PERSPECTIVES ON CLIMATE-RELATED SCENARIOS
RISKS AND OPPORTUNITIES
OCTOBER 2017 TABLE OF CONTENTS
3 Letter from the Chairman and CEO Glossary of Terms 4 About MPC Barrel: 42 U.S. gallons – a common volume measure for crude oil and petroleum products 6 Introduction bpcd: barrels per calendar day – the average of how 7 MPC Governance and Risk Management much crude oil or other feedstock a refinery processes over a period of time, divided by the number of days in that period, typically 365 days (a common rate 9 Energy Demand Under the Climate-Related Scenarios measure for petroleum refineries) The Climate-Related Scenarios Summary of Climate-Related Risks and Opportunities bpd: barrels per day – a common rate measure for Results of Climate-Related Scenario Analyses crude oil and petroleum products Refining and Marketing CAFE Standard: Corporate Average Fuel Economy Speedway standard for vehicle fleets mandated by the U.S. Midstream federal government
DOE: The U.S. Department of Energy 20 Performance Metrics and Energy Efficiency Energy Efficiency EII®: Energy Intensity Index, a measure proprietary to GHG Emission Reductions energy consulting firm HSB Solomon Associates LLC
26 Physical Risks to Our Facilities ENERGY STAR: A program of the U.S. Environmental Protection Agency recognizing energy efficiency. To Hardening and Modernizing: Steps We Have Taken achieve this status, applicants must perform in the top Resiliency Measures: Emergency Preparedness & Response quartile for energy efficiency and have no unresolved environmental compliance actions from state or federal 30 Conclusions regulators. EPA: The U.S. Environmental Protection Agency
ERM: Enterprise Risk Management
G20: An international forum for the governments and central bank governors from 20 of the world's largest economies
GHGs: Greenhouse gases, such as carbon dioxide and methane
IEA: International Energy Agency
LNG: Liquefied natural gas
Metric ton: 2,205 pounds
MPC: Marathon Petroleum Corporation
NGL: Natural gas liquid – a light hydrocarbon liquid often produced with natural gas
OECD: Organisation for Economic Co-operation and Development – a group of the world’s most industrialized nations
TCFD: Task Force on Climate-related Financial Disclosures, formed by the Financial Stability Board (an international body that monitors and makes ON THE COVER: recommendations about the global financial system) MPC's refinery in Garyville, Louisiana
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 2 FROM THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Fellow shareholders,
As investors who care about environmental stewardship and the welfare of future generations, we can be proud to own Marathon Petroleum Corporation stock. MPC manufactures, transports and markets fuels and other products that make millions of people’s lives better every day, and we project continued robust demand for our products well into the future.
Your board of directors and executive leadership team have positioned MPC well by investing billions of dollars in energy efficiency, emissions reductions, diversifying our business and hardening our facilities against extreme weather events.
In short, for many years we have taken seriously the physical and transitional risks now associated with climate change.
Our refineries are among the most energy efficient in the nation. Our facilities have earned more of the U.S. EPA’s ENERGY STAR awards recognizing refineries than all other refining companies combined. We also apply this focus on energy efficiency to our transport trucks and our inland marine fleet, as well as through our research collaboration with the U.S. Department of Energy’s Argonne National Laboratory. I invite you to read this detailed look at the board oversight, scenario analyses, asset optimization, We are diversified through our general partner stake in portfolio management and other tools we use to MPLX LP, a midstream master limited partnership that is mitigate risks inherent in a future characterized by one of the largest natural gas gathering and processing potential climate impacts and policies designed to companies in the U.S. This has positioned us to meet the address climate change. While we focus on providing ongoing and projected demand for natural gas long into you the returns you expect on your investment, we the future. also look to safeguard the long-term success of your company, understanding that the products we produce Our diversification also extends to the transportation will continue to be a critical component of modern life fuels we offer our customers. We have equity interests for the foreseeable future. in three corn ethanol plants in the Midwest and we own a biodiesel production facility in Cincinnati, Ohio. Sincerely, Through our Speedway retail business, we offer ethanol flex fuel at hundreds of our stores, amounting to more than 11 percent of the total number of stations offering this fuel nationwide. Gary R. Heminger Chairman and Chief Executive Officer
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 3 Marketing Area
MPC Refineries
Light Product Terminals MPC Owned and Part-owned Third Party Asphalt/Heavy Oil Terminals MPC Owned Third Party Water Supplied Terminals Coastal Inland Pipelines MPC Owned & Operated MPC Interest: Operated by MPC MPC Interest: Operated by Others Pipelines Used by MPC Renewable Fuels Ethanol Facility Biodiesel Facility
® As of September 2017 MPLX Terminals: MPLX Pipelines: Owned and Part-owned Owned & Operated
Tank Farms MPLX Interest Pipelines: Operated by Others Barge Dock Cavern
MarkWest Complex
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 4 ABOUT MPC
MPC is the nation’s third-largest refiner, with a total crude oil refining capacity of 1.8 million barrels per calendar day (bpcd) as of year-end 2016. Approximately, 60 percent of this capacity is located in the Gulf Coast region, with the remainder located in the Midwest. Marathon brand gasoline is sold through approximately 5,600 independently owned retail outlets across 19 states. In addition, Speedway LLC, an MPC subsidiary, owns and operates the nation’s second-largest convenience store chain, Marketing Area with approximately 2,730 convenience stores in 21 states. MPC owns, leases or has ownership MPC Refineries interests in approximately 10,800 miles of crude oil Light Product Terminals and light-product pipelines. MPC owns the general partner of MPLX LP, a midstream master limited MPC Owned and Part-owned partnership. Through MPLX, MPC has ownership Third Party interests in gathering and processing facilities Asphalt/Heavy Oil Terminals with approximately 5.6 billion cubic feet per day MPC Owned of gathering capacity, 8 billion cubic feet per day Third Party of natural gas processing capacity and 570,000 barrels per day (bpd) of fractionation capacity. Water Supplied Terminals MPC’s fully integrated system provides operational Coastal flexibility to move crude oil, natural gas liquids Inland (NGLs), feedstocks and petroleum-related products Pipelines efficiently through the company’s distribution MPC Owned & Operated network and midstream service businesses in the Midwest, Northeast, East Coast, Southeast and Gulf MPC Interest: Operated by MPC Coast regions. MPC Interest: Operated by Others Pipelines Used by MPC Renewable Fuels Ethanol Facility Biodiesel Facility
® MPLX Terminals: MPLX Pipelines: Owned and Part-owned Owned & Operated
Tank Farms MPLX Interest Pipelines: Operated by Others Barge Dock Cavern
MarkWest Complex
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 5 INTRODUCTION
In June 2017, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) issued its final recommendations on reporting climate-related financial information. These recommendations have been endorsed by a majority of the G20 countries and over 100 large businesses. MPC has incorporated these recommendations as a means to further enhance our reporting on climate-related risks and opportunities.
We believe the disclosures made in our Annual Report on Form 10-K, our annual Citizenship Report and this report are aligned with the main principles outlined in the recommendations of the TCFD and demonstrate MPC’s resilience to potential climate-related risks. With this report, we have enhanced our disclosures respecting our governance, risk management, strategy and metrics related to the subject of climate change. We are also including the results of a stress-test of our business against the International Energy Agency’s (IEA's) hypothetical 450 Scenario and New Policies Scenario.
These scenarios conclude oil and natural gas will continue to play a significant, long-term role in meeting the world’s energy needs. Oil and natural gas will also continue to provide the building blocks for the commercial products that are common in everyday life. As you will see in the “Results of Climate-Related Scenario Analyses” section of this report, MPC is well-positioned to remain a successful company into the future, even under the carbon-constrained future modeled in the IEA’s hypothetical 450 Scenario. We believe MPC’s current governance and risk-management processes sufficiently address both potential physical risks and transitional risks associated with a carbon-constrained future.
