within New York must be ultra-low sulfur (15 ppm sulfur), instead of high sulfur. This was the first step to try to clean up the pollution problem in New York. To keep the clean air effort going, a new mandate was enacted that required all grades of heating oil in New York City to contain at least a 2% biodiesel. Marketers who sell heating oil into NYC are forced to comply with this new biodiesel mix, which is also known as Bioheat. To put into perspective the impact this will have on air quality, this is the “carbon equivalent of taking 30,000 cars off the road in New York City,” according to City Councilman James F. Gennaro. Presently, no other Northeastern cities have implemented the Bioheat mandate. However, several states have passed requirements that will go into effect when neighboring states pass similar laws. The Northeast is characteristically proactive when it comes to cleaning up heating oil pollution, especially considering their regional consumption of heating oil is equivalent to about 70% of the country’s total use. If states do not switch to the biodiesel mix, many may soon consider enacting an ultra-low sulfur heating oil mandate to create a cleaner environment.

PADD 1 B Southeast

Did you know? Line 3 delivers into Philadelphia, Linden and other New York Harbor markets while Lines 1 and 2 deliver to markets between Houston, TX and Greensboro, NC. The final, Line 4, delivers into Virginia.

In the last weeks of fourth quarter, the Southeast PADD experienced the repercussions of Hurricane Sandy. Sandyâ&#x20AC;&#x2122;s impact to the Southeast included intermittent disruption of the Colonial Pipeline. This interference continued through a combination of both power outages as well as terminal shutdowns, precipitating their subsequent inability to receive product. Ultimately, the resulting damages caused the Colonial Pipeline to cease operations on line 3. As the HO market came out of backwardation, many suppliers had not shipped on recent cycles providing less than suitable inventory levels. In addition, the spread between New York Harbor basis and Gulf Coast basis, .18-.20 cents, enticed shippers to send all the barrels they could to the New York Harbor markets to capitalize on the attractive arbitrage opportunity. Further deteriorating the supply of the Southeast, the Colonial Pipeline cycles experienced a delay of receipts, delivering 7-9 days apart as opposed to the standard 4-5 days. As these forces combined, a storm-time dynamic materialized that would ultimately be responsible for the supply shortage in the Southeast. The results varied by state, but similar symptoms prevailed in all: terminals experienced sporadic physical outages of ULSD and/or gas for several days. Initially, the terminals that felt a supply crunch were terminals in Northern Virginia and Maryland. Quickly following suit, terminals located in Georgia, Tennessee, North and South Carolina felt the supply shortage caused by pipeline delay and the arbitrage opportunity to send product to NYH. Diesel and gas supply remained restricted throughout most of November. The initial signs of relief were first experienced during the Thanksgiving holiday when the Colonial Pipeline reestablished its normal delivery period.

NYH vs. GC Basis Spread

Source: OPIS

ÂŠ 2013 Mansfield Energy Corp.

PADD 1 B Southeast

Did you know? The Jones Act mandates that 75% of the crew must be U.S. citizens, the vessel itself must be at least 75% owned by U.S. companies and the vessel must be built or rebuilt in the United States.

The fourth quarter also witnessed fundamental changes initiated in the East Coast port terminals. Historically, Caribbean refineries have supplied the Southeast port terminals. However, with terminals in Aruba and Hovensa closing, the demand for ‘Jones Act’ approved vessels has never been higher. With vessels limited by these requisites, shipping costs are rising to all-time highs and the burden is being realized by the customers. On Dec 1st, suppliers changed their pricing structure to New York Harbor. Jacksonville, Charleston and Savannah are the terminal markets experiencing the most substantial effects from this restructuring. Gulf Coast refiners have gained an advantage with the price structure change; however, it’s expensive to move product across the ocean due to increased shipping costs. Pipeline-fed terminals are seeing increased demand due to the fact that they are now competing at unprecedented levels with waterborne terminals. As mentioned in the previous issue of FUELSNews 360°, Western and Glencore are currently working on supplying product at the Epic terminal in Savannah. Western is projecting to have product in 2013. It is unclear how Western and Glencore will be supplied, but it is expected that the product will be priced competitively to pull customers away from other terminals. 23

