Plg black gold9-13-12

PLG Consulting

Logistics in the Utica Shale
Development

Prepared for

Black Gold Ohio
Columbus, OH
September 13, 2012
PLG Consulting Logistics / Engineering / Supply Chain 1 Delivering Solutions for Competitive Advantage 1 1

Content

I. About PLG
II. Energy Booms
III. Products and Logistics Flows
IV. Utica Logistics Conclusions

PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 2

About Professional Logistics Group

» A logistics, engineering and supply chain consulting firm that
delivers solutions, providing competitive advantage for our
clients

» Headquartered in Chicago
 Team members throughout the United States
 11 years of “on the ground” experience in:
– North America / Asia / Europe /
South America / Middle East
» Consulting services
 Strategy and optimization
 Supply chain assessments & solutions
 Logistics assets and infrastructure
 Rail and plant infrastructure
 Private equity support
» Industry groups served
 Energy – oil and gas, wind, ethanol, coal
 Processing – petrochemical / chemical
 Manufacturing
 Private equity

Energy Booms


The Shale Development
Gold Rush
» 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

North American Shale Plays


Ohio’s Boom

Horizontal Well Production*
Year Drilled Producing
2011 33 4
2012 160 193
Forecasted

2013 650 843
Forecasted

2014 1,075 1,918
Forecasted

» Estimated jobs
created/supported by
2014*
 65,000+ total
 28,000+ field development
and supply chain
Baker Hughes Rig Count
* Ohio Shale Coalition Oil Gas As of: September 7, 2012


Products and Logistics Flows


Shale Oil and Gas 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


Natural Gas & Petrochemical
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
Product
Consumer
Logistics Flow Use
Consumers


Hydraulic Fracturing
Equipment Staging Area

Source: JPTOnline.org

Upstream Transportation
Requirements
Volumes Per Single Well Site (Based on 30 stages/well site)
Source to Transloading Transloading to Wellhead Site

Material Railcars Material Trucks
Proppants 40 Proppants 160
Pipe 5 Pipe 20
Fracturing Fracturing
2 8
Chemicals Chemicals
Clean Water and Clean Water and
Sourced Locally ~1000
Cement Cement
Total 47 Total ~1200

Leaving Site Trucks
Waste Water ~500
Oil and Natural Gas Pipeline, Rail, Truck

Key Logistics 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


Potential Crude Oil Destinations

Refinery
Ohio Region of Utica Play

» Utica could displace incoming crude at these local refineries
» Other mothballed refineries may open up if Utica takes off
» Logistics flows will need to be established


Utica Natural Gas Markets

» Utilize existing gas » Construction of new
transmission system to pipeline systems for
supply local markets access into new markets
 Well-developed pipeline system  NEXUS gas pipeline ties in the
 Pipelines may be reconfigured or Midwest and beyond
added to improve gas flow
Current Gas Pipeline Network NEXUS Proposed Route


Potential for Downstream
Processing In the Region
Marcellus/Utica will create an opportunity
for a more cost-competitive chemical
feedstock supply chain

» Marcellus and Utica are expected to Monaca, PA
increase ethane supply by 25%*

» 45% of all US polyethylene is consumed
around the Utica shale play

» 70% of all US polyethylene is produced in
Texas and Louisiana

Proposed Shell
* Source: Townsend Solutions and American Chemistry Council Ethylene Facility

LNG Potential Opportunity

» LNG is a cost leverage play
 Global market price for dry gas is $10-17/mcf
 Current US market price is ~$3/mcf
 Cost to liquefy and transport is $4 to $7/mcg
 Several companies have applied for export permits

» Infrastructure Considerations
 Some dry gas infrastructure already in place
 Requires fractionation and liquefaction to transport
efficiently
 There are 4 LNG import terminals in the Northeast
that could be modified for export

» Potential Markets
 Exports to Europe
 Would need Federal legislation changes


Utica Logistics Conclusions


Utica Must Be Most
Cost-Competitive to Win!
Oil, gas, and petrochemicals are commodities

» Utica must beat the competition with lowest delivered cost
 Production and logistics cost are main cost drivers
 Environmental and regulatory factors will also impact cost
» Know your competitors – Bakken, Marcellus, Eagle Ford,
West Africa, North Sea, Canada
» Importance of cost will escalate as more shale plays are
developed in the U.S.


Utica Pros and Cons

» Advantages
 Location
 Good basic infrastructure
 Learning from earlier shale plays
 Wetter than Marcellus

» Disadvantages
 New entrant in shale gas and oil
 Short term pipeline infrastructure
 Lack of petrochemical plants


What Can Ohio Do To Help Utica
Win?
» Drive cost competitiveness of production & logistics
» Develop markets for products
» Support with political / regulatory efficiency
» Make Ohio an easy place to do business
» Promote partnerships between:
 State and local government

 Educational institutions

 Local supply companies

 Oil and gas companies


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


Plg black gold9-13-12

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