At MPC, we implement cost-effective technologies to improve the energy efficiency of our operations and capital projects. As you will see in this report, our results are significant and quantifiable. We are committed to implementing solutions that achieve environmental objectives, while at the same time providing the reliable, affordable energy that makes modern life possible.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 6 MPC GOVERNANCE AND RISK MANAGEMENT
MPC's certified wildlife habitat at its Speedway LLC subsidiary headquarters in Enon, Ohio
MPC’s Board of Directors and executive leadership team The governance of this process is effected through the meet frequently to discuss enterprise risk management executive sponsorship of our chief executive officer and (ERM), including the management of physical risks and chief financial officer, and is led by an enterprise risk those associated with a carbon-constrained economy. manager. Officers and senior managers responsible for Our business strategy, including the assessment of the working across the business to manage enterprise-level company’s business in light of climate-related risks and risks and identify emerging risks meet routinely and opportunities, and the allocation of capital for major regularly engage with our Board and its committees projects, are key focus areas for our Board. The issuance throughout the year. of this report at our Board’s direction demonstrates its commitment to integrate climate-related scenario analysis The following mature company practices, developed into its long-term planning. through our ERM process, promote effective decision- making. For instance, emissions of GHGs, physical risks MPC’s Board members have significant expertise and and transitional risks associated with climate-related experience in the energy sector, finance, economics, policies are all considerations in our strategy-setting, operations and public policy that sharpen the Board’s business planning and risk management: insight into the potential implications of climate-related issues on policymakers, markets, and society at-large, ÌÌ We use a long-term price forecast as the basis for as well as on our business and operations. The Board capital allocation. Climate-related risks and policy recognizes the potential impacts on our business from changes are some of the many considerations physical risks and the transitional risks and opportunities incorporated into our projected commodity prices our industry faces in a lower-carbon economy. and demands. In addition, we use a risk-based capital allocation process with higher return on investment While our Board and its committees oversee risk thresholds for business segments with the greatest management, our senior management team is charged financial and regulatory uncertainty. with managing risk. We have a strong ERM process for identifying, assessing and managing risk, as well as for monitoring the performance of risk mitigation strategies.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 7 MPC GOVERNANCE AND RISK MANAGEMENT
ÌÌ We use a risk-based approach to address possible physical impacts to our critical infrastructure, such as refineries, terminals, pipelines and the other assets necessary to manufacture and supply fuel and other petroleum products to the marketplace. More detailed information on this process is provided in the "Physical Risks to Our Facilities" section of this report starting on Page 26.
ÌÌ We continually monitor environmental and climate- related legislation, policies and regulations to ensure effective planning.
ÌÌ We continually review our business portfolio and adjust investment patterns. MPC Chairman and CEO Gary R. Heminger addresses shareholders at the company's Annual Meeting. ÌÌ We perform analyses of market-based scenarios that test the resilience of our business under varying market and regulatory conditions, including consideration of the IEA’s hypothetical 450 Scenario and New Policies Scenario. These scenarios embed varying carbon prices into their projections, which are then assessed against our business.
ÌÌ As one of our key performance metrics, we continually optimize our assets to make them more efficient, both in terms of cost and impact to the environment. We have undertaken a number of steps that reduce GHG emissions, including investments in flare reduction, improved energy efficiency and renewable fuels. More detailed information on these initiatives is provided in the "Performance Metrics and Energy Efficiency" section of this report starting on Page 20.
With the continuing global demand for oil and gas, even under the IEA’s hypothetical 450 Scenario, MPC is well- positioned to remain a successful company. We believe our current governance and risk-management processes sufficiently address both the physical risks and transitional risks associated with a carbon-constrained future. These processes will enable the company to monitor and adjust accordingly to climate-related policy as it develops over time.
Marathon brand station in Batesville, Mississippi
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 8 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
Petroleum-based fuels make modern life possible and drive sustained economic growth.
For the last 150 years, fossil fuels have driven sustained economic growth and human progress. Fossil fuels are reliable, plentiful “Access to energy is absolutely and affordable. They are unmatched in their energy density and fundamental in the struggle portability. The robust global energy system that produces, refines, against poverty. It is energy stores and transports fossil fuels is forecast to continue to grow as our world’s population grows. Access to energy is vital to lifting that lights the lamp that hundreds of millions of the most vulnerable among us out of poverty. lets you do your homework, that keeps the heat on in a MPC recognizes the continued use of fossil fuels will help meet the hospital, that lights the small world’s growing energy needs. As a result, policies must ensure businesses where most people our nation’s – and the world’s – long-term needs for environmental work. Without energy, there is stewardship, energy security and economic development are met. no economic growth, there is Costs for actions we take must be allocated equitably and predictably no dynamism, and there is no and consider adaptations to a changing climate as well as mitigating opportunity.” GHG emissions. Likewise, the costs of any actions we take – as well as their uncertainties, risks and trade-offs – should be transparently communicated to affected energy consumers worldwide. Former World Bank President Rachel Kyte, World Bank, May 28, 2013
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 9 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
The Climate-Related Scenarios “Scenarios are not ENERGY DEMAND UNDER THE CLIMATE SCENARIOS intended to represent Most forecasts project global energy demand will rise by a full description of the approximately one-third or more by 2040 as populations grow future, but rather to and people all over the world strive for higher living standards.1 highlight central elements In developing this report, we applied three hypothetical scenarios of a possible future and developed by the IEA to analyze the effects on our business of to draw attention to the various climate-related policies over the long term. The scenarios – key factors that will drive the IEA’s Current Policies Scenario, New Policies Scenario and future developments. It is 450 Scenario – are widely used around the world and are important to remember recommended by the TCFD2: that scenarios are ÌÌ Current Policies Scenario – considers only those climate hypothetical constructs; policies that have been formally adopted by governments. This they are not forecasts or scenario provides a comparison point against which new policies predictions, nor are they can be assessed. sensitivity analyses.”
ÌÌ New Policies Scenario – incorporates existing energy policies, TCFD, The Use of Scenario Analysis as well as an assessment of the results likely to occur from in Disclosure of Climate-Related implementation of announced intentions, notably those in Risks and Opportunities (June 2017) climate pledges submitted for the Paris Climate Agreement (COP21).
ÌÌ 450 Scenario (or 2 degree scenario) – hypothetical construct of policy-driven improvements in energy efficiency and other commitments to limit carbon dioxide concentrations in the atmosphere to 450 parts per million (ppm). This is frequently referred to as a “2 degree scenario,” because it was developed to limit the average global temperature rise to 2°C by the end of the century relative to temperature levels in the mid-1800s.
For this report, we focus most of our discussion on the New Policies Scenario and 450 Scenario with the Current Policies Scenario limited to a comparison where appropriate. The New Policies Scenario projects oil and natural gas will meet approximately half of global energy demand in 2040, while the 450 Scenario predicts oil and natural gas will meet 44 percent of global demand. By comparison, wind and solar energy in 2040 are expected to provide around 6 percent of energy demand in the New Policies Scenario and 12 percent in the 450 Scenario, up from less than 1 percent today.
We performed the scenario analyses by business segment. Our Refining and Marketing analysis includes a perspective on the competitive advantages of the U.S. refining sector, IEA’s projections for worldwide refining capacity and demand, and an assessment of our refining business in light of IEA’s projections. IEA demand projections related to the type and volume of fuel that might be sold by Speedway locations are included in the analysis for our Speedway brand retail stores. Finally, we have included IEA projections related to natural gas, NGLs and other feedstock production and investments in the natural gas sector as these projections could be relevant to our Midstream segment.
