Friday April 21, 2017

Prepared for the North American Propane Gas Association EXPO

Michael Sloan ICF9300 Lee Hwy Fairfax, VA 22031

2017 Propane Market Outlook: Current Market Conditions and the Outlook Through 2025Nashville, Tennessee

Disclaimer

This presentation presents views of ICF. The presentation includes forward-looking statements and projections. ICF has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual market results to differ materially from the projections, anticipated results, or other expectations expressed in this report.

Overview of Presentation

1. An Overview of the Industry2. Propane Market Outlook Production, Exports, Demand

3. Key Issues Impacting the Retail Propane Industry Next Winter’s Inventory Outlook Enbridge Line 5 Impacts

4. Retail Propane Marketing Opportunities Opportunities for Expansions

5. Market Opportunities in Engine Fuel Applications Competitiveness and Growth Markets

1

Critical Messages1) Growth in propane supply continues to drive the industry. Growth in propane supply benefits the consumer propane industry. However, growth in export commitments will create occasional supply and

infrastructure challenges and more volatility in prices.2) General market conditions create the opportunity for growth in

traditional propane markets. Targeted consumer education and marketing is critical.

3) The largest growth opportunities remain in internal combustion engines. However, lower gasoline and diesel prices mean the propane industry will

have to work harder to develop these markets. Switching propane industry vehicles to propane would add 200 million

gallons of propane demand.4) Environmental issues represent a significant and growing

threat to the propane market.

2

Impact of the U.S. Consumer Propane Industry on U.S. and State Economies in 2015

3

National Summary of Direct Employment and Wages Associated with Odorized Propane (2015)

Source: Impact of the U.S. Consumer Propane Industry on U.S. and State Economies in 2015

Odorized Propane (Retail) Value Added by U.S. Census Region and Year

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2

4

6

8

10

12

East NorthCentral

East SouthCentral

Middle Atlantic Mountain New England Pacific South Atlantic West NorthCentral

West SouthCentral

$Billi

ons

2012 Odorized Propane Total Value Added 2015 Odorized Propane Total Value Added

Employees Employees Employees Employees EmployeesAll 11 NAICS Categories 609,299 147,208 943,804 1,700,311 1,651,891Total NGL's 71,364 19,341 41,972 132,677 163,855Propane/Propylene 31,094 7,533 41,972 80,598 74,444Propane Only 26,431 6,422 41,972 74,824 66,409Odorized Propane 9,363 2,282 41,972 53,617 49,719

Total (2015) Total (2012)Employee Count ProductionTransportation,

Storage, Wholesale Retail

4

2015 Propane Demand by Congressional District Won by Presidential Candidate

2015 Propane Households by Congressional District Won by Presidential Candidate

2015 Propane Employment by Congressional District Won by Presidential Candidate

2015 Propane Economic Added-Value by Congressional District Won by Presidential Candidate

2016 Presidential Results by Congressional District Won by Each Candidate

Source: ICF, US Census American Community Survey, Daily Kos, Impact of the U.S. Consumer Propane Industry on U.S. and State Economies in 2015

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Propane Market Overview

5

Propane Supply Will Continue Historic Growth Trends

• Propane production slowed in late 2016 following a slow‐down in Northeast gas production and low oil drilling. 

• Propane production is expected to grow at 3.5% per year between 2015 and 2030.• Higher oil prices are needed to meet long‐term production forecast.

• Primary production growth is dependent on natural gas production.

Source: ICF Detailed Production Report

6

0

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20,000

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45,000

2010 2015 2020 2025

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U.S. Propane Gas Processing and Other Supplies

U.S. Refinery Production Other Lower 48MidContinent/North Texas PermianMarcellus/Utica Canada Imports

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45,000

2010 2015 2020 2025

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U.S. Propane Supply, Domestic Demand, and Excess Directed to Exports

U.S. Retail Demand U.S. PetChemTotal U.S. Propane Supply

Most of the Growth in Supply will be Exported

7

Increased Supply Directed

to Exports

Propane export capacity has exceeded supply growth over the past several years. As supply has

grown exports have increased to 45 percent of total supply in 2016. Propane Exports will

exceed 50 percent of supply by 2019.

