This document discusses opportunities for businesses in northeast Ohio from increased shale energy development. It provides an overview of PLG Consulting, recent energy booms, and shale energy 101. There are significant economic opportunities for Ohio and Pennsylvania in midstream processing and downstream petrochemical manufacturing due to low natural gas prices. This could create a major resins and plastics manufacturing hub. Many regional businesses across construction, transportation, food services, and more would see increased demand. The scale and timing of development depends on factors like natural gas prices and infrastructure expansion.
1. PLG Consulting
Prepared for
Shale Energy Supply and
Downstream Opportunities for
Businesses in NE Ohio
Youngstown, OH
November 7, 2012
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2. Content
I. About PLG Consulting
II. Recent Energy Booms
III. Shale Energy 101
IV. Economic Opportunities for OH & PA
V. Resulting Business Opportunities
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3. I. About PLG Consulting
» Boutique consulting firm specializing in logistics, engineering, and supply chain
Established in 2001
Over 80 clients and 200 engagements
Significant shale development practice since 2010
» Headquarters in Chicago USA, with team members throughout the US and with
“on the ground” experience in:
North America / Europe / South America / Asia / Middle East
» Consulting services
Strategy & optimization
Assessments & benchmarking
Transportation assets & infrastructure development
Logistics and Supply Chain operations
M&A/investments/private equity
» Specializing in these industry categories:
Energy
Bulk commodities (Proppants, Chemicals, Plastics)
Manufactured goods
Private Equity
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4. II. Energy Booms
» Other recent energy “boom” events with major logistics challenges….
» Common characteristics
New technology breakthroughs and/or dramatic market shifts
Speed to market is paramount; logistics strategy an afterthought
Rush of capital and new players
Continuous change and evolution
Logistics cost and supply chain execution are even more critical
in shale development
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5. Logistics Cost as a Percentage
of Product Cost
» Frac sand is highly sensitive to logistics costs relative to past energy “booms”
» As frac sand costs are decreasing, rail freight rates are increasing
Total Landed Cost Breakdown of Frac Sand
Ethanol 8%
Wind
turbine 12%
Frac sand 58% ($180/ton)
Source: PLG analysis 5
6. Best Frac sand comes from WI & MN
» “All sand is not created equal”
» WI & MN sand is:
» Round
» Uniform in size
» Almost pure quartz
» Extremely hard
» Serves as an optimum proppant
» What is a proppant? It props
open the fissures in the shale
Source: Federal Reserve Bank of Minneapolis, July 2012 6
8. North American “Shale Plays”
Marcellus & Utica
are large plays with
Bakken & Eagle Ford
great location and
are largest “shale plays”
tremendous potential
so far…What can we
learn from them?
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9. Shale Economic Impact to ND
North Dakota Oil Production
ND
WV
OH PA
• Per capita income rose from 38th to
17th among all states since 2000
• Oil investments driving significant
improvements in state and local
infrastructure development
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10. Two Technology Breakthroughs:
Horizontal Drilling & Hydraulic Fracturing
Great YouTube video by
Marathon on fracing:
Http://www.youtube.com/watc
h?v=VY34PQUiwOQ
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11. Shale Energy Supply Chain
Materials Fuel
Upstream Midstream Downstream
• Proppants Gasoline Distillates
• Chemicals Exploration
• Clean water Crude
Transportation Jet Fuel Residuals
Oil
Production
(Well Site)
Processing
Equipment
• Drilling Rigs
• OCTG (Pipe) Refining Chemical
Crude/ Gathering
• Cement Feedstocks
Gas
Mixture
Process
Natural
Product
Gas
Logistics Flow
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12. Hydraulic Fracturing
Equipment Staging Area
Frac Tanks/Fluid Storage
Data Van
Chemical Trucks
Blender
Pump Trucks
Sand Storage
Unit
Source: JPTOnline.org 12
13. Hydraulic Fracturing Materials
Inputs and Logistics – Per Well
Source to Transloading to
Materials Waste Water
Transloading Wellhead Site
~500 Total
Proppants 40 160 Truckloads
OCTG (Pipe) 5 20
Chemicals 2 8
Clean Water/ Oil / Gas/ NGLs
Local source ~1,000
Cement
Truck, Rail,
47 Total ~1,200 Total
Pipeline
Railcars Truckloads
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14. Midstream / Downstream
Supply Chain
Petrochemical
Refined Processing Polymers
Crude
Products Olefins
Polybutadiene Polypropylene Polyethylene
Chemical
Ethylene Propylene Butylene
Feedstocks
Petrochemicals
Natural Manufacturing
Gas Power Aromatics Ammonia
Many
Others Intermediates become
consumer and
Generation industrial products
Industrial
Use
Process
Consumer
Product Use
Consumers
Logistics Flow
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15. Key Logistical Questions for
Midstream and Downstream
» Where are the destinations
for further processing?
