McKinsey & Co. Report: Ohio Energy Competitiveness

Ohio Energy Competitiveness
Technical fact base
September 2016
www.OhioBRT.com
This document is prepared for the use of members of the Ohio Business Roundtable. It does not constitute legal,
accounting, tax, or similar professional advice normally provided by licensed or certified practitioners. The information
provided is preliminary and shall not be fully relied upon as the complete and final product. No part of this document may be
circulated, quoted, or reproduced for distribution without prior written approval from the Ohio Business Roundtable. No part
of this document may be circulated, quoted, or reproduced externally to the members of the Ohio Business Roundtable, and
any requests for additional use or release must be pre-approved by Ohio Business Roundtable

1
This document can be used to support and provide depth to the findings of
the Ohio Energy Competitiveness overview document
Purpose
conclusions in an extensive fact base
Link facts, data, and assertions from the
overview directly to their source
Provide additional depth on the topics
covered in the overview document
Communicate insights about important
competitiveness not covered in the
overview
How to use this document
The overview contains links to the
appendices with supporting facts
Links to the appendices reference
specific facts cited on the page and
additional insights on a given topic
The future outlook sections of the
appendices explain the methodology for
projections made in the overview
The future outlook sections also provide
deep dives on specific tax and
regulatory concerns (e.g., severance
tax)

2
This technical backup document covers a fact base for two broad topics
Oil and
gas
Power
Defining energy competitiveness Approach to fact base
Ability to extract reserves (oil, gas)
Ability to deliver resource to high-
demand regions
Ability to attract and maintain
industrial investments that benefit
from reserves
Analyze four resource types:
natural gas, natural gas liquids
(NGLs), crude, and condensate
Develop historical and future
perspective across entire value
chain: extraction, transportation
and utilization
Low-cost: Power prices in range of
benchmark states
Reliable: Able to effectively meet load
at all times, including peak demand
periods
Stable and predictable: Ability to
predict power prices within an
acceptable range of uncertainty for
investments, with acceptable volatility
(compared to competitive states)
Develop historical and future
perspective according to three
aspects of power generation:
pricing, supply and demand
Utilize specific benchmark and
competitor states to understand
relative performance

3
Contents
Energy Competitiveness Report
Appendix B: Electric power
Appendix A: Oil and gas

Ohio Energy Competitiveness
CONFIDENTIAL
This document is solely for the use of members of the Ohio Business Roundtable. It does not constitute legal, accounting,
tax, or similar professional advice normally provided by licensed or certified practitioners. No part of it may be circulated,
quoted, or reproduced for distribution outside the client organization without prior written approval from the Ohio Business
Roundtable. The information provided is preliminary and shall not be fully relied upon as the complete and final product. No
part of this document may be circulated, quoted, or reproduced externally to the members of the Ohio Business Roundtable,
and any requests for additional use or release must be pre-approved by Ohio Business Roundtable.
Pre-read document for BRT Annual Meeting of December 15, 2015

5
The OBRT energy competitiveness initiative has been a collaborative year-
long effort that has focused on three key objectives
CEO Steering Committee Gary Heminger, Chair; Nick Akins, Chuck Jones,
Bob Schottenstein, Mike Thaman and Tim Timken
through the present day
changing energy landscape
Align on themes and recommendations to move Ohio
forward
OBRT energy project
objectives
Working Team
Marathon Petroleum
AEP
FirstEnergy
Duke Energy
TimkenSteel
Owens Corning
M/I Homes
NiSource
McKinsey & Company

6
Guiding principles for the work
Drive economic benefit
for Ohio
Encourage competition
Ensure smarter regulation
Invest in infrastructure
competitiveness, rather than being solely reliant on federal
policies to set the agenda
by fully capturing the fair share of value from energy sources,
driving job growth in the state, and supporting an innovative
workforce with the necessary skills across the value chain
by avoiding measures that discourage energy source
investments and ensuring that policies and regulations do
not discourage any specific technology or fuel-source
by streamlining the permitting process and establishing
investments in energy assets
by removing impediments to the alignment of infrastructure
investments with future energy production and demand

7
Unpacking our three
Key questionsObjective
the years?
What impact is the development of the Utica Shale having on the
State?
prices evolved compared to competitor states?
How will the production of gas, oil, and liquids in the Utica Shale
advance over the next 15 years?
What infrastructure and regulatory structures will facilitate the strong
production, transportation, and use of hydrocarbons in the years
ahead?
between now and 2030?
What are the key hurdles that Ohio must overcome to remain energy
competitive?
and other key stakeholders to move the State forward?
Understand the
evolution
sector through the
present day
Use potential future
scenarios to
changing energy
landscape
Offer themes and
recommendations
to make Ohio
energy competitive

8
has featured prominently in public and policy
discourse over the past year
Clean
Power Plan (CPP)
aims to reduce power
market emissions 32%
below 2005 levels by
2030
Ohio lawmakers sent
severance tax
proposal to a study
committee to analyze
potential impacts
The SB 310 study
committee
renewable energy
freeze should
continue indefinitely
The Ohio Clean
Energy Initiative has
been certified by the
ballot board for the
November 2016
election
Cleveland State
University shale
study maps the
opportunities for
shale gas
development in
Ohio
The Kasich Energy
Plan aims to update
fit with the evolving
shale gas and electric
power landscape

9
Purpose of this document
Written for a CEO-level
audience, with varying levels of
exposure to and experience
with the energy space
Overview of the major energy
trends impacting Ohio and
proposal for a path forward,
reflecting only the highlights of
the analysis
Companion document to
detailed fact pack
Objectives
Understand the evolution
through the present day
Use potential future scenarios
changing energy landscape
Offer themes and
recommendations to make
Ohio energy competitive

10
Executive Summary (1/2)
Ohio sits on an immense opportunity to benefit from abundant and low-cost shale gas
A huge volume (~24 trillion cubic feet) of inexpensive and accessible wet and dry gas exists
in the Utica basin, where ~98% of gas is still to be extracted
Extraction costs in the Utica basin are lower than many other basins and projected to drop
Increased production and emerging downstream industries are already beginning to capture
this value, and new investments in infrastructure and adjustments in regulation are needed
to maximize potential
annual GDP and sustain nearly 138,000 jobs
The electric power landscape is fundamentally shifting in Ohio, driven by trends that are
shaping the national power landscape
Power demand has declined over the last 5 years, and is expected to remain relatively flat
for next 10-15 years, driven by increased energy efficiency and adoption of distributed
resources
Ohio is now part of a larger regional power system, PJM, and continues to be a net importer
of power as Ohio-based assets retire
Mix of power supply for Ohio has been and will continue to shift toward natural gas,
renewables and distributed energy resources that could displace coal generation
Policy and regulatory landscape continues to be in flux with major outcomes (e.g., SB310,
Clean Power Plan) that will eventually have a tangible impact on pace of transition in Ohio
This document is solely for the use of members of the Ohio Business Roundtable. It does not constitute legal, accounting, tax, or similar professional advice normally provided by licensed or
certified practitioners. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from the Ohio Business Roundtable. The
information provided is preliminary and shall not be fully relied upon as the complete and final product. No part of this document may be circulated, quoted, or reproduced externally to the
members of the Ohio Business Roundtable, and any requests for additional use or release must be pre-approved by Ohio Business Roundtable.

