Photos from the Tournament:

North American Energy Markets Association

Opening Session Remarks
Dean Jones, NAEMA Chair & President – NorthPoint Energy 

Welcome to Florida and the NAEMA Spring Conference
Mark Kinevan, COO – The Energy Authority

15^th Anniversary for The Energy Authority

Trip down memory lane.  Things have changed since TEA hosted NAEMA 5 years ago.

Dodd-Frank legislation was passed.

Nat Gas trading at 7.99, now $2.60

Crude hit an all-time high $86, now $100

US was importing Nat Gas, now working to become a net exporter.

Status of U.S. Energy Policy & Outlook for the Future
Ted Kury, Director of Energy Studies – University of Florida

Public Utility Research Center – Self funded through training receipts, research funding, and donations.

The U.S. does not currently have an energy policy.  It has been the second highest priority for this entire administration.  It has remained “the next thing we will address” but debt reduction, health care, and other issues have taken center stage with no action on the energy policy.

There has been no movement since Waxman-Markey and Kerry-Boxer bills died generally due to the state of the economy.  Likely no move with a change in the administration.   This is a problem because utilities are making significant long term investments, making some assumptions about carbon prices.  Some of these investments will be wrong leading to stranded assets.  There is a price for not making a decision.

EU is moving forward with their program with EU including air transportation this year.

Due to no legislative activity, the EPA is acting as the Energy Policy Arm  by revising the Cross-State Air Pollution Rule to control SO₂ and NO_x emission, replacing CAIR.  Mercury and Air Toxic standards have been issues with compliance scheduled to begin in 2015.  When these rules go into effect we will see a huge loss of power supplied from coal.   The EPA has issued regulation of coal ash in the wake of the 2008 containment failure at TVA’s Kingston plant.  Environmental groups recently sued EPA over their refusal to regulate coal ash.  And on March 25 the EPA Draft Emissions Rule for New Power Plants that effectively eliminates investment in  current coal generation technology.

We will continue to see new advances in technologies and use existing technologies in new ways but this speaker foresees us producing power in 50 years in much the same we as we do today.  Since the use of fracturing in natural gas drilling it has become a very big part of our energy future.  With current technology and shale supply projections show that by 2021 the U.S. will be a net exporter of natural gas.  Just five years ago we were importing LNG.  New EPA rule focuses on air pollution at well sites requiring the capture of gas at well sites by 2015 but is allowing flaring until then.

Clean Energy Standards (renewable energy) were included in legislation proposed but they have not really gone anywhere.  State standards vary – waste coal is included as an alternative energy in Pennsylvania and waste tires in Nevada, and trash in Florida.  New legislation proposed last month in the Bingaman Clean Energy Standard and reflects a compromise in standards discussions in that all energy supplies earn energy credits – fossil plants earn partial credit, renewable earn full credits, coal would earn no credits.  This proposal is important because it give an indication of what might be passed as legislation in the future.  However, if there is a change in administration in November this will most likely go nowhere.

Nuclear energy has been reevaluated since the Fukushima Daiichi accident and resulted in a great deal of over-reaction.  An example of this over-reactions is Germany shutting down 8 nuclear plants in in March 2011 and announced plans to shut down all nuclear generation by 2022.  We still need to determine what to do with nuclear waste and the President’s Blue Ribbon Panel has issued their preliminary report with several suggestions for identifying waste locations with the inclusion for the first time of a local community consent-based approach to siting waste management facilities as well as other previously identified proposals.

In conclusion the EPA continue sto develop policy initiatives and there remains uncertainty around the form that environmental regulations will eventually takes.  There is concern over the cost of the regulation without regard for the fact that delay costs money as well.  Flexibility and communication are essential to addressing the challenges.

EPA Impact on MISO Operations and Future Resource Adequacy
John Lawhorn, Director of Transmission and Economic Studies – Midwest ISO

Cost impact studies done by the ODE have looked at the cost of each item, not the combination of all regulations.  MISO conducted its own 18 month study to determine an action plan, impact and risks.  The EPA estimated a loss of 12-13 KMW of loss of coal power generation in ISO.  MISO has determined about 60+ KMW of coal power loss in the near future more than 5X bigger loss than estimated by the DOE.

The cost of retrofitting a plan and building a new gas-fired plant is about the same at $33B.

The key  issues facing MISO then are:

1. The biggest driver right now is MATS (Mercury & Air Toxin Standards ) which has a compliance requirement of early 2015.

Operating issues associated with CASPR  which are now delayed due to court actions.

1. Coordination of plant shutdowns to retrofit supply source to natural gas.

The simultaneous outages required to meet the deadline puts base load in MISO at risk.  Making the required retrofits will require tight coordination of private power generation facilities within MISO.

1. There are questions surrounding the availability of manufacturing and engineering resources available to meet the retrofit timelines.
2. There are questions about the ability of natural gas infrastructure to meet the anticipated switching requirements.

If the retrofits to natural gas occur within the timeline required by the EPA, 16 Pipelines in MISO are full  and there is not enough storage or peaking capacity in the MISO region. So new pipelines will need to be built to carry stored as to power generation facility.  The MISO analysis clearly indicates new mainlines and laterals as well as plan on onsite LNG storage for power plants.  Pipelines take 5-6 years to build.  The bottom line here is that natural gas switch is not possible in MISO  to meet the EPA requirements.

“Fracking” – Good or Bad News for the Energy Industry?
John Williams, U.S. Geological Survey – Department of the Interior

The shale plays are in areas where traditional crude and gas drilling has occurred in the past.  No new technologies are in play here the fracturing and horizontal drilling technologies have been around since the 1940’s but what is new is that horizontal drilling is in multi-well sites and the fracturing is in black shale resulting in minimal surface disturbance and higher output rates.  This type of drilling concentrates the industrial disturbance underground.

These sites create more shale cutting (waste) than traditional drilling.  The shale cuttings are typically rich is pyrite and uranium.   There is the potential for localized hazardous waste so the industry has gone to a closed-loop system that mixes the cuttings with synthetic polymer super absorbent and shipping to a landfill.

This is multi-stage high volume hydraulic fracturing requires a very large amount of water usage – 3-5M gallons of water needed to fracture each leg increasing local truck traffic and water waste.  The fracking solution is 90% water, 9% sand, and 1% chemical additives.  Now that the industry is releasing the makeup of their fracking solution there is much less public concern about the solution.  The sand requirement has created a shortage of sand for other uses.  Water typically comes from surface withdrawals out of streams and rivers.   Where the area is water-rich this is not an issue.   10-20% of the water comes back to the surface and contains elevated TDS, chlorides, and other materials from the shale deposit.  The industry is now re-using the wastewater, mixing it with new fracking solution eliminating their water disposal issue.  This also significantly reduces the surface truck traffic.

Groundwater contamination in water well issues have been associated with fracturing in highly publicized media.  However, the shale deposits are thousands of feet below groundwater with a dense layer of bedrock between the groundwater and the shale so the methane in groundwater is not from fracturing.   There is evidence that the gas in well water is coming from naturally occurring shafts between other gas producing zones that are not being drilled close to the ground water.   In the Marcellus area there naturally occurring surface gas vents that have been known for hundreds of years.  There is a potential for a some horizontal drilling to disturb other gas zones allowing gas to move to the fresh water aquifer.  The industry is now working to identify the shallow zones and drill so as not to disturb them.  The industry is also sampling ground water before drilling.

The industry has ongoing efforts to improve their drilling methods to minimize environmental impact as well as reduce costs.

Power Hedging and Trading in the Era of Dodd-Frank
Ann Sacra, President and COO – Nodal Power Exchange

Commodities Exchange specializing in power market and some gas.  Specialty is power basis trading with 1800 contracts available.

All contracts are cleared by LCH Clearnet.

Randi Abernethy, Director, Nodal exchange Clearing, LCH Clearnet (London Clearing House)

In 2009 G-20 leaders concurred that: “All standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest.”  So Dodd-Frank Act was enacted and voted to be enacted by 2011 but it has been delayed due to technical ability to meet the requirements.  Draft rules are mostly released and final rules are being slowly released.

Dodd-Frank requires specific swap contracts to be executed on a registered exchange and/or clearing.  The definition of what swaps must be cleared have not been determined.  Swap Dealers (SD) and Major Swap Participants (MSP) have been defined and most end-users will not be defined as such.  It also requires extensive reporting and record keeping and end-users will need to meet these requirements.  Physical transactions are not Swaps.

Significant topics that are waiting final rulemakings and need proposed rules so people can move forward.

• Swap definition
• Swap execution facility rules
• Designated contract market rules
• Which contracts/commodities will be subject to mandatory clearing and made available for trading criteria

Dodd-Frank encourages clearing of swaps because it reduces systemic risk (defaulter pays), but also benefits partipants.  Cleared markets provide access to a wider range of market participants while limiting  default risk with no need to monitor counterparty risk.  Clearing allows participants to efficiently net across positions, reducing exposure and required collateral.  The total transaction cost is often lower than bilateral transactions that are not cleared and clearing allows netting of positions across the portfolio, lowering margin.

Clearing Houses, along with the Clearing Members, determine margin levels the trades in what is called the Central Counterparty Process (CCP).  The clearing member interfaces with the Client (trader) and the Clearing House interfaces with the clearing member.  A two-transaction trade becomes a four-transaction trade and margins are called.  There have been six defaults since 1988 and all initiated in the 1990’s and in each case the defaulter paid.  In the case of Lehman-Brothers it took LCH Clearnet about 3 weeks to sell off all $10 trillion of Lehman positions and 35% of the margin they held for Lehman covered the cost.  Excess margin was returned to the administrators to pay other losses.  Had the margin LCH held not covered the loss, the clearing member also has a margin fund that would cover excess loss.

Pool Integrated Transmission Planning and the Integrated Market at SPP
Katherine Prewitt, Director, Planning – Southwest Power Pool

Helping our members work together to keep the lights on… today and in the future.

Formed in 1941, SPP is a FERC-approved Regional Transmission Organization (RTO) with 65 members in 9 states.

915 generation plants, transmission service, generation interconnection

Grid congestion impacts markets by raising the wholesale market prices and transmission planning.  Congestion happen when you can’t get energy to customers along a certain path and is caused by load growth, maintenance outages, etc.  Integrated market places with a day ahead market and transmission congestion rights can mitigate this as well as integrated transmission planning.

Integrated transmission planning is intended to balance long-term transmission investment and congestion costs with three planning horizons; 20 years, 10 years, and 4 year with focus on reliability.   The 20 Year Plan is a scenario plan with flexibility to evolve with changing landscape focusing on 300+ kV solutions.  The 10 Year Plan has a narrower focus such as mitigation of congestion, improved market access, collector and grid facilities, and staging & interconnection.  The 4 Year Plan looks at everything with a focus on local needs.  The development of common benefit metrics help the neighboring RTO (Regional Transmission Organizations) value benefits and risks in order to share costs.

SPP (the Saudi Arabia of Wind) is developing wind with vast  areas to create energy from this source the highest wind speeds in the country are on the west side of SPP footprint and recent projects have focused on transmission line build to move that wind energy east to where the demand is.

New Concepts in Peak Energy Supply – The Digital Peaker
Thomas Noelle, Vice President, Business Development – Xtreme Power, Inc.

Peak generation requirements are typically met by gas-fired peakers and EX is pursuing a concept to utilize energy storage system in lieu of gas-fired peakers with a capability of delivering up to four hours on continuous output at the rated capacity and customized to meet the needs.  This energy storage system is fast-response (30 msec), not require a fuel or water source so installation is expedited and eliminates the difficulties of transmission congestion with traditional fuel supply methods.  The XP Digital Peaker has the footprint of a substation with the ability to expand and without the permitting issues, qualifies a Smaller Generation Interconnection Process, is extremely safe with no direct emissions.   Seeking input on value of this product.

OpenLink and SolArc are proud to present this new infographic describing the changes in the agribusiness complex over the past 30 years. View a static version, or click play on the device below to interact with the graphic!

Monday, Session 1
Joe Bastardi – WeatherBell

US weather in 2011-12 is mirroring the weather in the mid-1950’s. La Nina is backing away and the summer will not be as extreme as last year. There will be a cool pool over the Great Lakes and extra hot over 4-corner states. Big cities in NE will be cooler than 2011.  Rainfall is expected slightly higher in Texas and the Southeast US during summer and fall of 2012.

Fall 2012 is looking cooler than 2011 for all of North America – as much as 1 degree below normal. This leads to a winter that is even colder.  Winter of 2013 all the global industrial areas will be colder than normal. There is also a chance for major cold temperatures. This will stress our fuel supplies across the globe.

2012 Hurricane Season indicates slightly below normal activity and the model implies Southeast or East early in the season and Gulf storms late in the season. 2012 storms will probably develop close to land (within 200 miles of the US coastline) and can develop quickly with a lot of power.  So there is a higher impact year more likely than last year. These climatic conditions make strong tornadoes more likely in the US.  When the temperatures are lower than normal the chance for stronger tornado activity rises.

Mon, 16Apr Afternoon Activities

Golf Tournament at Bear’s Best Golf Course

Winning team had a 14 under par final score.

There was one hole-in-one on the course where the winner was awarded $500.

Beautiful day on the golf course with cool temperature, refreshing breezes and great camaraderie.  (photos on LDC website)

DeKalb County Renewable Fuel Facility

Tour participants raved about the tour.  Afternoon started with lunch at a local biergarten and proceeded to the DeKalb County Renewable Fuel Facility.   This facility is unique in the U.S. in that it produces CNG and has the capability to produce LNG.  The tour was technically stimulating and socially enjoyable.

Spa Afternoon

Individuals enjoyed pampering at Atlanta’s premier spas with massages, facials, and mani/pedis.

9:00 am
Keynote Address – America’s Natural Gas: Abundant Supply and Growing Demand
Bert Kalisch, President & CEO

American Public Gas Association – Advocacy efforts in Congress and at the federal regulatory agencies

Changing Fuel Sources Over Time

• Coal was King in the 19^th Century
• Oil in the 20^th
• Natural Gas in the 21^st

Natural Gas has abundant supply in conventional, unconventional, and shale deposits.

New sources include methane hydrates and renewable sources such as landfill methane.

America should continue to pursue energy independence and should be ready to support the use of natural gas in new technologies in industry, electrical generation, transportation, and direct use.  The US is now importing more than 50% of our oil needs and we need to encourage our government to transition from oil to natural gas where the technologies exist and make economic sense.

Current issues that need to be addressed include more pipelines, energy efficiency, gas/electric coordination, transparent markets, federal government intervention.  The federal government is pursuing the requirement that all gas furnaces become 90% condensing furnaces in the northern 30 states.  This rule is only an economic burden on consumers and does not result in energy savings that offset the additional cost.  We need to work against such unreasonable federal legislation.

Natural gas is clean, efficient, abundant and reliable.  It can be stored and is poised to serve our energy demands going forward.  R&D is the lifeblood of our industry and we need to continue to invest in our future.

Session 2
LDC Supply of Natural Gas
Global View of Natural Gas Growth
David R. Attwood, Gas Marketing Manager, Exxon Mobil

Energy will rise by about 1%/annum and global GDP by about 3%/year due to efficiency improvements.

We’ll meet the increasing demand with a diverse fuel mix of which natural gas is an integral component.

Expect natural gas to produce 30% of all power production by 2040.  Natural gas is expected to grow more rapidly than any other energy source except for renewables.  Most of the demand growth for natural gas will be in Asia Pacific.  All of the increase in North America natural gas demand is expected to be in electrical power generation.  81% of all new power generation in N.A. over the past five years has been natural gas and natural gas power generation permitting is the shortest of all energy sources at an average of three years.

The role of natural gas will continue to be an integral part of our energy solution and will impact jobs and economic growth, environmental benefits and energy security.

US View of Natural Gas Growth

Terry Dickerson, Director, North America Natural Gas, Bentek Energy

Strong lower 48 production growth since 2005 at 15.9% growth.  It’s now leveling off as prices have fallen and producers move to NGL production.  YTD natural gas prices has been $2.40 in 2012 and yesterday it closed at $1.95 so it’s moving past the psychological barrier or $2.00.   Dry gas production is below or near 0% IRR where the wet plays are now at 70-120% IRR so we see movement of production rigs to the wet gas plays.

Natural Gas storage has a 3900 Bcf historical annual maximum storage rate.  Nationally we are at a much higher storage point than at this time in previous years and there is significant concern that there will not be enough storage capacity to meet current production rates by Fall of 2012.

In the Southeast power burn is driving demand growth.  Haynesville production is declining in recent months.  Fayetteville has flattened.  Eagle Ford is where the growth is closest to the southeast U.S.  Outflows from the Southeast has backed off to Northeast due to Marcellus production.  Tennessee pipeline and Texas Intrastate pipe are experiencing higher exports to Mexico.  The Southeast power demand continues to grow.  Southeast storage levels mirror national storage levels in that 2012 storage levels are currently much higher than in previous years leaving less storage capacity for future production.  Inventory will approach capacity levels this fall.

Pipeline expansions have tightened regional price spreads so even with production leveling off prices this summer we’ll see downward pressure.  Low prices will result in increased demand and mitigate the storage issue later this year.

Shale Gas, Oil, NGLs (and you)

Tony Chovanec, VP of Fundamental Analysis, Enterprise Products

This is much more than a natural gas story.  The shale gas supply affects all areas of the energy industry in the U.S.  Shale is the source rocks for the conventional wells we’ve been drilling for years so it is unlikely to see additional shale plays in new areas.  Shale drilling is in early stages in most plays, with extensive additional locations and years of potential drilling.   The technology continues to improve leading to higher efficiency and lower costs.  With low gas prices and wide gas to crude spreads, focus is now on rich gas and oil.

Since 2008 Natural Gas prices have collapsed but crude prices have remained flat.  Low gas to crude price ratios have far reaching impacts to the U.S. economy and have made the U.S. Petrochemical producers are now global leaders.  Low NGL prices have fueled huge growth in the petrochemical industry.  Larger NGL producers no longer have excess supply to export.  U.S. ethane can see a very rapid price increase if global naphtha supply decreases.

There has been a 30% decline in the natural gas forward curve for 2012 compared to the same curve this time in 2011.  Significant undeveloped lean gas reserves have been put ‘on the shelf’, ready to be developed when price rises.  Enterprise sees lean gas coming on line at about $5.00.  Rich gas produces almost 2X the profit of dry gas with current forward curves.  This is a huge boon to the U.S. petrochemical industry.  Dow is estimating about an additional $2BB if gross profit due to NGL pricing and supply in the U.S.  In addition, the U.S. LPG exports are growing at an unprecedented pace and expect this to continue.

With access to ample supplies of natural gas, natural gas liquids ann dnow non-conventional oil, sime U.S. manufacturing is quickly becoming significantly advantaged to other countries who rely on imported crude.  An industrial renaissance has begun, with the U.S> pretrochemical industry thus fare being the largest beneficiary.  Other energy intensive industries are also moving quickly to capture this feedstock advantage: examples include steel, fertilizers, and methanol.

North American Energy: Where do we do from here?

Dawn Constantin, Head of Partnerships & Analytics, BP Energy Company

We’ve been sending a signal to the markets that gas is cheap and liquids are valuable for several years.  This message is now changing markets and technology investments.  Natural gas has been displacing coal for the past two years.  When gas fell below $3 gas started to displace 7-10 Bcf of coal per day.    The weather of 2012 has impacted energy supply VERY significantly leaving excess supply at the beginning of our storage fill season.

With all the different variables that can impact natural gas supply and demand the market can change quickly.  Producers are adding rigs but have switched from dry to wet gas and oil production.  The pace of economic growth has been sluggish but as the recovery continues it drives new demand.  EPA and other federal agency policies can negatively affect our energy markets.  It was just six years ago that we thought we would need to be importing LNG in order to meet natural gas demand in the U.S.  This has completely changed by 2012 where we are now seeing the possibility of exporting LNG since we have such a great natural gas supply due to the shale plays.

The view of gas demand, competing fuels, supply costs, production and LNG trends will influence long-term outlook of gas prices – there are many moving parts.  So the price forecast depends on what you believe will happen with these many variables.  Variables are going to change and it will affect price.  You need a robust risk strategy program so that you can weather the storm of unknown price future.

Lunch Session

Tom Ruck, ConocoPhillips

Are we in a bubble or is history simply repeating itself?

Jim Duncan was unable to attend as he has contracted a serious illness and is recovering at home.

2002                       2012

13Apr Price2002                $3.48                     $$1.99

5 yr Forward price            $3.62                     4.44

Production Bcf                  52                           64

Demand Bcf                       63                           62

Power Demand                14                           20

Supply  Bcf                          1575                       2500+

Supply has always been plentiful on a global scale.

Technology is not really new as horizontal drilling discovered in 1929 and commercialized in 1980 (Prudhoe Bay 1984).

And hydraulic fracturing originated in 1947 with the first shale fracturing in 1986 and it was commercialized in 1991.

Lifting cost has been lowered with improving these technologies.  Finding & development cost is now about $3.00.  So as long as price is above $3.00 we’ll see new wells drilled.  The shift to oil production produces associated gas and there is a lot of gas coming off oil plays.

The potential drivers of future supply may change and will increase natural gas demand in coming years.

• Foreign capital cashes out and leaves the U.S.
• Natural gas becomes a byproduct of oil production.
• Power generation shift to gas been growing.
• Industrial demand has declined due to many manufacturers moving offshore and industrial supply has almost recovered but the number of people employed has steadily declined.  Industrial demand is tied to the value of the dollar and this is holding steady at about 80 encouraging foreign purchase of U.S. manufactured goods.
• Federal Regulation – power generation regulations CSAPR and MATS will improve natural gas demand.
• LNG exports will be small as there will only be a few projects approved.
• Ethylene plants and other industrial growth will add a small amount of incremental demand.
• Long-haul transportation has not taken off yet but expect a small increase in demand as the industry slowly converts to CNG.
• Tom sees the possibility for natural gas conversion to synthetic crude that can be blended back into the crude stream to replace some crude demand.  This makes particular sense since this will use the current fuel delivery systems already in place.

Summary

• Potential for low price environment remains high through 2012.
• High storage levels and capped wells should continue to limit price advances and create price volatility.
• Current situation feels like a bubble, but we have been down this path before.
• Historically, U.S. natural gas price has not remained static for extended periods of time.  In 2002 it took about 6-9 months to start seeing gas prices rise.
• Be prepared for sudden price shift when perceptions about supply and demand turn more optimistic.

Session 3 Afternoon

Chair – Pete Tumminello, Executive Vice-President, Wholesale Services, AGL Resources (Sequent)

Southeast Infrastructure Realignment

Paul Smith, Manager, Business Development, Southern Natural Gas

Kinder Morgan just acquired El Paso and Southern Natural Gas.

Several tsunamis have shaped the industry lately.

1. Shale boom and market area supply
2. Power generation demand with power conversions already planned through 2020
3. Global LNG demand will grow with the huge price spreads between Henry Hub and the global LNG markets

The natural gas industry now looks different with ‘supply –push’ expansions to connect new shale supplies to the market and ‘market-pull’ expansions to bring pipeline capacity to new power-gen and industrial load demands.  Gas prices are expected to remain at a sustainable low level for the long-term.  Long-haul pipes have challenges and potential opportunities with the opening of the Marcellus gas play.  The same is true for existing LNG import terminals.  For the Southeast these things all mean and evolving supply portfolio with growth and diversification of supply and declining LNG imports.  There is demand growth and the realignment in existing assets.