In performing the scenario analyses, we identified relevant climate-related risks and opportunities. ______1 See e.g., U.S. Energy Information Administration, International Energy Outlook 2016 (projecting 48 percent increase); International Energy Agency, World Energy Outlook 2016 (projecting 30 percent increase in its New Policies Scenario); Institute of Energy Economics Japan, Asia/World Energy Outlook 2016, Tokyo, Japan, October 2016 (projecting 20 percent to 38 percent increase).
2 TCFD, The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities (June 2017); International Energy Agency, World Energy Outlook 2016.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 10 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
Summary of Climate-Related Risks and Opportunities
POTENTIAL RISKS
ÌÌ Starting as early as 2020, the demand for traditional transportation fuels could decrease in many Organisation for Economic Co-operation and Development (OECD) countries, including the U.S., due to higher corporate average fuel economy (CAFE) standards, increased market share of electric vehicles3 and increased biofuels consumption in the transportation fleet.
ÌÌ GHG regulations could be implemented, such as methods to further reduce methane emissions from our midstream assets, a carbon tax or similar effort that increases the costs of our products, thereby reducing demand.
ÌÌ We could face increased litigation with respect to our operations or products in connection with climate-related policy.
ÌÌ Physical risks, such as intense weather patterns or sea level rise, have the potential to impact our facilities.
POTENTIAL OPPORTUNITIES
ÌÌ Worldwide and domestic demand for natural gas and NGLs is expected to increase through 2040, even in the carbon-constrained 450 Scenario. This higher demand is driven by increased use in the power, industrial and transportation sectors.
ÌÌ Worldwide and domestic demand for petrochemical feedstocks is expected to increase through 2040. The IEA notes there are few substitutes for oil-based feedstocks for the petrochemical industry.
ÌÌ Energy-efficiency requirements for facilities are projected to increase. We consider energy efficiency to be a core business function and opportunity, because it reduces costs while reducing GHG emissions, putting our assets in a better competitive position.
ÌÌ Through 2040, gasoline and diesel demand is expected to increase in many countries that are not members of the OECD. Our assets are favorably located for export to these countries.
ÌÌ Worldwide and domestic demand for biofuels in the transportation fleet is expected to increase through 2040, especially in the carbon-constrained 450 Scenario.
______3 There are considerable challenges to reaching the levels of electric vehicles and other renewable technologies predicted by the IEA New Policies Scenario and 450 Scenario. Particularly, “the technologies assumed to populate the clean energy shift—wind, solar, hydrogen, and electricity systems—are in fact significantly MORE material intensive in their composition than current traditional fossil-fuel-based energy supply systems.” World Bank, The Growing Role of Minerals and Metals for a Low-Carbon Future (June 2017); see also Dawkins et. al., Stockholm Environmental Institute, Metals in a Low-Carbon Economy: Resource Scarcity, Climate Change and Business in a Finite World (2012).
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 11 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
Results of Climate-Related Scenario Analyses The results of the analyses of these climate-related risks and opportunities to MPC’s three main business segments are as follows:
REFINING AND MARKETING
IEA Refining Projections
The IEA makes several projections in the New Policies Scenario4 about the refining sector:
Worldwide Refining
ÌÌ Refining capacity is expected to increase by 16 million bpd, or 17 percent, from 2015 to 2040. A majority of this production increase is expected to occur in Asia, the Middle East and Africa. MPC's Garyville, Louisiana, refinery and its light- ÌÌ Demand for refined products is expected to be products export docks on the Mississippi River approximately 90 million bpd, or 81 percent of the projected refining capacity in 2040. Considering required downtime, the IEA projects refining capacity could exceed demand by 14.7 million bpd in 2040.
ÌÌ Demand for distillates and petrochemical feedstocks is expected to increase because alternatives are scarce for the aviation, freight, marine and petrochemical sectors.
North American Refining
ÌÌ Refining capacity in North America is expected to remain relatively flat from 2015 to 2040.
ÌÌ Demand for refined products is expected to be 16 million bpd, or 76 percent of the projected refining capacity in 2040. Considering required downtime, the IEA projects North American refining capacity could exceed North American demand by 3.7 million bpd in 2040.
Refining and Marketing - Potential Risks and Opportunities
The primary risk to our Refining and Marketing segment is decreased consumer demand for traditional transportation fuels in many OECD countries, including the U.S., due to higher CAFE standards, increased market share of electric vehicles, replacement with biofuels or increased costs as a result of regulation. The IEA’s New Policies Scenario and 450 Scenario incorporate these risks into the related projections for these scenarios. As we demonstrate in the following discussion, our Refining and Marketing segment is expected to remain successful even with the lower demand projected by these scenarios. The primary opportunity is increased demand for gasoline and diesel in many non-OECD countries. Our assets are favorably located for export to these countries.
______4 The IEA did not supply a specific analysis of the refining sector in its 450 Scenario, but the IEA’s transportation fuel demand projections indicate more refining capacity would be at risk in both North America and worldwide than in the New Policies Scenario.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 12 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
Resiliency of U.S. Refining
Operating costs are a critical component in the financial viability of a petroleum refinery. Refining operating costs depend on North America Refining Cost Advantage a number of factors, including energy costs, 70 refinery size and complexity, utilization rates Middle East and labor rates. Energy costs in particular 65 Europe represent a significant portion of the overall Latin America North America operating costs of a petroleum refinery. 60
) The U.S. refining sector benefits from lower 55
natural gas cost compared to its global U.S./bbl 50 competitors. Lower energy costs translate ($ into lower overall production costs of 45 transportation fuels as reflected in the graph 40 to the right. These favorable energy cost Costs to produce transportation fuels transportation produce to Costs differentials are greater than the regional 35 0 2 3 4 6 7 8 10 11 13 14 15 17 18 transportation costs, which enables the U.S. Cumulative crude oil distillation capacity (million bpd) refining sector to export transportation fuels HSB Solomon Associates 2016 Fuels Study to other countries and regions, including Asia, Mexico, Central America, South America, Africa and Europe.
As shown to the right, this trade flow advantage is confirmed by recent data of U.S. transportation fuel exports. Export volumes U.S. Exports of Transportation Fuels have steadily increased in recent years, with the majority of these exports originating at 2,500 refineries located in the Gulf Coast region of Diesel/Kerosene the U.S. due to their proximity to the Gulf of 2,000 Mexico and world-class export docks. Gasoline
Consistent with many other forecasts, the IEA 1,500 projects the U.S. will continue to maintain lower natural gas prices through 2040 1,000 compared to other global regions, even in the carbon-constrained 450 Scenario. As a result, Thousand bpd the U.S. refining sector should continue to 500 maintain the flexibility and cost advantages to export transportation fuels to various global 0 markets, including those non-OECD countries 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 forecast by the IEA to have transportation U.S. Energy Information Administration fuel demand growth even in the carbon- constrained 450 Scenario.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 13 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
Resiliency of MPC Refining
For an outside perspective, we retained HSB Solomon Associates to evaluate the resiliency of our refineries against the projections in the New Policies Scenario and 450 Scenario. HSB Solomon Associates is uniquely qualified to perform this analysis because it has cost and production data for nearly 85 percent of worldwide refineries through its biannual Fuels Studies.5 The key assumptions and factors considered in their analysis were as follows:
ÌÌ Refineries with high costs to produce transportation fuels and low net cash margins would cease operation in lieu of the entire refining sector operating at lower utilization rates.
ÌÌ Regional trade flows of transportation fuels were considered.
ÌÌ Refinery-specific production costs and other data were utilized from the HSB Solomon Associates' latest worldwide Fuels Study in 2016.