PADD 2 Midwest

Hurricane Sandy While the dramatic effects of Hurricane Sandy on East Coast petroleum supply stunned many in the directly affected areas, distributors and end users in PADD II found themselves in a similar, though somewhat slightly delayed, predicament. Soon after the hurricane made landfall in late October in the Northeast, gasoline and diesel trucks began hauling out of Pennsylvania and Ohio to supply the disaster zone, with many carriers even displacing trucks semi-permanently to serve as dedicated resources to the areas in need. While Chicago-fed Ohio and western Pennsylvania barrels served as a steady supply source for a short period of time with only driver hours creating reason for worry, an issue at Husky’s Lima, OH refinery on November 8th (amid an on-going turnaround at Marathon Detroit refinery) made relief barrels as scarce as the directly affected areas. All over Ohio, terminals observed wholesale racks being shut off entirely, with cities such as Cleveland having no discretionary gallons for days on end. Paired with the tight allocations on the Buckeye Pipeline, which pumps barrels from Chicago into Ohio and Indiana, resupply simply couldn’t keep up. The existing demand and spreads between Chicago bulk barrels and local rack barrels went as high as 45 cents. After almost four weeks of scrambling for product, the area found a semblance of normalcy with discretionary rack barrels once again available and pricing coming back down to Earth.

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

Source: OPIS

Affected refineries during this time period included BP Whiting, Citgo Lemont, Husky Lima, Exxon Joliet, and Marathon Detroit, with the most extensive turnaround occurring to the latter. Marathon Detroit has since completed the tie-in of a new 28,000 b/d coker after a 70-day full plant shutdown. The addition increases the nameplate capacity of the refinery to 115,000 b/d.

PADD 3 Gulf Coast

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

BridgeTex Pipeline Another crude pipeline system looking to increase connectivity to Gulf Coast refineries is the BridgeTex project, pioneered by Magellan Midstream Partners and Oxy Midstream Strategic Development. The 20-inch pipeline will originate at Colorado City, TX and stretch approximately 400 miles to tie into the Houston area, with direct connections to many of the local refineries. BridgeTex is intended to carry WTI (West Texas Intermediate) and WTS (West Texas Sour) crude grades and will expand Magellan’s distribution system to 700,000 b/d from 350,000 b/d. Expansion of existing storage is also a part of the project, with an additional 1.4 MB of tankage being constructed in Houston and 1.2 MB of tankage to be built in Colorado City. Operations are expected to begin mid-2014, which will assuredly change the face of how crude currently travels this route, reducing the number of trucks and railcars that are dedicated to the task.

Houston Gulf Coast Area Distribution BridgeTex Pipeline Project

PADD 3 Gulf Coast

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

Local OPIS ULSD Averages - Gulf Coast ULSD

PADD 4 Rocky Mountains

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

Group 3 vs. Denver Gas

Source: OPIS

Group 3 vs. Denver ULSD

Source: OPIS

PADD 4 inventories, as reported by the Department of Energy at the end of December, were mixed from a year ago. Gasoline stocks in PADD 4 saw a build to 7.275 MB at the end of the quarter compared to 7.202 MB this same time last year. Distillate stocks reported at 3.687 MB showed a slight draw compared to 3.779 MB one year ago. In the retail world, the EIA reported the average retail price for gasoline in PADD 4 in December was $3.066/gal compared to $3.1119/gal one year ago. The average retail price in December for diesel was $3.7460/gal compared to $3.8610/gal one year ago. 27

PADD 5 West Coast AK, HI

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

LA CARB ULSD

Source: OPIS

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

Source: San Fransisco Chronicle

Finally, all eyes turned to the California Air Resources Board’s (CARB) first auction (Nov. 14th) of carbon permits in compliance with California’s Low Carbon Fuel Standard Program. Initially, CARB stated the Nov. 14th sale “went off without a hitch.” However, it was soon discovered that Edison International unintentionally bid for twice as many allowances as were for sale. Edison, the owner of California’s second largest utility, accounted for nearly 72% of the offers at auction. Had Edison properly submitted its proposals, apparently 225,000 permits would have been unsold at auction. Instead, all permits were sold, and sold above the auction floor. The Federal Energy Regulatory Commission is monitoring California’s emission-trading program to monitor its effect on West Coast utility markets, and California’s Low Carbon Fuel Standard Program is still being challenged in court. 28