One new SNG project (TGP 500 Line) is to deliver new shale supply sources to the Southeast to meet growing industrial and power generation markets and replace declining LNG import supplies.  Rose Hill (Alabama) is where Tennessee pipeline intersects with the main pipe for Southern Natural Gas and it will be expanded as well as the south main pipeline to move gas supply from the Northeast to Georgia.  A second project is a south Mainline expansion to bring additional capacity into Atlanta and Savannah as well as using Elba Express (Transco) and Cypress to move additional gas to the east coast of Georgia.  Since these projects are expanding existing assets and no greenfield development these projects are scalable and flexible in timing.  Other projects under discussion  include domestic liquefaction and LNG exports.

Building Long-term and Sustainable Growth

James Eckert, VP Marketing, NiSource Gas

Changes to supply sources have eliminated some of the price premiums previously enjoyed in the Northeast for gas.  Current projects include moving gas from Marcellus north to Canada, east to New York and New Jersey and south to the Southeast.

NiSource projects will focus on creating liquid market centers, develop additional outlets for new supplies and defend existing assets.

Westside expansion will transport gas on TEACO from Smithfield, Waynesburg, and Leak (Marcellus) to Rayne, LA (Gulf coast).  The Eastside expansion will bring Marcellus production to New York, New Jersey and is planned to be in service in November 2014.

Williams Update

Tom Compson, Director of Business Development, Williams Gas Pipeline

Williams has just spun off the exploration company WPXEnergy.

The presentation focused on the Transco system to serve the Southeast audience.  Peak day deliveries have continuously grown over the past four years.  Williams expects conservative steady, but slow growth for the foreseeable future as well as continuing increase in supply.

Current projects focus on providing Marcellus interconnects, Bayonne Lateral to serve NYC, Northeast supply link to move gas from Leidy Hub to NYC.

NE Connector and Rockaway Lateral will provide gas to New Jersey, NYC, and Long Island.  And the Atlantic Access Expansion increase pipe capacity along the entire Transco line from Louisiana to Pennsylvania to supply gas south out of Marcellus.  Constitution pipeline  is a new pipeline to connect Transco to the Iroquois Gas Pipe.  Three projects install additional compression capability to increase capacity on the Transco line.  The Virginia Southside project opens up additional supply in Virginia to serve industrial growth demands.  All of these projects give Williams an additional 700+ Bcf/day of capacity.

Commonwealth Pipeline

Peter Terranova, VP Midstream Assets and Services, UGI Energy Services

20-50MM acres in northeast Pennsylvania have been brought on-line in the past five years.  There is a lot of variability of returns in the Marcellus region.  This has created pipeline congestion and many wells are not yet connected to the interstate pipes.  The eastern part of NE PA has much higher returns than those areas west.

The Commonwealth Pipeline project is a consortium of three companies; Inergy Midstream, Capital Energy Ventures (WGL Holdings), and UGI Energy Services and it designed to provide direct access to NE Pennsylvania Marcellus Shale production supply liquidity and reliability. The North-South route connects to every major interstate pipeline serving the NE and Mid-Atlantic provide geographically diverse, long-term steady markets for producers specifically to two major markets; Washington, D.C and Central, Eastern Pennsylvania (significant growth area) and Virginia where power generation and for potential  LNG export.  This simple, efficient project has the flexibility to meet the producer needs and the goal  to compete with embedded long-line pipelines.

NGS Energy

Richard Tomaski, Senior VP Trading & Marketing, NGS Energy

Natural gas has traditionally seen seasonal demand.  With more gas going into power generation the demand shows signs of being more stable creating additional demands on producers and pipelines.  Analysts estimate that up to 53 GW (gigawatts) of coal capacity will be shut down by 2014 with up to 16 GW in the Southeast region.

Greenfield Salt Cavern Storage Facility in Smith County, MS which is a multiple phase development of up to 32 Bcf working capacity.  This facility is on line but they are increasing capacity and looking at increasing pipeline connections.

Independent gas storage facilities are especially well suited to provide the daily and hourly flexibility required to support the growing gas-fired generation market.  Unless power generation is sited near gas storage, a third party pipeline is required to supply the power generation site.

Session 2

Chair – Patrick McKinnon, President, Buffalo STX

An Overview of the U.S. LNG Export Permitting Process

Bill Cooper, President, Center for Liquefied Natural Gas

Center for Liquefied Natural Gas promotes rational public policy (not any oxymoron)

The Natural Gas Act is the controlling authority for LNG facilities.  There is a presumption that it is in the public interest to approve such facilities.  The process is highly expedited when have the U.S. has a free trade agreement with the receiving nation.  Applications for other nations are not automatically approved and at this time they are not being granted: there is a moratorium in place.  The DOE and FERC are both responsible for coordinating the authorizations.

The Big Pivot (U.S. to Export LNG – Really?)

Bruce McKay, Managing Director, Federal Affairs, Dominion

Cove Point LNG Import Terminal was bought by Dominion from Williams in 2003 and since then has seen a steady decline of ships until 2011 saw 5 ships one of which was bought by Dominion in order to keep the pipes filled.  No ships in 2012 so far.  So Dominion is looking to change this to an export facility.  Today about 66 % of global LNG shipments go to Asia/Pacific and about 33% to Europe.

Some federal legislators think if we export LNG exports we will “drill here, sell there and pay more” and are working to discourage export.  But business thinks there is a market there and have submitted 13 applications for LNG export facilities.  There is a proposed U.S. export capacity of 13 Bcf/d.  The LNG industry is countering this thought with the benefits:

• Reduce U.S. trade deficit by$2.8-7.1B/yr
• Thousands of construction jobs – 7000 short term
• Thousands of continuing gas processing jobs – 14,000+ permanent jobs
• Reduce the boom and bust cycle of crude and natural gas
• Increase tax revenue to states – $BB
• Supports production of natural gas liquids supporting the petrochemical industry
• Geopolitical benefits – U.S. can use energy as a diplomatic tool in Europe, Japan, Pakistan
• Connecting to the world market in two way instead of just one – import and export
• Export of other commodities have not adversely affected other markets – coal exports have doubled since Jan 2009
• “Exporting Natural Gas means Wealth comes into the U.S” – Secretary of Energy Chu

North American LNG Export: The Ship is Sailing – A European Perspective

Jeff Welch, Sr. Vice President – Business Development, EDF Trading NA

LNG exports are world changing.  We’re in the first inning of multi-decade build out of the LNG market.

LNG facilities were initially built to meet expected pet chem demand.  We didn’t know the tremendous impact of technology on the availability of natural gas.   We now know we have 100+ years of proven natural gas reserves with current technologies and we didn’t know this would create a resurgence of the petrochemical industry in North America.

In a $4-5 environment nat gas supply will continue to grow rapidly.  Without the LNG export market the reserve base will not be developed efficiently.  Global LNG market is about half of the U.S. market today and is expected to grow dramatically in coming years.  Asian demand is the majority of the demand and with the closure of the nuclear plants in Japan they are replacing nuclear with LNG.

The U.S. has a real opportunity to become the new LNG hub due to its great supply diversification.  The expansion of the Panama Canal will open the transportation routes for LNG export to Asia with equidistant access to Europe and Asia.  The U.S. enjoys great volume flexibility with its great storage capability and enjoys price diversification and current price arbitrage.

Session 1

Rusty Brazeil, RBN Energy LLC

The New Hydrocarbon Interdependencies:

Connections between Natural Gas, NGLs and Crude

These three markets have been independent for decades and now they are closely tied together.  This does not mean they are correlated but they are closely tied.

• Surplus natural gas supplies have driven natural gas prices down; Crude oil prices remain strong.
• Producers have shifted drilling budgets to liquids rich gas and crude oil plays.
• Growth in high BTU natural gas and associated gas production will increase.
• US crude production increases by at least 2.2Mb/d

Causes are massive growth in natural gas production with 15.8 Bcf/d incremental growth since 1995.  Production looks like it has flattened in the past six months.  But it was a short term slowdown and since February the growth pattern has resumed.

The crude-to-gas price ratio is another driver in this production growth.  Crude-to-gas price ratio is at historic high levels at about 50X and there is a strong case to support continued ratio of this size and even higher this year.

The oil plays and liquids plays currently provide superior returns so new wells are generally in these areas.  Fewer new dry wells are being drilled.  Fewer gas rigs does not result in reduced natural gas production as the new wells are 2-3 times as productive as previously drilled wells.  Each well is producing more gas than in the past resulting in higher gas production with a lower rig count.  And more gas wells are producing wet gas with resultant higher output of NGLs.

Nat gas is replacing coal in power generation.  Gas fired power generation is increasing and gas is taking market share from coal in power generation.  Low returns for natural gas production has driven shale technologies into the crude oil plays much faster than would have happened if prices had maintained historical relationships.  Crude production is growing rapidly and is expected to continue to do so for the next 5 years.  Some plays are showing massive growth in crude output such as Eagle Ford, Bakkan, and NIbrara, Anadarko, Permian resulting in over 2.200 Mb/d increase. Other analysts show even greater growth out of these plays.  If these forecasts hold true by 2017 or so the US and Canada could be self-sufficient in crude oil and the U.S. will be back to the highest level of crude production in history (last seen in the 1980s).

This has affected global pricing and Cushing crude is now $15-25 below Brent.  This has resulted in a windfall for refineries in the Rockies and midcontinent.  Landlocked midcontinent and Rockies refineries are enjoying very cheap crude prices awhile selling petroleum products priced relative to Gulf coast values.  Diesel prices remain high so refineries are switching production to diesel.

This gas production is driving NGL growth, price decline for NGLs because of the excess supply situation and results in an economic boon to the petrochemical industry.  Ethylene production margins have grown steadily over the past six months and seeing margins from 25-50% where just six months ago these were negative margins.  The natural gas production is driving the NGL supply and it is expected to continue for at least the next five years.  New facilities currently being built will not be on-line for3-5 years and may result in an oversupply of Ethane resulting in even lower prices for NGLs.   Surplus propane will move offshore; mostly to South America.  African propane will shift to Asia.

The domino effect on all these items.

• Shale technologies are applies to nat gas > gas production increases > gas prices fall > production shifts to crude and liquids.
• Liquids production increases > NGL price decline > petrochem industry $$$
• Crude production increases > mid-continent crude prices fall > land locked refineries $$$
• Wet and associated gas  increases > gas prices stay low > power industry $$$
• Losers
  • Dry gas & coal
  • LNG terminals and
  • Propane and fuel oil distributors.

18Apr Session 2

Gas Buyer’s Forum

Chair – Patrick Strange, Managing Director, J.P. Morgan Chase & Company

Bob Hayes, Vice President, Physical Trading & Operations, Calpine Corporation

95 plants scattered across the U.S. and Canada, all plants are gas-fired except one that is thermal.

28 K MW/yr consumption across all the plants.  2012 will be a higher usage year than in the past.

Gordon King, VP Operations

Okaloosa Gas District, Valparaiso, FL (Florida panhandle) (LDC)

3 Bcf annual throughput, 39000 customers and 7 military bases

139 miles of transmission pipelines, 1300 miles of distribution pipe

Josh Oliver, Energy Procurement & Systems Manager, Shaw Industries

World’s largest manufacturer of carpeting and flooring.  Wholly owned subsidiary of Berkshire Hathaway.

255 active sites – manufacturing, DC’s, sales & showrooms.  2.5 M mmBTU of NG annually for 25 sites.  Total usage is 5M mmBTU/year.

Bob Hail, City Manager, City of Sugar Hill

10K meters, 40K people

90% residential, 10% commercial, 0% industrial

Goal is to keep total price as low as possible to customers.

Hedging criteria: 80% of normal winter requirements and this keeps gas prices pretty level.

Gas Buyer Panel Questions:

1.  How is the price of gas affecting usage?
   1. Not much affect
   2. Long Term Contracts – do they even exist anymore?
      1. Calpine – It is in our interest to look at longer term contracts with prices as low as they are – maybe 5 years.
      2. Okaloosa – Try to keep our rates as stable as possible.
      3. Shaw – hedging is part of our process so long-term contracts are not as attractive
      4. Sugar Hill – we’re part of MGA of Georgia and they have long-term contracts because we need stable supply
      5. Regulatory concerns
         1. Shaw – not much concern here
         2. Okaloosa – lots of EPA and regulatory requirements take much time on our part to report and attend to
         3. How is storage being utilized and will this change with today’s pricing?
         4. What factors, other than price, influence your decision to choose one supplier over another?

OpenLink CEO, Kevin Hesselbirg, said that the integration is well underway and going smoothly. “We have been focused on diligently stitching together these two organizations and getting the integration right. We continue to invest in R&D across all of our product lines, which is to the benefit of everyone.”

At the end of the first quarter 2012, OpenLink exceeded key market milestones of more than 500 global customers, 1,250 global employees, and over $325 million in revenue. OpenLink has recently been recognized by several industry media outlets and analysts as the best in the E/CTRM industry across various categories. Organization leaders said they are committed to investing in their products, people, and intellectual capital to ensure all clients are successful.

Former SolArc CEO, Brad Anderson, said, “Customer reaction has been outstanding and validated assumptions that our ability to leverage the unique strengths of both product lines and the benefits of our expansive breadth of industry and market knowledge would be evidenced in a clear uptick in customer responsiveness and newly won business.”

Hesselbirg said, “We have been deliberate with our integration work completed to date, and we are pleased to see that our vision to aggregate technology solutions for various industries and market segments is highly valued by our customers. We measure our success by our clients’ success. Our customers can be confident that the entire team at OpenLink will continue to invest in and enhance all the solutions we offer.”

Left to right - Joan Carter, Scott Ashworth, Mel Brannen, Kristen Ortwerth-Jewell, Mel Brannen, John Scherb, Shannon Henderson, and Alan Miz. The OpenLink Critter Carnival team poses for a photo after winning 1st place for showmanship at the 24th Annual Carl McCain Fajita & Chili Cookoff.

Our theme this year was a carnival tent complete with games & prizes, cotton candy, hot dogs, popcorn, balloons, and the stars of our show were a wonderful assortment of exotic critters from our friend Pam Sweeney at Pacodu Exotics, including a ring-tailed lemur, a sloth, two porcupines, a patagonian cavy, an iguana, two macaws, tortoises, and a boa constrictor! The animals were a delight to all who came by the tent, and we sent home a ton of prizes from our carnival games.

We would like to thank our dedicated volunteers for their time, energy, and enthusiasm: Scott Ashworth, Mel Brannen, Joan Carter, Jesse Clay, Shannon Henderson, Alan Mize, Elizabeth Nguyen, John Scherb, and John Wahl.

View Photos from the Event

8 a.m. – Opening Remarks
Hal Reed, Chairman – NGFA

Mr. Reed opens the session, thanks sponsors, and introduces the first speaker, a U.S. Senator on the agricultural committee.

Keynote:  Ag Policy & Other Priorities for 2012 U.S. Congress
U.S. Senator Debbie Stabenow

 The ag committee is focused on writing the farm bill, though 2012 has been busy with hearings, CFTC oversight, deficit talks. They are hoping to pass the bill by September 30. The bill will influence an industry responsible for the creation of over 16 million jobs in the United States.

One of the biggest recent events to face the industry was the MF Global collapse. The trustee has returns 70% of customer funds — $1.6b missing. The ag committee conducted 2 hearings on the matter, and heard from many witnesses, including MF Global customers who were affected by the collapse, regulators, and MF Global employees, including CEO John Corzine. The question no one seems able to answer is: “Where is the money?” The trustee for the creditor recently discussed giving bonuses to MF Global representatives for testifying. The ag committee has come out against these proposed bonuses, and continues to actively monitor all progress on the MF Global situation.

The ag committee prepared and submitted $23b in agricultural cuts, which was delivered to the deficit super-committee charged with finding $1.2 trillion in budget cuts. Unfortunately the super-committee was unable to reach a consensus, and to date nothing has been done.

As a result of the process, the relationships within the ag committee are much tighter, and the committee has included some of the items discussed in the budget cut recommendations within the language of the farm bill.

There is general agreement from all market participants as well as legislators that the market has moved from direct payments to risk management. Crop insurance is a huge part of risk management for farmers; despite strong commodity prices and an astounding predicted $100b in net income for farmers this year, there were $10b in indemnities paid out to farmers who lost crops last year. 1 storm can wipe out an entire crop regardless of strong prices.

The ags committee is committed to providing additional tools to manage risk for ag producers, but also needs to take into account that regions and diverse crops require various different solutions. Southern farmers require price risk protection, farmers in the Midwest need revenue risk protection. With widely varying geographic areas from state to state and county to county (E.G. – the average county in Michigan is 800 sq. miles, whereas the average county in Montana is 2,500 sq. miles) and major variations in climate across the U.S., it’s difficult to come up with a plan that will suit those affected by legislation.

The committee has worked hard to increase efficiency and to stop duplication. To this end, the committee has consolidated 23 programs down to 13 across 5 channels.

Additional issues:

• Finding funding for agricultural research is increasingly important. As earmarks are removed from Congressional legislation, research institutions that used to receive project-specific funding will now need to find alternative means to secure funding.
• The EPA needs to use common send to secure a safe, affordable food supply
• Any legislation passed needs to first and foremost create market opportunity.

“Giving customers a competitive advantage”
John Koraleski, Union Pacific Railroad

Union Pacific employees are focused on:

• Performance
• Ensuring high ethical standards
• Working as a team

With the ags industry looking to exports for revenue, 12-13% of Union Pacific traffic heads to Canada, another 10-12% to Mexico.

GOALS:

Safety – 1.15 personal injury incidents per 200,000 man hours, down 38% over the last 7 years due to technology, training, work standards, and employee engagement.

Reliable & Efficient Service – Between blizzards and subsequent flooding in the Midwest and the drought in Texas, 2011 was a year spent battling nature. Despite that, customer satisfaction is at 92% in 2011.

Strategic Investments – $3.6b invested in infrastructure – $1.9b toward replacements, $1.3b toward growth and production, and $335m in PTC. Heavy investments have been made in agricultural areas – added new sidings and terminals for the Pacific Northwest corridor, Livonia sub to get to the Gulf of Mexico, OKT siding upgrades, Yermo plant-to port in California, and 500+ grain covered hoppers.

Economic Outlook for 2012
Terry Barr, Cobank

Ag market drivers are transitioning:

• Ethanol growth will plateau
• Global weather/crop development are limiting growth
• Emerging markets (driven primarily by China) continue to grow
• The resilience of the U.S. consumer will be tested
• Global liquidity – Fiscal & monetary drag limit growth as government assistance wanes

Exports will become a more significant influence, specifically to Asian markets. 62% of global soy trade is happening in China. In the U.S., 16% on protein is exported.

Global growth in 2012 will be limited as advanced economies weaken,

The U.S. dollar has rebounded against the Euro, but holds steady against Asian currencies.

Middle East turmoil will keep oil markets unsettled & volatile. Oil prices will track global growth, the U.S. dollar, and geopolitical turmoil. Rising gasoline prices will restrain U.S. consumer demand.

China has made slowing inflation a priority, and may be succeeding. Growth in China will slow as exports weaken.

Euro zone countries facing significant debt challenges. There is uncertainty as to whether austerity measures will hold. Interest rates are easing with the Greek Deal, but uncertainty in Portugal is increasing. The inherent problem is the lack of competitiveness for sovereign countries. If austerity measures are not carried out and widespread defaults occure, contagion will become an issue for the U.S. economy.

The U.S. will hold steady at a 2% growth rate, with too much uncertainty to build a base for rapid recovery. Deleveraging consumer debt does temper consumer demand, but progress has been made here. Job growth will continue with a steady unemployment rate, though 15% of the populat.ion is underemployed. Home prices continue to decline, and are right now down 4% over a year ago, raising questions as to whether a home is an investment or just a shelter. Business investment slowed, though profits continued. Cash balances at corporations and banks are poised for significant investment, though unlikely for the near future as policy issues and political uncertainty make it unrealistic to make long-term investments.

If Congress backs away from deficit reduction commitments, the financial markets will react very quickly. Existing sequestration & expiring tax cuts will increase revenue, and will work to repair the deficit.

Growth and Demand in Global Trade
Soren Schroder, President and CEO, Bunge North America

Agriculture and energy are ‘linked at the hip’ and you can no longer talk about agriculture without talking about energy.  Energy will provide the pricing floor to the agriculture market going forward.

Energy now consumes about 10% of all grain output.  Grain for food has increased about 1.2% each year over the past ten years and ethanol has increased about 25% per annum over the same time frame.  To put things in perspective on the energy use of grain in the U.S.; ten percent more corn is used for ethanol in the U.S. than is used for food in the rest of the world.  Ethanol demand has peaked and future grain demand is mostly driven by food needs.  This is expected to continue to grow slowly for the U.S. at about 1.3% per annum.

All of the growth in the demand for grain is in the developing world with China a India having the most growth over the past ten years.  This trend will continue for the foreseeable future.  All of the growth in the U.S. agricultural markets will be in exports and the growth of individual companies only depends on the how aggressive they want to be.  This means we must have efficient trade and movement of grain stock worldwide.

Proteins and vegetable oils have lead recent growth with just above 4% annually over the past 10 years and we can expect these two commodity groups to continue to grow at 2-2.5% per annum over the next 10 years.  China and India have lead the growth in protein consumption with 60-70% and also account for about 60% of the growth in oils in that same timeframe.  Very strong growth is expected to continue in the coming decades.

The U.S. portion of the agriculture market share has remained steady.  The rest of the world has enjoyed all the upside in the market share of the vegetable oils and protein markets.  Although the U.S. has lost market share to other countries total exports from the U.S. have continued to grow.  In 1990 the U.S. share of world agricultural products was about 60%, in 2000 about 45% and in 2010 about 35%.   We expect this to remain about 34-35% through 2020 but could increase if the U.S. aggressively pursues export business.  The U.S. will meet this expected demand with more output per acre as we expect about a 5% increase in available acres and about a 40% increase in yield / acre.

Global trade will remain very dynamic with the global market greater than 500 MMT by 2020.  There are more food originating countries now and their export business will continue to grow – the Black Sea area, Argentina, Brazil, Canada and Australia.  The cause of agriculture market volatility is the underlying supply disruptions and a tight global balance sheet of agriculture commodities and free trade is essential to balance the markets.

FDA’s Implementation of Food Safety Modernization Act – Implications for Grain, Feed and Trade
Michael Taylor, Deputy Commissioner for Foods, US FDA 

Mr. Taylor is responsible for implementing the Food Safety Modernization Act passed by Congress in January 2011.

Purpose for the Act:

1.  High public expectations for food safety
   1. Recent outbreaks of food-borne illnesses with produce being a new origin of illness
   2. Pet food contamination in imports
   3. Market response by producers elevation of standards due to the globalization of trade

Goals for the Act:

1.  Increase safety of our domestic food supply
2. Maintain public confidence to insure continued consumer choice

Principles of the Act:

1.  Prevention
2. Comprehensively applied prevention from Farm to Table
3. Science and Risk basis for the rules
   1. Use real knowledge in writing the rules and account for potential risk
   2. Integrated System of Federal, State, and Private sectors working together with common rules
      1. Federal level – USDA, EPA, FDA
      2. State Level
      3. Private Sector – use the private sector resources and knowledge

With these principles in place Mr. Taylor expects the Act to result in the right standards, prevention-oriented and implemented efficiently while respecting the diversity of the supply and the diversity of hazards and processes in bringing agricultural products to the table.