11
Executive Summary (2/2)
In order to respond these power and gas dynamics and position the state as an energy
leader, Ohio will need to mobilize across 6 priority themes:
Meet the evolving needs of the power market for customers and developers
Build out energy infrastructure
Improve the ease of doing business in energy in Ohio
Ensure adoption of renewables and advanced energy technologies are market based
Drive economic impact from energy competitiveness
This document is solely for the use of members of the Ohio Business Roundtable. It does not constitute legal, accounting, tax, or similar professional advice normally provided by licensed or
certified practitioners. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from the Ohio Business Roundtable. The
information provided is preliminary and shall not be fully relied upon as the complete and final product. No part of this document may be circulated, quoted, or reproduced externally to the
members of the Ohio Business Roundtable, and any requests for additional use or release must be pre-approved by Ohio Business Roundtable.

12
Path forward
Changing power landscape
12

13
!"#$%&'()*%'+%#,,)+*)%+'-./'0%1'*%$22$/-.+#-3
Ohio is sitting on large
natural gas reserves in the
Utica and Marcellus Basins
~98% 24 trillion cubic
feet of accessible gas remains
untapped
The Utica and Marcellus
Basins are among the lowest-
cost natural gas extraction
zones in the US, and
leveraging this resource
presents an enormous
economic opportunity for the
state of Ohio
2015 extraction costs in
the Utica are 16% lower
than the average of other
US basins
Natural gas production
could sustain up to
138,000 jobs in Ohio and
contribute $8B to the GDP
New investment in infrastructure and attention to
regulation will allow Ohio to capture the full value of the
these basins and the related economic benefits
Production will
outpace pipeline
capacity by 2030

14
Ohio sits on one of the largest natural gas basins in the country
Source: Energy Information Administration (EIA), April 2015
From 2008-2014,
Marcellus and
Utica contributed
~50% of the total
US dry gas
production
growth
Most of the growth
is due to Marcellus;
Utica production
did not start in
earnest until 2013
NATURAL GAS OPPORTUNITY: ECONOMIC VALUE
Most productive dry gas plays1 in the contiguous United States
1 Plays are regions where dry gas is actively extracted
Bakken
Woodford
Eagle Ford
Haynesville-
Bossier
Fayetteville
Antrim
Marcellus
& Utica
Barnett
Low growth High growth
Basins

15
sustain over 130,000 jobs in 2025
0
2
4
6
8
10
$8.3
billion
Other
sectors3
Manufac-
turing1
Total GDP
gain
Services2Gas and oil
production
$ Billion
Source: IMPLAN model results
1 Includes chemicals, metals, paper and pulp, and rubber and plastics manufacturing.
2 Includes professional services, management, real estate, health care, education, leisure, and hospitality.
3 Includes wholesale and retail trade, construction, transport and warehousing, agriculture, mining, and government.
Sector jobs
sustained 55 19 42 22 138

16
Ohio natural gas resources have hardly been
tapped to date
Tcf
Utica Basin present an enormous
economic opportunity
23.3.36
Untapped
98%
.08
Reserves
24 .08 .18
natural gas
resources are
equivalent to an
entire year of US
gas consumption
Ohio production of both dry gas and NGLs is projected to
double over the next decade
0
1
2
3
4
5
6
Production
Bcfd
3025 262320 2717 1916 22 292824211815
Dry Gas
NGLs
Dry gas Natural Gas Liquids (NGLs)
This production
growth includes
3 products
Light tight oil (LTO)
Source: Drillinginfo, RigData, Energy Information Administration (EIA), OBRT working team model

17
This economic value is driven by production growth of 3 products,
with a special emphasis on dry gas and NGLs
End
uses
Source: SRI; TECNON; EIA
1 Includes fractionators and crackers additional details to follow
Largest opportunities, details to follow
Dry natural gas
Dry gas
Dry gas well
Value
chain
Wet gas well
Mid-stream
processing1
Ethylene
Propylene etc.
Natural Gas Liquids (NGLs)
Oil reservoir
LTO
Light tight oil (LTO)
Refineries
Low-cost supply of gas for
Direct burn
Power generation
potential
Low-cost feedstock fuel
(e.g., steel, methanol) for
industries
Plastics
Rubbers
Insulation
Pipes
Housewares
Carpets
Clothing
Antifreeze
Paper
Etc.
Substitute for other crude
oil, which could increase
Net exports of
petroleum products
Refinery utilization
rates
Could be used for direct
burn

18
Break-even price levels across US basins, $/MMBtu
5.0
4.8
4.7
4.7
4.5
4.5
4.4
4.0
3.8
3.6
3.4
3.4
3.3
3.2
3.2
3.4Utica OH
6.2
5.9
5.7
5.5
5.0
5.0
4.7
4.6
4.6
4.5
4.4
4.2
4.1
4.0
3.9
5.4Utica OH
competitive position in dry gas is expected to strengthen, as
gas extraction costs in the Utica basin decline further
2014 20151
1 Assumes a 5% severance tax based on recent proposals by Governor Kasich; break-even Utica cost is ~$3.3 at current tax levels
NATURAL GAS OPPORTUNITY: DRY GAS
A
Source: Drillinginfo; RigData; working team analysis

19
Shale gas wells, which use
horizontal drilling and hydraulic
fracturing, have dramatically
increased
Permits for drilling in the shale
plays were issued starting in 2011
The number of wells in Ohio has quadrupled in the last two years
Source: Rystad UCube
447445
294
79
12
20151413122011
1 Horizontal wells drilled since 2011
Drilled
horizontal
wells1
Horizontal gas wells, Well count

20
Current pipeline capacity is not sufficient to keep up with projected
production levels
Source: Energy Information Administration (EIA)
Appalachia natural gas production and pipeline capacity (2015 2030)
26
30
4
Projected
production growth
Projected 2030
production
2015 production
17
13
Current and
planned regional
pipeline capacity
Regional
pipeline capacity
Additional
capacity needed
30Bcfd
Pipeline capacity is currently constrained at periods of peak demand
These capacity constraints during periods of peak demand are associated with the
greatest commercial loss, as prices are highest during these periods

21
Needs met with local
supply
-12% -24%1%
Tennessee Gas Pipeline
OH/PA Border (Gulf supplies
to Mid-Atlantic)
1
-77%-38%23%
2 TETCO Ohio
(Gulf supplies to Mid-Atlantic)
34% 16%56%
3 Columbia Gulf Leach KY
(Gulf supplies to Mid-Atlantic)
21% -8%38%
4 REX Ohio
(Rockies supplies to Mid-
Atlantic)
Initial flow reversal Consistently reversed flow
Example pipeline flows Tennessee Gas Pipeline
Flow reversals across major Ohio pipelines
Pipeline flow reversals have begun to address the capacity issue, but
will not be sufficient to cover the future volume of gas
Source: Ventyx, Energy Velocity
-2
0
2
4
Jan-
13
Jul-
12
Jul-
14
Jan-
12
Jan-
11
Jan-
14
Jul-
13
Jul-
11
Capacity utilization
Flow reversal
As Utica and
Marcellus production
increased, pipelines
which once brought
gas into the region
were reversed to
allow for exports
These reversals have
begun to address the
local supply-demand
imbalance, but
capacity is
constrained even at
current production
levels
Bcfd

22
Bb
US NGL proved & probable reserves from gas extraction, 2014
Additionally, the Utica Basin is a prime location for wet gas extraction
Bakken
Othershale
0.7 28.4
Other
1.0
Othertight
Marcellus
Total
3.6
3.7
Conventional
11.0
Niobrara
0.50.6
Barnett
0.9
Utica
1.3
1.4
Eagle3.2
Woodford
Permian
0.5
NATURAL GAS OPPORTUNITY: WET GAS
Source: Rystad Ucube (May 2015), Energy Information Administration (EIA)