Source: ICF, EIA

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6,000

8,000

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12,000

2005 2010 2015 2020 2025

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Residential Commercial Resellers Industrial Agriculture Internal Combustion

ICF Forecast

ICF Propane Demand (Odorized) Forecast by Sector

Source: ICF Propane Demand Forecast Model

8

12.8%

2016 to 2025 % Change

18.4%

7.8%

-0.3%

-3.9%

86.3%

Total 16.8%

PDH Development has Stalled, Slowing Petrochemical Demand

9

PDH PLANTS Output Volume

(tonnes/yr)

Propane Consumption

(BPD)

Start-Up Date

Location

Operational PlantsPetroLogistics 657,716 30,000 2010, Q4 Houston, TXDow Chemical (1) 750,000 35,000 2015, Q4 Freeport, TX

Under ConstructionEnterprise 750,000 35,000 2017, Q3 Chamber

County, TXPotential

Inter Pipeline Ltd 525,000 22,000 Mid-2021 Redwater, AB

Formosa Plastics 658,000 31,000 Delayed to 2020-21

Point Comfort, TX

On-HoldAscend 907,194 42,000 On-Hold Chocolate

Bayou, TX,Sunoco NA NA On-Hold Marcus Hook,

PADow Chemical (2) NA NA On-Hold Gulf Coast

Existing Capacity 1,407,716 65,000Under Construction Capacity 750,000 35,000

Potential/On-Hold Capacity 2,090,194 95,000

Total Capacity 4,247,910 195,000

Source: ICF, Industry Publications

U.S. PetChem

Canadian PDH

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Petrochemical Propane Demand

Propane Exports Continue to Alter Flows and Propane Infrastructure Developments

10

Source: ICF, Company Sources

Significant Excess LPG Export Capacity Remains Available Despite Dramatic Export Growth

SOURCE: EIA, ICF

Source: ICF, EIA, Company Reports

11

Over 80% of the export capacity will be in the U.S. Gulf Coast. Infrastructure has shifted to

supply growing propane supplies for the export market.

Export utilization averaged 59% in 2016 and will grow to 70% by 2020. Northeast export capacity

will increase to 225,000 b/d in mid-2018. Represents 66% of

Marcellus/Utica propane production.

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U.S. Propane Exports and Export Capacity

Propane Exports (Acutals) Propane Exports (Forecast)Propane Export Capacity

A Few Key Issues Impacting the Retail Propane Industry

12

2017/18 Winter Propane Inventory Outlook

The 2016/17 Winter ended with record storage withdrawals despite a warmer than average winter. Stock rebuilds over the

Summer will depend on the level of propane exports. A cold winter in the

U.S., or higher export utilization could lead to supply uncertainty and price volatility next winter.

13

Source: EIA, ICF

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20

40

60

80

100

120

Milli

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bls

Propane Storage Level Forecast

5 Year Average 2016Forecast - 55% Export Capacity Forecast - 70% Export Capacity

Competitive Threats

Electricity continues to present the largest risk to propane markets. Continuing loss of market share to electricity in warmer regions of the country. Continuing improvements in electricity technologies.

Regional efforts toward a low carbon markets disadvantage propane. Regional green house gas (GHG) emission regulations represent growing risks to

propane markets in New England, Western states and select Midwestern states. –Regulatory reach is expected to continue to increase to additional states.

State and Utility efforts to increase electrification. Justified based on emissions criteria. Desired to offset load loss due to conservation.

Losses to natural gas from gas utilities expansions still present risks Natural gas LDC’s continue to seek to offset lost volumes from efficiency gains. Continued risks from state & local policies promoting gas system expansions. However the cost equation is more favorable to propane now than in the past.