FDA’s top priority for now is the enforcement of 5 of the 50 regulations.

• Preventative control rules for Human Food
• Preventative control rules for animal feed
• Import supply chain management and documentation
• Produce safety
• Accredited third party certification (Private Auditors)

And these two items are the next priorities.

• Safe food transport
• Intentional adulteration (terrorism)

The FDA is seeking and needs collaboration with private industry to market his law successful and practical.  Mr. Taylor expressed they are completely open to suggestions from the industry and depends on industry groups such as NGRA to contribute to the writing of the rules.  He concluded with the statement that success will require:

• Collaboration between federal, state, and private industry
• New ideas and mindsets
• Extensive training
• Building new import systems
• and finding ways to mitigate extensive resource restrictions

Keynote Address
Hal Reed, Chairman, NGFA Board of Directors & COO The Andersons

The NGFA rules and arbitrations system is a ‘special jewel’ per the FTC head under Dwight Eisenhower.  With more than 100 members volunteering their time to serve in arbitration NGFA serves a unique and valuable purpose in industry oversight.

The US Agriculture System is one or our nation’s best assets and our creativity, integrity, and hard work is highly valued by world markets.

Hal identified several political areas NGFA is currently engaged in all of which pursue less government involvement in the agriculture markets and purse free market trade.

1.  CRP – ‘The agriculture program that pays farmers not to farm’

NGFA is pushing to eliminate CRP altogether and now we have several representatives in Congress also working toward this end.

1.  NGFA supports an even playing field for railroads in the transportation industry by requiring trucking companies to pay their share of highway maintenance costs.
2. NGFA has taken a leadership role in the writing of the Food Safety Modernization Act rules.
3. NGFA is working to fight some of the new interpretations of OSHA standards such as the Sweep Auger rule.

As the NGFA works in the government arena so should all members and member companies take an active role and be engage in government.  Hal encouraged member companies to develop methods for employees to communicate with Congress and to become involved in the Grain PAC.   The government will make decisions with or without the input of private citizens and industry and it is incumbent on those citizens and private industry to be involved in the decision-making in order to create laws and rules that benefit free markets.

Hal closed with a quote from Winston Churchill, “It is no time for ease and comfort, but for a time to dare and endure”.

Why and How to Prepare for OSHA Inspection
Eric Kahn – Epstein, Becker, & Green

Why prepare for an OSHA inspection

1.  There is a sharp rise in OSHA attention to the grain industry and it Is important to be aware of their priorities and current work practices.
2. There are other costs involved with OSHA enforcement and being aware of them will minimize your exposure to financial risk.
3. Control the flow of information with OSHA
4. Improve plant safety
5. Minimize exposure to ‘Willful Violations’ and increased fines associated with them.

When the new Secretary of Labor took office in the Obama administration they said, “There is new sheriff in town.  Make no mistake, the Department of Labor is serious, we are very serious.”  The new administration implemented a new approach to safety inspections.  Previously the approach was reactive and responded to reports of unsafe conditions.  The new administration is now taking a proactive approach to enforcing OSHA standards by:

1.  Adding 100 new inspectors
2. Writing more citations
3. Increasing penalties
4. Recommending more criminal cases
5. Significantly increasing significant  and egregious cases
6. Expanding the scope of rule application beyond a single work site to include all work sites owned by a corporation.

OSHA re-wrote the Field Operations Manual at the end of 2010 in order to increase penalties. By law OSHA cannot raise the maximum penalties so they doubled the minimum penalties and re-wrote their inspection rules increase fines.  This re-write put into practice the items identified above with the following results.  These changes have the most significant impact on small business.

1. OSHA now treats workplaces within a corporate family as one workplace.  This means that if a violation found at Site #1 is also found at Site #2 that violation is a repeat violation and the penalty is ten times the initial fine.
2. OSHA now looks back five years to establish ‘repeat’ violation status.  Previously this was a three year window.
3. OSHA has changed from a reactive to a proactive philosophy and now hand-selects industries and past violator as target for inspection.   They are deliberately looking at the grain industry and grain handling facilities.

These changes have resulted in a large change in fines in 2011.

• 225% increase in Willful or Repeat penalties – The initial fine is $7K, Repeat penalty is 10X – $70K
• 22% increase in Serious penalties
• 200% increase in $100,000+ penalties
• 300-400% increase in $1,000,000+ penalties

The penalties have significant consequence for Willful and/or Repeat violators is to be named as Serious Violators with the following additional actions taken:

• Press release from OSHA identifying you as a Server Violator
• Mandatory follow-up inspections
• Enhance settlement agreements such as requiring companies to hire 3^rd party inspectors or add additional worker protection beyond that currently required
• A corporate-wide application of the settlement so that if the one site is required to hire 3^rd party inspectors, all facilities owned by the corporation must do the same.   So the cost of the settlement can be much greater than the initial penalty.
• There is no defined way out of the ‘Serious Violator’ category

The recommendation for companies:

1.  Talk as an organization.  If you are cited at one location corrective action must be taken at all locations.
2.  Challenge all bad citations.  New interpretations of rules should be challenged because if they accepted you are setting yourself up for more severe penalties down the road.
3. Consider the cumulative effect of citations in your response.

 PHOTOS:

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Industry professionals revealed in the survey that their top interests centered on being able to effectively model renewable assets that have the propensity for high volatility (44%), while having an optimization model which incorporates complexities and constraints was second (26%). Also of note was their desire to forecast short to long term within unpredictable circumstances (21%) and the ability to meet reserve requirements across short and midterm horizons (9%).

Gary Hunt, President at Tech & Creative Labs, confirmed, “These findings are consistent with clients’ experience in the marketplace. Each type of renewable energy resource requires analysis to optimally manage their complexities to extract full value.”

Survey results supported this with 57% of respondents stating they had challenges forecasting with accuracy and planning for reserves.

More specifically, participants’ responses illustrate a clear need for real-time data (see below):

•  30% - Forecasting in the short and long term with accuracy
• 12% - Planning for the right level of reserves
• 19% - Ability to perform economic dispatch/unit commitments in near real-time
• 11% - Compliance with evolving regulatory requirements
• 28% - Optimizing across whole portfolio to make the best decisions

Dr. Markus Seiser, Managing Director of OpenLink’s Optimization Division, commented, “As the renewable energy market evolves and matures, market participants will need more advanced technology to leverage opportunities. This includes an enterprise portfolio view that can cover all asset classes and clearly illustrate the way these assets interact with each other (e.g., gas storage vs. flexible purchasing options). Our sophisticated clients drive our technology roadmap, and renewables are no exception.”

To download the podcast of this webinar Optimizing Renewable Assets in 2012 and Beyond, visit: View Podcast Now

The State of US NGL Markets – NGL Demand Could Be Greater than Expected
Peter Fasullo, EnVantage, Inc.

• NGLS, especially ethane currently are experiencing a lot of turbulence due to short term imbalances.
• NGL imbalances will occur but they won’t be chronic.
• Over the long term see a relatively balance NGL market
• Key is for gas-to-crude ration staying low.

Shale Overview U.S. & Global Potential
Enterprise, Tony Chovanec, VP Fundamentals and Supply Appraisal

• Improvements in shale technology has advanced rapidly and has altered the U.S. energy landscape in a short period of time and is expected to provide the U.S. with resources expected to last for many years to come.  And the Shale success story in the U.S. is one of an industry that is all private-sector owned and operated companies.
• Shale gas has increase from 4% of US production in 2006 to 37% today and expected to be over 50% by 2030.  Natural gas is currently oversupplied keeping prices low but markets are expected to grow over time and additional supplies exist to support substantial growth and keep prices competitive.
• Shale production of NGLS is also growing rapidly and the US is now a net exporter of refined products.
• Shale oil production is having a meaningful impact on our energy balances.  Growing crude supplies from shale are reducing the need for imports.   The U.S. moved from 10 MBPD of crude imports in 2008 to less than 9 MBPD in 2011.  And Shale Gas is becoming Shale Oil & Gas as the technology is applied to crude.
• Shale formations are identified in other countries but are not being developed as heavily.

How Evolving Market Dynamics will Affect Price
John R. Gretzinger, Energy Risk Manager, INTL FCStone Inc.

Banks are gravitating away from a traditional market making role to a proprietary trade book function and moving from a commercial role (2009) back to the investment banking sector.  The change in bank trade books I s leading to two types of liquidity in the NGL space.

Hedge funds have taken a lot of talent from the banks and are moving offshore due to regulation (Dodd-Frank).

Physical trading houses are massive and getting bigger with competition from banks is currently at a minimum.

Producer hedging hasn’t changed much in the past five years and consumers are entering the market in increasing numbers.

Brokerage Houses have been reset with the demise of MF Global.  With consolidation of the industry and near zero interest rated the race to bottom seems to be continuing.
Exchanges – ICE and CME continue to dominate the NGL markets from a clearing standpoint.  However confidence in the exchanges has been severely hurt by the MG Global collapse.

Algorithm trading (black box trading) is a player in the markets that are newly affecting the NGL markets.  They are a set of mathematical rules for solving problems in a fit number of steps.  Now they have evolved into liquidity hunters, technical models, arbitrage, and predatory.  It is definitely in the news and force affecting our markets.  Algorithm trading is dominating order flow in the energy space.  30% of energy trades in the 4Q2010 occurred with no human intervention.  A lot of volume is going through the exchanges through these models.  Today this is estimated at 60% of all energy trades.  Over time we do not know if this is true liquidity. They will continue to have a major impact on the energy markets.

Volatility in recent years is too large of a percentage of the NGL barrel being contracted.  This is leaving the trade community with a small number of Float barrels for liquidity and price discovery.

Market now has two type of supply and demand numbers.

1. Physical supply of oil
2. Financial supply and demand for energy products.

All of this reflects greater risk than ever before!

The market has many tools for managing some of the turmoil and capturing opportunities.  Combat these risks with:

1. Basket Hedging – group of commodities instead of a single commodity
2. Deferred Tenor – reduces some market risk especially in geopolitical driven events in which prompt prices tend to react the most

Consider small weightings of hedging into deferred contracts; this will tend to reduce the volatility of your hedging portfolio

1. Options – this is the single most important thing you can do to better manage risk.

When implied volatility is low a hedger can use options for relatively low cost

Words of wisdom for hedgers – “Bury the dead, they stink up the place.”

Butanes & Pentanes Market Challenges Ahead
Anne B. Keller – Midstream Energy Group

Currently a maze of market influences in the NGL markets.

The “NGL Tsunami” is starting to show up in supply numbers:

• IC4 production up 17+% in December year over year
• C5+ volumes up 10% due to high demand as a diluent in Canada as the blending market is stable.
• NC4 Flat

Butanes and pentanes are ‘small but mighty’ in the NGL marketplace – their relative value vs their volume share of the NGL barrel is growing as crude prices rise.  E&P companies are relying heavily on added value and positive processing margins on these products to support drilling.

Outlook for 2012

• Supply growth will continue even if ‘dry gas’ drilling slows down
• ž 2012 gas production could fall if gas prices stay low
• ž NGL volumes will still increase due to height NGL content of the gas that is produced
• Logistics constraints will still exist while new pipelines are under constructions

ž   North-South spreads still wide until more pipeline capacity is available

• Gasoline demand likely to fall due to rising prices

ž   $4/GALLON is here and crude on ‘only’ $110/bbl.

• Limited opportunity in the ethylene feedstock market for C5+, but diluent prices provide an alternative for this material

New regulations are on the horizon from EPA.  The Tier 3 regulations are new standards for light-duty vehicles and their fuels in order to reduce emissions and pollutants.  The standards in this rule will lead to reductions in ozone; particulate matter, nitrogen dioxide, and mobile source air toxics and pertain to motor vehicles.

Key concerns for NGL markets will be proposed reductions in RVP and sulfur content.  The ultimate impact depends on:

• How much RVP is reduced and where
• Sulfur limits
• Changes in product flows resulting from closure of East Coast refineries.
• Whether WTI moves back toward parity with coastal crudes and pressures Mid-continent refineries.

No regulations have been issued yet because it is a huge political football and this is an election year so new regulations are not likely in 2012.

Long term outlook for gasoline blending is a low probability for gasoline blending demand growth.  We may be able to maintain current levels of NC4/C5+ demand but the lack of growth in gasoline demand reduces the potential for the market to handle significant increases in NC4/C5+ supply.   And the value of low RVP alkylate could support increases in IC4 supply.  There is a need to set up an export structure to support the market.

This BBQ contest is held annually as a precursor to the Houston Livestock Show & Rodeo, and this year there were over 400 entries. OpenLink was a proud co-sponsor of the Jokers-n-Smokers BBQ cook team at this year’s World Championship BBQ Contest. Jokers-n-Smokers showed well with their own taste of Texas as they took 4th in chicken and 7th overall! A huge congrats to Joe Limon and the entire Jokers-n-Smokers team!

We were delighted to entertain our customers and show them how much we appreciate them through a great night of food, friends, music, and dancing. We took lots of pictures. Check them out on our Flickr account.

Opening Session

“Game-Changing Light Sweet Supply”
Lynn Pham, Senior Analyst , Revenue Estimating Sivision, Texas Comptroller of Public Accounts (moderator)

Richard Grissom, Vice President Market Analysis, Valero Energy Corp
Mr. Grissom spoke mainly about the difference between the Bakken and Eagle Ford, light, sweet crude and the other crude supply and this impact on U.S. refining capability.  Lighter, sweeter shale crude will need to be mixed with heavier, higher sulfur crudes in order to be meet the production economics of current refineries.  Over time U.S. refineries may change their refining processes to be better use lighter crudes but this change takes time.

Edward Morse, Managing Director & Head of Commodities Research, Citigroup Global Market Inc.
The production in the U.S. shale areas and Canadian shale sands will very soon outstrip the ability of current transportation routes to move the oil to refineries and ports.  Three refineries in the Midwest are already accepting Canadian shale crude via rail and ship via the great lakes.  Political and cultural resistance to additional crude pipelines will continue to impact the availability of inexpensive transportation.  Rail is available but the additional capacity required to meet production demands is not available.

Francisco Blanch, Ph.D., Head of Global Commodities & Asset Allocation Research, Bank of America Merrill Lynch
Prices are giving signals to the markets and we need to be ready to cope with the volatility of the crude market as new crude sources come on-line and demand from China and Asia continues to grow.

Session 1 – Q&A 

Negotiations with First Nation communities in Canada have been a major stumbling block to the construction of pipelines from Canadian shale plays to the Pacific coast.   The earliest a pipeline could be constructed from Canadian shale sands to the Pacific coast in Canada is 2017.

Permanent wide spreads between light, sweet and sour crudes are a thing of the past since refineries must mix the crudes in order to economically use the currently available refining technology.

What are the possibilities of a Jones Act Waiver?

1. Infrastructure capability to drawdown the Strategic Petroleum Reserve is about 500,000 barrels/day
2. The Jones Act waiver would be required to move oil from SPR to the east coast
3. It is an election year and election year politics will impact such a decision

Richard Grissom, Valero Energy Group

Center for American Progress is having a forum in Washington on American crude exports.

How concerned is everyone about a ban or restriction on imports might become a significant issue?

We would be very concerned if there was a ban on U.S. crude exports.  Europe is a net importer of crude and an export ban would very much impact the worldwide economics of crude.

Session 2

Impact of Flow Changes on North American Price Differentials
Russel Braziel, President, RBN Energy, LLC

The recent collapse of Bakken Crude oil prices is a case study in transportation constraint economics. Bakken crude moves in two ways – east to Minnesota then to midcontinent refineries or south to Wyoming and then to Missouri/Illinois

Crude in those two areas dropped $45/bb vs Brent in the first four days of Feb.  It has recovered but still trails Brent (-$35) and NYMEX (-$10).

1. When capacity is constrained, local conditions dominate
2. Oversupply can build over time, then trigger in an instant
3. More important than ever that the market monitors pipeline capacity and utilization

US crude oil production will increase by 2.2.Mb/day by 2017: Canadian imports will grow by 0.9MM b/day.

• Bakken                 +550 b/day by 2017
• Anadarko            150 b/day -> 370 b/day 2017
• Eagleford             50 b/day 2009 -> 400/day 2012 -> 900 b/day by 2017
• Permian               1000 b/day  – 1900 b/day 2017
• DJ & PRB              150 b/day 2012 – 400 b/day 2017

This adds to 2.2M b/day by 2017 but could be 3M b/day

This is light, sweet crude or condensate and will impact refining and crude infrastructure. This is the beginning of the highest rate of domestic crude production since 1988.

What does that mean for price differentials? 

2011 prices have been $10-17 behind WTI in upper west, California prices +$8 v WTI, Gulf price +$16 v WTI.

Transportation constraints crude production areas in the upper Midwest and refineries will affect prices going forward.  There is going to be a big pipeline explosion in the next couple of years to meet the production demand.  There are also a number of rail projects in the works to move the crude.  Refinery expansions are also occurring in the U.S.

By 2016 crude oil production will have caught up with the pipeline production so although there will be a lot of infrastructure improvement the prices differential will remain about the same and worse in Salt Lake (-$17) and Canadian (-$21).  Surprisingly, there will be little change in the pricing differentials by 2012 because crude production will continue to exceed pipeline capacity in 2016.

Conclusions

• LLS-WTI spread to tighten as pipeline project are completed.
• Rockies/Bakken, Canadian discounts will continue but will jump around a lot.
• Local conditions will cause price swings to continue over the coming years.
• A new study Crude Awakening –by Bentek –  goes into a lot of detail on this subject.

Session 3

Moderator – John Kingston

Oil Benchmarks:  A Look at the Future
Daniel Brusstar, Director, Energy Research & Product Development, CME Group

Changes are happening so quickly and keeping up with them is a struggle. Price changes indicate the market conditions changing.

Overview of Global Benchmarks

• WTI
• Brent
• DME Oman/Dubai
• Gulf coast benchmarks will become more important.

Oil Benchmarks have key characteristics:

1. Liquidity, liquidity, liquidity
2. Transparency – real-time and reliable information on market fundamentals
3. Direct convergence with the physical oil market
4. Robust cash market with diverse participation
5. Adequate and stable production

The oil benchmarks will change. WTI is reflecting a major shift in supply and demand fundamentals so it remains a solid benchmark. Brent is less transparent – with the cash market with a 25 day Brent market and futures are a 15 day market. NYMEX has issued a new Brent 25 day (Platts) futures contract. DME Oman futures market is becoming a strong benchmark. Gulf coast benchmarks are becoming much more important.

The benchmark in 2021 is difficult to forecast but DME Oman and Gulf Coast benchmarks will be much more prominent.

Session 4

 World Oil Crude Oil Markets
Olivier Jakob – Petromatrix (newsletter)

High oil prices in recent months and here are some of the reasons behind that.

1. Growth of China demand is part of the story.
2. Supply disruptions have impacted crude markets in 2011 especially with OPEC members.
3. The worldwide crude stock levels fell in 2011 and are expected to grow in 2012.
   • Saudi needed to cut production as Libya production came back but instead West started embargo on Iran (EU has banned imports of Iranian crude).
     But now Saudi is keeping production levels high.
   • Crude exports from Libya are climbing but have not completely met production before the civil war.  With Libya coming back on line Europe should be able to replace Iranian crude with Libyan crude.
   • In 2011 China is imported most of its crude from the Arabic Gulf (AG).  So far in 2012 they have reversed this trend and is buying most of its crude from Russia (impacting Europe supply).

Reasons for lower prices:

1. Demand for heating oil in Europe has been low since the winter has been warmer than expected.
2. Diesel & gasoline demand has been low in Italy, Spain & France but UK and Germany have had higher demand.
3. Europe is making a net change from gasoline to diesel where on average Europe is using 65-70% diesel instead of gasoline (France 80%).
4. US is exporting more gasoline and distillate and is now the largest exporter of gasoline and distillates in the world and much of it ends up in floating storage.
   • In 2011 US closed refineries and reduced amount of refined products produced and drew down on the floating storage inventories.
   • Europe is also closing refineries – 8 in 2011 and 2012.

Result is Europe has $8.00+ gasoline, China at $4.80 and the US at $3.90

Crude Oil Production in Texas – The Texas Petro Index
Karr Ingham, Petroleum Economist, Texas Alliance of Energy Producers

 Texas Alliance of Energy Producers – 3400 members produces about 95% of the crude and gas in Texas.

The Texas Petro Index

• Composite index based at 100.0 in January 1995.
• Calculated using a comprehensive group of Texas E&P indicators such as:
• Crude oil and natural gas wellhead prices
• Rig count
• Drilling permits
• Well completions

Texas Petro Index has had three peak and trough cycles in 1995-99, 2000-03, and 2003-10 – now at 260.8 driven entirely by crude oil (since gas has been flat for the past two years). Texas is now enjoying a great expansion of crude production.  Current Texas crude rig count has almost matched the peak of 2008. In the first decade of 2000 natural gas production value has led crude but now a switch has occurred and crude value is leading natural gas value in Texas. Karr expects increasing crude production in Texas and the U.S. for the foreseeable future.  This depends on what happens with crude prices.

Texas natural gas production is seeing a decline, again due to a decline in prices for natural gas. The Texas E&P economy is booming and in the Permian Basin in particular is enjoying great growth. Rig count in the Permian is now higher than the peak rig count of the 1980s – this is not so statewide in Texas and or the U.S.

Session 5

Transportation and Infrastructure

Building Infrastructure to Meet Emerging Supply Patterns
Paul Miller, Senior Vice president, Oil Pipelines, TransCanada Pipelines Ltd.

Keystone and Gulf Coast XL Projects – Presentation contains forward looking information that includes risks and uncertainties. LLS-WTI spread is positive to LLS (Louisiana Light Sweet) for the past five months – $10-25. Brent-WTI spread mirrors this.  LLS and Brent have tracked each other completely.

What are the factors?

1. Growing production in the U.S.  shale plays
   1. All the shale basins are growing with about a 50% increase in production in shale oil
   2. We will continue to see an increase out of these basins
   3. There has been a reduction in refining over the past year of WTI and more refining of heavier crude from Canada
      1. BP Whiting, Marathon Detroit, WRB Wood River are all reducing WTI and increasing heavier crude
      2. Additional pipeline capacity is needed to move the increased production to the gulf coast.
         1. Cushing is currently the closest hub to these basins and has the infrastructure to accept the crude so for the most part the shale production will go to Cushing.
         2. Cushing has about 2MMb/day excess supply and in the gulf coast there is about a 2MMb/day shortage.

Early 2012            Midwest refinery conversion to heavier crude, Domestic light production increase

Mid 2012              Seaway reversal, Domestic light production increase

Late 2013             Seaway expansion / Wrangler, Longhorn reversal

2014                       Flanagan South

TransCanada has an operating pipeline Keystone.  It begins in Hardisty, AG and goes east to Winnipeg, then south to Steel City NE, then east to Wood River, IL.