PADD 5 West Coast AK, HI

PADD 5 inventories, as reported by the Department of Energy at the end of December, showed a strong build from a year ago across the board. Gasoline stocks in PADD 5 were at 33.051 MB at the end of the quarter compared to 28.216 MB this same time last year. Distillate stocks were reported at 14.620 MB compared to 13.480 MB one year ago. As for retail, motorists in the U.S. paid record high prices for gasoline the last quarter of 2012 with Hawaii, Alaska and California being the three most expensive states. The EIA reported the average retail price for gasoline in PADD 5 in December was $3.4570/gal compared to $3.5030 one year ago. The average retail price in December for diesel was $3.9910/gal compared to $3.9780/gal one year ago.

CANADA

Canadian Oil Sands Driving Non-OPEC Growth Real gross domestic product (GDP) in Canada edged up 0.1% in October, following no growth in September and a 0.1% decline in August. This is consistent with 0.1 % growth through the second quarter. The output of the services industries advanced 0.1% in October, primary a result of the increases in wholesale and retail trade. The increases outweighed declines in transportation services and in the arts and entertainment sector. Goods production was unchanged in October. Increases in mining, oil, gas extraction and utilities were offset by declines in manufacturing and construction. The monthly GDP for all industries increased 1.1% from October 2011 to October 2012. 29

ÂŠ 2013 Mansfield Energy Corp.

CANADA

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

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

Real Gross Domestic Product Edges Up in October

Source: Statistics Canada

Vancouver, CA

Canada’s economy is diversified and highly developed. The foundation of the Canadian economy is foreign trade and the United States is by far the nation’s largest trade partner. Foreign trade is responsible for about 45 % of the nation’s GDP. Exports to the U.S. account for 75% of all foreign trade. Canada is one of the few developed nations that is a net exporter of energy. 30

CANADA

Non-OPEC crude production is set to outpace OPEC output over the next decade, driven by higher Canadian oil sands and American shale oil production, according to the International Energy Agency (IEA). While Canadian output is set to rise well past 2020, American and other non-OPEC producers will plateau or begin declining. After growing slowly in the next eight years, OPEC production is forecast by the IEA to power ahead over the next few decades until 2035, to retain its influence as the worldâ&#x20AC;&#x2122;s largest supply block in global markets.

Source: International Energy Agency 31

ÂŠ 2013 Mansfield Energy Corp.

Alternative Products Natural Gas

In mid-November, the natural gas market exited the annual “shoulder season” – early autumn between peak cooling and heating demand when moderate temperatures cover most of the country – as the winter season got off to a quick start. Spurred by below-normal temperatures and speculation of inventory draws, NYMEX natural gas for December delivery gained 4.73% on November 13th to settle at $3.7390 per MMBtu on the day. At the time, it was the highest settle for front month natural gas in over a year. Furthering the uptrend, toward the end of November several meteorologists predicted a colder than normal December leading to speculation of increased heating demand. On November 20th, Commodity Weather Group LLC called for lower temperatures in the mid-Atlantic, Great Lakes region and Southeast through the end of the year. On the news, December natural gas futures gained 3.04% to settle at $3.8320. The following day, the contract gained another 1.85% to settle at $3.9030, the highest front month close of 2012. “When forecasters talk about cold weather at this time of year, traders listen,” said Tom Saal with INTL Hencorp Futures LLC. According to the Energy Department, nearly 50% of U.S. households use gas for heating.

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

U.S. Natural Gas Inventory Forecast

Source: Bloomberg Finance, L.P. 32

Natural Gas

The winter season is an important time for the natural gas market. The same period last year was unseasonably warm leading to an oversupplied market with record inventory; consequently, underground storage figures will be watched closely this year. According to Bloomberg analysts, and as detailed in the below graph, a repeat of last year’s winter – light demand – would put inventories at record levels for 2013 while a normal winter would still put inventories 236 Bcf, or 13.7%, above typical levels. In order for inventories to reach the normalized level of 1.7 Tcf by April 1st, a 12% colder than average winter is required. Despite the bullish news to start the winter season, natural gas futures tumbled in midDecember on an unexpected increase in the EIA’s weekly inventory report. This was the latest calendar gain in inventory since the week-ended December 30th, 2005, according to the Energy Department. On December 14th, natural gas futures for January delivery settled at a 10-week low of $3.3140 on the news.