14

The Risks to Midwestern Propane Supply from Enbridge Line 5

Much of the propane supplied in Michigan and the upper Midwest is transported on the Enbridge Line 5 Pipeline. However,

environmentalists would like to shut down the pipeline at the Straights of Mackinac.

16

Source: Enbridge

Straights of Mackinac Crossing

Line 5

Enbridge Lakehead Pipeline System & Line 5 Route

Key supply corridor for propane imports from Western Canada. A key supply source of Crude Oil for the refineries in Sarnia, Ontario.

Potential propane supply risks and increased costs with replacing supplies via rail.

15

Retail Propane Marketing Opportunities

16

2017 Propane Market Outlook – Retail Propane Marketing Opportunities

Overall residential housing markets continue to improve. Propane market share slipped in new construction in 2015, but is expected to rebound. More competitive market relative to electricity & natural gas prices. Continuing conversion of fuel oil customers.

Overall, the number of propane customers is expected to increase. However, total residential sales are expected to be roughly flat.

17

Source: PERC

Long term efficiency trends will continue to reduce use per customer. And residential market growth is highly regional.

Commercial markets are expected to remain relatively stable. Improvements in efficiency offset increased utilization of

propane resulting from Economic growth and Fuel oil conversions.

New Housing Construction Markets to Continue their Slow Recovery

New housing construction markets continue to recover. March 2017 new starts

were up 9% from last year.

Forecast for additional growth in housing starts in 2017 & 2018. ICF forecast is for

new housing construction continues to grow through 2020 and then level off.

Sources: ICF, NAHB, MBA, Fannie Mae, Wells Fargo*Includes single and multi-family housing starts

18

1,000

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1,200

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1,400

1,500

2015 2016 2017 2018 2019

Site

-Bui

lt H

ousi

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tarts

(tho

usan

ds)

Forecast of New U.S. Residential Housing Starts

Mortgage Bankers Association (03/17) National Association of Realtors (04/17)Fannie Mae (03/17) Freddie Mac (03/17)National Association of Home Builders (03/17) Wells Fargo Securities (12/16)ICF Forecast - All Housing

Propane Space Heating Market Share in New Residential Construction declined in 2015

Propane National Average market share in new construction: 6.0% in 2014.

4.7% in 2015.

High market share propane markets (Lot size above ½ acre) 73% of new propane

residential construction.

15.3% in 2014.

12.7% in 2015.

Electricity continues long-term upward trend.

Source: US Census Survey of Construction

10%

20%

30%

40%

50%

60%

70%

Mar

ket S

hare

National Market Share by Home Heating Fuel

Electricity Natural gas Propane Oil Other or no heat

*Natural Gas & Propane data for 2008 & 2009 has been estimated

6.7%

6.0%

5.8%6.6%

6.9%

6.3%

6.2%

7.1%6.2%

4.9%

5.8%

5.6%

5.2%

5.8%

6.0%

4.7%

0%

2%

4%

6%

8%

2000 2003 2006 2009 2012 2015

19

Residential New Construction Market Trends by Region

In 2015 propane new construction market share increased in 3 regions, and decreased in 6 regions. Largest increase occurred in

a region where propane is displacing fuel oil (New England).

Electric heating market share increased in regions where propane market share declined (Mid- and South Atlantic, East North Central, & Mountain and Pacific).