Most recent proposal from Steele City to Cushing and then to Port Arthur will be built. The Gulf Coast project is critical and is required today – this is a pipeline from Cushing to Port Arthur. It is ready with 100% of the land purchased and pipe and valves on hand.  Needing Corp of Engineers approval for water crossings but expect this to be approved and production to commence by mid-year.

The Keystone XL pipeline that travels southeast from Hardisty, AB to Steele City, NE is what was denied by President Obama. Key to the president’s decision was a time limit imposed on the president to make a decision within 60 days. TransCanada will re-apply for approval and they believe the pipeline will be approved later in 2012 with a re-route in Nebraska.

Expanding Access to Gulf Coast Markets
Brad Shamla, Vice President, Market Development Enbridge Pipelines, Inc.

Agenda – Focus on Liquid Pipeline System
Existing Asset infrastructure
Crude Supply and disposition
NA pipeline expansions
Bakken expansions

Enbridge is the largest pipeline company in eastern Canada.  They have been western Canadian crude to the US for more than 50 years. They carry about 70% of Canadian production today. Enbridge now owns Seaway Pipeline from Cushing to Houston and are looking forward to bringing Canadian crude to the gulf coast through this pipeline.

Bakken production is about 550,000 b/day now and they expect to see 1,000,000 b/day by 2018.  They now have over $7 billion in expansion projects in various phases on construction in the U.S. in order to insure crude production transportation to the Gulf Coast refining center and East Coast refining center.

1.  Initiative to East Coast refining access is focused on feeding the light refineries along the east coast.   Current pipeline from Montreal to Sarnia will be reversed to feed the east coast refineries.
2. US Gulf Coast access has several parts to reduce Cushing oversupply and absorb the growing Bakken and Canadian supply.
   • Seaway Pipeline from Cushing to Freeport where the pipeline flow will reverse to move crude from inland to gulf coast.  Expect the pipeline to be in service by 2Q2012.  Enterprise is the partner in this project and is expecting 150,000 b/day in light service by June 2012 with an ultimate capacity of 400,000 b/day in mixed service 2013.
   • Flanagan South – Chicago/Flannigan to Cushing – 30” pipe and expect it to be in service in 2014.  Follows an existing pipeline path with existing employees & terminals.
   • Houston to Beaumont pipeline is also underway.
   •  Enbridge is also improving Bakken pipelines from the fields as well as increasing rail capacity to move Bakken production to the existing Enbridge pipeline.

The Value of Oil Pipeline Infrastructure
Dr. Craig Pirrong, Bauer College of Business, University of Houston
Streetwiseprofessor.com

WTI – Brent futures price curve indicates a declining differential. Bakken-WTI spread has been high enough to support the investment in infrastructure (pipeline/train).

As more mid-continent crude moves to the gulf coast will drive mid-continent prices higher and will drive import prices lower. Seaway Reversal and Cushing Market Link indicate the value of this capacity is around $10M/day. A rough calculation indicates that another 150-250 mbbl/day of capacity is needed to close the Brent – WTI price spread. Implication is that there are large gains to be made from expanding oil transportation infrastructure.

North American infrastructure is a lot easier to expand than North Sea output and additional infrastructure is expected to be in place by about 2015 because the economics of the investment supports expanding the infrastructure.

Session 6

Transportation by Rail Solutions

Crude by Rail Transportation Solutions
Denis Smith, VP of Marketing, BNSF Railway

Why Rail?

1. Fuel efficiency
2. Highway Gridlock Reduction
3. Cost efficiency
4. Environmental Friendliness

BNSF has 1400 trains running a day – mostly grain, coal, consumer goods.

Advantages of shipping crude by rail

1. Distribution flexibility
2. Protect purity of product
3. Time to market
4. Less initial capital

Inbound freight is required for crude production as well as outbound freight.  For example, each horizontal drilling rig requires approximately 38 railcars of inbound products. Railroads provide connectivity to the West coast, Gulf Coast, Midwest and East Coast refineries. Unit trains transport one commodity (coal, oil, grain) allowing faster loading and unloading as well as faster delivery to end site.

Unit trains also save transportation costs of about $1.50 / barrel over a manifest train.  20-25% of Bakken production should move by rail in 2012.

Challenges

1. Winter/weather
2. Housing
3. Labor – hired 5000 people last year
4. Volatility of market

Crude-by-Rail Transportation Solutions
 Brian Freed, Rangeland Energy

Relatively new – 2 years old.  Backed by EnCap - Experience is primarily midstream oil. Northern North Dakota focus with customers mostly refineries (Tesoro, Flint Hills, Sunoco are customers.)

Build crude oil terminals that supply what crude needs to move

1. Tank farm
2. Truck terminal
3. Rail loop – inner loop loads rail cars and the outer loop is a train parking lock

Handle train loading and train crew rests during loading process which typically takes 12 hours. This allows 100,000 barrels/day capacity. Able to maintain product quality with this type of facility because of dedicated truck station, dedicated storage, and dedicated rail loading facility. All of the pipeline projects on the table or underway do not meet the production capacities so there is a continued need for rail to supplement pipeline capacity. About 23% of Bakken production moves by rail today for several reasons:

1. Rail can go where pipelines can’t or won’t.  Rail will continue to serve those areas where there will not be a pipeline such as Bakken to Seattle.
2. Rail can guarantee protection of crude quality.
3. Most pipes are full and can’t move incremental bbls.

Where does rail work long term?

1.  Manifest shipments directly to refineries that can already accept smaller amounts of crude
2. Where production outstrips infrastructure – quickest solution.
3. Reliable guaranteed quality refinery supply (milk run).
4. Optionality pipeline doesn’t provide allows for arbitrage opportunities.
5. Augmentation to the overall crude oil logistics solution.

Day 2

Platts North American Crude Marketing Conference
Chairman’s Summary

We heard yesterday that we’ll be seeing 1 MMb/day of crude from the shale plays.  We all have more confidence in that expectation now. Would love to hear the benefits of being crude independent – maybe someone will speak to that today.   Quote of the day – “We’re thankful for every tankful”.  Philips Hoskins, BNSF Rail

Session 1

Storage to the Rescue?
Abudi Zein, Senior Vice President, Genscape, Inc.

Hardisty storage volume is a good indicator of what will happen in Cushing three weeks later.

The mid-continent storage infrastructure is building up for increased production.
Storage visibly under construction:

• Cushing – 15 MM b of storage under construction
• Hardisty – 3 MM b of storage under construction
• Total in the midcontinent – 20 MM b of storage under construction

Cushing has seen tremendous storage growth over past 12 months and now has over 67MM barrel capacity. Biggest investor in Cushing storage is Enbridge who has been gearing up since 2009.  Magellan has also been building storage at Cushing for 2 years.  Analysis of storage patterns indicates that most of the crude in Cushing is being used for speculative purposes and that there are restrictions on the ability to move crude out of storage to the market when desired.

Conclusions – There is an oil boom in the mid-continent.  Most of the investment in storage is concentrated at Cushing.  The mid-stream companies seem to be betting on Cushing gaining in importance as a trading hub as it gets linked to the gulf by the Seaway reversal and the completion of Keystone XL.

Storage to the Rescue?
Horace Hobbs, Managing Director, Muse Stancil & Co.

Storage is expensive and the returns are typically poor. This talk will focus on the Gulf Coast – refineries and the storage requirements. Refineries on the gulf coast who can use light, sweet crude from Bakken are limited.  Most of the refineries are optimized for heavier crudes.

Recent developments are the number of rail cars from Eagle Ford into St. James and Canadian crude being railed to the Mississippi then barged down to the gulf coast.  Foreign crude is being delivered to Loop and then piped to refineries.  The salt caverns are taking up the excess production before it’s demanded by the refiners.  All of this means that St. James is becoming more important as a hub.

Eagle Ford Shale Crude & Condensate Production - Eagle Ford has ramped up faster than any other area in just 2 years.  Continued production growth is limited by the availability of sand for the drilling rigs.  Eagle Ford crude has a very wide variance in weight making planning for the refineries crucial.  They need to know what well the crude comes from in order to plan efficiently.  Eagle Ford already has pipeline capacity in place to take planned production.  Refineries in the gulf do not have the land available to them to build rail unloading capability at the refinery. The condensate from Eagle Ford is valuable for the petrochemical industry.

St. James will change in the future into a sophisticated crude blending facility so the storage in St. James will build storage capacity in order to optimize unique blends for each refinery. In general, the refiners will not pay for storage but the producers will pay this charge.

Session 2

Retooling Refineries for the Flood of Light Sweet Crude

Reversal of Fortune – North American Upstream Growth and Downstream Bottlenecks
Sam Margolin, Senior Analyst, Refining & Marketing, Global Hunter Securities

Crude differentials were felt throughout the refining industry.

• Refinery performance bifurcated sharply in 2011, impacting spending.
• Coastal refinery capacity reducing sharply, especially in Northeast.
  • Gulf Coast and California assets impacted by benchmark volatility and hedging programs significantly disrupted.
• Refining companies are investing mid-continent but at substantial premiums.
  An example of this is that Wynnewood (inland) was purchased at a premium over recent purchase of Meraux (Gulf Coast).

Basin differentials take a new focus.  Brent/WTI continues to drive earnings but outlook is unclear.

Local differentials will take on more importance.

The Changing North American Crude Supply Balance
John Auers, Senior Vice President, Turner, Mason & Co.  (Consulting Engineers)
Producing “2012 North American Crude Study” – expected publication 2Q 2012

US production is making a U-turn towards strong growth after 20+ years of decline and is now up over 700 MBPD since 2008. New crude production is causing regional imbalances and the crude quality is significantly different that previous production.

• Pricing dislocations, incentives for finding Midstream options, US appetite for imports receding
• Regulatory implications are impacting markets – Jones Act, export limitations, etc.
• Refinery limitations in handling new crude production

The sources for the increase supply have been high prices and technology advances.  In the U.S. this increase is from deepwater Gulf of Mexico, shale oils, and Texas Permian Basin. 75% of the growth is in light, sweet and most of the remainder in medium crude.

Canadian production has been on a steady upward trend for 30 years and Canada has the largest reserve base in the world if unconventional resources are included.  And almost all of these reserves are located in the oil sands of Western Canada and are heavy sour crude . Refineries converted to use heavy Canadian crude to replace light crude over the past few years and so refinery demand for light sweet has been declining.  This refinery change occurred before boom in light, sweet production occurred.  That means light, sweet mid-continent crude will replace light crude imports from Africa.

Mid-continent refineries will run heavy Canadian crude and overflow will go to the Gulf Coast.

The Changing North American Crude Supply Balance (Part 2)
Jim Jones, Executive Vice President, Turner Mason, & Company

 We probably won’t see WTI flowing North and Bakken flowing south so PADD 2 will most likely see the most impact.

So in PADD 2 refineries will have to deal with higher NGL and naphtha levels, lower middle distillates, and lower resid yield/less metals content.

Although, converting back to light crude is easier than converting back to heavy, sour there will be issues.  The refiners will not be able to run as high capacity production as they could with heavy crude in the past as well as a host of specific technical issues within refinery processes.

We are live from the Gaylord Palms Hotel & Convention Center in Orlando, Florida, where OpenLink Financial is a proud sponsor of the Renewable Fuels Association’s Annual National Ethanol Conference. We’ll be covering each of Thursday and Friday’s sessions, as well a visiting with some of the many exhibitors present at this year’s event.

The official Twitter hashtag for the conference is #NEC12 so you can stay up to date with all the happenings at this year’s event! Check back with us after the event for photos from the golf tournament, evening networking events, and all the great sessions.

(Please note that the representations of the presentations and panel conversations listed below are not direct quotes. These are reductive summaries of the statements presented at the event and do not necessarily represent the views of the companies these speakers represent, the speakers themselves, the event organizers, OpenLink Financial, or any other mentioned organization.)

Day 1 – General Session

Welcome Remarks:
Chuck Woodside, CEO, KAAPA Ethanol LLC

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Chuck welcomes attendees, and opens the conference with a brief speech: Adopting new technologies, improving efficiency, and recognizing opportunities will be critical for the future of the ethanol industry.

State of the Industry Address
Bob Dinneen, President and CEO, Renewable Fuels Association

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The U.S. ethanol industry has been the fastest growing industry in the U.S. in the past 15 years, beating out internet and medical supply. In the midst of a recession, the U.S. ethanol industry has become a huge contributor to the economy. Last year the ethanol industry produced 13.9 billion gallons, adding $43b into the U.S. GDP.

The addition of ethanol saved consumers 89 cents per gallon last year. As U.S. production has increased, oil imports are down 20-30%. Ethanol has accounted for 81% of new domestic fuel production since 2005.Ethanol has transformed the grains markets from a stagnant, surplus-heavy industry to a thriving, vibrant, market-driven business. Farms are expected to make a record $109b in 2012. Livestock receipts are also at record levels. Mr. Dinneen feels that this is a direct result of the injection of technologies and money by ethanol into agricultural markets.

Last Friday, the EPA finalized the label for E15, which is a step in the right direction, but state regulations and retailer buy in will be a critical step in adoption of E15 fuels.2011 was a watershed year for U.S. Ethanol exports, the bulk of which went to Brazil, the EU, and Canada. The US is the lowest cost ethanol producer in the world. As a result, Brazil and the EU have acted to become more self-sufficient. The greatest challenge facing the industry is public policy and sentiment. Public and political education will be a critical component of continued success for the ethanol industry.

Keynote Address:  ”21st Century Energy Trends and the Marketplace”
Dr. James Canton, CEO and Chairman, Institute for Global Futures

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Demand for energy is outpacing supply, and without new sources of energy and increased efficiency, by 2030 we will be facing major shortages. In the energy industry, the conversation includes nuclear, wind, solar, etc., but the only immediately available source with the appropriate efficiency and levels of production is ethanol. It’s not only the future of energy, it’s the now.

Energy demand drivers for the next middle class will be a reality check for our leaders. The top risks for the years beyond 2025 will be energy, economy, food, ecology, security, and war. Unless we accelerate supply (and there is no industry poised to do this with the exception of biofuels) there will be massive shortages.

In the next 10 years, we will have a new 1 billion consumers, most of whom will live in the developing world. The next 2 billion energy users, particularly out of China will totally reshape the energy landscape. The emergence of mega-cities with >10 million residents, most of which will be in the developing world, and most of whom will be the new middle class. The Chinese are one of the only countries with a 20-year policy for energy.

It’s to the benefit of all biofuels manufacturers to take note of and influence the development of nanotechnologies and other innovations that could help provide the biofuels industry with the tools it needs to meet future demand.

Bio-Energy infrastructure is the future with ethanol at the core. Advanced biofuels will protect future economies and security, because dependence on petroleum products is at a minimum extremely risky.

E15 Commercialization & Marketing | Panel Discussion
Chuck Woodside, CEO, KAAPA Ethanol LLC (Moderator)
Grady Chronister, Owner, Chronister Oil Company
Scott Zaremba, Owner, Zarco 66, Inc.
Kristy Moore, Vice President, Technical Services, RFA

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C-stores/retailers would like to make E15 available, but have to get past legal battles, put equipment in place, and make sure that the product is something consumers want to buy. E85 was a small percentage of the market, so devoting one pump to it was not much of an issue. Because 65% of cars on the road can take E15 fuel, a single pump will not be enough — most of the pumps at the store will need to offer it if the store offers it at all. A decision has to be made about what product (mid-grade gasoline, premium gasoline, etc.) E15 will replace at the pump.

Beyond this, where ethanol blending occurs is becoming a large opportunity, and an issue for retailers, and state-by-state mandates vary. Some states still allow non-ethanol blends.

Liability is more of a concern for insurance and the capital required for equipment compliance rather than consumers possibly putting E15 in a vehicle designed to accept it. The retailer is required to post blends, and be available to customers if they have questions about what the blend means. The EPA has approved E15 as a legal fuel, and state and local departments are willing to adopt E15, but need guidance on how.

One of the biggest changes in the retail space as a result of ethanol blending in the past has been the constant fluctuation in subsidies — the subsidies have expired which will have some impact on retailers. Without consumer support, retailers will not be able to fully implement, and without education consumer adoption will be an issue.

Advanced Ethanol: The Emerging Portfolio Approach | Panel Discussion
Brooke Coleman, Executive Director, Advanced Ethanol Council (Moderator)
William Brady, President and CEO, Mascoma Corporation
Jim Imbler, President and CEO, ZeaChem Inc.
Christopher Standlee, Executive Vice President, Abengoa Bioenergy U.S. Holding, Inc.

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Q: The NPRA insinuates that the ethanol industry hasn’t quite realized its full potential. Is this the case?
A: There is a credibility gap in the industry, but what you’re seeing now is a group of companies that have attracted investors and put together some projects like Mascoma. Like the chemicals and refining industry, taking biofuels slowly is the right approach. It’s nice to see things like Abengoa move from promise and potential to construction and development today, and on to production in 2013.

Q: What types of partnerships create value within the industry?
A: Long-term partnerships are the most stable. Large energy firms will invest if there is money to be made, and have done so with organizations that have advanced their capabilities. The end-user companies are beginning to enter the market and pull the industry uphill, which is bringing mid-market investors to the table.

Q: Why is it that some of the projects that were supposed to begin in 2009 took so long to get started?
A: If you said 10 years ago that fracking would be happening in Marcellus, people would laugh at you. If you predicted that ethanol would be $1/gallon, no one would believe you. There are a number of people who didn’t understand the complexity of building the elements of ethanol production, including construction timeframe, technology, etc.
Financing after the RFS/recession double-punch became a challenge. The need for consistent policy is critical to financial security and investor security. Many of the people who were once over-promoting have left the industry and there appear to be much more responsible organizations in place, which will also provide credibility and realistic outlooks for investors, which will contribute to a much more stable financial environment.

Q: Is the major limitation technology or the market?
A: There was a time when cost of production was not a huge concern, but we’re now at a place where making this industry a viable commercial enterprise is a more prevailing concern. Feedstock requirements for a cellulosic processing facility is a huge concern, and one of the biggest hurdles in justifying an investment in a huge plant.

Q: Why do PTS and accelerated depreciation incentives matter from a business perspective?
A: Strategic partners are taking huge risks by investing in new technologies, so anything they can take to the boardroom to show the potential for return on investment. This helps bring capital to these projects.

Q: Is the NPRA justiied in asked for some leeway in compliance with EPA numbers set in 2011 now that targets have been adjusted?
A: There are multiple ways for the members of the organization to comply. The EPA provides projections well in advance. It’s $6m in a $1 trillion market, so it’s kind of a difficult thing to get wound up about. The NPRA is trying to wage a bigger battle. To the extent that year after year there is an utter lack of cellulosic production, there is very little the ethanol industry can do to argue this point. As soon as there is some production out there, this argument will probably resolve itself.

Q: What does an expansion model for the industry look like?
A: You have to establish production centers, and not all sites and permitting are the same. You also need to keep your contracts in place and. Classical project finance techniques like those used in the power industry will be useful for advancing the industry quickly and consistently.

Q: Are loan guarantees the same thing as a grant? Why are they so important to the industry?
A: The USDA has been helping farmers for a long time, and understand project inance. Loan guarantees give you credibility and a leg up, but they are not the same thing as a grant: you still have to get the money from the banks and public sector, and then you have to pay it back.Securing financing and proving the technology will be critical. As the technologies are proven, additional investors and intellectuals will buy in to the industry.

Washington Insiders | Panel Discussion
Bob Dinneen, President and CEO, Renewable Fuels Association (Moderator)
Roger Shane Karr, Vice President of Government Affairs, Alliance of Automobile Manufacturers
Jon Doggett, Vice President of Public Policy, National Corn Growers Association
Marty Durbin, Executive Vice President of Government Affairs, American Petroleum Institute
Michael McAdams, President, Advanced Biofuels Association
Scott Faber, Vice President for Government Affairs, Environmental Working Group

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Q: There is a question as to whether corn production is adversely affecting the environment. What is your thought on that and on RFS?
A: We need to recognize and be honest about the tradeoffs and impacts that increasing corn production can have on the environment. It seems to be time or a discussion about whether a mandate for corn starch ethanol necessary, and/or is it happening at the expense of possibly more effective fuels? The industry needs to work together collectively to make a balanced energy portfolio that includes the advanced biofuels sector. Many farmers feel that the preservation of the RFS is more important than the farm bill. There needs to be some balance between mandates, incentive, production, and supply to sustain a market.

Q: How do we grow the E85 market?
A: FFE automobiles are in production, and domestic manufacturers continue to increase that production, but foreign manufacturers are slower to adopt. There does seem to be much indication of change there, and while incentives or technology mandates may help, mandates would be the less desirable.

Q: Will the Keystone pipeline ever get built?
A: One day, yes. There is a highly charged political environment surrounding this issue. This is a very high tech project, and will be the safest pipeline ever built. It’s important to note that while there is no such thing as a perfect policy, abandoning national investments in innovative and emerging technologies like advanced biofuels or projects like this pipeline may result situations similar to wind and solar, where the jobs and innovations disappeared overseas.

Luncheon Address

Insider Perspectives on Election 2012 – The Presidency and Congress
Karl Rove and Robert Gibbs

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Q: Who do you think won the most recent Republican primary debate?

K.R. – No one won, but Santorum definitely lost. He needed a win, and came across as a stuffy Senator defending senatorial process.

R.G. – I watched for sheer entertainment, thinking “there has to be something better on TV.” If you’re a candidate that is propelled largely by momentum and outspent by the opposition, you need a good debate performance.

Q: Have the Republican primary debates run their course?

K.R. – Yes. There are a finite number of questions that can be asked, and they’ve already been asked and answered.

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Q: Who do you think the Republican nominee will be? Who will win the reelection?

K.R. – I think Romney with be the nominee, and will win in a very close election. No sitting president has been reelected with an approval rating this low. The recession bounce back has been incredibly slow, unemployment is high, workforce participation is at its lowest since 1983. Nobody knows what’s going to happen, but a strong foundation has been made for a Republican campaign for president.

R.G. – Most of the Republican candidates largely stand for the same things; Mitt Romney is still likely to be the nominee. I have a hard time believing the Republicans would nominate Santorum as their candidate for the general election. The last presidential election, the Democrats had a very long primary season, which resulted in a much stronger candidate in President Obama. This primary process has taken a lot out of Mitt Romney, based on his general lack of favorability amongst Republican and independent voters.

Q: Are the Republicans making a mistake by focusing on so many social issues in the debates?

K.R. – There will be plenty of time between now and November to talk about the economy, but a huge part of the American voting populace is Catholic, and the contraception issue with Catholic institutions is going to be a big issue. You have to be careful when running for office about calling another candidate’s religious views into question, but it’s also not one-sided. The President has also made some fairly inflammatory rhetoric out of misquotes or misrepresentations.

R.G. – I don’t think the social issues will overwhelm the economic issues this election. If the Republicans want to have an election focused on religion, then that will not work in their favor. I think the majority of Catholics support what the president did.

Q: The electorate is concerned about rising gasoline prices. What will we do about the nation’s energy policy and the burgeoning energy crisis?