ÌÌ The transportation fuel demands projected in the New Policies Scenario and 450 Scenario were used.
HSB Solomon Associates concluded that all of MPC's refineries would be cost-competitive, even in the carbon- constrained 450 Scenario. This is due to the U.S. cost advantages discussed on the previous page, as well as our cost competitiveness relative to other U.S. refiners.
Key examples of our commitment to implement strategies that align with IEA’s product demand projections include:
ÌÌ We are continuing to execute a strategic plan to more than double the export capacity from our U.S. Gulf Coast refineries to over 510,000 bpd of transportation fuels by the end of 2020. This provides us with added flexibility to market nearly 30 percent of our gasoline and distillate in other regions like Asia, Central and South America, Europe and Africa, including the non-OECD countries that have forecast increased transportation fuel demand through 2040, even in the IEA’s carbon-constrained 450 Scenario.
ÌÌ We are further optimizing finished distillate and jet fuel production at our U.S. Gulf MPC Light-Product Export Capacity Coast refineries over the next five years. 600 This is expected to increase finished
distillate production by more than 11 500 percent company-wide, without a material
increase in crude oil throughput. 400
Given the projected viability of our refining 300 operations in a hypothetical lower-carbon economy, other facets of our operations 200 stand to similarly benefit. For example, our Thousand bpd logistics assets – including the storage and 100 transportation assets in our Midstream segment – will continue to be integral to our refining 0 2012 2013 2014 2015 2016 2020 business, even in the carbon-constrained (projected) 450 Scenario.
______5 https://www.solomononline.com/benchmarking/refining/fuels-study
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 14 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
MPC Renewable Fuels
In making the following projections about biofuels production and consumption, the IEA noted that while advanced biofuels "promise to provide a sustainable pathway to raising total biofuels production, [they] have to overcome major challenges to become available on the scale required by the 450 Scenario."6
ÌÌ The New Policies Scenario and 450 Scenario project biofuel Projected Worldwide Biofuels Production demand will increase by 2.6 million and 7.4 million bpd on 500 an energy equivalent basis to gasoline and diesel, respectively, 400 from 2014 to 2040. This is an increase of 462 percent under 300 the 450 Scenario. 200
ÌÌ The majority of this production from 2014 Levels increase is expected to come 100 from advanced biofuel (i.e., increase cellulosic) which is not projected 0 to occur until after 2025 with % 2020 2030 2040
anticipated advancements in Current Policy New Policies 450 ppmv technology that would allow for production of advanced biofuels Adapted from IEA, 2016 World Energy Outlook at scale.
ÌÌ In the 450 Scenario, biofuels will displace 6.1 million bpd of oil equivalent in highway use and 2 million bpd in aviation use.7
MPC has made significant investments in the production and blending of renewable fuels as part of our overall business strategy:
ÌÌ We hold equity ownership in three corn ethanol plants with a total production capacity of 410 million gallons per year.
ÌÌ We own and operate a facility in Cincinnati, Ohio, that produces biodiesel from soybean oil and methanol. We have nearly completed an expansion that will increase capacity of the plant to approximately 90 million gallons per year, making it one of the five largest biodiesel plants in the U.S.
ÌÌ We sell a significant amount of biofuels throughout our Speedway retail network (see next page for details), as well as on the wholesale market and through Marathon brand locations.
ÌÌ We support advanced biofuels research through our equity ownership in Enchi Corporation, which is developing proprietary technology related to bioprocessing of corn fiber to produce cellulosic ethanol. ______6 International Energy Agency, 2016 World Energy Outlook.
7 The IEA cautions that although biofuels show some promise for aviation fuels, they have not been demonstrated at scale. As a result, if the targets are not achieved, conventional aviation fuel would displace the biofuels projections.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 15 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
SPEEDWAY
IEA Demand Projections
Based on the IEA’s demand projections under the New Policies Scenario and 450 Scenario, the type and volume of fuel sold at Speedway retail locations could be impacted:
ÌÌ By 2040, the New Policies Scenario and 450 Scenario project a 22 percent and 43 percent reduction, respectively, in total liquid fuel consumption within the U.S. transportation sector, with the largest potential reductions occurring after 2030. The projected decrease in demand is driven by the CAFE standards and the number of electric vehicles predicted to enter the transportation fleet.
ÌÌ The New Policies Scenario and 450 Scenario project more than a twofold increase in the amount of biofuels in the U.S. road transport fleet from 2014 to 2040. The increased volumes would increase the share of biofuels in the U.S. road transport sector. For instance, the New Policies Scenario projects an increase to 16 percent from 6 percent.
Speedway - Potential Risks and Opportunities
One of the primary risks to Speedway's profitability is reduced consumer demand for traditional transportation fuels, which could reduce revenue from light-product sales at our retail locations. Further, we may need to make additional investments at retail locations to accommodate increased demand for biofuels. The IEA's biofuel projections, however, provide an opportunity to broaden our Speedway brand customer base by increasing our offerings of biofuels.
Speedway Resiliency
We have adopted strategic measures that will support the continued success of our Speedway operations in a carbon-constrained environment. Systems and resources are in place to be quick-to-market and an industry leader in offering different fueling options to the customer, including those consistent with IEA’s biofuel projections. Some recent examples that demonstrate these capabilities include:
Ì Ethanol flex fuel: Fuels that contain high percentages of ethanol are currently sold at over 330 Speedway retail locations, or 12 percent of our portfolio. Data from the U.S. Department of Energy (DOE) indicates Speedway is currently operating over 11 percent of the U.S. retail locations that offer ethanol flex fuel.
Ì Biodiesel: We offer diesel fuel with at least 11 percent biodiesel (referred to as B11) at more than 110 Speedway retail locations, and 20 percent biodiesel (referred to as B20) at select travel plaza centers through a joint venture.
Ì Compressed natural gas: We offer compressed natural gas at select Speedway retail locations where there is consumer demand for the product.
A Speedway store in Homer Glen, Illinois
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 16 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
“… The convenience stores are getting ahead thanks to a few distinct advantages over traditional fast-food chains. Because many of these stores double as gas stations and offer other groceries, they are one-stop shops rather than a singular destination like offered by [fast food chains]. Many of the stores offer a broader assortment than traditional fast-food chains as well, selling everything from pizza and hot dogs to subs and salads …”
From the article: "An unlikely group of stores is becoming a major threat to [a fast-food franchise]," by Ashley Lutz, Business Insider, Jan. 15, 2017
Speedway is enhancing the variety of fresh and prepared foods offered at its stores, drawing customers independent of their fueling needs.
We also have a multiyear strategic plan to increase in-store merchandise sales to boost overall gross margin. We are progressing toward this goal by offering an increasing variety of fresh and prepared food, and other grocery items at our Speedway retail locations, and through our ever-expanding Speedy Rewards® loyalty program, which included 5.7 million active members as of year-end 2016. This strategic effort has established a loyal customer base that purchases food, beverages and other grocery and convenience items at Speedway retail locations even when not fueling their vehicles.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 17 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
MIDSTREAM
IEA Midstream Projections Projected Worldwide Natural Gas Production The IEA’s projections for natural gas, NGLs 70 and other feedstocks are as follows:
60 ÌÌ Natural Gas: From 2014 through 2040, the New Policies Scenario and 50 levels levels 450 Scenario both project an increase 40
in worldwide natural gas production of 2014 47 percent and 13 percent, respectively. 30 Increased production is primarily from driven by higher demand in the power, 20 industrial and transportation sectors.
