Dinara Millington, Vice President, ResearchBow Valley College-CalgaryJanuary 24, 2020

www.ceri.ca

BREAKFAST OVERVIEW:THE ROLE OF RAIL IN CANADA’S CRUDE AND PETROCHEMICAL MARKETS

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OVERVIEWFounded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors.

Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public.

CERI publications include:

Market specific studies

Geopolitical analyses

Monthly commodity reports (crude oil, electricity and natural gas)

In addition, CERI hosts a series of study overview events and an annual Petrochemicals Conference.

CORE FUNDERS

FUNDING SUPPORT

IVEY FOUNDATION

IN-KIND SUPPORTAlberta Energy Regulator | Bow Valley College | CEPA Foundation

JWN Energy | Northern Alberta Institute of Technology Petroleum Services Association of Canada

S.M. BLAIR FAMILY FOUNDATION

AGENDA

Introduction

Study Scope

Background of Supply Chain Logistics

Survey/Interview Results

Methodology and Assumptions

Results and Forecast

Conclusions

Q&A Period

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WHY THIS STUDY?

• Concerns have been expressed by supply chain stakeholderslooking for economic development opportunities regarding thelogistical challenges of getting products to market.

• Increased reliance on rail networks for crude oil, natural gasliquids (NGLs), petrochemical and other products suggests thatthese challenges may have an impact on the economic growthpotential for Canada.

• Analysis of the economic costs of rail capacity additions and therisks of new capacity versus the status quo, and how Canadiansupply chain logistics could be impacted.

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Research Objectives

• Conduct a review of rail-based supply chain logistics

• Provide a detailed outlook for rail demand by commodity, region and direction

• Assess future investment requirements to grow capacity

• Identify challenges and opportunities within the supply chain

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Canadian Transportation Sector

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2008 2010 2012 2014 2016 2018 2020mill

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According to the Canadian Transportation Economic Account (CTEA):

Total transportation sector’s GDP contribution - $153.4 Billion or 8% oftotal Canadian GDP

Rail transportation’s contribution to Canadian GDP is $88 billion in2018 or 4.5% of GDP

The freight volume and value of goods moved by the Canadian railnetwork have grown considerably, increasing to $144 billion in 2018compared to $75 billion in 2009.

Source: Transportation in Canada, Statistical Addendum 2016, Table G2

2018 Canadian Rail Outflow by Commodity Share

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Regions in CERI’s Study

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Western Region– All Commodities Outflow in 2018 (Tonnes)

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The top 5 commodities are:

Coal (31,053,448)

Forest Products (7,987,262)

Miscellaneous (7,883,951)

Minerals (2,624,821)

Plastic and Chemical Products (1,271,165)

Prairies – All Commodities Outflow in 2018 (Tonnes)

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The top 5 commodities are:

Agricultural products (42,340,893)

Plastic and Chemical Products (15,779,964)

Fuel Oil and Crude Petroleum (9,031,835)

Minerals (5,096,093)

Food products (3,932,516)

Central Region– All Commodities Outflow in 2018 (Tonnes)

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The top 5 commodities are:

Miscellaneous (10,616,556)

Fuel Oil and Crude Petroleum (4,347,772)

Base Metals (4,182,760),

Forest Products (3,121,626)

Plastic and Chemical Products (2,481,440)

Atlantic Region – All Commodities Outflow (Tonnes)

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The top 5 commodities are:

Mineral (19,540,082)

Miscellaneous (9,23,892)

Forest Products (359,929)

Automobiles and Transportation

Equipment (175,196)

Plastic and Chemical Products (123,476)

Canada Regional Commodity Outflow to U.S. & Mexico

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Canada Provincial Outflow to U.S. & Mexico 2015-2018

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Canada Commodity Inflow fromU.S. & Mexico, 2018

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Canada Provincial Inflow from U.S. & Mexico 2015-2018

Alberta Share, in 2018

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Alberta Share in the Prairie Region

Exports to the U.S. and Mexico 53.3%

Imports from U.S. and Mexico 73.9%

Alberta-Fuel Oil and Crude Petroleum Outflow Alberta-Plastic and Chemical Products Outflow

Regional Commodity Inflow/Outflow by Rail in 2018

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Canada Crude Oil Export by Rail

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Source: CERI and NEB Government of Canada 2019

Supply Chain Overview

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CN CP Domestic

short lines

Port of Prince Rupert Port of Vancouver Port of Montreal Port of Halifax Port of Saint John Port of Toronto

Various shippers representing various economic sectors

Chicago (US) Mobile (US) New Orleans (US)

Supply Chain Challenges: Interview Results

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Lack of Commonly Accepted Metrics for Performance Delays and Network Congestion

Yards/Terminals & Ports Capacity

First Mile/Last Mile Issues

Unreliable Forecasting/Planning

Communication during Disruptions

SeasonalityOther

Challenges

Best Practices: Interview Results

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Sources of Data and Analysis

• Canadian Freight Analysis Framework (CFAF-Statistics Canada)

• Canadian Energy Futures 2019 (CER)

• FTR Transportation Intelligence

• Railway Association of Canada

• CN and CP Annual and Investment Reports

• Interview Results from Supply Chain Members

• Canadian Transportation Agency

• Alberta’s Industrial Heartland Association (AIHA)

• Chemistry Industry Association of Canada (CIAC)

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CERI’s Methodology

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• Multivariate Regression is used to model Freight transportationdemand for various origins and destinations.

• Annual investments are estimated at the national level using past,present and future national GDP projections.

CERI’s Rail Volume Growth Forecast

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Top 5 Commodities in 2025:

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CERI Forecast: Regional CommodityInflow/Outflow by Rail

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CERI Forecast: Regional FUEL and PLCHM Inflow/Outflow by Rail

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Canada Crude Oil Export by Rail Forecast, 2025

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Provincial Outflow Forecasts (%)

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Total Outflow Forecasts by Commodity (%)

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CERI’s Rail Investment Forecast

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CERI’s Railway Investment Forecast

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CERI’s Rail Investment Forecast by Category in 2025

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AIH Case Study: Additional Investment Req’s

Conclusion

• Efficient and competitive national transportation system are closely related to productivity and income in Canada’s economy.

• Rail transportation improvements boost economic development in many sectors of national and provincial economies.

• Overall, freight weight moved by rail will increase by 14% between 2018 and 2025.

• The top five commodity groups are Agriculture, Petrochemicals, Coal, Minerals, and Forest products.

• Corridors that are anticipated to have higher traffic are between Prairie region to the West Coast and to the US/Mexico.

• Additional investment is required in the rail supply chain system in order to accommodate incremental freight volumes.

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Future Research

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While the CERI’s study was able to forecast commodity flows andinvestment, there is remaining research to be done. Potentialfuture research:

• Establish rail supply chain performance metrics

• Measure the rail capacity and congestion areas

• Examining the feasibility of extending the current supply chain

• Create a National Demand Growth Model

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THANK YOUCanadian Energy Research Instituteceri_canada

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