R.G. – We used less foreign oil last year than we have in the last 16 years. We need to focus on renewable fuels, we need to figure out how to get more natural gas out of the ground, and find better ways to use our coal supply. We have 2% of the world’s oil supply and the majority of its consumption. There is a need to develop energy independence as a matter of national security.

K.R. – There is a relatively inelastic market, and we do need to have a “do it all approach” to the energy markets; however, the agency reporting on our oil reserves does not include unexplored areas in the Gulf, Alaska, and the shale basins. The increase in drill rigs is attributable almost entirely to the innovations in the natural gas industry, not any political initiatives. Oil use in the U.S. peaked in 2005 due in no small part to the RFS. We do need to purse all avenues to energy independence, and despite recognizing this, this administration has not had any major energy accomplishments.

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Q: The Republican Democrat candidates for president talk about all-encompassing energy plans, but don’t spend much tim ein their speeches touting the accomplishments and successes of the Bush and Obama administrations in the ethanol industry. Why is that?

R.G. – The President just talked about ethanol and biofuels in today’s speech, and is incredibly proud of the accomplishments made by the ethanol industry.

K.R. – You’re not likely to see the Republican candidates in this election touting anything accomplished by either of the past two administrations. That said, politics flow from the local to the federal level, not the other way around, so with the majority of ethanol production taking place in 6 states, the ethanol industry needs to do a better job of educating the other states how their local economies and industries are directly impacted by and benefit from progress and innovation in the ethanol industry.

Q: What effect will super pacs and large sums of money have on this presidential election?

R.G. – At some point, there will have to be a discussion about how campaigns are financed at the presidential level. The public finance system in place has been left behind by modern campaigns, and after this election you’ll probably see a more active discussion on this topic.

K.R. – The entire purpose of a super-pac is to compete with labor organization funding and anonymous, multi-million dollar donations. The $2b we will spend on this year’s presidential election is a fraction of what we will spend as a nation on hair care products or soft drinks; this is a small amount of money to elect the leader of the free world.

Day 2 – General Session

Sponsor Recognition and RFA 2012 Industry Leadership Award
Chuck Woodside, CEO, KAAPA Ethanol LLC

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Chuck took time to thank the National Ethanol Conference’s corporate sponsors for their contributions to this year’s success. SolArc and OpenLink were the platinum sponsors for the golf tournament leading up to the conference.

Chuck also presented the 2012 leadership award to Dave Vander Griend, founder of ICM, Inc., who has helped producers with efficiency, technology, products, and profitability. Upon his acceptance of the award, Mr. Vander Griend thanked the RFA for their continued efforts in support of the ethanol industry.

Headline Address:
U.S. Secretary of Agriculture Tom Vilsack

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Mr. Vilsack thanks ethanol producers on behalf of gasoline consumers, who on average save about $1 per gallon at the pump, and for the hundreds of thousands of jobs created in the ethanol. He also thanks the industry for an ag trade surplus of $42b, 8 times what it was two years ago. It was also a record income year of $100b for net farm income, due directly to renewable fuel. The unemployment rate in rural areas is declining faster than urban areas thanks to this growth.

Americans have the capacity to feed ourselves, which is a rarity in the world, and something we often take for granted. No one can do their job particularly well if they’ve not been fed. Food security allows us to be a stable nation. Because of productivity and efficiency of the ags industry in the U.S., Americans spend less than 10% of their income on food.

Agriculture and the renewable fuel industry is critical to sustaining a vibrant ags economy. The department of agriculture fully supports the efforts of this industry, including working with sister agencies, like the EPA, to get things like E15 into the tanks of automobiles as soon as possible, and working to retain the renewable fuel standard.

There has been a concerted effort to tarnish the reputation of the ethanol industry, forcing a defensive marketing campaign, but it’s important to share the positive messages about this industry, and educate consumers. It’s important to market and reinforce the national security problems that agriculture and the renewable fuel industry solve.

Q: Ethanol plants are a kind of rural renaissance, and areas that aren’t able to grow traditional biofuels crops don’t receive the economic benefits that ethanol plants bring to rural areas. Will crops like sweet potatoes be included as sources for renewable energy in the farm bill?
A: The EPA will make that determination. If you really want more than just baseline sources included in the future, make sure that the bill secures research funds for continued innovation.

Q: Does the President’s “all of the above” proposal for energy have the potential for bi-partisan support?
A: The Navy is very interested in using drop-in bio jet fuels, and once you have a government department like that using the resource, you can move into the commercial sector very easily. The ags committee is bipartisan, and works well to advance legislation for renewable fuels.

Q: Do you think the joint efforts of Canada and the U.S. with Beyond the Borders will help the biofuels industry?
A: Canada and the U.S. agree that agricultural science and technology need to advance, and that we need more international partners to bring these technologies and sciences into developing companies. We also need to do a better job of marketing GMO to the public, and explaining the benefits of renewable fuels.

Ethanol, Greenhouse Gases and Land Use Change: The Debate Continues | Panel Discussion

Geoff Cooper, Vice President, Research and Analysis, Renewable Fuels Association (Moderator):
The scientific and regulatory communities continue to analyze the “carbon footprint” and land use impacts of both first- and second-generation ethanol. Experts will address the latest developments in GHG analysis and discuss the impacts of regulations like RFS2 and LCFS on current and future ethanol producers.

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Thomas Darlington, President, Air Improvement Resource, Inc.:
Mr. Darlington addresses some of the confusion around land use emissions. Lifecycle emission land use is between 30-40%. The EPA believes there has been no land use change for ethanol corn in the U.S., though CARB believes it to be higher. According to CARB, 10-20% of the land converted is forest. When you convert from forest to crops, do you include litter/deadwood? What fraction goes into plywood? Do those hardwoods replace metal building products? How much carbon is stored in landfills? What fraction of the carbon is used in mills? The EPA and CARB are trying to evaluate renewable fuel commodities by the end of the year.

Wallace Tyner, Professor, Purdue University:
Mr. Wallace discusses the recent history of global land use change, modeling land use change, past improvements to GTAP, land use change results to date, and planned future improvements.
Added 130m acres in 8 crops (corn, soybeans, rice, rapeseed, wheat, sunflower, cotton, millet), 105 of which was new acreage. Only 3% of that in in the United States. Most is in South America and the FSU.

When new mandates come out of the US or EU that creates more demand, and the land use must be modeled. The GTAP model divides the world into 113 regions and 57 sectors, three major land type, and has been greatly improved over the original version, including greater flexibility, and the addition of cellulosic biofuels.

In the future, this model will have greater sensitivity, alternative approaches to yield estimation, and better characterization of uncertainty. New nesting structures or supply curves for land cover change and cropland conversion.

David Zilberman, Professor, University of California Berkeley:
Mr. Zilberman speaks about the indirect effects of biofuels, and ILUC — good intentions with many logical flaws. Biofuel policies have multiple dimensions, and while mandates and subsidies were crucial for the introduction of biofuels. If you increase biofuel production, it affects food prices, and as those prices increase, land use diversion to crops for biofuels. Different countries have different land dynamics. Arable land in the U.S. peaked in 1920, but it’s still growing in Brazil and Indonesia.

Actualized emission for corn based ethanol with indirect effects varies greatly based on how many indirect effect you include. On average, ethanol emissions with ILUC emissions are still lower than petroleum without indirect effects. How far do you go with indirect effects? Indirect land use calculations is not cost effective, it goes against the basic principle that people are responsible for actions they control, and it overestimates the impacts of policy correction. It creates uncertainty to investors and financiers, it increased the costs of doing business and shifts attention away from legitimate problems like how to develop sustainable biofuels and reducing GHG emissions in general.

Moving U.S. Products to a Global Market | Panel Discussion

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Doug Punke, CEO, RPMG Inc. (Moderator):
Industry Experts will discuss transportation efficiencies in current practice and what the future may hold for cost effective shipment of ethanol on rail, truck, barge and cargo ship to meet new and expanding markets.

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Kyle Hancock Jr., Vice President, Sales & Marketing, CSX:
Mr. Hancock goes through some of the biggest innovations in rail transportation, and railroads reinvest 15-18% in infrastructure. Rail transports 26 million tons of grain every year. Biodiesel and biomass are growing markets.

Transporting 36 billion gallons of ethanol would account for only 4% of the US railroad network total transport in a year. From a rail hub, ethanol can leave via truck, barge, or into a tank now. In Tampa, CSX has added the ability to transport from a hub internationally by sea and nationally by pipeline.

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James Lelio, National Biofuels Manager, Kinder Morgan Energy Partners:
Kinder Morgan has handled 1/3 of the gallons of ethanol consumed in the United States last year. 99% of gasoline is blended to E10, so KM has invested $600m in ethanol/biodiesel infrastructure in preparation for mid-level blends. Tampa and Orlando markets move over 25,000 barrels a day, the port authority was overrun by trucks and the terminals only serve their own rack demand. The market required improved efficiency and increased satisfaction for varying interests.

James also shares the various infrastructure upgrades that KM has made across the country to serve the ethanol industry. The focus now is the utilization of existing pipelines, and unit train capability in more markets. New investments and projects will be dictated by market needs.

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Katie Hadenfeldt, Vice President Sales, GATX Corporation:
Ms. Hadenfeldt details some of the capabilities and specialties of GATX, including the ways the company serves the ethanol industry. In the North American rail car market includes 1.6m cars, more than 300k of which are tank cars. Rail traffic has recovered significantly, but has no achieved prior peak levels. Existing equipment is either spoken-for or on lease. The number of idle cars has essentially halved since 2009. Rates are increasing and lease terms are lengthening, and there will be a manufacturing backlog through 2013.

Regulatory changes for packing group I and II tank cars have resulted from ethanol car derailments to improve crash ratings. There is some division among railroads on the need for thermal protection. There will likely still be about 2 years of uncertainty.

Food vs. Fuel: Fact or Fabrication? | Debate

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Geoff Cooper, Vice President, Research and Analysis, Renewable Fuels Association (Moderator):
Critics of the biofuels industry continue to argue that increased renewable fuels production is a major driver of retail food prices and availability. Two experts representing distinctly different viewpoints will debate whether “food vs. fuel” is a legitimate concern or just a myth that won’t die.

Dr. Gerard Ostheimer, International Affairs Specialist, USDA:
RFS mandated the domestic use of conventional ethanol to be phased in from 2007 to 2015, and capped domestic consumption at 15 billion gallons. This has encouraged planning and investment that facilitated meeting goals of energy security and economic growth. There has been a huge increase in the production of corn in response to these mandates. Corn exports have remained unchanged, feedstock has increased. Supply has met demand, but price has gone up; however, adjusted for inflation, these spikes are not outside of historical price movement.

8 factors will contribute to commodity prices over the next decade:

1. Global economic growth and the rise of the “middle class” in developing countries
2. Agricultural input costs including energy prices
3. Value of the dollar
4. Role of trade and trade liberalization
5. Policy Errors by governments
6. Worldwide biofuels production
7. Biotechnology developments
8. Additional crop land

It’s important to put commodity prices in a general market context, including sustained increase in demand globally.

Steve Meyer, President, Paragon Economics, Inc.:
U.S. Ethanol policy did not match the rates of change in ethanol growth and corn output, it never recognized or compensated animal protein producers. Ethanol use has gone up, stocks have gone down, and prices have increased. Wheat, corn, and soy beans are substitute goods, so rising prices for one affects the others, and all three have gone up. Grains available for feed have dropped for the past 7 years. DDGS do not make up the difference. It’s great for cattle, less useful for pigs, and bad for chickens. There have been major losses in livestock. Meat and poultry prices take longer to realize than other foods, and are just now on the rise.

Land is a scarce resource. In Iowa land values have skyrocketed in no small part to low interest rates, but demand for acreage is certainly a contributing factor. Since 2006, food prices are up 70% worldwide. The benefits of ethanol are not without cost. Markets should be allowed to decide the future.

Q: How has the pork industry improved education on co-products, and where distillers grains fit into livestock diet in the future?

S.M.: While there is a high level of protein, it doesn’t have the right amino acids, which cattle can make use of it better due to their digestive systems, but pigs only have one stomach, so the quality of protein for them is less effective. Most of the time distillers grain is cost-effective, and though it is a lower energy, we will adjust our economics accordingly.

Q: What was really driving corn prices during the roll-out of RFS — how much of the rise in corn price can be attributed to ethanol?

G.O. – All models are wrong, but some models are useful. Invariably, numbers out of models get taken out of the context of the model. The commodity price contribution as a result of RFS is quite small. 67% of land is used for food. 3% is used to grow energy, and the rest is used to grow feed.

S.M. – The RFS is one of many factors. Income worldwide is growing. The link between energy prices and grains is due to ethanol because of such rapid growth. Technology is going to be the answer.

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February 2-3, 2012 – Miami, Florida:

(Please note that the representations of the presentations and panel conversations listed below are not direct quotes. These are reductive summaries of the statements presented at the event and do not necessarily represent the views of the companies these speakers represent, the speakers themselves, the event organizers, OpenLink Financial, or any other mentioned organization.)

THURSDAY

SESSION 1: OPENING KEYNOTES

9:00 a.m. – Opening Remarks by Paul Clark – Coaltrans Conferences, Ltd. Paul welcomes everyone to CoalTrans USA, with a note that today is the anniversary of the founding of his company.

9:10 a.m. – Opening Remarks by Paul Reagan – Sampling Associates International Today is SAI’s anniversary.  Drawing a comparison between the market this time last year and now, Paul introduces the members of this session.

9:20 a.m. – Putting U.S. Coal into Context by Fred Palmer – Peabody Energy / World Coal Association Coal is easily accessible to all Americans, and the US has 27% of the coal in the world. Coal-fueled energy is a necessity, and fuels 40% of the electricity in the nation this year. Mild weather will continue to impact the coal industry, and until the country experiences a cold winter, coal demand will remain down. The increase in the price of electricity hurts industry: as the price of electricity increased 50%, the U.S. lost 6 million jobs in the manufacturing industry. Regulatory hostility poses a greater threat to coal than shale gas. EPA regulations could result in 77.3 GW of lost coal power.

California and Western Europe have attempted to eliminate carbon-based fuel for electricity, and have the highest electricity costs in the world. Industry and subsequently employment rates are suffering as a result as companies exit these areas of the world to operate in a less expensive environment.

The US oil industry will need tons of coal for CO2 feedstock in the coming years.

9:40 a.m. – Is America’s role as a swing supplier a thing of the past? by John Eaves – Arch Coal
Nations around the world are starting to build infrastructure around coal to fuel the growth of their development. There is a chance that coal will supplant oil as the primary fuel source for most of the world in the next 50 years. Steel consumption will see a 60% increase in the next decade, which will result in increased demand for coal. The coal-powered electricity plants that will come online in the next 24-26 months will create 425GW/1.4 billion tons of demand for coal. Seaborne coal demand may outpace supply in the next 5 years.

China and India are two of the largest developing countries in the world, and are driving most of the change in supply flow patterns. Many other developing countries are looking to these Asian countries for cues. As demand in these countries increases, the traditional supply sources are struggling to provide adequate supply, which puts US coal in a very competitive position. Exports in coal have virtually doubled since 2006, despite a severe dip during the financial crisis.

Though port capacity has always been a concern for those evaluating the U.S. coal industry’s ability to position itself as a global met leader, but by 2015, two major west coast port projects will likely reach completion, at which point the export potential for the U.S. to Asia is enormous.

10:00 a.m. – An overview of the US coal sector by Bob Pusateri – CONSOL Energy
Powder River Basin: Production in the PRB basin can increase and decrease rapidly, though it seems likely to remain flat in 2012.
Illinois Basin: Significant inroads into the scrubber market and thermal business in the midwest and southeast regions of the US have bolstered production and investments in that area.
Central Appalachia: The industry is shifting away rom this area due to high production costs.

Though the electric generation industry in the United States is fairly recession proof, coal production for this industry will likely decline slightly due to displacement by natural gas, and the effect that natural gas pricing has on electricity prices. This trend will probably continue through 2013.

Exports will reach levels not seen in nearly two decades. Net imports in India and China support these exports of met coal – China alone accounts for 58% of the world’s blast-furnace produced iron, and is poised to continue this trend as they invest in national infrastructure in a manner very similar to that which occurred in the United States in the 1940s.

European steel prices are fairly flat, but China and the United States are both seeing an increase in pricing, which will be something to watch closely this year. Domestic auto sales are the greatest driver of U.S. metallurgical demand, and is higher today than it has been since the financial crisis.

10:20 a.m. – Q&A
Is there any reason to expect that the industry will recover more quickly than expected?
As the steel manufacturing industry — specifically the auto industry – recovers, we will see some better numbers. If we start seeing colder winters or a rebound in natural gas prices, this will also help. China needs 900 million tons of coal, and the U.S. is going to have to provide some of that.

SESSION 2: THERMAL COAL

11:00 a.m. – Opening Remarks by Matt Schicke – Mercuria Energy Trading
After welcoming everyone back from the break, Matt takes the podium to introduce the speakers on the thermal coal panel.

11:10 a.m. – Coal and natural gas: in fear or in tandem? by Paul Forward – Stifel Nicolaus
Paul opens his discussion with a reference to a Wall Street Journal article with a headline indicating that the coal industry is at an end, and begins a discussion about the difficulties facing the coal industry in the face of natural gas displacement in electricity production. 93% of U.S. domestic coal consumption is in the production of electricity, and although the allocation of residential/commercial power is an issue for natural gas, that same issue isn’t as critical for the coal industry, so the reliability factor of coal is a huge selling point.

The problem facing both the natural gas and coal industries is that U.S. electricity demand growth has slowed consistently over the past 60 years, so you have two very cheap sources of electricity competing for very weak growth in demand for electricity. Heat rates at U.S. power plants since 1990 show that since the investment in combustion turbine technology, gas power plants are far more efficient than coal plants. Despite that, when you adjust for heat rates in combination to the plummeting prices for natural gas, coal’s advantage as a low-cost source of power has only lost ground in the past few years.

In contrast to the more volatile price of natural gas, bituminous coal like most commodities has seen an increase in price in the past 110 years, more recently a 12-year price rally, approaching record highs set in the 1970s. Operating costs in the major firms sits in the range of $28-$30 per ton. Because of the low price of natural gas, the coal industry is no longer able to pass those rising costs through to the buyer and remain competitive. The good news is that after the price peak in the 1970s, the industry lost approximately 3,000 mines as prices plummeted, but there appears to be much more discipline within the industry, so we should not see a similar issue if prices begin to decline again.

11:30 a.m. – International buyer’s perspective by David Docker – Drax Power Limited
David joins the conversation to contribute a buyer’s perspective to the gathered delegates, and to answer the following questions:

What does a major international buyer look for in sourcing thermal coal?
Balanced portfolios, quality control, risk factors are critical features in the sourcing decision process. As international buyers move away from indigenous supply due to mine closures and environmental constraints to a more 50/50 indigenous/foreign import model, US volumes have thrived as coals from other areas have disappeared from portfolios due to poor performance against the environment restrictions. The low cost-of-production coal out of the US is, as a result, more desirable.

Price and value, ability to blend, FDG performance management, and the ability of the product to carry with it additional lower price products are additional factors in the selection process.

As a result of more stringent emissions standards regulation across the UK and western Europe, the future of the business is the reduction of CO2 emissions, so replacing coal with biomass is a stark reality facing the industry. There is currently a tax of $12-$18 per ton on coal-fire generation. Carbon capture and storage is one bright light for the coal industry.

At what price is US coal competitive with other sources for overseas buyers?
CAPP coal is priced well, but very competitive with Columbian coal. Offering sulfur discounts for coal from the Illinois basin may help U.S. coal achieve a very high level of attractiveness to European buyers.

What is the potential longevity of US thermal coal exports?
The European market is shrinking, and as South African coal supply heads East to Asian countries, and the difficulties facing Europe in securing supply from Australia and Indonesia due to competition from China and India, there is opportunity for the US coal industry to make inroads in Europe.

11:50 a.m. – Thermal Coal Markets: The Wider Picture by Howard Gatiss – CMC Coal Marketing
Howard shows another article from the Wall Street Journal from several months ago with a headline that Coal was poised for a comeback. He notes that there seems to be very little consistency, or accuracy in these prognoses. Part of the problem for many is that it’s difficult to draw a conclusion about the future of coal in the face of many confusing data points. There is still some growth in Turkey, Germany, Central America, and the Caribbean, but in the face of the shrinking markets elsewhere, it seems unlikely that Atlantic coal will be anything but flat in the next several years, and even less likely specifically in Europe, where the political climate facing coal is very difficult.

In 2004/2005, there was some assumption that there would be substantial growth in US coal markets, though as it turned out, the market demand actually declined significantly due to increases in freight rates, low gas prices, stagnating economic growth, and various other factors. It seems unlikely, given the continued rate of production, that this will change. Although production in CAPP is in decline, Illinois is doing very well, and confidence there has increased in the face of increased international demand. There is also a great deal of confidence in South African and Columbian coal exports, which are by and large headed to Asia.

There was enormous growth in thermal coal exports from USA between 2010-2011, due in no small part to the gulf exporters bringing coal down the Mississippi River, which is very likely to continue into 2012.

As everyone else suffered through the economic crisis, Asian markets thrived, and imports increased significantly between 2008-2010. Though thermal coal import growth into China has significantly slowed in 2011, there is no doubt that Pacific demand growth will be significant in the next 5 years. Production will also increase to keep pace as more indigenous Pacific producers bring operations online.

12:10 p.m. – Q&A
How much appetite is there for investment in coal in the financial sector? The investment periods are cyclical, and this cycle is at a very bearish point, although now you’ve got a different set of investors looking at coal, specifically those interested in deep value. There are a number of opportunities for investors to pick up neglected assets, or assets that were always of interest, but until now priced too high.

SESSION 3: NEW PROJECTS & INFRASTRUCTURE DEVELOPMENTS

2:00 p.m. – Opening Remarks by Frank Kolojeski – Exporting Commodities International

2:10 p.m. – Somewhere beyond the sea: Freight markets by Robin Masters – SSY New York
Robin kicks off the session with a talk about coal shipment pricing, fleet sizes, and outlook for freight transportation this year.

Regarding freight pricing, Cape vessels are traditionally highest, followed by Panamax, Supramax, and Handysize in that order. FFA prices, and average spot market earnings are a very volatile investment area, but overall most ships are trading right now below operating costs. Spot rate spreads have declined since April 2010. The sources of market weakness right now are seasonal, cyclical and structural: the Baltic sea is frozen, which disrupts cargo supply, there has been a general slow down in global industrial activity — low steel demand, and while fleet growth has slowed substantially, shipbuilding will not until 2013.

2:30 p.m. – A West-Coast Terminal: Pipedream or Reality? by George Dorsey – Ridley Terminals International
George Dorsey takes the podium to discuss Pacific Terminal capacity and the opportunities for export growth, specifically with regard to Canada’s Ridley Terminals just south of Alaska, where they anticipate upwards of 24-million-ton capacity in the next 36 months, all of which is already contracted. There are several other terminals on the Pacific Coast that, if all goes as planned, could potentially add another 120-million-ton capacity by 2015.