Midstream processing
Crude oil refineries
Petrochemical processing plants
» Is the infrastructure in place
to allow efficient movements?
Pipeline locations and capacity
Adequate roads
Rail infrastructure
Waterway terminal availability
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17. Traditional Plastics Supply Chain
“I just want to say one word Lordstown
to you…Plastics…There’s a Assembly Plant
great future in it. Think
about it.”
-The Graduate, 1967
Resin Component
Plants Manufacturing
Cracker
Resins
ship
Refineries via rail
Imported crude
via vessel
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18. Potential Plastics Supply Chain
Lordstown HDPE Calculated Cost
Assembly 2500
Plant
2000
Component
1500
Manufacturing
$/Ton
Resin Cracker
Plants 1000
500
Gas Wells
0
Asia US Saudi US
Historical Recent
Sources: CMAI, TopLine Analytics, and Alembic analysis, 2012
» Low cost natural gas with local processing would give this
region a tremendous material and manufacturing cost
advantage 18
19. Gas Demand Growth Potential
Opportunities – LNG & Others
» LNG export is a cost leverage play
15 $7.50- $13
12 $4-7 $10.50 $10
US $
9
6 $3.50
3
0
» Infrastructure & Regulatory Issues
Requires fractionation and liquefaction to transport efficiently.
There are 4 LNG import terminals in the Northeast that could be modified for export
Marcus Hook, PA has great export potential
Federal government must approve exporting LNG. Several companies have applied for
export permits.
» Emerging technology & applications
Compressed Natural Gas (CNG) as transportation fuel
Converting natural gas to diesel or gasoline (Cairns City, PA)
Exporting byproducts – propane, ethelyne, resins
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20. Impact of Crude Oil in Utica
Utica crude would first
displace foreign crude in
this region and have
logistical cost advantage
vs. Bakken.
Utica has the potential to
produce 100 to 180 million
barrels of oil annually.
Source: EAI, Inc.
Source: EIA 20
22. Shale Development Activities
» Exploration and Preparation » Production
Land acquisition Transportation
Engineering – Civil, Mechanical Equipment Maintenance
Legal
Construction
Infrastructure build-out – roads, rail,
roads, pipelines, bridges, buildings
» Drilling
Transportation – transloading,
trucking
Fresh water management
Brine water processing &
transportation
Equipment maintenance
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23. Shale Regional Development
Business Opportunities
» Engineering » Medical support
» Construction » Vehicle rental & repair
» Material supply & handling » Equipment rental & repair
» Real Estate » Machine parts
» Temporary Housing » Temporary labor
» Hotels » Work clothing, shoes, PPE
» Restaurants & Supermarkets » Construction material salvage
» Catering/On-site food supply » Fuel – gas, diesel, propane
Direct Employment: ~20% of all jobs created
Indirect & Induced Employment: ~80% of jobs created
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24. Will this boom actually occur?
» Not a matter of “if” but “when”….
Natural Gas & Crude is here
Proven technology to find it
Geographically advantageous
Great transportation infrastructure in place
» “When” depends on these factors….
US Natural Gas Prices
Gas processing & pipeline capacity
Cracker & resin factories in region
LNG export timing & amount
Finding fracing “recipe” for Utica crude oil
Global crude oil price
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25. Thank You!
For follow up questions and information, please contact:
Taylor Robinson, President
+1-508-982-1319 / trobinson@prologisticsgroup.com
This presentation will be available at:
WWW.ProLogisticsGroup.COM
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