EFTA01371104.pdf

31 October 2017 Railroads Canadian Rails [Figure 50: NA Coal carloads have declined as natural gas prices have moved closer to parity with coal —Nat Gas Henry Hub Spot Price ($/Mbtu) Figure 51 NA coal carloads vs. spread between nat gat: and coal Spread btwn nat gas and coal -....—Cost of coal delivered to electric plants ($/Mbtu) —Avg. Weekly Coal Carloads —Avg. Weekly Coal Carloads $15 $1S 160,000 160,000 $10 140,000 120,000 110,000 100,000 $0 80,000 $0 60,000 -$S 60,000 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 'OS '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Sore Damn< ant Ehl. AAA 1 sc.n. Druso34 Birk Et• 449 Given the aforementioned correlation, the outlook for natural gas prices is critical to gauge short- to medium-term prospects for coal shipments. To this point we note that Deutsche Bank's Commodities team forecasts natural gas prices to hover around $3.00 in 2018 and $3.10 in 2019. While volumes have somewhat recovered from the lows in early 2016, we expect pressure on coal volumes to persist long-term largely beginning again in 2019/2020 - albeit to a lesser extent than what we witnessed in 2014-15. Other factors that could drive improvements are a much weaker dollar and a much colder winter, which incentivizes exports and lowers inventories, respectively. We note that CNI is the least exposed of any major Class I rail with just 4% of revenue coming from coal in 2016. Figure 52: DB U.S. P ilo]. I Gaa supplyidernana 11101142 tbast. case) Merwel Gat Onwn•Sunumer/ /10.30 11491dinul 6 Coawnerrial 21 7 19 1 72 5 236 216 706 195 II 213 21 1 Pea9019.4•40on 202 241 u4 213 26.5 2>3 282 10.2 303 101 112 191 204 209 206 212 211 121 212 235 14:41•• boons 14 1.7 18 20 2.9 17 51 7.0 79 91 Esowel 05 17 30 36 77 Otte 56 5.9 64 65 6.8 64 64 65 65 65 70W Dinms1 WW1 64S 115 73.5 753 783 797 879 908 948 98* mons Ca smoss someway ibdit WwM£ uses 411 77 112 147 193 220 233 275 311 31.9 14••••4••• 9* 98 77 67 61 60 64 71 77 8.S &coaxed 122 133 154 in 200 193 200 231 247 252 Oaken 49 48 45 42 38 35 32 30 23 27 147116.6 6 2S 21 /A 27 27 24 21 21 20 IA OtItee 148 233 ISO 23 3 230 220 194 IBA IS 4 lel 179 ONOtoi. fwd SO 41 14 34 35 33 31 33 32 30 Perin Import, 51 5• SI SI 53 SA 62 68 69 69 roar L4I S'cm 59 7 611 65.2 691 743 730 716 812 165 441 Total WWI 1k1/81 704 734 73* 777 811 822 832 91.3 966 93.0 Yaw And Walt. Get 310•004 fte/1 1613 2300 3.141 3377 3.306 3.029 1135 MO 3.555 sane sivnen• 0e3 we sr osgassoncese, Deutsche Bank Securities Inc Page 27 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0064297 CONFIDENTIAL SDNY_GM_00210481 EFTA01371104