20

Region 2015 Market Share

2015 NewHousing Starts

2014 Market Share

% Change from 2014 – 15

New England 53.67% 7,667 48.20% 5.47%

Middle Atlantic 5.84% 1,528 9.47% -3.63%

East North Central 13.37% 7,655 15.80% -2.43%

West North Central 4.51% 1,508 4.02% 0.49%

South Atlantic 2.70% 5,062 4.84% -2.14%

East South Central 0.92% 470 1.48% -0.57%

West South Central 1.52% 2,068 1.35% 0.17%

Mountain 1.47% 1,273 2.73% -1.26%

Pacific 2.93% 2,054 3.88% -0.94%

US Total 4.70% 29,283 6.01% -1.32%

SOURCE: US CENSUS SURVEY OF CONSTRUCTION

Source: ICF, U.S. Census Survey of Constriction

Propane Market Share of New Construction by Region

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$/kW

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Propane Natural Gas Heating Oil Electricity

-21%

-47%

-71%

33%

Changes in Average Annual Wholesale Prices Make Propane More Competitive

Source: EIA, ICF

21

Low propane prices support a strong traditional propane market

(All we need is winter weather).

2015 Fuel Oil Households in the Northeastern U.S.

Source: U.S. Census American Community Survey

22

2015 Fuel Oil Households by Region

Estimate ~200,000 replacements needed each year. Only 37,743 oil

furnaces sold in 2016. Most conversions

are to Natural Gas.

Estimated Fuel Oil Space Heating Conversions to Propane

Propane captures 10-15% of the fuel oil conversions. Most fuel oil conversion are going to

natural gas.

Conversions will vary from year-to-year: Comparative fuel prices.

Economic conditions.

Perception of the propane industry.

The conversion market declines slowly as overall number of fuel oil households available to convert declines.

Source: ICF Propane Demand Forecast Model

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2012

2013

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Fuel

Oil

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(Hou

seho

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Fuel Oil Conversion Forecast

ICF Forecast

23

Propane Space Heating Households Increased in 2015, although at a slower than expected level

Propane space heating households increases (slightly) in 2015. Growth was concentrated

in the Northeast, where fuel oil households continue to decline rapidly. Growth in electric home

heated housing focused in Southern States and California. Electric remains the largest

threat to propane across most markets.

Sources: ICF, US Census American Community Survey

72,085 1,325

1,208,519

(222,986)(128,853)

18,733

(400,000)

-

400,000

800,000

1,200,000

1,600,000

Hou

seho

lds

Change in U.S. Households by Home Heating Fuel Type (2014 to 2015)

Natural Gas PropaneElectricity Fuel OilWood Coal/Other/No Fuel/Solar

24

Fuel with the Largest Increase in Market Share between 2010 to 2015

Source: US Census American Community Survey

25

Gains in Electricity home heating presented the largest threats to propane in 2015.

Fuel with Largest Market Share Loss where Propane Increased between 2010 & 2015

Source: US Census American Community Survey

26

Propane growth focused on replacing fuel oil and areas with high new construction.

Fuel with Largest Market Share Gain where Propane Declined between 2010 & 2015

Source: US Census American Community Survey

27

Electricity’s share gained in the majority of counties that propane lost market share.

2017 Propane Market Outlook – New Propane Housing Starts

Residential housing markets are improving. Growth in new construction

markets. More competitive market. Continued weakness in select

regional markets, such as the Middle Atlantic, South Atlantic, and Western U.S.

Conversions away from propane remain relatively low due to lower prices relative to electricity.

0

50,000

100,000

150,000

New

Hou

sing

Sta

rts

New Propane Space Heating Households by Type

Manufactured HomesFuel Oil ConversionsSite-Built New Housing Construction

Source: ICF Propane Demand Forecast Model

28

ICF Forecast

Propane Space Heating Households

Propane site-built space heated households increased from 2012-2015. 5.55 million in 2012.

5.57 million in 2014 & 2015.

And are projected to increase to 6 million by 2025. Growth primarily in New England and

Mid-Atlantic regions.

Manufactured housing is expected to continue to decline. 1,000,000 in 2015.

Decreasing to less than 800,000 by 2025.