2:50 p.m. – Logistics considerations for U.S. Coal: the port perspective by Mauricio Suárez-Ramírez – Carbosan / Port of Santa Marta
Mauricio joins the discussion to give an update on Columbian coal terminal upgrades.  Columbia exports approximately 80 million tons annually, across 5 ports and 12 terminals. A facility in Magdalena will add 40 million tons to Columbia’s export capacity. The Santa Marta Carbosan facility in Columbia operates 22 hours per day, 7 days per week, using trucks, and can load a 100,000 ton vessel in approximately 3 days.

3:10 p.m. – The Illinois Basin: Existing Successes and future potential by John T. Hanou – Hanou Energy Consulting
John joins us to talk a little bit about the Illinois basin, and the potential of the other major basins in the United States.

In the thermal coal business, BTU deficits must be satisfied from an alternative source after peak supply passes. CAPP met its peak around 1990, SPRB is poised to continue growth to 600mmt in a decade given consistent demand, and now that sulfur content issues have been more or less resolved, the Illinois basin is also likely to hit 200mmt in the next decade, and Colorado Utah has the potential to hit 100mmt in the the next decade.

The miners unions have moved out of the Illinois basin coal industry, miner efficiency and production have increased, and many new mines will be coming online in the next several years.

3:30 p.m. – Keeping the coal “chugging” along: Railroad infrastructure update by Jamie Heller – Hellerworx, Inc.
Jamie takes the podium to give us a status update on US railroads.

Railroads are in good shape, and have done an excellent job of adjusting to the shifting landscape. They continued to invest in infrastructure throughout the recession. Because of this, railroad capacity has remained strong. The reason that the coal traffic rates has not substantially declined, mostly because the coal traffic is captive, and the rail companies don’t have to compete substantially with one another.

Low economic growth, environmental regulations, and low gas prices have strangled the ability to invest in new coal projects. All the growth in coal has been in exports.

3:50 p.m. – Q&A

SESSION 4: END USER PERSPECTIVES

4:30 p.m. – Opening Remarks by Jim Thompson – Energy Publishing, Inc.

4:40 p.m. – Panel discussion: Procurement strategy, market update, logistics, security, and supplier flexibility

• Karen Bramley – Manager of Logistics at Tampa Electric Company
• David Docker – Head of Fuel Procurement for Drax Power Station
• Gerhard Haimberger – President of Gerhard Haimberger Company
• Mike Grim – Tata Steel

A utility perpective on EPA regulations:
CSAPR will likely be reworked, but the bulk of the concern is with the EPA’s MATS. There needs to be proper planning and reasonable timescales.

What is the current buying philosophy on scrap?
There seems to be a supply limitation, based on previously arranged purchasing agreements. The suppliers have gone out of business, but in other cases for those still in business, they’re not able to supply.

What is the purpose behind keeping a low inventory?
It’s been determined that it’s better to keep a low inventory, and manage the cash on hand carefully, and have some risk with new suppliers. Everyone honors their in place contracts with suppliers, but as those are renewed, the stockpile situation will be carefully reviewed. There is no danger of canceled shipments.

Are you paying attention to the exportation going on in other basins around the nations?
Right now there is a luxury of having natural gas as a fallback, and though that will not always necessarily be the case, the attention is on the basin that supplies.

Are you concerned about inventory levels, and are you going to talk to suppliers about limiting supply?
Not terribly concerned, as we’re in a good position and actually have open positions. If gas prices drop below $2, we are always talking about how we will react to the market. We are not at the moment ready to dump coal on the market. April or October are going to be key months to watch for gas pricing. If the warm weather continues, and gas prices stay low, we’ll be looking at our options.

Do you think the railroads will work with you to preserve coal share in the southeast United States?
The railroads are always good to work with, but we’re not seeing any indication that either rails or vessels are interested in or enthusiastic about reducing the rates. Reductions won’t happen until the net zero becomes negative for them, though they have incentivized export steam coal to bring it closer to the domestic contracts.

Have you seen another market situation that is comparable to the coal market today; if so, what was the impact?
There has not been another period of time  like this one in the coal market. The first real spike in natural gas that wasn’t associated with the oil embargo was in 2001. Natural gas has disappointed in the past, at which point many of the natural gas companies in the gulf left the U.S. and have not come back.

If natural gas stays below $5 long-term, will that reduce volatility in the coal markets?
If shale gas can be liquefied and exported, it seems unlikely that gas will stay low. When you have a resource like this, and you talk about exposing it to a global market, it’s only going to get more volatile.

5:30 p.m. – End of Day

FRIDAY

SESSION 5:  MET COAL

9:30 a.m. – Welcome address – Henry Hely Hutchinson, CoalTrans

9:35 a.m. – Chair’s Opening Remarks – Ernie Thrasher – Xcoal Energy & Resources
Ernie opens with a note that though the U.S. coal industry may not be at its strongest, it’s not in the gutter. He moves on to introduce the morning’s speakers.

9:45 a.m. – US met coal in the global context – Daniel Rusz, Wood Mackenzie
U.S. met coal seaborne exports are number two globally, though Australia holds the number one and dominant spot in that market. 2011 was a record year for met exports in the U.S., and the Baltimore, Hampton Roads, and New Orleans ports all saw growth as a result. The top five exporters were Alpha, Arch, CONSOL, Patriot and Walter, and they produce almost 70% of the exports.

There was also a surge in M&A (mergers & acquisitions) activity this year, both in North America and Australia, driven primarily by met coal producers.

U.S. coking coal  is on par with all other major competitors globally, and is considered by some to be the best in the world. Ash and phosphorous content from the Appalachian area is often lower than the coal coming out of Canada and Australia. By comparison, sulphur levels are often much higher than U.S. global competitors.

There will be new Appalachian projects coming online in the next decade; there will be a mix of new mines and re-opened mines. This will contribute to growing the potential met export supply to just shy of 80 million short tons. This is specifically potential supply in a perfect market with a price of $245/ton. Realistically, market prices will determine what is economically available.

Productivity in Appalachia has been falling over the last decade. Since 2000, all areas of Appalachia have dropped, though CAPP has declined the most. NAPP is still the highest producing area of the area. For CAPP and NAPP, mining and transportation costs are rising, operating margins are smaller, and as a result the areas are less poised for competitive export pricing in comparison to the rest of the world. SAPP does much better.

Though the seaborne met market is likely to grow by 60% over the next decade, U.S. exports will likely remain flat.

10:05 a.m. – Developing new U.S. coal projects – J. Andrew Miller, Ernst & Young, LLP
Last year, the industry engaged in M&A deals that together totaled $42b, and although most of those were smaller deals, the U.S. still led that charge. Coal companies accounted for the largest IPO shares outside of the Glencore offering.

PRB and the Illinois basin showed an increase in growth, whereas the CAPP and NAPP regions shrank.

Historically low natural gas prices since 2009 may accelerate fuel switching from coal to natural gas, and in tandem with more stringent regulations may significantly restrict seaborne exports.

Illinois basin coal has about a $5 pricing advantage over Appalachian coal, and appears to be a growing market.

One of the most interesting new projects coming online is and American Municipal Power/Peabody Energy power plant in Illinois, that is the cleanest electricity plant in the world.

10:25 a.m. – Thoughts from a small US met coal producer from SAPP – Leo Jaime, Mechel Bluestone, Inc.
To put Bluestone’s operations in perspective, with 600 employees across three main mining operations in SAPP, Bluestone was recently acquired by Mechel. Keystone, in southern West Virginia, is Bluestone’s low volatile coking coal mine, with two surface mines, and 4 underground mines. Red Fox is Bluestone’s medium volatile coking coal mine, and will likely only continue at the current rate of production over the next 12-18 months, after which it will continue operating at this level if the market calls for it. Coal Mountain is Bluestone’s high vol-A coking coal. 27% of Bluestone’s coal is for domestic markets, Europe 46%, and Asian markets consume 27%.

There is no benchmark for U.S. Coal, and it’s difficult/impossible to go to international clients and use Australian benchmarks when US coal production is such a unique market. For a small producer, a Panamax shipment that suffers a swing in price is 1/3 of the firm’s annual production.

10:45 a.m. – The perspective of the met coal buyer – Mike Nobis, DTE Coal Services
The U.S. steel market has improved significantly in the last 12 months, fueled in no small part by the automotive industry. The industry is on track to hit the pre-financial crisis levels. Strong domestic demand does not appear to be slacking in the near future, and the steel industry seems to be much more resilient. European steel and manufacturing is in decline, and are seeing some growing coal inventory as a result. China’s decade-long steel production boom appears to be leveling off somewhat, as the money from the Chinese stimulus wears off, and the housing market slows.

Europe’s financial woes will continue to offset the developments in the US markets, and as China’s steel-intensive growth slows, scarcity premiums will erode. As long as there isn’t a black swan event in 2012, the industry will be able to muddle through.

SESSION 6:  COAL & MONEY

11:45 a.m. – Opening Remarks – Michael Dudas, Sterne Agee & Leach, Inc.

11:55 a.m. – The view from Wall Street – William Hunter, Investment Banker
2010 saw tremendous volatility in the coal markets, and in the early half of 2011 we saw a strong market, but the back half was much less promising. The three-year chart show the coal markets doing very well on average, despite the current sentiment. 2011 also saw increased consolidation in the industry, and over $8b in debt and equity financing.

Benchmark yields remain relatively low, below 1%. With investors steadfastly attracted to yield, high yield bond spreads remain high, which sends money into high yield mutual funds. Refinancing is dominating the investments made in the industry. Mining, Metal, and Energy account for 25% of the total high yield issuance in 2011.

While coal pricing remains unceratins, the markets remain receptive to financing consolidation stories. Companies looking to refinanced should likely do so earlier rather than later.

12:15 p.m. – Where is the smart money headed? – Steve Piper, SNL Energy
After a promising start, the coal industry faded in the second half of 2011, due to China’s slowdown, Eurozone debt crises, domestic regulations, etc. Estimates indicate that US coal retirements at around 26GW in the next decade. There is healthy pending M&A dealflow, but this will likely slow through 2012. Wind power may be at a near saturation point. The costs of solar power are falling, but the contribution so far has been very small.

Looking to 2012, forward spreads to Europe for NYMEX CAPP is ~$47/ton, for NYMEX PRB is ~$60/ton. Met coal will remain a curcial source for incremental earnings growth.

Oil & Gas looks primed to consolidate in 2012, and the international pricing environment does look promising from coal.

12:55 p.m. – Panel Discussion, including Shawn Driscoll of  T. Rowe Price and W. Douglas Blackburn of BLACKACRE, LLC.
1:05 p.m. – Closing Remarks from Paul Clark, Coaltrans Conferences, Ltd.

Photos from Coaltrans USA

Palm Beach, Florida: 29-31 January: We are blogging live from the Ritz Carlton Hotel on the shores of the Atlantic Ocean in Florida, where OpenLink Financial is proud to sponsor and participant in the CMC: 2012 State of the Industry event. We’ll be covering each of Monday and Tuesday’s sessions, as well a visiting with some of the many exhibitors present at this year’s event.

(Please note that the representations of the presentations and panel conversations listed below are not direct quotes. These are reductive summaries of the statements presented at the event and do not necessarily represent the views of the companies these speakers represent, the speakers themselves, the CMC, OpenLink Financial, or any other mentioned organization.)

SUNDAY

6:00 p.m. – Welcome Reception and Keynote Address
John Boehner, Speaker of the House of Representatives – USA

Speaker of the U.S. House of Representatives, John Boehner, addressed the gathered attendees about an hour into the evening’s reception. He kept the conversation light, and spoke about his entry into politics, what it’s like to have the cameras on you during the state of the union, and what it’s like to work with the President of the United States.

MONDAY

8:00 a.m. – Breakfast with an Analyst
Thomas Mielke, Director and Editor, Oil World

Thomas discusses a relative oilseed shortage in the world markets – the world needs more vegetable oils as for the first time, production in soy and rapeseed has decreased. He expects prices to trend higher in Jan-June versus last year, and for July-Dec prices to be higher still.

In less than 20 years, world demand and production has doubled, and of this, biofuel production now accounts for ~11% of global oilseed demand.

Volume is an issue which needs a resolution in order to satisfy demand at acceptable prices for consumers. There needs to be increased focus on yield, which means that responsible GMO investments and research, done correctly to solve the yield problems we face.

9:00 a.m. – Industry Executive Panel
Matt Rose, Chairman and CEO, BNSF Railway Company, Keynote

Matt discussed the need for increased investment in the U.S. supply chain infrastructure, as population growth continues, and the investments BNSF has made in their supply chain. He also warned that the shale plays have created capacity demand that will compete with agriculture transportation.

Greg Heckman, President and CEO, Gavilon

Greg uses the various U.S. shale plays as an example of how the explosive increases in production in those areas has outpaced the supporting infrastructure. He stresses the need for clear regulation to make commodity transportation infrastructure a more manageable investment.

Soren Schroder, CEO, Bunge North America

Growth in agriculture is being driven by food consumption:

• very fast development in developing countries
• urbanization of the global populace
• growing middle class
• decrease in poverty worldwide

The global demand for agricultural commodities will continue to increase as stocks remains relatively stable, so global trade will need to ramp up to accommodate shifts in production due to climate and weather changes. Agricultural commodities have also become a contributor to global investment, and though volatility continues, risk management has improved significantly in reaction.

Q&A:
Sub-Saharan Africa is poised to become much more self-sufficient, though Northern Africa will likely still require imports to sustain the population there. There are supply chain challenges there, but there seems to be potential for long-term growth.

It’s challenging to sell a 20-year investment in infrastructure to shareholders who are accustomed to looking at things in terms of 1-3 year returns, but we will all need to make this shift in order to support a competitive supply chain.

10:30 a.m. Break

10:45 a.m. – International Commodity Exchange Leadership Panel

Phupinder Gill of CME Group – Moderator
Mr. Gill posed several questions to the panel:

1. What are the biggest challenges facing your marketplace?
2. How will the Dodd-Frank regulations affect doing business in your markets?
3. How did the collapse of MF Global affect the way you do business?

Roberto Teixeira da Costa, Market Arbitration Chamber Chairman, BM&F
Roberto  defines the greatest challenges facing the Sao Paolo Exchange as macroeconomic in nature. High taxes and lack of personal savings investments in stocks is limiting the countries economic growth. The international market seems to see Brazil in a positive light.

After the banking and financial crisis in Brazil in the 1990′s, very prudential and conservative rules have been in place. Dodd-Frank will not greatly affect Brazil’s regulations, but minimal adjustments can and will be made to facilitate trade. There is a happy medium between regulation and creativity, and this is what we should strive to achieve.

Jeff Sprecher, Chairman and CEO, ICE
Shifting regulatory landscape is one of the greatest challenges facing ICE.  Customer base is shifting  as banking employees leave to create hedge funds, and increasing fragmentation of equity markets, and being pulled more towards the EU and China as the business becomes more global in nature.

Many things went right with the MF Global collapse, the first of which was that it was not contagious or systemic — it did not take any other company with it. The clearing houses around the world worked together to manage risk in the different markets, such that it did not cause significant price fluctuations. One of the big changes that needs to happen is that U.S. clients do business on exchanges outside of the U.S., so we need to test the global nature of capital movement, and possibly make changes as a result of those findings.

Jorge Alegria, CEO, MexDer

The Mexican government is looking very hard at establishing a structured commodities exchange. The international economy is restricting the growth potential for Mexico, although all the macroeconomic environment within the country is favorable – production and employment are up, and debt is down. One of the biggest challenges is fierce competition from OTC trading. Also, the biggest banks in Mexico are not Mexican banks, so they are heavily impacted by regulations in their home countries.

Zhu Lihong, Executive Vice President, Dalian Commodity Exchange
In the past 5 years, like the economy of China, the commodity markets have grown very rapidly. As of last year, there were only 27 commodity products in China, and of those, only futures contracts are listed. The diversity of products is not keeping up with growth. Another challenge is that many of the Chinese businesses do not adequately understand how to use futures markets. As the global markets grow more interconnected, this will affect Chinese commodity exchanges. So, Chinese exchange must continue to provide education to Chinese businesses.

Regulations in Chinese markets have been fairly strict which has been an important factor in establishing confidence in the market, so the Dodd-Frank regulations in the United States will likely have very little impact on regulatory rules in China.

There has been political pressure from the government to link inflated food prices with volatility in the futures markets in the U.S., but there is no evidence that the prices of futures in Chinese are related to international markets, and the Chinese government has not put much pressure on the Chinese commodity markets during periods of food price inflation.

Sree Kumar, General Manager, Biz Development & Marketing, Bursa Malaysia
In addition to Indian and Chinese palm oil imports, because this is a net export area of the world, the international markets influence the Malaysian markets, which can be a challenge.

MF Global was a big player in Malaysian markets, so their collapse did have an impact. Many of the rules that have been discussed in the U.S. as a result have been implemented in Malaysian markets previously, but more recently have been perceived as archaic. Every time we see a company like this collapse, we learn something new about the markets.

12:30pm Lunch

1:45 p.m. - Inside the Beltway
Chuck Gabriel, Capital Alpha Partners, LLC

Chuck joins us to provide an election year forecast. Historically, given similar public sentiment, unemployment numbers, and job approval ratings, incumbent presidents have not been reelected. The commonly held view is that the Senate and House of Representatives will likely remain Republican controlled, though given an incumbent reelection, the Senate may become a 50-50. 11 million properties are likely to default on mortgage payments in the next 6 years. 28 million homes are valued below the amount owed on them by their owners. There is also policy uncertainty  from Dodd-Frank, mortgage-related legal exposure, PPACA tax increases, and NLRB. All of this works against an incumbent reelection.

Despite these challenges, with all the traditionally Democrat-voting states, the incumbent would only need 28 votes to regain the office of President. The Republican party also faces much internal division, whereas the Democrat party stands firmly behind the incumbent president.

The Dow Jones Industrial average is up 60% since the current administration took office. It appears likely that incumbent reelection will depend very heavily on the unemployment rate. If the unemployment rate remains below 8.5%, an incumbent victory seems likely.

All of this will affect the decisions that  are made by representatives on Banking, Budget, and Agriculture steering committees in Congress. The Affordable Care Act will be at risk all year, and will pivot off of the Supreme Court decision in June. This will also affect decisions on hydraulic fracturing and shale gas development.

2:30 p.m. – Ag Focus Session
Dan Basse, President, AgResource Co.

Dan discusses some keep market indicators and predictions for the coming 2012-13 growing seasons. There is high interest in agricultural commodities, but investments are still low, and there is still a crisis in market confidence. ETF share prices are not rising, and trade volumes are low in comparison to other commodities. Trade data is trending upward globally, but US/EU exports are at 9 month lows. South America & Former Soviet Union states are very close to surpassing the US & EU in corn exports.

Weekly corn prices are between $.40 -$.60, global events continue to make a significant impact on US markets, and there appears to be some long-term correlation between seed oil & energy markets.

Dan also surmises that supply dislocation (most often due to weather events) will have the biggest impact on price in the coming months, as demand appears to be slowing somewhat. Weather forecasts indicate that La Niña will end between April & May of 2012, at which point we will need to closely watch the parts of the world that are hot spots for drought.

Robert Dixon, Director of Commodities, Raw Material & Purchasing Packaging, Nestle Purina Pet Care North America

Mr. Dixon joins us to discuss what it’s like to try to create a 10-year outlook in the face of an agricultural market that has become more and more volatile in the past 20 years, by drawing a comparison with how you can try to predict what will happen to agricultural demand in developing countries.

Using historical data from other densely populated countries that then industrialized, it seemed likely that China would become largely self-sufficient for wheat production in approximately 30 years, after which they would grow to import roughly 70% of their wheat. Though the first part of the prediction has held true (with the notable exception of soy beans,) China has not shown a substantial upward import trend. This could very feasibly begin to happen in the coming years, as the country’s population continues to migrate toward urban centers, and will thus lose planted area for wheat.

In the U.S., companies looking to create a 10-year plan may use USDA data outlook, which gives projections based on multiple assumptions holding true. As those assumptions prove true or false, the 10-year plan can be adjusted to compensate.

5:00 p.m. – End of Day

TUESDAY

8:00 a.m. – Breakfast with an Analyst
André Pessoa, Founder and CEO, AgroConsult

André addresses the morning crowd with an outlook for Brazilian agriculture. Due to drought in the southern portion of the country, and a tough start to the growing season, at this point, even if Brazil gets more rain, there will still be some loss of soybean and the first crop of corn; however, the production level will still be more than acceptable due to higher yield as a result of investments in technology for the second crop of corn. Cotton will see a higher than expected yield this year.

Each year, the cost of labor increases despite the investment in technologies that are supposed to reduce the cost of labor. In Brazil’s most costly growing areas, they are seeing anywhere between a 7-12% increase in the cost of production.

Brazilian farmers who have adopted of a double-crop system of soybean/corn in Sorriso have begun to be extremely profitable, as well as those who plant a summer crop of cotton.

Clearing land will account for 9% less of the agricultural expansion in Brazil next year, in an effort to minimize deforestation in the country.

Sugar will likely see higher yield this year, though this is unlikely to end the import of ethanol this year. Brazil estimates the need to import 800 million litres of ethanol from the U.S. in the coming year. Brazil estimates the need to double sugarcane output in order to support the growing demand for ethanol for flex fuel vehicles in the next 10 years.

Some of the larger Brazilian farming groups have begun to expand globally, planting in Argentina, the Congo, and Mozambique.

9:40 a.m. – Dodd-Frank Briefing and Panel Discussion

De’Ana Dow, Senior Vice President, Ogilvy Public Relations – Moderator
Dave Olsen, Director & Global Head of OTC Clearing, JP Morgan
Tom Hanley, Director of Regulatory and Industry Affairs, Infinium Capital Management
Brenda Boultwood, Senior Vice President and Chief Risk Officer, Constellation Energy

The new effective date for swaps is July 16, 2012. Entity definition rules are (like many of the rules proposed) extremely controversial. The definition of a swap dealer is how a person holds themselves out to the public, making a market in swaps, regularly entering into swaps, and engaging in activity causing oneself to be commonly known as a dealer or market maker in swap. The estimated annual cost as a result of this designation is $72b. There is some end-user: exception protection in the process of  moving through Congress.

Q – When will we expect rules on OTC swap definitions? A – Likely first quarter.

The major concern for a capital management firm is that setting aside the cash required by these regulations restricts the ability of the swaps dealer to invest that capital elsewhere.

There are a lot of very good public policy objectives, but there needs to be some fine-tuning of some of the language and rules. 60 new regulations globally affect large financial institutions daily, which is a reality of doing business, but is a serious financial burden for compliance with these regulations. A large concern is that as these regulations go live, compliance with these rules is required despite ambiguity and even some contradiction. There is also a conflict between the various regulatory bodies in different countries/markets vying for regulatory superiority.

The new regulations requiring third party involvement in OTC transactions between financial firms will result in upwards of $1 trillion (rough estimate.)

It may be necessary to have a more sophisticated view of what qualifies a firm as posing risk to the market.

Q – Would Dodd-Frank have prevented the collapse of MF Global?
A – It seems unlikely that something like MF Global’s demise would have been prevented by Dodd-Frank, as it appears that the pre-existing rules should have been enough.

At the moment, at least between financial firms and their customers, it’s very simple to identify a swaps dealer. Financial firms openly advertise that they are a swaps dealer in an effort to gain customers. Beyond this self-identification, another criteria would be the chance that a firm could pose systemic risk to the market.