Natural Gas

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

Source: BENTEK Energy, LLC

Infrastructure An often overlooked aspect of the natural gas supply chain is the infrastructure required to move the commodity from relatively new, inundated production points to traditional, constrained demand regions. For instance, in the Marcellus Shale, where the number of wells drilled dropped over the course of 2012, there has traditionally been limited pipeline capacity to take gas from Ohio, Pennsylvania and West Virginia to demand areas in the Northeast. But dynamics began to change in Q4, a trend that should continue into 2013, as inadequate transportation infrastructure in the region improved. As reported by Bloomberg BusinessWeek, natural gas pipelines into service Q4 2012 and early 2013 could increase Marcellus deliveries to the Northeast by 30%. According to government and pipeline-company projections, as much as 2 Bcf of new gas per day is set to flow

from the Marcellus Shale to the Eastern seaboard. “There are new pipelines coming up and more Marcellus gas is going to flood storage into winter,”said Phil Flynn of Price Futures Group. The uptick of Marcellus gas to the Northeast is already being spotted in recent industry data. For example, Algonquin Gas Transmission (AGT) Pipeline, which extends from New York/New Jersey to Boston, receipts are up 56% year-over-year from two pipelines with access to the Marcellus formation. While overall receipts on the AGT line are near 2011 totals, combined receipts from Millennium Pipeline Company and Tennessee Gas Pipeline Company increased .3 Bcf per day in December. As a result, the combined share of total AGT receipts from the two operators rose to 69%, compared with 44% for the same time period last year.

Natural Gas

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

Renewable Fuels

IEA World Energy Outlook The International Energy Agency released their World Energy Outlook in November, highlighting the noteworthy projection that natural gas will overtake oil as the most used fuel in the U.S. by 2030. The agency attributed the growth to a boom in domestic supplies, as unconventional resources from shale rock and coal beds will account for nearly half the increase in global output of the fuel by 2035. The U.S., along with Canada, is expected to have some of the cheapest global natural gas prices leading to the expectation of exports. The agency expects the first U.S. exports to happen in 2018, reaching about 19 billion cubic meters in 2020. However, the IEA noted, “The U.S. Department of Energy is waiting to review the results of a price impact study before dealing with the pending export applications. ”After a strong start to the quarter, ethanol values slipped in December with the January CBOT futures contract falling 9.65% on the month to settle at $2.19/gal on the final trading day of 2012. National ethanol inventories for the week-ending December 21st, the latest for which data was available, totaled 20.3 MB up 18% from a year earlier. Additionally, imports averaged 28,000 b/d this year, up from 6,000 b/d in 2011. This abundance of supply, and stagnant domestic gasoline demand, translated to poor margins for producers. For instance, based on front month contracts at the time of writing, producers are set to lose over 30 cents on each gallon of ethanol made, according to data compiled by Bloomberg. To note, that number excludes revenue from the sale of dried distiller’s grains, a byproduct of ethanol production that can be fed to livestock. This highlights a similar trend over the course of Q4 as producers wrestled with historically high input costs from the summer’s drought.

Waiver of Renewable Fuels Standard On November 16th, the EPA denied requests to waive the Renewable Fuels Standard (RFS2). This was in response to governors from six states submitting petitions to the EPA claiming the renewable mandate harmed their state’s economy. Record Midwest heat in June and July sparked the worst drought in the U.S. since 1956, causing widespread crop damage and a spike in agricultural commodity prices. In a press release, the EPA stated, “The U.S. Environmental Protection Agency today announced that the agency has not found evidence to support a finding of severe 'economic harm' that would warrant granting a waiver of the Renewable Fuels Standard. The decision is based on economic analyses and modeling done in conjunction with the U.S. Department of Agriculture and U.S. Department of Energy.” As mentioned in previous FUELSNews reports, the EPA set a relatively high threshold required to suspend RFS2, stating their waiver authority as having “to determine that the implementation of the mandate itself would severely harm the economy; it is not enough to determine that implementation of RFS would contribute to such harm.” Accordingly, the EPA stated that on average, waiving the mandate would only reduce corn prices by approximately 1%. As expected, ethanol and corn industry groups lauded the decision while a coalition of livestock, poultry and dairy groups were disappointed. 35