23
NGLs can be processed into several end-products, presenting Ohio with
the opportunity to support new industries
Select
end-
products
Value
chain
Natural Gas Liquids (NGLs)
Wet gas well
Dry natural
gas
FractionatorNGLs
Cracker1
Source: SRI; TECNON; AFPM; JobsOhio
1 Crackers use natural gas liquids to produce petrochemical products (e.g., plastics)
Plastics Rubber Other
Packaging
Film
Housewares
Toys
Liners / film
Tires
Footwear
Sealants
Carpets
Insulation
Clothing
Paper
Antifreeze
Ethylene
What is a cracker?
Approvals and design of a PTT Global
Chemical ethane cracker are already in
motion in Belmont County in Eastern Ohio
A significant investment has already been
made to test the design of the plant
Picture of an ethane cracker
Source: PTT Global Chemical
Recent developments
A cracker converts natural gas to liquids
These liquids can then be converted into a
number of end-products, listed below

24
0
100
200
300
400
500
600
700
Ethane Production
kb/d
2030202520202015
Ethane production in Appalachia is estimated to be sufficient to supply
one or two ethane crackers now and several more by 2030
Ohio could benefit from
construction of ethane crackers
Attracting ethane crackers could
provide new jobs in the state
and increase demand for Ohio
NGLs
Ohio must compete with other
states for ethane cracker
projects
Without increased pipeline
capacity and/or new crackers,
NGL prices may be
suppressed and possibly
bottleneck wet gas production
Encouraging the entrance of crackers into Ohio would create
local demand for NGLs, unlocking the full value of these liquids
Source: Drillinginfo; RigData; OBRT working team modeling and analysis
Large crackers consume
~100-175 kilobarrels per
day (kb/d) of feedstock
could supply 3-5 large
crackers by 2030

25
Path forward
25

26
Over the past 15 years, Ohio has
shifted from a regulated state to a
restructured state, allowing
customer choice
declined by 1.2% from 2008
and is likely to remain flat for
next 10-15 years
and will continue to tilt toward
natural gas, renewables and
distributed energy that could
displace coal and nuclear
Major policy and regulatory
outcomes remain in flux and will
eventually have a major impact on the
transition in Ohio
Critical to manage a stable transition
next 10-15 years as we see flat power demand, power importing, shifting
supply mix, and a uncertain regulatory/policy landscape
Ohio is now part of a larger
regional energy system,
PJM, that operates across
multiple states and is evolving
Ohio now imports ~10% of
its power supply and will
continue to be a net importer
as assets retire faster than
demand declines

27
Regulated
rates
Regulated rates to capped rates to market-based rates
Market-based
rates
<1% gas
Changing generation mix: moving from traditional
base load (coal, nuclear) to more gas, renewables
~15% gas
No legislative
mandates
Increasing mandated energy efficiency requirements
2025
mandates on
hold
Utility state
plans
Move from meeting reliability needs through utility
state plans to PJM driven model
PJM regional
model
Low
contribution
Increasing role of demand response, energy efficiency and energy imports
from other states to meet our reserve margins
High contribution
2001 2006 2009 20151999 2000 2008 2012 Beyond
WHAT
NEXT?
Total
Regulator
Oversight
Deregulation journey:
Wholesale Competition, Retail Competition, PJM established,
energy efficiency, Renewables Standards for Ohio
2014
CHANGING POWER LANDSCAPE

28
retail power rates across continue to be competitive over last 6 years
relative to the national average
6-yearaverage(2010-2015)in$/MWh
CHANGING POWER LANDSCAPE: PRICING
70
75
77
79
84
88
89
91
91
93
95
NC
WA
IN
IL
LA
KY
WV
US
PA
MI
CT
OH
GA
166
101
103
TX
107
SC
42
54
56
60
60
61
62
63
63
64
64
68
70
74
74MI
MA 132
PA
GA
TX
NC
NY
SC
LA
WV
IL
OH
IN
WA
US
KY
72
82
83
85
85
86
87
92
97
97
97
98
NY
106
KY
142
US
PA
IN
MI
CA
156
LA
OH
GA
SC
104
IL
NC
TX
ID
WV
85
91
95
95
WA
LA
IN
NC 108
GA 111
106
TX 114
WV
KY
OH
188
US
139
CT
121
MI
119
134
115
SC
IL
116
PA
Overall ResidentialCommercialIndustrial
Ohio US averageCompetition

29
Total retail sales for Ohio
Power demand in Ohio has fallen over the past 6 years, and is expected to
remain relatively flat over next 15 years
TWh
1 Multiple scenarios were considered for power demand; even more optimistic scenarios did not lift demand expectations above 2008 levels
CHANGING POWER LANDSCAPE: DEMAND
Industrial losses
contributed to falling
power demand from
2008-2014
Residential demand
is projected to fall
over next 15 years, in
part, due to adoption
of energy efficient
technologies and
distributed resource
Industrial and
commercial demand
are projected to
increase slightly over
next 15 years
53
2014
47
-1.2% p.a.
53
2030
est.
44
-1.1% p.a.
49
0 3
49
47
53
2008
0
59
52
48
47
2015
0
0.1% p.a.
TransportationIndustrialResidential Commercial

30
with many of its peer states
What has happened
to power demand
from 2008-2014?
Flat to negative
load growth in the
US overall
Commercial and
residential loads
have remained
relatively stable
Industrial load
growth has been
challenged across
the US
Power demand (2008-2015, cumulative growth rate)
Commercial ResidentialOverallStates Industrial
Ohio
Texas
Illinois
Indiana
Kentucky
Pennsylvania
West Virginia
Georgia
South Carolina
US
North Carolina
Michigan
Louisiana
SOURCE: Energy Information Administration (EIA)
CHANGING POWER LANDSCAPE: DEMAND
-0.1% -0.5%-1.2% -2.7%
3.1 % 1.7%1.6% -0.4%
-0.4% -0.6%-0.7% -1.2%
-0.3% -0.8%-0.8% -1.1%
-0.7%-3.1% -6.1%
-1.1% 0.1%-0.4% -0.3%
0.1% -0.4%-0.8% -1,7%
0.0% 0.2%0.0% -0.3%
0.0% 0.1%0.1% 0.0%
0.2% 0.2%0.0% -0.7%
0.4% 0.4%0.3% -0.1%
-0.1% -0.4%-0.5% -1.2%
1.2% 1.2%1.7% 2.7%
-0.6%

31
Ohio is now part of a larger regional energy system PJM that operates
across multiple states, but is still maturing as a power market
CHANGING POWER LANDSCAPE: MARKET CONTEXT
Multi-
Optimizes for region not Ohio
getting its rules right
States of many flavors participate
PJM What is it?
Restructured
States that allow
customer choice
Partially restructured
States that have (very)
limited retail choice
Regulated
States have traditional
regulated rates

32
Power Demand and Generation in Ohio
Over last 5 years, Ohio has become a bigger importer of power as Ohio-
Ohio power generationDemand
TWH
XX Imports as a share of total demand (%)
Ohio has become
a net importer of
power over last 5
years, for several
reasons including
coal retirement and
gas price reduction
With significant
coal retirements
scheduled, net
importer status will
continue over next
10-15 years
Critical for PJM to
function as an
efficient market
increasing reliance
on it
CHANGING POWER LANDSCAPE: SUPPLY
06
147
10
136
05
153
136
2015
144
146
159
153
155
162
155
2004 09
148
154
08
157
07
160
122
154
149
135
13
137
14
149
12
152
130
11
155
TWH
4 2 -1 4 4 7 7 12 15 8 10 17

33
imports from neighboring PJM
states with excess capacity this trend is expected to continue
CHANGING POWER LANDSCAPE: SUPPLY
Indiana
Kentucky
Michigan
Ohio
Pennsylvania
West
Virginia
145 146 146 146
2013 20152012 2014
32333131
2015201420132012
7583
2014
77
2012 20152013
89
223 228 216
73 76 72
90 90
83
2014
147149
2012 2013 2015
149152
130
137 135
Demand State Generation
Ohio Pennsylvania
West Virginia
Kentucky
122
222
81
91