The capital requirements for a commercial energy firm, beyond the infrastructure investment required for calculations, will ultimately become costs passed down to the end users.

Q – How difficult will it be to avoid designation as a swap dealer?
A – If the aggregate notion of your swaps is valued at over $1b, you will be designated a swaps dealer, though the ability to petition is in place, though you will have to take a risk that your operations up until the point of that ruling are still subject to designation as a swap deal.

10:30 a.m. – G-20 and Beyond
Sonja Gibbs, Deputy Director of the Capital Markets and Emerging Markets Policy Department, IIF

Each G-20 chair takes a different view of the responsibilities of the body. For instance, the French G-20 Chair was more interventionist with regard to the price surge in commodities in 2009 as they began to recover from the financial crisis of 2008. The Mexican G-20 Chair has taken a much less active interest in commodity prices.

Debt sustainability of G-20 countries is of great concern; debt-to-GDP ratios must not exceed 120%. Greece’s debt is not an unmanageable amount, but the issue is less about the value of the debt and more about the contagious nature of that debt. How will the debt affect other nations? There will need to be a more solid firewall or buffer between sovereign debts in order to prevent systemic defaults. Unfortunately, nearly 80% of the private-sector creditors holding the majority of this debt are not Greek, so simply writing off the debt is not an option as the effects will be so far-reaching.

The ECB is now offering more liquidity support for these banks, since the lending rates skyrocketed. Financial markets will likely have to prepare for a long, drawn-out resolution for the Euro, and the jury is still out as to how the Euro crisis will play out.

11:30 a.m. – Industry Partner Showcase
 

12:30 p.m. – Close of Conference
 

EVENT PHOTOS

Jeff Hunkele, SolArc senior software developer and weekend skydiver, made what some would consider a risky and expensive decision back in 2010 to support a friend’s wish to skydive on her birthday. He said that, although he was nervous and hesitant, he took a leap of faith and threw caution (and himself) into the wind.

Jeff Hunkele (uppermost) dives from an airplane during one of his 100+ skydives in the past year and a half.

Jeff remembers that first jump vividly. After sitting through the training video and suiting up with all of his gear, he said that his nerves were running high. “I told my friend that I needed to jump first otherwise I would ride in the plane to the ground again.”

The instructor opened the door opened at 2,000 feet.  “I was literally terrified and looked down thinking, ‘We still have 12,000 more feet to go!’ When I approached the door, my heart was beating so hard I could actually hear it. I had never been more afraid in my adult life than that day.”

Jeff said he knew at that moment that there was no turning back, and it was only sheer will that pushed him through the next few seconds. Fear. Excitement. Terror. All were flowing through his veins, and as the instructor commanded “READY,” Jeff and the instructor to which he was tethered (as is required for the first 2 jumps) leaned back, said “SET,” and jumped out of a perfectly good airplane! It’s mind-boggling, and requires a bravery and courage unknown to many, but to talk to Jeff and others like him, and you can see how captivated they feel every time they make that jump.

“For the first 3 seconds, we were the equivalent of the Hulk’s eyes changing and his transformation from human to hero. All of the fear, excitement, and pure terror were converted into pure adrenaline, and it was pumped into my system within those 3 seconds. I went from terrified to feeling like I could actually lift a car! I couldn’t feel the tandem instructor. All I could feel was that I was flying.”

Screaming in pure delight, he said he took in the sights and sounds of the sky. He saw the ground, the Houston skyline, the clouds. “For that minute, you own the sky, and you are invincible.”

Jeff (in the red suit) and other skydivers fall in formation during his 100th jump. photo by Brittany Sanchez

At 6,000 feet, Jeff and his instructor pulled their chute, and the noise of the 120 MPH fall was silenced. Jeff recalled, “I’ll never forget my instructor asking me in the silence of our canopy ride, ‘So, how do you like my office?’”

Upon that first landing, Jeff said he knew that he had to do it again. He knew he was addicted. Ironically, though fear and nervous excitement consumed him on that first jump, he instantly fell in love with skydiving. A year and a half later, he has earned two different skydiving licenses, and jumped out of an airplane over 100 times. He has now earned his class A and class B licenses, no longer has to tandem jump, and can now jump at night, near water, or from a helicopter or hot air balloon.

He said his ultimate goal is to earn his class C and D licenses and to perhaps become a videographer, which would allow him to earn money while jumping on the weekends and videoing first-timers.

“I waited to call my family after I jumped. They said I was crazy, and while they have come to accept my new hobby, they still wish I would quit. Many friends and family love the videos but say they could never do it. I was one of those people, and now, I can’t imagine not doing it.”

Jeff said that skydiving has given him the courage and confidence to overcome obstacles and fears. When he is up against a challenge, he knows that he is capable of finding resolution whether at work or in life.

SolArc CEO, Brad Anderson, presents the US Marine Corps with SolArc's Toys for Tots donations at the 2011 Houston Holiday Party

Each year at our holiday parties in Houston and Tulsa, SolArc’s employees open their hearts (and wallets) to donate toys and cash to Toys for Tots, and this year we were very proud to present over 200 items to the United States Marine Corps for them to distribute to children in need this holiday season.

This year, we held the holiday party at The Houstonian’s Aspen Room, and I can say from firsthand experience that the decorations, food, and staff were absolutely wonderful — the perfect accoutrements to a successful holiday party. We had a great time with the casino night entertainment after dinner, and gave away some pretty amazing prizes at the end of the evening.

As ever, we took some photos of the festivities for those who were unable to attend this year:

Seasons Greetings to you and yours, from SolArc!

Immediate value to customers in combined breadth of industry and market knowledge, resources, and expanded solution suites

New York – December 01, 2011 – OpenLink Financial, LLC (OpenLink), a leading provider of energy, commodities, trading, and risk management (E/CTRM) solutions, which support the entire transaction lifecycle, has completed the deal to acquire SolArc, a vanguard in commodity management solutions for companies operating across the commodity supply chain, with a particular strength in physical bulk commodities.

Kevin Hesselbirg, Chief Executive Officer, OpenLink, said, “For many years OpenLink and SolArc have discussed the merits of coming together in order to serve our customers in a more comprehensive manner.  We are thrilled to have cleared the final regulatory and legal approvals and have now successfully completed our acquisition of SolArc.”

Brad Anderson, SolArc’s CEO, added about the newly combined company, “Customer feedback has been outstanding and validated our assumptions.  Clients and prospects have been very positive about our commitment to the respective solution suites.  They have also expressed enthusiasm about our ability to leverage the unique strengths of both product lines, and the benefits of our expansive breadth of industry and market knowledge.”

Hesselbirg furthered, “The combination of SolArc and OpenLink is evidence of our commitment and investment to meet the needs of our sophisticated, global customers today and for the future.  The collective capabilities extend OpenLink’s leadership in physical bulk commodities and related logistics — NGL’s, coal, oil and agricultural products.  We look forward to working with our valued customers to continue to create innovative solutions to meet their needs.  We are confident that the combined talents of the two organizations will drive the next phase of our growth.”

Media Contacts:

Cognito, Caitlin Mitchell, +1 (646) 395-6300 OLF@cognitomedia.com

About OpenLink

Founded in 1992, OpenLink provides decision support software solutions for transaction lifecycle management.  This encompasses financial and physical cross-asset trading, risk management, related operations processing and portfolio management for commodity, energy and financial services markets and industries globally.

OpenLink’s client base of more than 540 clients worldwide includes 13 of the top 25 largest commodity and energy companies by market capitalization, eight of the largest financial institutions and 11 of the largest central banks, as well as major hedge funds, commodities companies and public utilities.

Headquartered on Long Island, New York and with offices in New York City, Houston, Dallas, Tulsa, London, Berlin, Vienna, São Paulo, Sydney, Singapore, Moscow and Toronto, OpenLink has more than 1,300 employees worldwide. Please visit www.OpenLink.com.

Unbeknownst to NESA's fall tournament golfers, Black Horse Golf Club's resident alligator waits in the tall grass just off the putting green.

Black Horse Country Club: November 9, 2011: We were fortunate enough to be able to attend NESA’s fall golf tournament in Cypress, Texas this week. Our photographer, Kristen Ortwerth-Jewell, got some great photos of all the golfers, including one of the golf course’s resident alligator! Check out the rest of the photos below: 

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Sunrise at the Gateway Arch and Mississippi River, at the Hyatt Regency St. Louis at the Arch, host to the Soy & Grain Trade Summit.

DAY 1 – GENERAL SESSION

Hyatt Regency Hotel St Louis The Arch, home to the 2011 Soy & Grain Trade Summit

Tuesday, 8:30 a.m. – Welcome Address & Opening Remarks: And we’re off!

Robert Thompson - Soy & Grain Trade Summit 2011 - Dynamics of Agriculture

Tuesday, 8:45 a.m. – Dynamics of Agriculture Production Worldwide: Robert Thompson, Senior Fellow at the Chicago Council on Global Affairs takes the stage to discuss global food security, animal protein demand and the changing feed grain market, and global investment in ag production.

Tuesday, 9:05 a.m. – Dynamics of Agriculture Production Worldwide: Loving the murmur from the back of the room, as the translation service team converts this presentation into the native languages of this global audience.

Tuesday, 9:15 a.m. – Dynamics of Agriculture Production Worldwide: Robert surmises that global warming will push the arctic temperatures of Canada (specifically, the plains of Saskatchewan and Alberta) up such that those areas will become prime “bread basket” land for North America.

Tuesday, 9:16 a.m. – Dynamics of Agriculture Production Worldwide: As population gravitates toward urban centers, farmers will be outbid for fresh water, and as the volatility of  extreme conditions increases, the need for efficient, drought tolerant crop varieties.

Tuesday, 9:20 a.m. – Dynamics of Agriculture Production Worldwide: We need to double food system productivity by making unproductive soils productive, increasing the genetic potential of crops, reducing post-harvest losses.

Tuesday, 9:25 a.m. – Dynamics of Agriculture Production Worldwide: Future world market price trends will depend on ag research keeping up with global demand.

Tuesday, 9:27 a.m. – Dynamics of Agriculture Production Worldwide: Q&A had several very good questions about trends in food production, including a question about college students entering the workforce. Robert recommended that students enroll in research and worldwide marketing.

Tuesday, 9:30 a.m. – World Oilseed Supply & Demand: Thomas Mielke was unable to attend the conference in person, but prerecorded a video on Monday to discuss crucial developments in world oilseed supply & demand, which is now playing on the projector screens.

Tuesday, 9:35 a.m. – World Oilseed Supply & Demand: The agriculture industry is in a structure deficit at the moment, and will need to catch up.

Tuesday, 9:38 a.m. – World Oilseed Supply & Demand: Prices of oil seeds are increasing sharply, peaking, and retreating slowly, in line with global events, including record global production and the EU market/recession scare. Prices have moved higher since the EU resolved the Greek debt crisis.

Tuesday, 9:49 a.m. – World Oilseed Supply & Demand: Soybean demand in the US is starting to become dominated by biofuels.

Tuesday, 9:51 a.m. – World Oilseed Supply & Demand: Soy and palm oil accounts for over 50% of oilseed production worldwide.  Rapeseed oil continues to decline.

Tuesday, 9:53 a.m. – World Oilseed Supply & Demand: We will see a scarcity in oilseed in 2012, due to a slowing down of growth in plantings to 2.4 Mn ha because of increased acreage competition from grains.

Tuesday, 10:01 a.m. – World Oilseed Supply & Demand: Acreage competition will continue between oilseed and grains/sugars. Corn in the U.S. will not be able to yield any acres due to demand. Land values have doubled as a result of this fight for acres.

Tuesday, 10:16 a.m. – World Oilseed Supply & Demand: Thomas joined the conference via audio conference for Q&A with the audience. When asked how he feels about the affect that political biofuels mandates have on oilseed demand, Thomas cautiously replied that biofuels mandates should reflect global supply/demand, and should be adjusted in the case of shortages.

Attendees at the morning coffee break - Soy & Grain Trade Summit 2011 - St. Louis

Tuesday, 10:17 a.m. – Break: Brief Coffee Break, and then we’re back for the keynote address with a former U.S. Senator from Missouri, Christopher S. “Kit” Bond.

Tuesday, 10:24 a.m. – Exhibit Hall: Some of the technology on display here today is totally amazing. We’re really looking forward to the Agriculture Production Technology session tomorrow afternoon.

Keynote address from former U.S. Senator from Missouri, Christopher S. “Kit” Bond at the Soy & Trade Summit 2011 - St. Louis

Tuesday, 10:40 a.m. – Keynote Address: Former U.S. Senator, Christopher S. Bond, now partner at Thompson Coburn LLP, takes the stage to address attendees at the Soy & Grain Trade Summit on global agriculture development and smart power.

Tuesday, 11:03 a.m. – Keynote Address: Sen. Bond believes that free trade policy is key to agricultural business development in places like South America, and China/Southeast Asia.

Tuesday, 11:04 a.m. – Keynote Address: Sen. Mr. Bond believes that TPP will ensure that the U.S. remains a vital player, and will be the most important agreement since NAFTA.

Tuesday, 11:17 a.m. – Keynote Address: To avoid ostracism, biotech researchers must spend time outside the laboratory talking to the populace and politicians about what it is they’re developing, why, and how it will help them.

Tuesday, 11:22 a.m. – Keynote Address: Q&A was brief on this one, but the Senator encouraged everyone to vote for the politicians who “get it” next fall.

Tuesday, 11:25 a.m. – Panel Discussion on Ags Outlook: Moderator Phillipe de Lapérouse (HighQuest Partners) introduces  panelists Steve Elmore (Pioneer Hi-Bred International,) Bill Emmons (Federal Reserve Bank of St. Louis,) Stéphane Frappat (Sodrugestvo,) and Mark Zenuk (NGP Global Adaptation Partners) for the executive round table on the outlook for global agricultural production, trade and processing, investment capital, food security concerns in China/Middle East, and new challenges and opportunities accross the value chain.

Tuesday, 11:44 a.m. – Panel Discussion on Ags Outlook: 50% of the soybean growth and consumption in the world happens in China. The middle class in China is the same size as the entire United States. Their changing dietary structure due to increased income creates heavy demand on the food supply chain.

Tuesday, 11:47 a.m. – Panel Discussion on Ags Outlook: Market volatility is not going to get any better, but managing it will get easier with the right people, technology, and ideas.

Tuesday, 11:58 a.m. – Panel Discussion on Ags Outlook: Ag commodities will be softer moving forward, and we could possibly see a new price plateau very soon, though we are still looking at inflated prices.

Tuesday, 12:03 p.m. – Panel Discussion on Ags Outlook: Soybeans are extremely expensive, and many farmers in the U.S. and South America are making a lot of money off of it. With the price of crude high relative to natural gas, there will still be a profit made on ethanol sans government subsidies. If you want to provide food for the world, those prices will eventually need to come down.

Tuesday, 12:03 p.m. – Panel Discussion on Ags Outlook: Because of external factors like weather, it’s very difficult to maintain a supply/demand equilibrium.

Tuesday, 12:10 p.m. – Panel Discussion on Ags Outlook: Question: If we’re looking a soft economy worldwide, are we going to see a change back to more vegetable protein from animal protein. How severe will the softness be? Answer: It seems unlikely that people will revert to grains-centric diets from meat, because the smaller economies, though soft, are still growing.

SolArc's Booth giveaways at the Soy & Grain Summit 2011 - St. Louis, Missouri

Tuesday, 12:21 p.m. – Lunch Break

Trade Policy Panel at Soy & Grain Trade Summit 2011 - Gary Martin (North American Export Grain Association,) Sharon Bomer Lauritsen (Office of the US Trade Representative,) and Yang Gouqiang (Consulate General of the PRC - Chicago)

Tuesday, 1:57 p.m. – Trade Policy, The Ag Industry, and Global Food Security: After citing the infamous St. Louis Siesta Syndrome, Moderator Greg Duerksen (Kincannon & Reed) welcomes the attendees back from lunch and introduces the panelists for the afternoon panel: Gary Martin (North American Export Grain Association,) Sharon Bomer Lauritsen (Office of the US Trade Representative,) and Yang Gouqiang (Consulate General of the PRC – Chicago,) who will discuss Free Trade Agreements, WTO/Doha Round implications, global demand and public policy, biotech industry concerns, sustainability issues, and policy standards for agricultural production and trade.

Tuesday, 2:10 p.m. – Trade Policy, The Ag Industry, and Global Food Security: Yang Gouqiang presents on the relationship between China and the US agricultural industry, and reiterates that China is steadfast in their WTO commitment to support free trade. Average increase in annual consumption has been over 17% in China for the past few years, as more and more Chinese move into the middle class. The average Chinese food palette is changing from grain-based to meat-based, and China is in a food deficit. Yang believes this trend will only continue. The growing economy and demand in China is too great for existing logistics and supply chain to handle.

Tuesday, 2:22 p.m. – Trade Policy, The Ag Industry, and Global Food Security: Susan Bomer Lauritsen presents prepared remarks on the advances in public policy for the agriculture industry. In October, the US signed three free trade agreements with South Korea, Panama, and Colombia, and Mexico has dropped the last of their retaliatory tariffs on US agricultural products. This will contribute to future GDP growth for the United States. Russia is expected to join the WTO in the next 12 months, and will be subject to all terms of their commitment to that body.

Tuesday, 2:43 p.m. – Trade Policy, The Ag Industry, and Global Food Security: Gary Martin discusses how FTAs, WTOs, etc. affect the ags industry.

Tuesday, 3:42 p.m. – Climate Change and Sustainability: Three part panel series -

• Arable Land: Ensuring productivity
• Water: Stewardship of an increasingly political resource
• Inputs: How will access to seed, fertilizer and crop protection chemicals change?

Tuesday, 5:00 p.m. – End of Day

DAY 2 – BREAK-OUT SESSIONS

Keiner Plaza - St. Louis, Missouri

Lin Tan presents on the Chinese market for soy & corn - Soy & Grain Trade Summit 2011 - St. Louis

Wednesday, 8:30 a.m. – Panel: World Production Trends: Soybean & Corn: Steve Elmore, Peter Goldsmith, and Lin Tan are here to speak to us about world production trends. Peter Goldsmith begins.

Wednesday, 8:35 a.m. – Panel: World Production Trends: Soybean & Corn: Some Brazilian growers have converted to a 90-day soybean variety, and are planting corn the rest of the year, essentially for free. The drawbacks are that the growing seasons are so tight that any anomaly in rainfall will throw off planting, harvesting and pollination, which affects yield. Still, it’s sustainable.

Wednesday, 8:40 a.m. – Panel: World Production Trends: Soybean & Corn: Brazil will be outputting soybeans will be the leading soybean producer by 2030. The U.S. and China will be the leaders for corn.

Wednesday, 8:45 a.m. – Panel: World Production Trends: Soybean & Corn: Poultry consumption will increase dramatically over the next 20 years, equally increasing the need for efficient feedstock production in China, the US and Brazil, where those chickens will be produced.

Wednesday, 8:55 a.m. – Panel: World Production Trends: Soybean & Corn: Peter finishes up – Brazil will be a major meat exporter, enabled by large supplies of cheap feedstock, but their infrastructure is still constraining production.

Wednesday, 8:58 a.m. – Panel: World Production Trends: Soybean & Corn: Steve Elmore takes the stage to discuss production acceleration over the past 10 years.

Wednesday, 9:01 a.m. – Panel: World Production Trends: Soybean & Corn:  World production has reached record levels for the past 5 years, and grown to several billion acres.

Wednesday, 9:05 a.m. – Panel: World Production Trends: Soybean & Corn: Ethanol production will probably level off for the next several years, but demand will increase.

Wednesday, 9:14 a.m. – Panel: World Production Trends: Soybean & Corn: Looks like volatility and acreage battles are going to continue for the next two years, despite market sentiment.

Wednesday, 9:16 a.m. – Panel: World Production Trends: Soybean & Corn: Even if the Southern Hemisphere has a banner year, which seems unlikely, we’re looking at a very tight stock year this year.

Wednesday, 9:17 a.m. – Panel: World Production Trends: Soybean & Corn: Steve’s closing – High volatility is going to continue, prices will increase to ration demand, and things will be tough moving forward.

Wednesday, 9:19 a.m. – Panel: World Production Trends: Soybean & Corn: Lin Tan takes the stage to discuss China, and begins with an amusing anecdote about how most of the world is looking to China to purchase, but it isn’t necessarily going to happen.

Wednesday, 9:23 a.m. – Panel: World Production Trends: Soybean & Corn: Soybean imports will increase slightly for China in the next three years, but corn and rice will remain relatively the same.

Wednesday, 9:35 a.m. – Panel: World Production Trends: Soybean & Corn: Interesting story about a many in China (many years ago) who rode his bicycle 100km to the next village to trade a bag of wheat for two bags of corn, using one bag to feed his family, and then bringing a bag back to sell to his village — the original Chinese commodity trader!

Wednesday, 9:40 a.m. – Panel: World Production Trends: Soybean & Corn: The moderator returns to point out that the world is turning into a giant black hole of protein and feedstock demand. More people outside of the U.S. are moving into the middle class, and these people like to eat meat.

World Production Trends: Wheat and Other Grains: Patrick Westoff

Wednesday, 10:32 a.m. – World Production Trends: Wheat and Other Grains: Patrick Westoff (University of Missouri) takes the stage to present on wheat production trends. According to him, wheat yields are growing as strongly as corn, despite the fact that the area where wheat is planted has decreased.

Wednesday, 10:40 a.m. – World Production Trends: Wheat and Other Grains: Global wheat stocks are healthy, but prices are higher because the corn market is so tight.

Wednesday, 10:43 a.m. – World Production Trends: Wheat and Other Grains: We should expect continued volatility, and continued economic growth in wheat, due to low corn stocks, inelastic demand, continued increase in feedstock demand, slowed growth in wheat-based ethanol, and price retreats from 2011 peaks in grain, oilseed, and sugar.

Wednesday, 10:48 a.m. – World Production Trends: Wheat and Other Grains: World population growth rate is slowing over time, though the absolute number of people is increasing. If we can sustain yield growth in crop production, we will actually need less acreage in 2030 than we do today; however, ethanol production may end up increasing the need for that acreage overall.

Wednesday, 10:50 a.m. – World Production Trends: Wheat and Other Grains: Global consumption per capital of wheat and rice will remain relatively constant through 2016. Yields will continue to increase.

Wednesday, 10:51 a.m. – World Production Trends: Wheat and Other Grains: World production and use will continue to increase, and production will remain slightly ahead.

Wednesday, 10:52 a.m. – World Production Trends: Wheat and Other Grains: There’s a fair chance we’ve seen the peak of wheat prices this year.

Wednesday, 10:54 a.m. – World Production Trends: Wheat and Other Grains: Weather, world economic growth, corn market developments, public policy, and new technologies would all affect outlook for wheat moving forward.

Wednesday, 10:59 a.m. – World Production Trends: Wheat and Other Grains: Q&A – Spring wheat is a much tighter market, and have the potential for higher prices. There is good reason to be bullish on grains markets right now, but there’s always going to be a downside. There are concerns about water availability that would limit continued yield growth in wheat.