Renewable Fuels

E15 Ethanol proponents received less positive news later in November. In a press release on November 20th, the AAA declared a “need for regulators and industry to suspend E15 sales to protect motorists.” The association referenced a survey they completed which found a likelihood of consumer confusion around the appropriate use of E15 and the potential for vehicle damage and voided warranties. “It is clear that millions of Americans are unfamiliar with E15, which means there is a strong possibility that many motorists may improperly fill up using this gasoline and damage their vehicle,” said AAA President and CEO Robert Darbelnet. “Bringing E15 to the market without adequate safeguards does not responsibly meet the needs of consumers. The sale of E15 should be suspended until additional gas pump labeling and consumer education efforts are implemented to mitigate problems for motorists and their vehicles.” U.S. gasoline blended with 15% ethanol was approved for sale by the EPA in June of 2012 for vehicle model years 2001 and newer. However, beyond AAA’s concerns, a bigger obstacle is that few car manufacturers have approved E15 for use in their vehicles; so far, only GM and Ford permit the fuel and only in the newest model years. In effect, this is a supply barrier for the ethanol industry as the U.S. nears a blend wall – most gasoline is approved for only a 10% ethanol blend. Below is a graph showing the blend percentage of ethanol since the current Renewable Fuel Standard was signed into law in 2007. In regard to the concerns over higher ethanol blends, the EPA responded by stating the agency “shares AAA’s concern over consumer awareness of the use of E15.”

U.S Ethanol Blending Limit 0.0952

Source: Bloomberg Finance, L.P. 36

Price Trends 321 WTI Crack for Q4

22.563

Source: Bloomberg Finance L.P.

Ethanol (DL) versus RBOB (XB) for Q4

281.20

2.190

Source: Bloomberg Finance L.P. 37

ÂŠ 2013 Mansfield Energy Corp.

Price Trends Seasonal DOE Gasoline Inventories, Total U.S.

Source: Bloomberg Finance L.P.

Seasonal DOE ULSD Inventories, Total U.S.

Source: Bloomberg Finance L.P. 38

ÂŠ 2013 Mansfield Energy Corp.

Price Trends Crude Futures Curve on the First and Last Day of Quarter

Source: Bloomberg Finance L.P.

HO Futures Curve on the First and Last Day of Quarter

Source: Bloomberg Finance L.P. Source: Bloomberg Finance L.P. 39

ÂŠ 2013 Mansfield Energy Corp.

Price Trends HO, Bean Oil, Biodiesel 2012 RINS for Q4

304.51

0.5650

49.16

Source: Bloomberg Finance L.P.

ÂŠ 2013 Mansfield Energy Corp.

Mansfield’s National Supply Team 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 VP of Supply & Distribution Andy Milton heads the supply group for Mansfield and during his tenure the company has grown from 1.3 billion gallons to over 2.5 billion gallons per year. Andy’s industry experience spans all aspects of the fuel supply business from truck dispatch, analytics, and index pricing to hedging and bulk purchasing. Prior to Mansfield, Andy worked at RaceTrac Petroleum. 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. Andy’s 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. Andy’s education began at Young Harris College and later at Georgia Southern University where he received a BS in Sports Management.

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

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

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

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

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

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

Scott Van Berkel Director of Canadian Operations Scott recently joined Mansfield after a 32 year career with Shell Canada Ltd. Scott’s broad expertise spans a variety of areas including marketing, sales, logistics and customer service. Scott held numerous management positions with both Shell Canada and their parent company, Royal Dutch Shell. Scott’s extensive knowledge of the Canadian market, coupled with his experience working in the Commercial, Industrial and Retail businesses, makes him an invaluable asset to the supply team. Scott holds a BS in Agricultural Economics from the University of Manitoba. 42

FUELSNews 360Â° M A R KET NEWS & INFORMATION

Mansfield Energy Corp. www.mansfieldoil.com www.fuelsnews.com 678.450.2000 1025 Airport Pkwy SW Gainesville, GA 30501 United States of America

ÂŠ2013 Mansfield Energy Corp.

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.