The New Policies Scenario also projects increase 10 % U.S. natural gas production will increase 0 by 31 percent from 2014 to 2040. 2020 2030 2040 A majority of this increase will result Current Policy Scenario New Policies Scenario 450 Scenario from increased shale gas and tight oil Adapted from IEA, 2016 World Energy Outlook production.8
ÌÌ Refining Intermediates: Fractionated products from NGLs are expected to increase from 8.8 million to 10.6 million bpd from 2015 to 2040 under the New Policies Scenario. These NGLs are more cost-effective and energy-efficient to process at refineries than heavier crude grades.
ÌÌ Petrochemical Feedstock: As shown to the right, worldwide demand for Projected Worldwide petrochemical feedstock is projected to Petrochemical Feedstock Demand increase by 47 percent from 2015 to 20 2040 under IEA’s New Policies Scenario and 450 Scenario. IEA projected the 15
same demand volumes under both scenarios because there are few viable non-hydrocarbon substitutes in the 10 petrochemical industry. In the short to medium term, the U.S. petrochemical bpd Million 5 industry is projected to experience over 25 percent of the worldwide demand growth in petrochemical feedstocks due 0 to the availability of low-cost natural 2015 2040 gas and NGLs. Adapted from IEA, 2016 World Energy Outlook
______8 The IEA noted additional demand for natural gas and renewable energy could occur by 2040 in the event carbon capture and sequestration (CCS) is not commercialized on a large-scale basis. The 450 Scenario currently assumes CCS will be installed on power plants that collectively produce 10 percent, or 430 gigawatts, of the world’s electricity demand.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 18 ENERGY DEMAND UNDER THE CLIMATE-RELATED SCENARIOS
Midstream - Potential Risks and Opportunities
The primary risks facing our Midstream segment, which includes MPLX, are as follows:
ÌÌ Increased capital necessary to grow our natural gas business, increased methane emission regulation and reduced demand for traditional transportation fuels that are transported and stored by our logistics assets, including pipelines, terminals and marine fleet.
Key opportunities in which we are positioned to take advantage of IEA's demand projections include:
ÌÌ Our Midstream segment is particularly well-positioned to take advantage of increased natural gas and NGLs production that is projected by the IEA in all three of its scenarios. Currently, approximately 10 percent of the natural gas produced in the U.S. passes through our gas processing facilities.
ÌÌ The increased petrochemical feedstock demand projected by the IEA will further strengthen increased demand for NGLs from our gas processing facilities.
ÌÌ By having our transportation and storage assets integrated with our refining, gas processing and retail locations, we are able to act quickly and cost effectively to take advantage of market opportunities, such as being located in areas accessible to existing and planned liquefied natural gas (LNG) export facilities.
Our Midstream Resiliency
The New Policies Scenario projects the natural gas sector will experience worldwide investments of $9.4 trillion from 2016 to 2040. Around $2 trillion, or 21 percent, of these investments are expected to occur in the U.S. and Australia. Even in the carbon-constrained 450 Scenario, the natural gas sector is projected to experience worldwide investments of $7 trillion through 2040.
One of our strategic goals is to grow our midstream infrastructure over the long term, including by 10 to 15 percent year-over-year in processed gas volumes and 15 to 20 percent year-over-year in fractionated liquid volumes in 2017. This growth will further strengthen MPLX's position as the largest processor and fractionator in the prolific Marcellus and Utica shale plays, two of the primary areas in which IEA has projected the growth in U.S. natural gas production. In addition, the increased U.S. natural gas production can be marketed globally due to the significant number of existing and planned LNG export facilities in the U.S. In fact, IEA projects that the U.S., a net importer of natural gas in 2014, will be a net exporter of natural gas in 2040.
Given the projected viability of our refining operations discussed in the preceding section, our logistics assets – including storage and transportation assets – will continue to transport feedstocks and products to and from our refineries. Further, as NGL production from our gas plants continues, our logistics assets will be used to store and transport these products to market.
MPLX's Sherwood natural gas processing complex in West Virginia
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 19 PERFORMANCE METRICS AND ENERGY EFFICIENCY
Part of MPC's 450-acre certified wildlife habitat in Garyville, Louisiana
In addition to analyzing risks and opportunities under different climate- related scenarios, we evaluate risks and opportunities associated with “Energy efficiency needs to be GHG emissions reductions and energy efficiency. The following initiatives at the heart of any strategy to exemplify our commitment to reducing GHG emissions. guarantee secure, sustainable and inclusive economic growth. It is one of the most cost-effective Energy Efficiency ways to enhance security of energy supply, to boost As highlighted in our scenario analyses, MPC considers energy efficiency businesses’ competitiveness and to be a climate-related opportunity with both environmental and to reduce the environmental financial benefits. We have established multiple programs to improve burden of the energy system . . . it energy efficiency across our assets, including the measurement of energy is possible to say with confidence efficiency using the HSB Solomon Associates Energy Intensity Index (EII®) that a sustained decoupling of CO2 emissions from economic growth and the real-time monitoring of our transport trucks' and marine fleet's will not happen without major traveling speeds to minimize fuel combustion and ensure the safety gains in energy efficiency.” of our employees. These energy-efficiency programs and associated metrics have achieved best-in-class performance with numerous U.S. International Energy Agency, Environmental Protection Agency (EPA) certifications and endorsements 2016 World Energy Outlook through the ENERGY STAR® and SmartWay® Programs.
PERSPECTIVES ON CLIMATE-RELATEDCLIMATE-CHANGE SCENARIOS || RISKSRISKS ANDAND OPPORTUNITIESOPPORTUNITIES 20 PERFORMANCE METRICS AND ENERGY EFFICIENCY
ENERGY EFFICIENCY AT OUR REFINERIES
Our Refining business is the source of roughly 70 percent of our direct and indirect GHG emissions. Thus, even small gains in energy efficiency at our refineries have a significant impact on overall company emissions. In addition, after crude oil, energy is the single largest expense for our refineries, so there is ample economic incentive to be as energy-efficient as practicable. In 2016, our Garyville, In 2010, we established a “Focus on Energy” initiative to bolster our Louisiana refinery was the commitment to improving efficiency of our existing installations. As part of third most energy-efficient this initiative, a team of dedicated energy specialists was formed to execute refinery in the U.S. based on EII as determined by the following: HSB Solomon Associates.
ÌÌ Track and communicate nearly 600 individual energy metrics system-wide that influence our EII scores.
ÌÌ Ensure energy efficiency is designed into, and EII impacts are evaluated for, proposed capital and expense projects
ÌÌ Identify and implement energy-efficiency improvements at each refinery, including multiyear programs to enhance insulation, steam system performance and heat integration.
By tracking these metrics in real time, we ensure that we continually focus on energy. Through this focus, our refineries have achieved significant energy-efficiency improvements and performance. For example, based on HSB Solomon Associates' 2016 Fuels Study of the U.S. Refining Sector, three of our refineries have the best EII performance for their size and complexity, two more of our refineries achieved top quartile EII performance for their size and complexity, and the remaining two refineries achieved more than a 5 percent improvement in their EII score since 2014. The EII is also one of the key metrics reviewed by our Refining Leadership and Executive Leadership teams as an ongoing measure of our performance.