Wednesday, 11:23 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? Steve Censky (American Soybean Association) takes the podium to address the three recent FTAs, asynchronous biotech approvals…

Wednesday, 11:26 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production?  South Korea FTA gained the U.S. access to 49 million new consumers, 300 MT food bean market, and a $1t economy. 2/3 of farm goods will become tariff-free.

Wednesday, 11:29 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? Colombia FTA allows the U.S. to regain market share lost to Canada, and 70% of farm goods will be duty-free. Panama FTA formalizes a great deal of the duty-free operations already in place.

Wednesday, 11:30 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? 120 biotech events commercialized in 24 crops, and 148m ha planted in 2010. Only 33 countries have approval processes in place.

Wednesday, 11:32 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? Need to make sure that countries let scientists drive the approval policies, and that they are consistent with Codex approved guidelines.

Wednesday, 11:35 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? EU’s Renewable Energy Directive relies on an outdated approval system. Biodiesel made from U.S. soy reduces emission by 58%; bilateral negotiations have been requested.

Wednesday, 11:36 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? Mike Steenhoek (Soy Transportation Coalition) takes the stage to discuss the relationship between the grain and railroad industries.

Wednesday, 11:41 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? Soy shippers have commended the rail industry for the response and recovery from the flooding in the Midwest, customer service, and service improvements, but have criticized  railroads for service reliability, a flat-footed response to the recession, and switching rates. The top-rated rail company according to shippers is Union Pacific, followed by BNSF and Canadian National.

Wednesday, 11:45 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? Congress has been largely unsuccessful in advancing rail regulations, and the playing field has largely shifted to the STB. It seems unlikely that anything will get passed in Congress in the next few years.

Wednesday, 11:49 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? CSTB conducted a hearing about competition scarcity in the rail industry, and also reduced the complaint filing fee from $20k to $350. This makes mediation a more open process. There is very, very little market appetite to risk hamstringing the rail industry.

Wednesday, 11:50 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? Patrick Westhoff takes over to discuss the federal budget in the context of he ags industry.

Wednesday, 11:51 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? it’s going to be very difficult to push legislation through that would increase our federal deficit. RFS changes will likely cause no, or very little decrease in ethanol production.

Wednesday, 11:54 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? There is a proposed $32b in net cuts to farm and conservation programs over the next 10 years.

Wednesday, 11:58 a.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? If Congress can finally agree on a bill, it seems likely that it would include the elimination of direct payments, a new program for shallow loses, a new program that would increase crop production, and might also reduce the maximum size of CRP.

Wednesday, 12:00 p.m. – How is Trade and Regulatory Policy Impacting U.S. Ag Production? Q&A – Shallow loss provision has been somewhat controversial, and this has likely been the impetus for discussion on an possible alternative option. Japan, Mexico, Canada have been very quick in their biotech approval processes.

Wednesday, 12:15 p.m. – Lunch Break

Iani Adrian Chihaia presents Global Markets: Eastern Europe & Mahgreb

Wednesday, 1:45 p.m. – Global Markets: Eastern Europe & Mahgreb: Iani Chihaia presents on near-term regional demand forecast for ag commodities, and how U.S. producers and traders improve access to growing regional markets.

Wednesday, 1:50 p.m. – Global Markets: Eastern Europe & Mahgreb:  The EU is (at the moment) the world’s largest importer of grains, and Eastern Europe is likely to be a major area of growth in swine and poultry production.

Wednesday, 1:53 p.m. – Global Markets: Eastern Europe & Mahgreb: Eastern Europe will likely see significant growth in poultry and swine production in the near future. Grain production has increased, and corn production put Romania in the top-ten producing countries list in 2010.

Wednesday, 1:57 p.m. – Global Markets: Eastern Europe & Mahgreb: 68% of soybean meal in the EU is imported. The U.S. holds 28% of that import market.

Wednesday, 1:45 p.m. – Global Markets: Eastern Europe & Mahgreb: Short-term outlook – We can expect to see an increase in soybean meal this year and in 2012. The EU will drive global soy meal to record levels in 2011-12. Europe’s financial crisis, practical biotech solutions and unforeseen GM events, and industry consolidation, and ongoing concerns of animal disease outbreaks could all potentially affect this outlook.

Night at the Old St. Louis Courthouse after the Soy & Grain Trade Summit 2011

More Photos:

Over the past century, the volatility of agricultural commodities markets has remained relatively stable; however, in the past 10 years, the fast-paced nature of internet trading, globalization of ags markets, and the adaptation of grains-sourced biofuels has drastically increased that volatility. “We view this IT solution as a strategic advantage not only for our business, but also for our customers as they manage their businesses in a world of commodity volatility,” said Bill Stoufer, president of ConAgra Mills.

ConAgra Mills began the transition to SAP, which put the organization in a position to adopt commodities trading technology with out-of-the-box SAP integration. Most of the existing software products for the byproducts execution space rely on dated, and aging techonologies, and fail to provide adequate integration, support, and real-time data to CPG’s, aggregators, and trading desks in the agricultural space. “SolArc’s RightAngle solution is the next step in our continued commitment to be on the leading edge of technology. As the leader in the flour milling industry, this solution expands our capabilities by enhancing our byproducts execution to the benefit of our customers across the country.” said Bob Elliott, ConAgra Mills director of byproducts merchandising.

The RightAngle solution allows ConAgra Mills to expand its capabilities around an ever-growing enterprise solution for risk management. For ConAgra Mills customers, the tool will enable improved efficiencies in the scheduling and delivery of byproducts, and will be seamlessly integrated into our existing SAP environment.* “SolArc is proud to be selected by ConAgra Mills, a clear leader in the flour milling industry, and an organization committed to continuous improvement,” said Brad Anderson, CEO of SolArc. “Our RightAngle solution will provide real-time operational and risk management information, enabling ConAgra Mills to more efficiently manage its byproducts business.”

About ConAgra Mills
ConAgra Mills is a food ingredients brand of ConAgra Foods, Inc. ConAgra Mills^® offers the most comprehensive selection of premium multi-use flours and whole grains in the industry—including Ultragrain^®, the 100 percent natural whole wheat flour with the taste, texture and appearance most like white flour, Sustagrain^®, high fiber barley and a line of ConAgra Mills Ancient Grain flours, which are helping to meet growing consumer demand for healthier ingredients.  For more information, please visit www.conagramills.com.

* ConAgra/SolArc Press Release from Nov-01-2011

http://www.youtube.com/watch?v=ds17xiEKrCI

Employees at SolArc’s Dallas, Houston, and Tulsa offices faced off in an epic carve-off to see who could create the jack-o-lantern of the year. The competition kicked off at 8 a.m. on Friday morning, and the rinds and pumpkin goo flew until noon, when the contestants sent their photos off to our jack-o-lantern contest judge, Susan Bauch. The judge has spoken, and the results are in. Who won the year’s bragging rights? We’ve posted the results below:

CONTEST WINNER // King Kong Jack-O-Lantern - Clifford Cravello, Jeremy Stone, Jonathan Brady, Susan Vineyard

RUNNER UP // Sneaky Mice - Cathy Hughes, Cynthia Hilton, Donna Oveson

THIRD PLACE // Halloween Delivery - Diane Camp

HONORABLE MENTION // Franken Jack - Tom Brune

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This acquisition is an exciting endeavor for SolArc as the combination of these two companies and their respective products will provide overall greater value for their customers through a more complete, single-sourced set of solutions under one vendor. This acquisition is unique in that each company brings complementary platforms and a non-overlapping product offering. Together, SolArc and OpenLink will become a leading provider of C/ETRM products focused on the complex business needs of its customers and will provide one of the most comprehensive product portfolios in the industry.

In a collaborative effort with OpenLink, SolArc’s existing products will continue to mature, and SolArc will continue to support and enhance such products. This acquisition will allow existing SolArc customers an opportunity to leverage OpenLink’s strong financial and risk management offerings.

Brad Anderson, SolArc’s Chief Executive Officer, will become an integral part of the OpenLink management team, overseeing the vision and product strategy of SolArc product lines.

Anderson said, “SolArc and OpenLink have had a long-standing respect for each other and the leadership and solutions they provide their customers. We are excited to move forward in a combined effort to leverage each other’s strengths and maximize our potential as the market leader. In an ever-changing industry, we are committed to providing excellent products, service, and education to our customers.”

OpenLink’s Chief Executive Officer Kevin Hesselbirg added, “We are very pleased that we have finally been able to reach an agreement regarding the completion of this acquisition.  The management teams have discussed the potential value of this transaction for many years, largely because our joint customers have remarked on the potential synergistic value. The complementary platforms of each company will continually evolve to meet the ever-changing needs of the market place, in particular the convergence of physical and financial trading, combined with the need to manage financial and operational risks across the associated complexities of physical delivery and settlement. It is our firm belief that together OpenLink and SolArc will be positioned to offer the C/ETRM market place an unprecedented single-vendor solution to address the complex needs of their businesses.”

The acquisition is expected to close by the end of 2011, subject to legal and other regulatory approvals.

Since 2003, SolArc has teamed with Technology Crossover Ventures (TCV) for private equity funding. TCV is a widely recognized leader in providing market capital for information technology companies. ArchPoint Partners served as SolArc’s investment banker, and Wilson Sonsini Goodrich & Rosati served as SolArc’s outside legal counsel in this transaction.

Contact

Susan Bauch
Vice President & General Counsel
713.260.5112
sbauch@solarc.com

About SolArc

Founded in 1991, SolArc is a leading global provider of commodity management software and solutions for companies operating across the commodity supply chain, with particular strength in logistics associated with physical bulk commodities such as NGL’s, coal, oil and agricultural products. SolArc’s integrated software solution offers customers greater insight and control over their complex commodity supply and trading environments, delivering increased operational effectiveness and profitability at lower risk.

SolArc’s product offering is anchored by its RightAngle solution, which provides trading, risk management, pricing, scheduling, movement actualization, invoicing, interfacing to financial/ERP systems and settlement functions. In addition, SolArc offers a number of optional products for highly specified applications, including credit management, risk management, and automation of high-volume logistics, such as gasoline rack marketing or into-wing fuel deliveries.

SolArc is headquartered in Houston, Texas and has offices in Tulsa, Dallas, New York, London and Singapore. SolArc is a trusted solution provider for international clientele with more than 7,500 active users across a range of vertical industries, including energy and utilities, aviation and transportation, banking and finance, agriculture and consumer goods. For more information, please visit www.solarc.com.

About OpenLink

Founded in 1992, OpenLink is a provider of cross-asset trading, risk management, related operations processing and portfolio management software solutions for the commodity, energy and financial services markets globally.

OpenLink’s client base of more than 460 clients worldwide includes 12 of the top 25 largest commodity and energy companies by market capitalization, eight of the largest financial institutions, and 11 of the largest central banks, as well as major hedge funds, commodities companies and public utilities.

OpenLink is headquartered in Long Island, New York and has offices in New York City, Houston, London, Berlin, Vienna, São Paulo, Sydney, Singapore, Moscow and Toronto, OpenLink has more than 1,000 employees worldwide. For more information, please visit www.OpenLink.com.

John Scherb manning the SolArc booth at ETOT Summit in London

We had a fantastic time at the 3rd Annual Energy Trading & Operations Technology (ETOT) Summit in London this week.

This conference had over 250 registrants from energy and commodity trading industries. Some of our clients and many prospects were in attendance to gather insights from industry experts.  Notable attendees included representative from Deutsche Bank, BNP Paribas, Barclay’s Capital, GDF Suez, Total Gas & Power and many more.

The SolArc group attended presentations on topics such as:

• “Energy Market Overview” presented by E.ON Energy Trading SE
• “Developing STP and Automation Through the Life of the Trade” presented by JP Morgan
• “Managing Risk in Developing Technology Projects” presented by Standard Chartered Bank

As enthusiastic sponsors this year, John Scherb, Mel Brannen, Ray Hall, Alan Gunn, and Mark Crosno attended the conference, where we greeted guests at our booth with a tower of oil barrel stress cushions, and a drawing to win an Amazon Kindle.

Scott Fenwick of Barclays Capital, after drawing twice for winners that left early, Scott Fenwick or Barclays Capital won our prize drawing!

Photo of the week by Sarah Murray

Mucilage, once waste from coffee production, has been used to create bioethanol.

Spin Overtaking Facts in Marcellus Shale Debate Looks like scientists are finally speaking out on the debate over the data they’ve provided to the public on hydrofracking technology. They do not like the way both sides of the debate are spinning the information with almost total disregard for the bigger picture.

Curriculum revised to meet demand in shale industry Secondary education institutions in Pennsylvania are revising their curriculum in an effort to meet demand for qualified labor.

Coffee Biofuel Is a Win-Win-Win
In Part IV of our Infinite part series on “Things That Can Be Converted to Biofuel,” mucilage, waste from coffee production has been converted to bioethanol.

IDC Energy Insights Issues IDC MarketScape Assessment of Energy Trading and Risk Management Solution Vendors
The IDC Marketscape Assessment indicates that the E/CTRM industry will grow 27% overall (16.5% in the oil   gas space) in the next 5 years.

A Visit to Solarc’s 2011 Ascent Conference Patrick Reames at Commodity Point visited SolArc’s ASCENT Conference and User Group Meeting last week, and blogged about a very positive experience, which included exerpts of CEO Brad Anderson’s presentation, a keynote session with Joe Bastardi of WeatherBell Analytics, and the launch of SolArc Compass.

http://www.youtube.com/watch?v=meS4a_aS-EE

Thursday, 22 Sept. 2011 – Calgary, Alberta, Canada

SolArc guests spent a relaxing event at our AfterHours event in the Opera Room at Teatro last week. We enjoyed seeing a few of our Calgary users again, and met a slew of new people. We were happy to see some of our guests reconnect with former coworkers, and make new friends. We have posted photos and video from the event on our YouTube, Facebook, and Flickr accounts. We look forward to seeing you all again next time!

Tom Brune at Ballard Spahr

Tom Brune and Mel Brannen met with the Processed Gas Consumers Group in Washington, D.C. at their fall members’ meeting to explain the benefits of the market-leading RightAngle CTRM system.  PGC is a group of a dozen businesses that consume large quantities of natural gas in their manufacturing processes and are represented by Ballard-Spahr.  Mr. Brune discussed how rigorously managing commodity trade and scheduling transactions and instituting a risk strategy can improve bottom line performance.

Discussions around the benefits of the SolArc RightAngle system with the group’s chief legal counsel at the LDC Forum in Atlanta led to an invitation to address the group as a whole.  Is it uncommon for a vendor to present to the PGC but the benefits of using SRA CTRM by large industrial users of commodities can reduce their costs and help them better manage the risk exposure commodities pose to their bottom line and production processes.

Tom Brune is the Director of Natural Gas Solutions at SolArc, Inc.

Brad Anderson speaks at the general session of SolArc’s 2011 ASCENT Conference and User Meeting.

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Photo of the week by Wes Browning

The U.S. military has made a strong push in 2011 to minimize the U.S. carbon footprint, and the Blue Angels (U.S. Navy Flight Demonstration Squad) continued this effort with their first 50/50 biofuel blend flight over Labor Day weekend.

Obama says advanced biofuels a part of making America “number one again”

While it is nice to hear that Obama is supporting biofuels as “the future,” the biggest challenge in the U.S. is going to be getting refineries, the auto industry and everyone to really start adjusting to biofuels. Ethanol and its dependency on corn is still what we see for a while, and it will truly take more incentives and a shift of mindset to change that dependency. The next 5 years will be very critical to see if biofuels will make America number one again.

A Switch From Coal To Natural Gas Won’t Help The Climate

This article and the referenced environmental study reek of political influence from the coal/coal ash producers lobby groups.  Coal ash is a known source of pollution to our ground water supply.  Water contamination by hydraulic fracturing for gas exploration is still unproven.

The U.S. EPA estimates more methane gas emissions are generated by cows and landfills than what can be attributed to natural gas pipeline leaks.  Coal mining is a top-4 annual source of methane emissions as well.

Natural gas is not a perfect energy source, but it is an abundant, cleaner-burning alternative fuel source to coal.

7 Marcellus Shale Plays to Watch

Consol Energy just sold another chunk of interest in their Utica shale play to Hess on Friday!

Canada Is Taking Aim at Its Wheat Monopoly
Good for Canadian farmers and good for US trading companies. Monopolies just don’t work!

Canadians push for food industry reform to assist sustainability movement
The US should do the same. Who can afford to EAT corn anymore? My kids don’t even know what it tastes like.

Photo of the week by: Andrea Westmoreland

This photo of the week starts to make a lot more sense when you find out that scientists have found a way to make biofuel out of alligator fat that was until recently ending up in landfills. What will they think of next? Check out the link to the article below.

The Big Six – The Changing E/CTRM Software Landscape
Call us crazy, but we really like the part of this article that says SolArc is a leader in technological innovation for the E/CTRM space.

Eagle Ford natural gas play is blossoming
The Eagle Ford shale production zone has transformed SW Texas into the boom days of the past.  San Antonio real estate is getting a second wind.

Gas Riches Creating a New Energy Giant
Wet producers in Texas’ Eagle Ford play make money at $2/MMBtu as well, but it’s very likely that Pennsylvania Marcellus players could become the dominant gas producers in the future.

Brazil Petrobras to import ethanol for domestic use
Demand for ethanol in Brazil is a major topic, and it is interesting to see Petrobras importing ethanol for its domestic use. The infrastructure for ethanol production in Brazil is changing drastically and in the upcoming years the ability to get ethanol to major ports will be huge so Petrobras will for sure be taking advantage of the export market in a big way. Various companies from around the world are investing heavily, opening offices and increasing their participation in the Brazilian market to be ready to take advantages of new infrastructure.

Alligator fat used for liquid biofuel
Seriously? Is there anything that can’t be made into biofuel?

Photo of the Week by Mark Herpel

The stock market wasn't the only roller coaster ride this month. Crude oil, gold, and silver have also seen a ton of movement in August.

Driving With a Tail Wind: The Energy Business Today
A Conversation with Dan Pickering, Co-President of Tudor, Pickering, Holt & Co. and Chief Energy Strategist and Head of TPH Asset Management
Both here in the U.S. and around the world where growing economies mean more energy needs our ability to produce more oil and gas, especially from unconventional resources, satisfies our needs creates a tailwind to drive industry growth.

Venezuela’s risk of debt default keeps oil, other industries on the edge
Venezuela’s rising risk of default ranks just behind Greece, and with no EU to bail it out foreign-owned assets in Venezuela are at increased risk of government takeover.

Energy companies are a good bet as global market wavers
This is an excellent article. The growth in Asia and the unrest in the Middle East insure that crude pricing has limited down side risk in the near term. The fundamentals for Exxon have not change in the past three months, while its stock price has moved from $85 down to the $68 last week.

NGFA Urges CFTC to Exclude Cash Sales, Cash Contracts from Onerous Proposed Dodd-Frank Law Recordkeeping Rules
This is another great example of how randomly the Dodd-Frank Law is being implemented and how onerous its side-effects can be.  D-F was supposed to regulate the banking industry to prevent another financial melt-down.  But instead, it’s being used to force agricultural companies to spend tens of millions of dollars on new phone systems, so they can record conversations with their customers???  This doesn’t make any sense.  I’d rather see companies like ADM and The Andersons spending their money to build new storage and processing facilities, which would create permanent jobs.

Parabolic moves seen in commodities
After one of the wildest weeks we have had since 2008 it is interesting to see how many swings we had in both Gold (safe  bet) and crude oil (higher impact due to the economy). Based on how this week went it is probably safe to say we will still see more ups and downs — especially as we get more details around France & Spain’s economies.

Bomb found on Oklahoma natural gas pipeline
The sweltering heat is driving Oklahomans to madness!

Frack Panel to Industry: Fix Environmental Problems
It’s kind of hard to come up with specific recommendations on mitigating environmental impact without having specifics on what exactly has been impacted by hydraulic fracturing activity.  Beyond surface spills, there has not been a conclusive link established between frac activity and environmental issues.  I’m not saying there are none, I’m just thinking we need to narrow down the problem before a government panel makes recommendations to address the issue.  As discussed at last week’s COGA conference in Denver, it is the gas industry’s responsibility to do a better job of educating the public on hydraulic fracturing concerns.  Too much of this anti-fracking rhetoric is originating from various political lobby groups with vested interest in keeping the US dependent upon inferior energy sources.

Gold Prices slump 3% on stock bounce, margin hike
Expected move by COMEX slows down the Gold rally for now but are we looking at more margin hikes in coming weeks, If Gold continues to edge higher?

Eric Sprott, renowned precious metals trader and founder of Sprott Asset Management.

With gold vaulting to over $1,700 per ounce in this week’s trading and many investors rushing to the safe haven provided by gold and silver it is only appropriate that today’s post focuses on a segment of the precious metals markets.

Regulatory agencies and big banks have pushed talk of price manipulation in the silver markets under the rug ever since the purchase of Bear Stearns by JPMorgan Chase in 2008.  The recent jump in the price of silver has revealed an impending short squeeze of massive proportions.  Many well-known investors are touting the huge profit potential of a long silver position over the next five years.

Economics tell us that buying and selling pressures dictate the rise and fall of commodity prices, and the silver market is subject to the same market vagaries.  In 1980, the infamous Hunt Brothers attempted to corner the silver futures market, accumulating 100 million ounces of silver and driving the price from $11 to $50 an ounce within a year.  Uproar over high prices by jewelers like Tiffany’s subsequently caused a rule change by COMEX, bankrupting the brothers and crashing the price of silver by 50% in just four days.

The days of manipulation in the silver markets appear to be far from over.  A recent example appeared on May 2^nd 2011, when the price of silver tumbled $6/oz in thirteen minutes on a Sunday when most markets were closed.  Owners of large short positions pushed prices lower by shorting large blocks of contracts simultaneously.  The breach of key support levels triggered stop losses and accelerated the decline.  The fabricated selloff aroused suspicion and complaints to the Commodities Futures Trading Commission (CFTC) from hundreds of investors.

When JPMorgan Chase bought the failing Bear Stearns in March 2008 it inherited a massive amount of short silver contracts.  JPMorgan’s poor financial position forced them to continue Bear Stern’s bet and continue to sell paper silver contracts.  A class action lawsuit was filed in November 2010 claiming that JPMorgan and HSBC were manipulating the silver market and making “substantial illegal profits”.  The suit claimed the two banks “controlled 85% of commercial net short positions in silver futures contracts at COMEX, and 25% of all open interest short positions”.  Further evidence arose when the CFTC published the Bank Participation report on Jan. 5^th 2010.  The report showed that these two U.S. banks were short 37,871 contracts out of a total open interest of 125,391, representing 30.2% of the open interest.  The ongoing lawsuit contends that between March and November of 2010 the two banks reduced their short positions in the silver market by 30%, causing a dramatic price increase.  Despite reducing their exposure JPMorgan and HSBC still face an impending “short squeeze” as the price of silver increases daily.

The figure above illustrates the substantial price increase that resulted from a relatively small reduction in short positions in silver from U.S. banks.  The lack of liquidity in a market where two participants hold a substantial amount of the outstanding contracts creates outsized volatility.  Banks like JPMorgan will suffer staggering losses and be forced to liquidate if the price of silver continues to be pushed higher by investors seeking to diversify away from currencies.