34
Consistent with rest of the country, changing energy economics may shift
mix away from coal toward gas and renewables
%
Power generation mix in Ohio
Low gas prices and
coal plant
retirements led to a
29% decrease in
coal generation and
12-fold increase in
gas generation since
2004
Market-based
adoption of
renewables (i.e.,
without subsidies)
will accelerate as
technology costs
come down over the
coming years
CHANGING POWER LANDSCAPE: GENERATION MIX
1 Working team analysis
2008
86
0
1
2004
1 10
11
87
1
24
14
2 1
60
2015
2
68
2030
est.
11
2912
18
46
13
2014
11
0 2
Other Gas CoalRenewables Nuclear

35
Ohio has several natural gas power generation projects in different phases
of development, with some uncertainty surrounding completion timelines
Average gas plant takes 3-
4 years to come online
following its initial
announcement1,2
existing pipelines
and transmission
infrastructure could
enable development of new
gas plants without
significant grid expansion
Retired coal assets may
provide opportunities for
brownfield development
and gas conversions
Gas power-generation facilities in project pipeline
33
6
Permitting Under constructionPre-permitting
1,860 2,042 1,992
MW capacity#
Source: Ventyx, Energy Velocity
2 Development timeline is based on a sample of 12 new plants announced and developed between 1998 and 2012, excluding two plants with timelines of 12+ years
Number of plants, 2015

36
Renewables are projected to be a growing portion of the changing
generation mix over the next 15 years, with heavy growth in wind
1.2
5.3
1.3
0.7
0.5
0.1
20302015
1.8
7.3
Hydro WindSolarTWh
Projected renewables generation mix
capacity and production for
renewable power is projected to
nearly double
More renewable plants are under
construction than any other type,
though with an overall capacity
growth below that in gas
Wind likely to remain the
dominant renewable technology
through 2030
Changes in technology and
regulation could accelerate the
extent of this growth
Source: Energy Information Administration (EIA), BRT Working Team Analysis

37
Six scenarios were modeled to test the impact of various factors on future
power prices in Ohio
Probability
Scenario
Description
Extremely unlikely
Low gas, high
mandates
Unrealistic, low-
probability, state
of the world
which envisions
low gas prices
coupled with high
mandates. This
scenario gave us
our left bookend
Bearish on market
Reasonably
low gas, low
mandates
A more realistic
state of the world
where we have
low gas prices
coupled with low
mandates. This is
the case where
we exploit Utica
resources
efficiently and
have economic
adoption of
disruptive energy
technologies
Market expected
Business as
Usual
Our base case
where we run the
current gas
prices and
mandates over
the next 15 years
Market expected
Business as
Usual with no
mandates
A slight variation
of the base case
with 0
Renewable
Portfolio
Standards (RPS).
This allows us to
understand the
impact of RPS
over the next 15
years
Bullish on market
Reasonably high
gas, high
mandates
A scenario where
gas prices go up,
due to issues
with fracking,
which leads to
higher mandates
for energy
technologies
Extremely unlikely
High gas, low
mandates
A low-probability
state of the world
in which high gas
prices are
coupled with low
mandates. This
scenario gave us
our right bookend
Gas
prices
Mandates
Low High
High LowHighNone
Business as
usual
Low
CHANGING POWER LANDSCAPE: FUTURE OUTLOOK

38
The scenario planning exercise yielded a few key takeaways
Power demand will be relatively flat, regardless of gas price and renewables
adoption
Power supply generation mix will shift away from coal toward more gas and more
renewables
Reliability during this transition will not face major challenges if PJM adds new
capacity and in-state and interstate transmission infrastructure is effectively built
Retail prices on a $/kilowatt hour will likely increase this is largely driven by flat
Mandates on energy efficiency and renewable portfolio standards (RPS)
consistently lead to higher energy prices
Wind is predicted to be the most economic technology of choice among
renewables; solar adoption will accelerate via RPS mandates
Key uncertainties remain on the horizon: regulatory (e.g., Senate Bill 310, Clean
Power Plan), markets (e.g., gas prices, PJM rules) and technology evolution

39
Retail unit prices increase with high mandates due to energy efficiency
impacts, while wholesale prices increase only in the high gas scenario
Wholesale energy prices1
$/MWh2
1 AEP zone only 2 2015 Real $
Retail power prices
$/MWh1
Wholesale price outlook is directly coupled to
natural gas price (given that new combined-
cycle technology will become the price-setter)
wholesale prices increase the most in the high
gas scenario with no mandates
Retail prices are set on a volumetric basis
($/MWh), and escalation is largely a
function of energy efficiency mandates
causing demand destruction
Source: Energy Information Administration (EIA), OBRT Working Team Modeling and Analysis
2014 20302022 2014 2030
Price band with no mandates
Price band with high mandates
High gas price scenario pricing
Low gas price scenario pricing
Median price band

40
Major regulatory, political and market uncertainties relevant to the Ohio
power market
Source: NCSL, Press search
State-by-state emission reduction targets (32% by 2030)
When will Ohio reach a resolution on CPP?
How will this impact the in-state generation mix? Over what time frame?
Clean
Power Plan
(CPP)
-term?
How will Ohio manage the interaction of CPP and SB 310?
SB 310
Specific regulatory issues will emerge in Ohio (e.g., power purchase
agreements hearings)
What will be the impact of resolution on in-state generation mix over time?
Ohio
Regulatory
Outcomes
PJM market rules will evolve in response to observed market issues
How will PJM capacity payment structure incentivize new generation?
How will rules for new inter-state transmission facilitate new construction?
PJM Market
Rules
Evolution
Current subsidies in place for solar and wind at the federal level
What is the future for federal renewable subsidies (i.e., timing for
investment tax credit, production tax credit phase-out over time)?
Federal
renewables
subsidies

41
Path forward
42

42
4")/)%5$%6)%1$%&/$,%")/)7
with overall demand for power
decreasing and the mix of energy
sources shifting away from coal
Natural gas production in Ohio
has increased 4x since 2011,
and the resources of Utica
Basin are in the early stages of
being accessed
As growth continues, it
will be important to
proactively address
potential obstacles and
competitive position
Coordinated efforts from the private and public sectors will allow Ohio to
maximize the opportunity of natural gas and manage the transitioning power
industry and capture this value for Ohio
There are several key
action themes to pursue
in order to position
Ohio has an energy
leader and support the
energy transition
PATH FORWARD

43
To address these challenges and make the state sustainably energy-
competitive, our Steering Committee recommends six key themes
natural gas
advantage
Meet the evolving
needs of the power
market
Ensure adoption of
renewables and
advanced energy
technologies are
market based
Improve the
ease of doing
business
Build the required
support
infrastructure
Drive economic
impact from energy
competitiveness
PATH FORWARD: SIX THEMES

44
5.4
5.9
2020
4.0
20302010 2025
0.2
2.4
2015
By 2025,
production
growth could1:
Contribute
$8B annually
to GDP
Sustain
130,000 jobs
With 98% of Utica gas
reserves still untapped and
exponential production
growth in the Utica and
gas production is expected
to grow at 6% annually
Natural gas production in Ohio
Billions of cubic feet per day, projected2
1 IMPLAN model results 2 Drillinginfo; RigData; OBRT working team modeling and analysis

45
Nurture production growth in the Utica from 2bcfd to
10+, by resolving emerging transportation bottlenecks
from key production areas to key demand areas
Build state and regional demand for valuable Utica by-
product liquids (e.g., ethane, condensate)
Put in place mitigating measures to avoid health and
oil and gas industry
Give confidence to investors/producers by
establishing certainty in production, regulation, and
future tax structure
Maximize
shale gas
production
potential

