EFTA01371103.pdf

31 October 2017 Railroads Canadian Rails Figure 46: U.S. Carload breakdown (ex-intermodal) [Figure 47: Canadian carload breakdown (ex-intermodai Other Other 4% Ag & Food Nonmetal] _ 2% Th` Ag & Food Products minerals Product,. Nonmetallic minerals 16% 7% Chent. e.< 13% Autos fir Petroleum 17% parts Autos & parts 7% Chem teletallh. 7% Petroleum ores & Metallic ores & metal metals 8% 17% serest C.o.)! Forest products PI OdlICA 11“:" 10% 4% &secs Dyad* eat. AAA I tarot Osseo 90* AAR Goal Coal volumes account for roughly one third of U.S. carloads (ex-intermodal) but just 10% of Canadian carloads (ex-intermodal). Cumulatively in NA. coal accounts for a little over one quarter of all carloads (ex-intermodal) which is down from just under 40% in 2010. Much of this decline is due to increased supply of natural gas, with 2016 becoming the first year that natural gas has exceeded coal in U.S. electricity generation on an annual basis. Figure 48: Average weekly coal carloads have been Figure 49: ...as U.S. electric generation has become less under pressure... dependent on coal 180,000 100% 159,654 160,000 • 80% 2 140,000 • 60% 120,000 • 40% V 100,000 ▪ Ts.• 03 20% 046 A A 80,000 CC o 0 0 0 0 0 0 0 .0 0 0 IN C% ". N CV CV r.4 r. r", 60,000 ■Coal Nat Gas • Other 9 o • o 9 c •- a o Qas, — ad A u Cu ▪3 ea Z LA IL O O 2< Sant Dastr:A• luirA AAR sane DIOSOW Bdt* !IA -...-...-.... The decline, while significant, has not been linear, with volatility driven by changes in relative price and weather. The long-term trend is undeniable, however, resulting from the drastic decline in natural gas prices following the hydraulic fracturing-fueled U.S. shale boom. To put the move in context, the price of natural gas was roughly seven times more expensive than coal ten years ago (October 2015 MIT study), and today those prices are in parity with coal (including transport costs associated with coal). We have witnessed a 65% correlation with U.S. coal carloads and natural gas prices over the past ten years. Page 26 Deutsche Bank Securities Inc. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0064296 CONFIDENTIAL SDNY_GM_00210480 EFTA01371103