The EPA also utilizes the EII metric EPA ENERGY STAR History as one of its eligibility criteria for Operating Year ---> 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 refineries seeking recognition in its Certification Year ---> 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ENERGY STAR Program. Only those Canton, Ohio MPC MPC MPC MPC MPC MPC MPC MPC MPC MPC MPC refineries that meet the following criteria qualify: Detroit, Michigan MPC MPC MPC MPC MPC MPC Garyville, Louisiana MPC MPC MPC MPC MPC MPC MPC MPC MPC MPC MPC ÌÌ An EII score within the top Robinson, Illinois MPC MPC MPC 25 percent of U.S. refineries of similar size, as certified by Texas City, Texas MPC MPC MPC MPC MPC HSB Solomon Associates Total Awards (MPC) = 36 All Other U.S. 3 2 0 0 0 1 1 1 1 2 1 ÌÌ No significant, ongoing Refineries environmental enforcement Total Awards (Others) = 12 actions or penalties
As shown on the above chart, MPC is the industry leader in recognition under the ENERGY STAR Program, having earned 36 of the 48 total recognitions awarded to U.S. refineries. This represents 75 percent of such recognitions — an overwhelmingly large share, considering our refineries represent approximately 10 percent of the total U.S. refining capacity. In addition, our Canton, Ohio, and Garyville, Louisiana, refineries have earned ENERGY STAR recognition every year of the program's existence — the only refineries in the nation with this distinction.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 21 PERFORMANCE METRICS AND ENERGY EFFICIENCY
ENERGY EFFICIENCY AT OUR BIODIESEL FACILITY
Beyond our refineries, we are making strides in energy efficiency metrics at other locations. For example, in April 2017, the EPA recognized our Cincinnati, Ohio, biodiesel plant for achieving the ENERGY STAR Challenge for Industry, which recognizes plants that achieve at least a 10 percent reduction in energy intensity within five years. We achieved an energy intensity reduction of 30.7 percent within one year, reducing GHG emissions by nearly 2,000 metric tons while increasing throughput by 28 percent. This accomplishment is even more significant given we have owned the plant only since 2014. TRANSPORTATION FLEET EFFICIENCY
Our Terminal, Transport and Rail (TT&R) business is a partner company in the EPA’s SmartWay Transport Partnership, which recognizes the best-performing freight carriers for GHG efficiency. To achieve this milestone, TT&R began installing low rolling resistant tires along with other aerodynamic improvements, such as modified mud flaps. TT&R also installed DriveCam® and GEOTAB driver-assist systems that monitor and moderate driver behavior (such as fast acceleration, hard braking, speed and excessive idling) to ensure our vehicle fleets are not only operated safely, but also more efficiently. Finally, TT&R has optimized delivery routes to minimize transport of empty loads. These improvements reduce overall fuel usage, lowering GHG emissions. MARINE FLEET EFFICIENCY
Beginning in 2015, our Marine business implemented a fuel optimization program. Marine determined that the majority of its fuel consumption occurred while vessels were operating at higher speeds. By moderating speed as little as 1 to 2 mph, on average, Marine projected it could reduce fuel consumption between 10 and 20 percent. By implementing a default speed limit and a real-time dashboard for captains to track key performance metrics, fuel efficiency increased by approximately 20 percent during 2016, the first full year of the program. This saved roughly 1.2 million gallons of diesel fuel in 2016 alone, avoiding approximately 12,000 metric tons of GHG emissions.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 22 PERFORMANCE METRICS AND ENERGY EFFICIENCY
RESEARCH ON AUTOMOBILE ENGINE EFFICIENCY
We are collaborating with Argonne National Laboratory (part of the DOE) to conduct research toward achieving greater automobile engine efficiency. As the number of gasoline and diesel- powered vehicles is projected to increase worldwide, engine efficiency is a key GHG emissions-reduction strategy. The collaboration between MPC and Argonne National Laboratory brings together experts on fuel design, and advanced engine combustion and emissions formation. Through this joint effort, which supports the Co-Optimization of Fuels and Engines initiative launched by the DOE Vehicle Technologies and Bioenergy Technologies Offices, researchers hope to make substantial gains in Director of the Argonne National Laboratory Energy efficiencies that could not be achieved by studying Sciences Division Don Hillebrand, left, and Fred Walas, engines or fuels separately. Fuels Technology manager at MPC, at the company’s Refining Analytical Development Facility in Catlettsburg, Kentucky. EXPLORING RENEWABLE ENERGY
We continue to actively explore the potential to use renewable energy at our facilities. In 2012, we installed a 6,000-panel solar array at the Municipal Water Pollution Control Center in Findlay, Ohio. In 2016, we installed a wind turbine at our pipeline station in Harpster, Ohio, to study whether wind power could provide the needed reliability that the current electric grid provides, as an option to be deployed at other facilities.
MPC's wind turbine located at our pipeline station in Harpster, Ohio
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 23 PERFORMANCE METRICS AND ENERGY EFFICIENCY
GHG Emission Reductions MPC Refinery Greenhouse Gas Intensity
REDUCTIONS FROM ENERGY 0.036 EFFICIENCY
Our energy-efficiency efforts have enabled us 0.032 to avoid emitting millions of tons of GHGs per year. Our refineries have reduced GHG intensity (the amount of emissions for a given quantity 0.028 of product manufactured) by approximately 16 percent since 2002 while increasing overall 0.024 throughput by more than 400,000 bpd. This means GHG metric tons/bbl of throughput 2002 2013 2014 2015 2016 since 2002, we added the equivalent capacity Baseline of the eighth-largest refinery in the U.S. without 2002 data includes estimated GHG emissions and throughput for the Galveston Bay Refinery prior significantly increasing GHG emissions over 2002 to MPC ownership. levels. This is an extraordinary accomplishment and demonstrates the effectiveness of energy MPC Refinery Greenhouse Gas Emissions (Direct & Indirect) optimization and efficiency improvements in 30 800
reducing GHG emissions. We have effectively avoided emitting millions of metric tons of GHGs as our GHG intensity has decreased. 20 600 REDUCING FLARING EMISSIONS
10 400 of bbls) (millions
We are an industry leader in reducing emissions metric tons GHG from refinery flares. As part of the EPA’s refinery illion illion
flare enforcement initiative, we collaborated with M 0 200
2002 2013 2014 2015 2016 Throughput the EPA to define a series of operating parameters Baseline that ensure flares continuously operate above 98 GHG Emissions Throughput percent combustion efficiency. We were the first 2002 data includes estimated GHG emissions and throughput for the Galveston Bay Refinery prior company to produce and publish the results of our to MPC ownership. own flare performance tests, setting the standard for the use of new measurement techniques and technologies to characterize and reduce emissions “Today’s agreement will result in cleaner from industrial flares. Subsequently, we entered air for communities across the South and into an agreement with the EPA to reduce flaring Midwest. By working with EPA, Marathon emissions at our refineries. helped advance new approaches that reduce air pollution and improve The agreement includes provisions for source efficiency at its refineries and provide reduction (preventing gases from entering the flare the U.S. with new knowledge to bring system) and installation of systems that recover similar improvements in air quality to waste gas that has entered the flare system so it can be put to beneficial use as fuel gas within the other communities across the nation.” refinery. Recovering these gases reduces reliance on purchased natural gas, lowering overall GHG Cynthia Giles, former assistant administrator for EPA’s emissions. The agreement also includes waste gas Office of Enforcement and Compliance Assurance, caps that ensure levels of flaring will remain low April 2012 into the future.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 24 PERFORMANCE METRICS AND ENERGY EFFICIENCY
By the end of 2016, our flare efficiency improvements resulted in an 87 percent MPC Refinery Flare Emission Reductions reduction in emissions of volatile organic compounds, an 85 percent reduction in 8,000 16 emissions of hazardous air pollutants, and
x 100,000) a 51 percent reduction in GHG emissions 6,000 12 from 2007 levels, which was the baseline year for the flare performance studies. Flare gas recovery systems are currently being 4,000 8 installed at three additional refineries, and all (metric tons are scheduled to be operational by the end 2,000 4
of 2018, resulting in further GHG emission (Tons) Hydrocarbons reductions. In total, we expect to invest more 0 0 than $375 million on projects that reduce 2007 2011 2012 2013 2014 2015 2016 flaring. Baseline Greenhouse Gas Hydrocarbon Greenhouse Gas RECOVERING OFF-GASES FOR PETROCHEMICAL FEEDSTOCK Flaring emissions, including GHG, have decreased dramatically since 2007. Over the past several years, we implemented projects at our Garyville, Louisiana, refinery, and our Galveston Bay refinery in Texas City, Texas, to recover off-gas from multiple refinery process units. Process off-gases, which include large volumes of ethylene, ethane and heavier materials, were previously sent to fuel gas systems and used as fuel in heaters and boilers throughout the refineries. With these recent projects, the gases are now isolated and sold as petrochemical feedstock – the building blocks for plastics and other valuable products – at a premium over the equivalent cost of fuel gas. By removing these more GHG-intensive materials from the fuel gas system and replacing them with natural gas, we have reduced overall GHG emissions by over 100,000 metric tons. REDUCING FUGITIVE METHANE EMISSIONS
In accordance with the Paris Agreement, the U.S. included methane emission reductions from the oil and gas sector as part of its Nationally Determined Contributions. Despite the U.S. announcing its intent to withdraw from the Paris Agreement, these reductions were modeled as part of the IEA’s New Policies Scenario and 450 Scenario. Over the past several years, we worked with the EPA to identify ways to reduce fugitive emissions from our operations. We have agreed to implement enhanced leak detection and repair practices at our largest gas processing and fractionation facilities, along with implementing design modifications to select high-pressure maintenance-related stations.