46
Meet the evolving needs of the power market: Defining the opportunity
Ohio has
been a net
importer of
power
generation
mix may
shift to
greater gas
and
renewables
Recent
spikes in
pricing
volatility are
real
As an importer, critical for Ohio to
strengthen our voice in PJM and ensure
it functions well as a market, and incents
build-out of new capacity and
infrastructure through appropriate
incentives
This is a major shift especially to more
intermittent, weather-dependent
generation sources Ohio must
proactively and effectively manage this
transition smoothly, ensuring a long-
term picture is developed for all market
participants and stakeholders so they
can align around an integrated agenda
During the transition, Ohio must pay
attention to reliability and volatility
trends, reinforcing the importance to
strengthen its voice in PJM and to an
extent control its reliability destiny
through more in-state generation and
resources where possible
Imported power1
Ohio, %
Share of gas & renewable power2
Ohio, %
2014 2030
20152004
Price spikes3
Retail power
2004 2015
1 Energy Information Administration (EIA) 2 BRT Working Team Analysis 3 Ventyx, Energy Velocity

47
Meet the evolving needs of the power market: Goals
overall function of the capacity market and resolve
wholesale market uncertainty
generation assets, the capacity market, and the
transmission and distribution network
Encourage the development of cost effective
Promote an
environment that
balances the needs
of both customers
(cost-effective,
predictable and
reliable power) and
developers (enable
continued investment
in new and existing
assets)

48
Build the required support infrastructure: Defining the opportunity
0
5
10
15
20
25
30
2015 2020 20302025
Natural gas production in Appalachia1
bcfd, projected
Current and planned
pipeline capacity
Natural gas
opportunity
Power
landscape
Without additional gas
pipelines, we project
regional gas production
will be constrained by
pipeline capacity in
2020 with over 32 trillion
cubic feet of potential
production unable to
reach the market
As Ohio continues to
rely on imports and a
changing generation
mix, it must ensure the
right T&D infrastructure
in place to take power to
consumers and reduce
the probability of a
reliability/volatility
events
US transmission and distribution investments
USD billions2
1 Ventyx, Energy Velocity 2 EIA; EEI; Energy Velocity; SNL; analyst reports; expert interviews
10
20
0
25
15
5
191920
2017
17
2010
20
2014
15
10
12
ForecastedActuals

49
Build the required support infrastructure: Goals
Define the solution which accommodates the
changing supply/demand profile of the electric grid in
a reliable and cost-effective manner
Identify and resolve any constraints to enhancing the
inter and intra state gas and liquids pipeline network,
including capital asset tax
Maximize the use of the Ohio river as a critical
element of the transportation infrastructure,
recognizing the potential future value of commodities
produced in-state
Develop a
state-wide
strategy to
anticipate
energy
infrastructure
needs and
manage the
transition

50
Improve the ease of doing business: Defining the opportunity
Increasing the severance
tax would not change
the competitive
position, but wellhead
break-even price
variability could impact
well owner profitability4
Severance tax
increase would
render Ohio
uncompetitive for
gas extraction
Developing
power plants is
more difficult in
Ohio than other
states
PUCO rule
allows for
regulated
generation to be
built in specific
cases
What we found
The rule is applicable only after Jan 1,
2009
Has not been enforced yet
This rule can only be enforced when
there are issues with reliability
6255
74
60
Region
Ohio
Pre-permitting Permitting
Gas generation turbine construction
success rates
%
Success of gas
generation turbines are
slightly below the
regional average, with
no probability difference
on a per megawatt level
It appears PUCO could
be more transparent
with the enforcement
criteria for rules and
regulations
Conditions for doing business in Ohio are more favorable than perception
Tax structure
New
generation
construction
Ability to
regulate
generation
1 Drillinginfo; RigData; OBRT working team model 2 Ventyx, Energy Velocity 3 PUCO
tax today is lower
than other states
Utica will remain
on low end of the
cost curve
4 More detailed study needed to fully explore implications
1%
10%
Comparative tax rates

51
Improve the ease of doing business: Goals
Streamline review and approval process for energy
investments (e.g. new gen, pipelines) to closely match
siting and permitting times with construction times
Increase transparency and clarity of electric power
price-setting
Minimize the cost and disruptiveness of implementing
the Clean Power Plan
Promote favorable conditions in Ohio with public effort
to counter myths concerning barriers to doing
business
Implement a
regulatory
environment
that maximizes
value and
encourages
investment
ease of doing

52
Renewables
are a growing
share power
generation
Forced
acceleration
in the pace of
renewable
growth
increases
prices
Ensuring
Ohio is
competitive
on price
requires
waiting for
parity
Retail power prices increased under all
scenarios, but this increase is even more
dramatic when mandates or measures
force the use of renewables before the
business case justifies their inclusion
The growth of renewables and energy
efficiency will continue over the next several
years, which presents an opportunity to
seize a greater market share of renewable
development and manufacturing, but there
are open questions on the correct timing
and pace of growth
Ensure adoption of renewables and advanced energy technologies are
market based: Defining the opportunity
1 BRT Working Team Modeling and Analysis 2 Projected rates at national level 3 Cumulative installed wind onshore, GW
2020
+73%
2014
Wind power growth
Capacity growth3
2014 2030
Modeled retail power prices1
Projected price bands by year
With mandates
Without mandates
20302014
Solar power costs
Residential rates2
Parity between
cost and rate
As renewable technologies advance,
these sources can be included in a
cost-effective way in future years as
they reach economic parity with other
energy sources

53
Support adoption of renewables and advanced energy
technologies when the business case (and self-
calculated economics) warrant
Phase out mandates for renewable technologies and
riders for energy efficiency in a gradual and efficient
fashion
Maximize the production base for energy efficiency
and renewable technology in the state by attracting
manufacturers to Ohio
Ensure adoption of
renewables and
advanced energy
technologies are
market based
Ensure adoption of renewables and advanced energy technologies are
market based: Goals

54
Drive economic impact from energy competitiveness:
Defining the opportunity
1 IMPLAN model 2 UTSA Institute for Economic Development; large quantities of LTO supplemented Texas GDP growth from shale
3 2008-2009, Louisiana DNR 4 2013, US Bureau of Economic Analysis
Scale of
economic
opportunity
Potential to
attract
energy
intensive
industries
Gas and oil production,
along with associated
industries, such as the
petrochemical industry, and
the businesses needed to
support both, are projected
to add more than $8 billion
(1.4%
growth) and sustain
~137,000 jobs
Other states with similar
shale booms have been able
to capture economic
benefit beyond the direct
gains from gas and oil
production, such as bringing
in new industries attracted to
competitive energy prices
0
2
4
6
8
10
Other
sectors
Total GDP
gain
ServicesManu-
facturing
Gas and oil
production
$8.3
billion
55 19 42 22 137
GDP gain in 2025
Annual growth, billions1
Jobs sustained (000s)
GDP growth: 2.6%2
Jobs: ~155,000
Economic impact:
Resource extraction
created jobs including
truck drivers, retail
salespeople, and
lawyers, and LTOs
boosted GDP growth
GDP growth: ~1%3
Jobs: ~90,000
Economic impact:
Disposable income
increased by $5.7
billion in 2009, a
direct result of
Haynesville Shale
production
GDP growth: ~1%4
Jobs: ~89,000
Economic impact:
Cheap gas is
provided to nearby
dense industrial and
residential areas,
stimulating regional
economic activity
Economic growth in shale states
Texas Louisiana Pennsylvania

