SEPTEMBER 2015 EMERGING AUTOMOTIVE, CRUDE OIL, AND CHEMICALS SUPPLY CHAINS IN THE US SOUTHEAST Presentation to the Southeast Association of Rail Shippers 2015 Fall Conference, Orlando, Florida Christopher Grillo, Senior Consultant +1 781 301 9288 Christopher.Grillo@ihs.com
Overview of Discussion Topics IHS Presentation to S.E.A.R.S. Conference / September 2015 Supply Chains Automotive Crude Oil Chemicals Trends & Issues Panama Canal Shale Oil & Gas Reshoring & Nearshoring 2
Automotive Trends China, India, and Germany auto manufacturer production grows rapidly North America auto manufacturing production grows steadily, but Japanese and Korean companies see declines Reshoring of automobile manufacturing to North America Southward migration of production towards the US Southeast and Mexico Increased rail shipments of new vehicles from Mexico to the US and Canada Long-term co-location of suppliers near manufacturing sites Panama Canal: Larger ships, less transits, relatively flat unit throughput 3
Global Light Vehicle Production Global Growth Takes a Turn Millions 110 100 20million 107 Millions -2 0 2 4 6 8 10 12 90 27million 87 Greater China 9.2, 4.3% South Asia 5.2, 6.7% 80 Europe 3.4, 2.0% 70 60 60 North America Middle East/Africa South America Japan/Korea 1.9, 1.3% 0.8, 4.4% 0.4, 1.4% -1.2, -1.2% 2014 22 Growth Volume, CAGR% 50 2007 2009 2011 2013 2015 2017 2019 2021 4
Three Distinct NA Production Clusters Compete Logistics Cost Reduction in Focus Millions 10 9 8 7 6 5 4 3 2 1 0 Great Lakes Mid-Mexico Southeast 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Great Lakes driven by installed capacity shifting to 3 crew/3 shift structures to reach +7 million units Southeast reaching a formidable level of +5 million units by 2017 with virtually every NA OEM resident Mid-Mexico rises to ~4 million units by 2022 as new capacity, diversified demand and supplier investment act as enablers 2015 IHS 5
NAFTA Output By Region Shifting Towards the US South & Mexico Share by Region 5% 27% 25% 7% 19% 19% US Southeast 19% 25% 26% 26% Other 5% 5% 2010 17% 2015 10% 13% 2020 2025 9% US Midwest 38% 38% 34% 33% Almost 50% of NA output will be south of Ohio by 2015 Millions 7 6 5 4 3 2 1 0 Midwest 4.5 6.6 6.5 6.2 2010 2015 2020 2025 Millions 6 5 4 3 2 Millions 3 2 1 0 Southeast Canada 2.1 2.3 1.8 1.8 2010 2015 2020 2025 4.4 4.9 5.0 Millions 6 5 4 3 2 1 0 Mexico 2.3 3.4 4.8 5.2 2010 2015 2020 2025 1 0 2.3 2010 2015 2020 2025 Mexican production growth is one of the fastest through the balance of the decade rivaling Brazil, Russia and India 6
Center of Automotive Industry Moving South Impacting Logistics IHS Presentation to S.E.A.R.S. Conference / September 2015 Center of Automotive Industry Production Center of Detroit 3 Production Center of Asian Production 2000 2010 2015 2021 2026 Latitude and Longitude weighted by Production Volume Center of German 3 adjusted to stay on land. Center of German 3 Production With the German 3 adding plants throughout the Southeast US and Mid- Mexico, their center of production changes drastically with each plant opening, leveling off next decade 7
Light Vehicle Production Locational Analysis 2015 Three Clusters Form Three Production Clusters Form 1. Great Lakes 2. Southeast 3. Mid-Mexico 1, 2 & 4 hour logistics circles <0.5 0.5-1.0 1.0-1.5 1.5-2.0 2.0-2.5 2.5-3.0 3.0-3.5 3.5-4.0 4.0+ (Millions) 8
Crude by Rail (CBR) Avg. Brent to $54/barrel (bbl) and West Texas Intermediate (WTI) to $49/bbl. Short-term US production declines by up to 1 million barrels per day (bpd) US shale operations lower costs to remain competitive Bakken/Canada CBR persists to US Northeast & Northwest Canada pipelines proposals may divert some crude after 2020, but rail still remains competitive to US NE/NW Pipeline infrastructure expansion could affect southbound CBR Panama Canal: No major impact on global crude oil flows 9
Crude by Rail Reaches New Heights in 2014 IHS Presentation to S.E.A.R.S. Conference / September 2015 North American Crude-by-Rail Movements (thousand bpd) 1,200 1,000 800 600 400 200 0 2010 2011 2012 2013 2014 US Canada Source: IHS 2015 IHS 10
Crude by Rail Downside risk primarily for Bakken/Canada flows to the US Gulf Coast * *Note: data reported in bpd; selected origin flows make up the vast majority (but not total) CBR receipts by coast 11
Chemicals US chemicals manufacturing rebounding due to low-cost domestic feedstocks US shale provides low-cost natural gas (NG) and natural gas liquids (NGL) used as chemicals building blocks Asia demand and Panama Canal expansion supports NG/ NGL development About 90% of all new chemicals manufacturing and export will occur in the US Gulf Coast region Impacts of changes in production, imports, and exports will alter chemicals supply chains Impacts will vary based on chemical group 12
US Chemicals Manufacturing US manufacturing expands dramatically due to low-cost feedstocks US Chemicals Manufacturing Expansion, 2014-2020 (million metric tons per year) Other, 12,710 Ethylene, 8,748 Ammonium Nitrate, 2,790 Ammonia, 8,071 Propylene, 4,173 Source: IHS Polyethylene, 5,368 Urea, 6,143 Methanol, 7,141 13
US Chemicals Manufacturing Resurgence US experiences net positive impact on many exports (e.g., Methanol) United States Methanol Net Trade 6.00 5.00 Million Metric Tons 4.00 3.00 2.00 1.00 0.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: IHS Imports Exports 14
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