MPLX's Hopedale natural gas processing complex in Ohio
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 25 MPC's refinery in Robinson, Illinois
PHYSICAL RISKS TO OUR FACILITIES
With a 130-year history of successful operations in the energy business, we have mature systems in place to Hardening and Modernizing: manage both the potential acute physical risks, such as floods and hurricane-force winds, and chronic physical Steps We Have Taken risks, such as higher ocean levels. Part of our approach With refineries, pipelines, dock facilities and other assets is to assume these risks – and the technologies and in areas periodically subjected to extreme weather, we processes available to mitigate them – constantly evolve, have ample operational, safety, environmental and requiring us to be flexible and vigilant. financial reasons to harden against damage and ensure resiliency. Some measures we have implemented are In 2010, the DOE issued a report in response to the 2005 described in this section. and 2008 hurricane seasons, in which it identified best practices to prevent or minimize damage from hurricanes CONTROL ROOMS AND or floods. We have been assessing our assets against the OTHER CRITICAL BUILDINGS best practices covered by this and other reports issued by the DOE.9 Specifically, where appropriate, we are In 2007, we began a modernization program to hardening and modernizing assets against flood and address the siting, projected growth needs and wind damage and ensuring we have resiliency measures enhanced protection needs of control rooms, which in place, such as storm-specific readiness plans. provide centralized monitoring and control functions at refineries, and other critical buildings at our refineries, especially those on the U.S. Gulf Coast due to their
______9 U.S. Department of Energy, Hardening and Resiliency: U.S. Energy Industry Response to Recent Hurricane Seasons (August 2010) available at http://www.oe.netl.doe.gov/docs/HR-Report-final-081710.pdf. The DOE has published several additional reports to supplement the 2010 report. These are available for download at https://energy.gov/epsa/initiatives/us-energy-sector-vulnerability-report
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 26 PHYSICAL RISKS TO OUR FACILITIES
The control room at MPC’s Galveston Bay refinery in Texas City, Texas, is designed to withstand a Category 5 hurricane and flooding. exposure to hurricanes. We have upgraded control rooms levee, ranging in height from 19 to 23 feet, which protects and other critical buildings at our refineries in Garyville 36 square miles of land in the Texas City area. This levee and Texas City, including building two new, state-of-the- has provided adequate protection through several storms, art control rooms that are elevated above grade to avoid including Hurricane Ike in 2008, which was accompanied flood damage and built to withstand wind and storm by an unprecedented Category 4 storm surge, and surges characteristic of the most extreme weather in Hurricane Harvey in 2017, which was accompanied by their locations. For instance, the Galveston Bay refinery record rainfall and region-wide flooding. operations control center is built to withstand winds from a Category 5 hurricane. Neither of these major storm events caused any significant flood or wind damage to our Texas City, Texas, operations. ELECTRICAL INFRASTRUCTURE For instance, during Hurricane Harvey in 2017, our AND POWER SUPPLY Galveston Bay refinery continued to operate throughout the storm, albeit at reduced rates due to interruptions at We are proactively implementing a multiyear program the ports and pipelines that supply crude to the refinery to replace and upgrade electrical infrastructure at our and transport finished products from the refinery. Because refineries. Improvements include, but are not limited to, the storm did not directly cause the refinery to shut down, cable replacement, high-resistance ground installations, we were able to quickly increase throughput as ports and combining substations, installing new safety features pipelines re-opened. and elevating infrastructure to avoid flooding. Our refineries on the U.S. Gulf Coast each have redundant Our Garyville refinery is favorably located on a local high power supplies, and historically have experienced few point, which provides a natural barrier to flooding. The problems maintaining power during severe weather refinery is also protected by a levee along the Mississippi events, including hurricanes. Our other facilities historically River and is near several spillways both upstream and exposed to hurricanes or other severe weather – such downstream of the refinery. An additional 18-mile levee as fuel terminals and pipeline stations – elevate power system called the West Shore Lake Pontchartrain Hurricane infrastructure above historic flood levels and maintain a and Storm Damage Risk Reduction System is planned to combination of on-site generators and contracts for rapid be built by the Pontchartrain Levee District with federal procurement of generators in the event of power loss. and local funding to protect areas around the refinery Notably, all of our operations in the greater Houston area from a storm surge in Lake Pontchartrain. maintained power throughout Hurricane Harvey and its aftermath. Beyond government initiatives, we have implemented safeguards at our U.S. Gulf Coast facilities, including FLOOD CONTROL locating most pumps and compressors on foundations above grade and adopting hurricane preparedness Our refineries on the U.S. Gulf Coast are also protected measures that are implemented well before a storm has a from storm surges, and high waves and flooding by chance to impact operations. infrastructure currently in place, with more being planned. Our refinery in Texas City is already well-protected by a
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 27 PHYSICAL RISKS TO OUR FACILITIES
Resiliency Measures: EmergencyTiered ResponsePreparedness Management & Response Our Emergency Preparedness Group Tier III Response plans and maintains our ongoing ability Tier III to respond rapidly and appropriately to • Assures total corporate CERT manpower, resources, support and response-management emergency incidents anywhere the company available has operations. Our Corporate Emergency Response Team (CERT) is comprised of about Tier II Tier II Response Area/Region/Refinery 160 professionals throughout the company Management Team • Teams developed where Tier III support may not be with response expertise and training in readily available • Bridges gap in response timing for incidents too large the Incident Command System, a globally for the Tier I team recognized organizational structure providing Tier I Local Tier I Response for the development of plans and the Site integration of all resources across multiple • Local response team • Consists of corporate, agencies and organizations to respond to contractor and consultant resources any emergency event.
29 CERT members participate in an annual training exercise, simulating an incident that significantly impacts our operations, the environment and the community. As in a real incident, CERT drills involve federal organizations, such as the EPA or the U.S. Coast Guard; state environmental protection or wildlife agencies; and local emergency responders, such as fire departments and law enforcement.
In addition to the CERT, our operational locations maintain site-specific emergency preparedness and response plans. Refineries and other facilities also identify crews to secure the facility when a weather event is imminent, and a team to resume normal facility operation after a storm passes. These location-specific response plans are also subject to regular drills to ensure they can be executed in the event of a real incident.