55
Maximize the economic benefits of being an energy
leader by attracting and retaining gas and liquids
producers, power generation facilities, and critical
energy infrastructure
investment in energy intensive manufacturing and
other complementary activities
Leverage
energy
competitiveness
to drive
economic
development
Drive economic impact from energy competitiveness: Goals

56
To address these challenges and make the state sustainably energy-
competitive, our Steering Committee recommends six key themes
natural gas
advantage
Meet the evolving
needs of the power
market
Improve the
ease of doing
business
Build the required
support
infrastructure
Drive economic
impact from energy
competitiveness
Ensure adoption of
renewables and
advanced energy
technologies are
market based

57
Contents
Energy Competitiveness Report
Appendix B: Electric power

58
Table of contents
A1
1. Historical fact base: Oil and gas reserves
a. Background and reserves
b. Natural gas
c. Natural gas liquids (NGLs)
d. Crude and condensate
e. Tax and regulatory
2. Future outlook: Oil and gas reserves
a. Modeling context
b. Outcomes
i. Reference
ii. High
iii. Low
iv. Comparison
c. Severance tax analysis

59
Ohio energy competitiveness: Oil and gas challenges and opportunities
Ohio is well situated to benefit from abundant and low cost shale gas produced from the
massive Marcellus and the emerging Utica basins; Ohio now has a price advantage
compared to the national average and neighboring states
While the Utica has potential to be a major supply basin, it has significant
competition from other supply basins
Expansion of intra-state pipelines will likely be needed to connect producing fields to
demand locations
Rising Marcellus production and
coast markets
Growth in wet gas production, which recently started in significant volumes in Ohio,
presents new challenges and opportunities for the state;
New liquids pipelines and wet gas processing plants are being built and could drive
further investment and job creation
If not built, limited infrastructure could suppress NGL prices and possibly bottleneck wet
gas production
Growing NGL production and depressed ethane and propane prices in the region
present another opportunity for Ohio to attract new businesses; however, it faces strong
competition from neighboring states and the US Gulf region, where most of the petro-
chemical industry is located
Ethane is currently kept in the gas stream and thereby valued at low gas prices rather
than converted to higher margin chemicals
A1. OIL & GAS: HISTORICAL FACT BASE
A2

60
Table of contents
A3
b. Natural gas
a. Modeling context
b. Outcomes
i. Reference
ii. High
iii. Low
iv. Comparison

61
Ohio energy competitiveness: Basin reserves
Recent advances in non-conventional drilling techniques have made the
recovery of hydrocarbons resources in the Utica Basin economical
Utica reserves are primarily comprised of dry gas; However, there are
also NGLs, condensate, and crude available, including:
~20 Tcfe of dry gas
~8 Tcfe of NGLs
~4 Tcfe of condensate
falling gas production and
increasing gas prices in the mid-2000s that incentivized the development of
new, non-conventional technologies
A4
A1a. OIL & GAS: HISTORICAL FACT BASE BACKGROUND & RESERVES

62
US hydrocarbons proved & probable reserves, 2014
Tcfe
Marcellus
Bakken
34
Woodford
35
1,164
Total
34
Othershale
44
Upper
Devonian
25
Othertight
Barnett
Other
23
UpperDevonian
6
Utica
31
456
202
Conventional
56
Eagleford
108
Permian
109
CondensateNGLGas Crude oil
Source: Rystad Ucube, May 2015
Primary Ohio basin
A5

63
US technically recoverable shale gas volumes
resources were fully understood for shale gas
Source: EIA (shown by assessment date), National Petroleum Council (NPC), USGS
58
611
542
267
85
35
0
100
200
300
400
500
600
700
Production
(2007-14)
EIA
(2012)
EIA
(2009)
EIA
(2007)
USGS
(2006)
NPC
(2003)
Tcf
Shale gas development history
Large shale gas deposits exist
in widely dispersed
geographic areas, but the gas
is locked in semi-impermeable
shale rock
Despite the huge potential
volume of shale gas in the
US, only a fraction was
assumed to be technically
recoverable
Pioneering efforts, largely led
by independent oil and gas
companies helped unlock the
value of shale gas
Cumulative production already
exceeds USGS 2003 estimate
of total technically recoverable
A6

64
The US had historically experienced declining gas production and
rising prices
Source: EIA
8.868.69
5.47
3.964.31
0
5
10
15
20
25
30
35
40
45
50
55
60
0
1
2
3
4
5
6
7
8
9
10
11
12
6.97
2006
6.73
2005
-1% p.a.
2008200720042000
5.89
2002 2003
3.38
2001
US Gas Production
Bcfd
Henry Hub Price
$/MMBtu
US gas production and prices 2000-2008
Market sought incremental
supplies
Henry Price US Production
Decades of production and
resource depletion of
conventional gas supplies led
to declining production
despite higher expenditures
Decline in production and
resulting rising prices, led the
US gas industry to seek
alternative sources to meet
anticipated supply gap to
meet demand in mid-2000s
Alternative energy sources
pursued included the
following:
Shale gas
LNG imports
Alternative fuels (e.g.,
synfuels, biogas)
A7

65
In the mid 2000s, expectations of high prices incentivized search for new
gas supplies
Source: EIA
0
1
2
3
4
5
6
7
8
9
10
11
12
13
Jan-15Jan-14Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08
Actual
Nymex futures (5/30/2008) In the summer of 2008, market
expectations, as reflected by
Nymex futures prices, were for
prolonged period of high
prices to support cost of future
production and imports
Although actual prices fell far
below expectations, high
expected prices helped
incentivize and fund shale
gas development
Several US LNG import
terminals were constructed to
meet the anticipated supply gap
Capital decisions on long
lead-time projects, such as
shale gas development and
LNG terminal construction,
reflect expectations at the
time of decisions, rather than
prices when projects come on
line
Gas prices Actual Vs. Nymex futures
Market sought incremental
supplies
$/MMBtu
A8

66
Table of contents
A9
b. Natural gas
a. Modeling context
b. Outcomes
i. Reference
ii. High
iii. Low
iv. Comparison

67
Ohio energy competitiveness: Gas challenges and opportunities
Ohio is well situated to benefit from abundant and low cost shale gas produced from
the massive Marcellus and the emerging Utica basins; Ohio now has a price
advantage compared to the national average and neighboring states
While the Utica has potential to be a major supply basin, it has significant
competition from other supply basins
Over the past two years, gas production in Ohio has increased by ~150%
Ohio gas production is dominated by independents with majors almost
non-existent
Expansion of intra-state pipelines will likely be needed to connect producing fields
to demand locations
Rising Marcellus production and
east coast markets
A10
A1b. OIL & GAS: HISTORICAL FACT BASE NATURAL GAS Return to pg. 16

68
The Marcellus and Utica basins have been important drivers of growth in US
production since 2009
Source: EIA
2
2014
Total
2014
4
2013
1
2012
3
2011
4
20102009
1
2008
2
2007
Total
53
71
+34%
Marcellus/Utica
Rest of US Gas
US gas production
Production Change from Previous Year
Bcfd
Since 2007,
Marcellus and Utica
have provided over
70% of the total US
production growth
Most of the growth is
due to Marcellus
because Utica
production started in
earnest in 2013
During past three
years, total
production from
other supply basins
actually declined by
3.4 Bcfd, but were
more than offset by
8.0 Bcfd of growth
from Marcellus and
Utica
A11
A1b. OIL & GAS: HISTORICAL FACT BASE NATURAL GAS

