Asphalt Cement Supply and Sustainability CUPGA 2008 Workshop Saskatoon, Saskatchewan November 16, 2008 Jack Coursen POTEN & PARTNERS CRUDE & REFINED PRODUCTS CONSULTING DEPARTMENT NEW YORK, NEW YORK

POTEN & PARTNERSCUPGA “May you live in interesting times” Ancient Chinese Proverb/Curse

POTEN & PARTNERSCUPGA Economic Bubble Has Burst Financial Market Meltdown Sub-prime Mortgage Crisis – Liquidity disappears in financial markets – Freeze in credit markets Some Wall Street companies fail/some become banks Sharp drop in stock markets Real estate prices drop All leading to worldwide economic slowdown

POTEN & PARTNERSCUPGA High Oil Prices Contribute to an Economic Crisis World demand for oil products was strong Crude prices were drove up demand for products High gasoline and distillate prices reduced demand for products Asphalt prices soared to new levels in summer of 2008 State governments’ project costs balloon Thin refining margins ensued for conventional cracking refineries

POTEN & PARTNERSCUPGA Price $/Bbl

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POTEN & PARTNERSCUPGA Recent US Crude & Refining Trends Reduced energy demand OPEC supply appears less of an issue Gasoline crack spreads turn negative Asphalt prices attain relatively high levels Untraditional producers push out asphalt 2008 end of season supply sufficient with prices declining

POTEN & PARTNERSCUPGA Refiners and the Asphalt Market Some refineries stopped making asphalt Petro-Canada Oakville Chevron Perth Amboy Some topping refineries not running/at reduced rates due to poor margins In recent months, some non-traditional refiners were selling asphalt Some cokers at reduced rates due to poor margins Low coker margins with high asphalt selling prices Most asphalt refiners not producing at maximum rates In 2008, polymer shortages tightened modified-asphalt supplies (less likely to occur in the future)

POTEN & PARTNERSCUPGA Recent Complex Refinery Trends Complex refineries running at reduced rates Trend of lower margins at complex refineries Poor margins on gasoline due to reduced demand

POTEN & PARTNERSCUPGA Projected Coker Capacity Additions 2007 – 55,000 bpd 2008 – 57,000 bpd 2009 – 90,000 bpd 2010 – 106,000 bpd 2011 – 138,000 bpd 2012 – 25,000 bpd Some of these projects have been delayed or canceled (some projects include non-asphalt producing refineries)

POTEN & PARTNERSCUPGA Key Coker Project Developments Coker project developments Recent plant additions (Mostly Rocky Mountain Region) – Frontier Cheyenne Wyoming end of 2007 addition to 14.5mbpd to existing coker (5mbpd addition) – CHS (Cenex) Laurel, Montana coker 15mbpd startup early 2008 – Sinclair Wyoming coker startup 2Q mbpd Coker projects postponed or delayed – United Refining Warren, Pennsylvania – Marathon Detroit refinery upgrade recently postponed – Petro-Canada Montreal coker delayed – awaiting decision Projects continuing in near future BP Whiting, Indiana expansion ConocoPhillips-EnCana joint venture Wood River, Illinois expansion

POTEN & PARTNERSCUPGA Refinery Crude Slates are Becoming Heavier Refiners have leaned toward heavier crudes – particularly from western Canada Refiners anticipate heavier crude slates with coker additions Western Canadian heavy oil production is increasing New and existing pipelines taking Canadian crude to Mid- continent and Gulf Coast refineries Trend towards more nearby North American supply versus distant waterborne crudes

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POTEN & PARTNERSCUPGA US has Become More of an Export Source of Asphalt To Europe To Caribbean To Ontario To Quebec

POTEN & PARTNERSCUPGA The Future of Refiners and the Asphalt Market Fewer coker projects to be completed than previously projected Continuation of non-traditional refiners to occasionally produce material, if high asphalt prices continue Trend towards heavier crudes increases asphalt yield and partly offsets coker expansions Some asphalt production capacity is underutilized Market participants are adding asphalt storage capacity

POTEN & PARTNERSCUPGA The End