We have gone to great lengths to maintain our operations throughout severe weather and to quickly recover. We have agreements in place for alternate workspace, necessary office equipment and multiple means to maintain internet and telephone connectivity, even during prolonged power outages. We have agreements for needed supplies like generators, repair materials, water and more. We maintain an emergency mass-notification system to provide information to, and receive information from, personnel before, during and after an emergency. This information is vital to providing humanitarian aid to our personnel and contractors.
We also have a Business Recovery Team (BRT) that responds during emergency situations to maintain transportation fuel supplies to affected areas. The BRT coordinates supplies and transportation methods throughout our operational areas to meet the company’s contractual obligations. The team’s efforts also help ensure fuel supplies to affected areas, which facilitate recovery efforts and enable daily life and normal operations to resume as quickly as possible.
MPC's Corporate Emergency Response Team at a strategy meeting during its response to Hurricane Harvey's landfall in Texas
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 28 PHYSICAL RISKS TO OUR FACILITIES
HURRICANE HARVEY RESPONSE
In late August 2017, Hurricane Harvey hit the Texas Gulf Coast, bringing unprecedented rainfall and flooding that affected a wide area, including our Texas City, Texas, refining, pipeline and other logistics operations, and an affiliate gas processing plant in Corpus Christi, Texas. Before Hurricane Harvey made landfall, our CERT was activated and began staging tractor-trailers full of food, water, fuel and other supplies employees and others would need in the aftermath of the storm. We procured dozens of hotel rooms and more than 100 apartments to accommodate employees displaced by the storm and its flooding.
After the storm, teams of MPC volunteers staffed a distribution center and helped to stabilize their fellow employees' flood-damaged homes. We also provided food and other essentials to a home for developmentally disabled adults, the Texas City Emergency Operating Center, and to charitable organizations that were helping flood victims. Our employees provided hot meals to law enforcement officers, and delivered meals to flood victims at their homes. MPC donated $1 million to local municipalities and charities to aid with storm recovery, and pledged to match up to another $100,000 of employee contributions. Throughout the storm and recovery efforts, our refineries did not experience any material flooding or damage from Hurricane Harvey but did operate at a reduced operating rate for a few days to enable pipelines and marine vessels to resume normal operation. HURRICANE IRMA RESPONSE
In September 2017, Hurricane Irma struck Florida, leading to one of the largest mass evacuations in U.S. history. Before Hurricane Irma made landfall, our CERT and BRT were activated, working closely with authorities in Florida, Georgia and South Carolina to ensure fuel supplies were maintained during the mandatory evacuations as well as during recovery efforts immediately after the storm passed. We also began staging tractor-trailers full of food, water, fuel and other supplies and, after the storm, distributed the supplies from our Florida terminals to affected employees.
Our logistics team contracted with additional third-party transport carriers to supply as much fuel as possible to Speedway and Marathon brand stations along the evacuation routes. We also delivered fuel using our marine fleet from our U.S. Gulf Coast refineries to maintain supply at our terminals. We worked with local authorities and store managers to keep our Speedway stores open as long as possible to ensure that every citizen had a chance to evacuate. We also staged fuel trucks for quick deployment once the storm passed to ensure fuel availability for recovery efforts as evacuees returned.
In addition to ensuring adequate fuel supplies, our Speedway organization deployed 36 generators for stores along the evacuation and return routes in areas that had lost power. As power was restored, the generators were redeployed to other stores, prioritizing locations where power was most needed. Within three days of the storm’s passing, 98 percent of the 241 Speedway stores in Florida were operating. All of our light-products terminals in Florida are also equipped with backup generators on site. When our Tampa terminal lost power, we were able to quickly restore power using the backup generators so that fuel was quickly available after the storm passed.
Notably, none of our terminals sustained any material damage from the storm. In addition, only three Speedway stores sustained material damage. However, because some of our employees were affected, we staffed a distribution center at each of our terminals to provide food and supplies to employees in need. Speedway donated $250,000 to local charities that were providing storm recovery assistance, and we also donated supplies to several organizations helping people in the storm's aftermath.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 29 CONCLUSIONS
Conclusions With the continuing global demand for oil and gas, MPC is positioned to remain a successful company well into the future, even under the IEA’s hypothetical 450 Scenario. Our Board of Directors and Executive Leadership Team will continue to enhance our climate-related strategies using the framework of the TCFD's recommendations, including the use of scenario planning. We believe our mature governance and risk-management processes enable the company to effectively monitor and adjust to the physical risks and transitional risks associated with a carbon-constrained future. The following strategies highlight areas in which we can continue to effectively mitigate potential climate-related risks and take advantage of the potential climate-related opportunities that may present themselves:
ÌÌ Continue to improve energy efficiency of our refineries and other assets. Energy efficiency is one of our key metrics and strategies, and is a necessary element of both the New Policies Scenario and 450 Scenario. Improved energy efficiency also makes economic sense and can make companies more cost-competitive.
ÌÌ Continue the steady growth of our midstream assets. Demand for natural gas and NGLs is expected to grow through 2040 under both IEA scenarios, and we are well-positioned to take advantage of that growth.
ÌÌ Further increase gasoline and distillate export capacity at our U.S. Gulf Coast refineries. This strategy will enable us to market more than 30 percent of our gasoline and distillate production in other areas of the world, including non- OECD countries where demand for transportation fuel is expected to increase in both the short and long term, even in the 450 Scenario.
ÌÌ Continue to optimize distillate production at our refineries. Even in the carbon-constrained 450 Scenario, the IEA notes alternatives to hydrocarbons are scarce in the freight and aviation sectors.
ÌÌ Continue to execute a strategy to increase in-store gross margins at our Speedway retail locations through prepared food and merchandise sales.
We budget for prospective costs of climate regulations in our business and strategic planning and our approval of capital project allocations. By ensuring our refineries, midstream assets, marketing systems and retail stores are competitive and efficient, we expect to be in a superior position to meet demand, even in a carbon-constrained future.
A light-product storage tank at MPC's Galveston Bay refinery in Texas City, Texas
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 30 Forward-Looking Statements
This publication includes forward-looking statements. You can identify our forward- looking statements by words such as “anticipate,” “believe,” “design,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “imply,” “intend,” “objective,” “opportunity,” “outlook,” “plan,“ “position,” “pursue,” “prospective,” “predict,” “project,” “potential,” “seek,” “strategy,” “target,” “could,” “may,” “should,” “would,” “will” or other similar expressions that convey the uncertainty of future events or outcomes. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the company’s control and are difficult to predict. Factors that could cause our actual results to differ materially from those implied in the forward- looking statements include: adverse changes in laws including with respect to tax and regulatory matters; changes to the expected construction costs and timing of projects; continued/further volatility in and/or degradation of market and industry conditions; the availability and pricing of crude oil and other feedstocks; slower growth in domestic and Canadian crude supply; the effects of the lifting of the U.S. crude oil export ban; completion of pipeline capacity to areas outside the U.S. Midwest; consumer demand for refined products; transportation logistics; the reliability of processing units and other equipment; MPC's ability to successfully implement growth opportunities; modifications to MPLX earnings and distribution growth objectives, and other risks associated with MPLX; compliance with federal and state environmental, economic, health and safety, energy and other policies and regulations, including the cost of compliance with the Renewable Fuel Standard, and/ or enforcement actions initiated thereunder; adverse results in litigation; changes to MPC's capital budget; other risk factors inherent to MPC's industry; and the factors set forth under the heading “Risk Factors” in MPC's Annual Report on Form 10-K for the year ended Dec. 31, 2016, filed with Securities and Exchange Commission (SEC). Copies of MPC's Form 10-K are available on the SEC website, MPC's website at http://ir.marathonpetroleum.com or by contacting MPC's Investor Relations office.
PERSPECTIVES ON CLIMATE-RELATED SCENARIOS | RISKS AND OPPORTUNITIES 31