69
Bcfd
Ohio quarterly gas production
Ohio is a late arriver but
rapidly catching up
Source: Ohio Department of Natural Resources
0.1
0.2
0.4
0.5
0.7
1.0
1.4
1.8
2.0
0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
173%
1Q
Development of the
Utica shale in Ohio
only started in 2013,
lagging behind other
shale basins such as the
Barnett, Haynesville and
Marcellus
One primary reason for
the late development is
because the Utica shale
layer mostly lies
beneath the Marcellus
layer, making it less
accessible and more
costly to drill
2013 2014 2015
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
A12

70
Source: EIA
0
0.1
0.2
0.3
0.4
0.5
0.6
2010200520001995199019851980 2013
Ohio gas production - Historic
well was drilled in 1860
in Ohio
With depletion of
conventional gas
supplies,
production declined
steadily from mid-
1980s, mirroring similar
declines in other North
American gas basins
Only recently was the
decline reversed due to
shale gas production
Bcfd
Start of Utica
production
A13

71
Break-even price levels across US basins, 2014
Utica break-even price was middle of the pack in 2014, but is estimated to
benefit from a steep learning curve as drilling improves
CBMShaleTight$/MMBtu
Source: Drillinginfo; RigData; OBRT working team modeling and analysis
6.2
5.9
5.7
5.5
5.4
5.0
5.0
4.7
4.6
4.6
4.5
4.4
4.3
4.2
4.1
4.0
4.0
3.9
3.0
2.9
Utica OH
Utica break-even
price is projected
to drop by 30%
or more (to
approximately
~$3.80) in 2015
as drillers gain
experience in the
basin
This will improve
position relative
to other plays
A14

72
For example, Chesapeake has succeeded in driving down cost over time
across basins
Source: Chesapeake Energy investor presentation (May 19, 2015)
1.51.7
3.2 -32% p.a.
1.1
1.4
1.8
-22% p.a.
2.7
3.4
4.3
-21% p.a.
201420132012
1.0
2.1
3.1
-42% p.a.
201420132012
Utica Marcellus North
HaynesvilleEagle Ford
Chesapeake annual drilling costs in representative regional basins
Cost/EUR ($/Mcf equivalent)
A15

73
Details of shale gas producers - Ohio
Ohio gas production is dominated by independents with majors almost
non-existent
8
40
33
27
11
9
6
5
4
158
1
305Total Ohio (MMcfd)
Large
independents
Regional
independents
Company
Majors
Enterprise
Value ($B)
214.5
19.0
23.6
5.0
NA
15.2
NA
NA
NA
NA
NA
Source: Yahoo Finance (June 2, 2015), company websites, Ohio Department of Natural Resources
Artex Oil
Everflow Eastern
Ohio Valley Energy
Atlas Noble
NCL Resources
Production
(MMcfd)
Chesapeake Energy is the
largest producer of shale gas
in the state
Followed early strategy to
quickly buy shale basin
acreage around the
country
Smaller regional
independents are the next
largest producers
DNR:
1926 wells permitted,
1497 wells drilled
901 producing
Chesapeake owns about half
wells
A16

74
In contrast, overall US gas production is led by majors and large
independents
19.8Total US (Bcfd)
Company
Enterprise
Value ($B)
356.0
19.0
58.5
14.8
36.7
98.4
151.1
15.9
143.5
214.5
3.4
3.0
2.6
2.1
1.7
1.5
1.5
1.4
1.3
1.3
Anadarko
Devon Energy
ConocoPhillips
BP
Cabot O&G
BHP Billiton
Chevron
Chesapeake
ExxonMobil1
2
3
Southwestern Energy4
5
6
7
8
9
10
Source: Yahoo Finance (June 2, 2015), company websites, Natural Gas Supply Association (NGSA)
Details of gas producers - US
Production (Bcfd)
Energy majors, such as
ExxonMobil and Shell,
tended to focus on
massive and complex
projects to leverage their
capital and expertise
Shale gas was thought
to be technically risky
and uneconomic prior
to mid-2000s
Shale gas growth brought
Chesapeake and
Southwestern Energy to
the top 10 for overall gas
production
A17

75
Top US gas players do not lead in shale gas production
2014 Production, Bcf/dCompany
BHP Billiton
Chevron 1.3
Anadarko
Chesapeake
ExxonMobil
1.3
Cabot O&G 1.4
BP 1.5
1.5ConocoPhillips
Southwestern
Energy
2.3
Devon 1.7
2.6
3.0
3.4
1.3
2.3
Antero Resources
1.3
ExxonMobil
EOG Resources
Chesapeake
0.6
Anadarko 1.1
0.9
1.1
1.3
Cabot Oil and Gas
Devon Energy
1.3
2.2
Southwestern Energy
EQT Corporation
BHP Billiton
2
3
4
5
6
7
8
9
10
1
Source: Natural Gas Supply Association (NGSA)
2014 Production, Bcf/dCompany
Major
Average
Enterprise value
for top 10 US
gas producers
is ~$110B
compared to
$72B for top 10
shale gas
producers
Top 10 US Gas Producers Top 10 US Shale Gas Producers
A18

76
Growth in shale gas production has steadily increased; Prices have
stabilized following a significant decline from 2009 - 2010
Source: Bloomberg
0
1
2
3
4
5
6
7
8
9
10
11
12
13
0
5
10
15
20
25
30
35
40
45
Henry Hub Price
$/MMBtu
US Shale Gas Production
Bcfd
US gas production and prices
Even after prices
after 2008, shale
gas production,
benefitting from
cost-reducing
technologies,
continued to climb
and now comprise
over half of all
domestic gas
production
Price Production
2008 2009 2010 2011 2012 2013 2014 201520072006
Price falls but
production continues
to climb
A19

77
As Marcellus/Utica production has grown, Ohio prices have fallen below
those of neighboring states
Source: EIA
0
5
10
15
20
25
30
35
40
45
50
55
60
65
Jan-13Jan-09 Jan-15Jan-11 Jan-12Jan-08 Jan-14Jan-10
Production
Bcfd
Comparison of citygate pricesGas production Marcellus/Utica & rest of US
7
11
9
8
2
3
4
5
0
6
1
Citygate price
$/MMBtu
20102009 20142013201220112008
US Average
Indiana
Pennsylvania
Illinois
Ohio
Marcellus/Utica
Rest of US Gas
Rest of US Gas
Marcellus/Utica
As gas flows reversed,
Ohio prices fell below
neighboring states
Ohio gas prices used to be
significantly higher than
neighboring states to the west,
reflecting transportation costs and
pipeline constraints
A20

78
Comparatively, Ohio production is lagging behind other shale states in the
Appalachia region, but is on a similar path since first permit
Source: Pennsylvania Department of Environmental Protection; Ohio Dept Natural Resources
Production volume (Bcfd)
0
1
2
3
4
Year 5Year 2 Year 4Year 1 Year 3
0
500
1,000
1,500
Year 3Year 1 Year 5Year 4Year 2
Number of wells since first permit
Drivers of differences
First permits issued year
Ohio 2011
Pennsylvania 2006
West Virginia 2008
West VirginiaOhio Pennsylvania
Resource economics
Utica lies beneath the
Marcellus and therefore
was drilled later
deeper depth
results in higher drilling
costs
Market factors
E&P companies invested
in the Marcellus when oil
and gas prices were
more favorable
A21

79
The number of shale gas wells have increased and are concentrated in
eastern part of the state
Source: Rystad UCube
Shale gas wells, which
use horizontal drilling
and hydraulic
fracturing, have
dramatically increased
Permits for drilling in
the shale plays were
issued starting 2011
Current intra-state
pipeline system is
configured to primarily
connect to inter-state
pipelines and
transport to demand
centers
Horizontal gas wells, Well count
445
294
79
12
447
1413122011 2015
1 Horizontal wells drilled since 2011
A22
Drilled
horizontal
wells1