Source: ICF Propane Demand Forecast Model

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2010

2011

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2025P

ropa

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pace

Hea

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Hou

seho

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(Tho

usan

ds)

Forecast Propane Heated Households

Site-Built Households Manufactured Homes

ICF Forecast

29

Market Opportunities in Engine Fuel Applications

30

2017 Propane Market Outlook – Market Opportunities in Engine Fuel Applications

Most engine fuel markets should see accelerating growth as the new products become more widely accepted by the market. On-road vehicles. Mowers.

Forklift markets will continue to face challenges from electric lift trucks and changes in commercial markets. There is an opportunity for a new generation of forklifts to grow demand. Lower propane prices improve competitive position.

Agricultural markets should see solid growth supported by agricultural engine applications. Irrigation engines & space heating.

–Irrigation engine sales will increase and decrease based on weather conditions. Low commodity prices delay new equipment investment.

31

Propane Vehicle Sales Expected to Increase Sharply

In 2016, slightly more than 14,000 On-Road propane vehicles were sold.

ICF forecasts new propane vehicle sales to continue rising year over year to 40,000 by 2025. Roughly 60 percent of new propane vehicle

sales will be Medium Duty Vehicles. Light duty vehicles primarily conversions.

In 2016, the differential between gasoline and propane (Autogas) narrowed to the lowest margin since 2009.

Rising oil prices should widen the differential between gasoline/diesel and propane increasing the financial incentives for using propane.

Source: PERC, ICF Propane Demand Forecast Model

32

0

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2010 2015 2020 2025

Uni

ts

New On-Road Propane Vehicles

ICF Forecast

Propane Engine Fuel Consumption

In 2016, ICF estimates nearly 800 million gallons of propane was consumed by internal combustion engines.

Propane consumption will reach 1 billion gallons by 2020. 1.6 billion gallons by 2025. The forklift market is the

largest internal combustion market with over 400 million estimated gallons in 2016. Limited near-term growth from

Fork Lift sector compared to other On- & Off-Road engine options.

Source: ICF Propane Demand Forecast Model

33

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400

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Internal Combustion Engine Propane Demand

Forklift Non Road On Road Mower Diesel Irrigation

ICF Forecast

Propane Retailers Present a Large Potential Market for Increased Autogas Propane Sales

ICF estimates propane retails own roughly 54,000 vehicles that could be converted to propane.

Conversion potential of up to 200 million gallons of new annual propane demand. There were 8 propane retailers in the Top 500 private vehicle fleets in America,

representing a total of 25,172 vehicles in 2016.

Source: PERC,LP Gas Top 50 Survey Results (2016), and Clean Fuel USA

34

Total # of Vehicles Owned by Propane Marketers

Total Potential Propane Consumption (Gallons)

Bobtails1 18,433 92,166,815

Transports1 3,774 23,590,060

Service Trucks2 20,351 56,530,641

Rack Trucks2 2,152 6,724,746

Other LDV's3 9,000 21,428,571

Total Vehicles Owned by Propane Marketers

53,711 200,440,835

Estimated 2016 Propane Industry Demand for Propane Autogas in Vehicles Owned by Propane Marketers

Critical Messages for the Propane Industry1) Growth in propane supply continues to drive the industry. The propane supply balance has shifted from an over supplied domestic market

with prices below sustainable levels. To an export driven market that retailers will need to compete for tight supplies and

volatile prices with unexpected weather and international market factors.

2) General market conditions create the opportunity for a near term rebound in traditional propane markets. Targeted consumer education and marketing is critical.

3) The largest growth opportunities remain in internal combustion engines.

However, lower gasoline and diesel prices mean the propane industry will have to work harder to develop these markets.

Switching propane industry vehicles to propane would add 200 million gallons of propane demand.

4) Environmental issues represent a significant and growing threat to the propane market.

35

Friday April 21, 2017

Prepared for the North American Propane Gas Association EXPO

Michael Sloan ICF9300 Lee Hwy Fairfax, VA 22031Msloan@icfi.com703-218-2758

2017 Propane Market Outlook: Current Market Conditions and the Outlook Through 2025Nashville, Tennessee