Good morning everyone! My name is Curtis Chandler and I’m the President of Progressive Fuels Limited, PFL Petroleum, and PFL Field Services. In the short time we have together, I’m going to be talking about the current state of LPG Market and specifically how this affects the rail industry. I will explore how various entities, events, and trends affect the market and some of the challenges we have run into in working with short lines. Finally, I will discuss how we can all capitalize on these trends and hopefully grow together. I’ll try to keep things concise and leave some time to open the floor for questions and comments. But, before we begin, a little bit about me and PFL.



One of the first professional roles of my career was as a natural gas market maker for NOVA. I went on to become the founder/principal of a handful of commodity trading companies, most of which were bought by larger companies. I also ran an ethanol plant north of Toronto. Throughout these endeavors I dealt with various aspects of rail including coordinating with railroads, leasing tank cars, and railcar storage. With my extensive rail knowledge we began facilitating railcar leases as a compliment to other renewable fuels businesses at PFL. I began to peel back the onion so to speak and formed PFL Petroleum, what is today a full service rail company. PFL Petroleum works with the largest railcar manufactures, leasing companies, and shippers alike. We facilitate things like railcar leases, purchases, railcar storage, and transloading. PFL offers a high level perspective on the rail industry and the micro and macro-economic trends that effect day to day life in this business. We can turnkey entire return on lease projects, we offer total fleet evaluation services, and we move hundreds of railcars monthly for various clients. More recently we started a mobile services company, PFL field services, a wholly owned entity of PFL Petroleum which I personally oversee. PFL Field services handles various mobile services including railcar cleaning, flaring, maintenance and repairs. We've preformed mobile cleaning/repair projects for many large companies on shortlines all over the country. We recently acquired new boiler units with 2mmbtu of output that can steam multiple railcars at a time. See our boiler unit hooked up to 3 cars



Let’s first take a brief look at the LPG market overall. It is a massive and ever growing market that will continue to grow as the world searches for cleaner fuel. Aside from its usages in fuels and residential heating/cooking, LPGs are used largely for things like petrochemicals (plastics) and agriculture (crop drying). Propane production, the largest growing domestic LPG market, has grown at 8.29% annually since 2008 lows. As the US shale boom continues to grow there are large amounts of LPGs that are extracted during this process. In the past a lot of this gas was flared off, but now States are changing regulatory requirements forcing producers to capture the gas instead of flaring it. The US is now the largest LPG producer and the largest exporter in the world with approx half of our LPG production being sent abroad. From a fuel point of view, LPG is cleaner burning, emits less carbon and reduces Green House Gas emissions- so it is here to stay.



Let’s transition briefly to some discussion about rail. Increased LPG production, lack of Pipeline capacity and other logistical issues have led to increased LPG rail traffic. LPG movements typically drop in the summer and increase in the winter, but, despite the cyclicality, LPG rail traffic has been on an uptrend for ten years. Propane by rail has increased by 7.5% annually, normal butane by about 12.32% annually, and isobutane by 14.27% annually. The most dramatic seasonal swings come from normal butane, where rail traffic increases nearly 100% in the winter months.



In these graphs from some of our weekly rail reports, you can see spikes in storage demand during summer months and spikes in lease rates during winter months. The connection for anyone involved in the rail market is obvious. In summer months we have an oversupply of cars. Industry players are looking for loaded and empty storage alike. Meanwhile, in the winter months, cars come out of storage and LPG players scramble to find enough pressure cars for their needs. – inflating lease rates



As the LPG market rapidly expands and rail traffic increases, there are plenty of opportunities for us rail guys regarding the LPG market. You can see here where a majority of LPG production occurs. Obviously any shortlines in or around these production hubs or shortlines that are en route from production sites to export hubs should take advantage of the growing LPG market (esp. in PNW, NE, Gulf Coast). Loaded railcars have provided an ideal alternative to stand alone tankage and we have seen loaded LPG storage expand tremendously since 2016. Don’t miss out!



After exploring the cyclicality of loaded LPG storage, one challenge we run into is that shortlines are hesitant to make long term commitments to expand their facilities. It is tough to build out track or designate space for LPG storage which may only be used a few months out of the year. This is something that each facility has to consider and evaluate on a case by case basis. However, any additional space can always be used to offer mobile services. Designate a spot and let us drive cleaning/repair traffic your way! Offering your customers a mobile services option for cleaning, flaring, maintenance, and repair work adds to the customer value proposition of your facility. One morning you may wake up and 200 cars are going to a shop to get cleaned. Don’t let this happen! Have the work done onsite and save your customers on empty freight moves while also building goodwill and retaining your storage revenue.

In dealing with our LPG clients, security is paramount when looking to store cars. Some of our customers will require strict site inspections to ensure security of the facility (esp with loaded cars) and safety of the track itself. Another takeaway for shortlines would be to remain as flexible and accommodating as possible with loaded hazmat storage and implement an EPA certified RMP to open you up to new markets. An effective RMP will put you in a position to work with a broader group of shippers

Lastly, in our industry it is very important to stay ahead of the cycle. Staying updated on news, trends, and data will help you pre plan. We provide free reports such as a weekly railcar services report, a bi weekly railcar storage report, and a daily petroleum market report. It’s free to sign up and can be done straight from our website or by reaching out to one of our representatives directly. Always know your markets and make sure you stay competitive!