80
Historically, gas flowed from the Gulf, Midcontinent and Rockies supply
regions to the eastern markets through Ohio
Source: American Petroleum Institute
Direction of gas flows before 2005
A23

81
Recent changes in North American natural gas flows have occurred as
Marcellus and Utica production volumes increased
Source: Wood Mackenzie
Major US shale gas and liquids resources and gas flow in 2014
Cody
Mowry
Gammon
Excello-
Mulky
Marcellus (256)
Devonian
Chattanooga
Conasauga
Floyd-Neal
Haynesville/
Bossier (251)
Woodford/
Caney
Barnett
(118)
Eagle Ford/Pearsall (>100)
Woodford (42)
Bend
Pierre
Lewis
Hermosa
Mancos
Hilliard-
Baxter-
Mancos
Antrim
Utica
Granite Wash Fayetteville (20)
Horn River Shale (40)
Montney (152)
Marcellus gas
production is
displacing inflows to
the Mid-Atlantic and
Northeast markets and
now flows are reversing
Imports from Canada
into the US have been
declining
Exploration
Developing
Producing (Tcf resources)Increasing gas volumes
Decreasing gas volumes
A24

82
As Utica and Marcellus production increased, pipeline flows from other
supplies into the region were displaced or reversed
Source: Ventyx Energy Velocity
-2
0
2
4
-2
0
2
4
0
2
1
-1
0
1
2
Jan-
12
Jul-
14
Jan-
14
Jul-
13
Jan-
13
Jul-
12
Jan-
11
Jul-
11
21% -8%38%
34% 16%56%
-77%-38%23%
-12% -24%1%
Flows at key points, BcfdLocation of points in Ohio
4
3
2
1
Tennessee Gas Pipeline OH/PA Border (Gulf supplies to Mid-Atlantic)1
TETCO Ohio (Gulf supplies to Mid-Atlantic)2
Columbia Gulf Leach KY (Gulf supplies to Mid-Atlantic)3
REX Ohio (Rockies supplies to Mid-Atlantic)4
Capacity utilization Flow reversal
A25
A1b. OIL & GAS: HISTORICAL FACT BASE NATURAL GAS Return to pg. 20, 21

83
In line with this broader trend, Ohio gas flows have been dramatically
altered due to growth in shale gas production (1/2)
Source: EIA
2.5 2.2
2.6 2.8 3.1
3.6
3.1
2.9
2.5
2.4
2.8
3.0
3.1
2.6
2.3
1.3
0.5
0.2
0.2
0.4
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
0.2
2013
4.6
4.2
2012
+4.5 Bcfd
6.7
+1.7 Bcfd
2011
6.1
0.2
2010
0.2
3.9
2009
6.4
0.2
2008
6.0
0.2
2007
5.7
0.2
2006
4.8
0.2
2005
5.2
0.2
Ohio Demand
From Indiana
Ohio Production
From Kentucky
From Pennsylvania
From W Virginia
Gas from Gulf,
Midcontinent, and
Rockies supplies
used to enter Ohio
and flow to eastern
markets, as well as
supply Ohio demand
However, flows to
Ohio have fallen
sharply as Marcellus
gas displaced much
of the inbound flows
Flows from Ohio to
West Virginia and
Pennsylvania started
to reverse in 2013
Sources of gas flow into Ohio
Bcfd
A26

84
Destination of gas flow out of Ohio
In line with this broader trend, Ohio gas flows have been dramatically
altered due to growth in shale gas production (2/2)
Source: EIA
1.3 1.2 1.3 1.4 1.5 1.7
1.2
1.3
1.1
1.5
1.5 1.5
1.5
1.3
0.3
0.4
0.3
0.6
0.8
1.1
1.2
1.5
1.6
1.7
0.2
0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2.7
1.7
-60%
2013
0 0
2012
2.2
2011
3.9
2010
4.4
2009
4.2
2008
3.7
2007
3.3
20062005
2.9
To PennsylvaniaTo Michigan To West Virginia
Since 2010, gas flows
through Ohio to other
states have fallen
60%
With growth in
Marcellus production,
flows to Pennsylvania
and West Virginia
stopped and even
reversed in 2013
Gas flows are
increasing headed
north to Michigan to
meet state demand or
continue to Canada
Bcfd
A27

85
As Ohio production increases, it is important to understand location of
highest price market destinations
Source: Ohio Department of Natural Resources
Ohio quarterly gas production
Bcfd
Prices in gas markets
Henry Hub 4.39
Opal 4.42
Chicago 5.45
Transco NY
(Mid-Atlantic)
6.62
Algonquin
(Northeast)
8.22
Average Gas
Prices in 2014
$/MMBTU
0.1
0.2
0.4
0.5
0.7
1.0
1.4
1.8
2.0
0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
173%
1Q
2013 2014 2015
2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
Most attractive based on price
A28

86
Northeast Demand
Mid-Atlantic Demand
However, current pipeline capacity to eastern markets is constrained during
peak demand periods
Source: EIA
0
2.0
4.0
6.0
8.0
10.0
12.0
Jan-2015Jul-2014Jan-2014 Mar-2014 May-2014 Sep-2014 Mar-2015Nov-2014
11.0
Bcfd
0
1.0
2.0
3.0
4.0
Jan-2015Jul-2014Jan-2014 May-2014 Sep-2014Mar-2014 Nov-2014 Mar-2015
3.3
Demand
Pipeline
capacity
Pipeline
capacity
Bcfd
Key implications
Already pipeline capacities
constrain flows to premium
markets during peak
periods
With growth in Marcellus
production and demand
growth in the region, more
pipeline capacity will be
required
Marcellus gas, which can
now satisfy regional
demand during most
periods, wants to move
westward to Midwest
markets. Existing
pipeline capacities are
inadequate so some
pipelines, such as REX,
are reversing flows
A29

87
Ohio gas prices have fallen more rapidly than those in other states
Source: US EIA
0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
US Average
Indiana
Illinois
PennsylvaniaOhio$/MMBtu
Citygate prices Ohio & other states
Ohio used to be
downstream of gas flows
so its prices reflected
pipeline transportation
cost and occasional
pipeline bottlenecks
relative to states
upstream in gas flow
As flows reversed, Ohio
prices fell relative to
Illinois and Indiana
Pennsylvania prices are
higher than Ohio because
its prices are buoyed by
connection to high prices
Northeast markets during
peak demand periods
Ohio gas prices
Ohio price
disadvantage
Ohio price
advantage
A30

88
Industrial Rate
Electricity Rate
Residential Rate
12.71 8.71 7.40 5.48 6.206.146.77
-7% p.a.
10.79
5.01 4.28 4.313.954.40
0% p.a.
3.05
14.53 12.68 11.13 10.78 9.91 9.46 10.14
201413
-4% p.a.
121110092008
Price advantage from shale gas extraction is being passed on to all
end-users
Source: EIA; two missing years were computed based on citygate prices and average difference by sector
All Ohio gas consumers are
enjoying lower prices
Gas retail rates have fallen
for all user types, but the rate
of decline varies by sector
Residential prices have fallen
the least because they include
a large distribution charge that
is not affected by supply cost
Ohio now has a price
advantage to competing Rust
Belt states
$/MMBtu
A31

89
Since 2009, gas usage has increased, driven primarily by gas-fired
generation
Source: EIA
2005
2.5
-2% p.a.
2009 2011
2.3
2.0
Residential
2.6
2.2
2.1
Industrial
+6% p.a.
2.2
Commercial
Electric power
generation
Vehicle
2.0
2001 2003
2.2
2007
2.1
2.2
2013
2.2
2.4
2.2
2.3
Gas demand fell by
2% per annum from
2000 to 2009
However, gas demand
rebounded starting
2010 as gas burned
for electric power
generation grew
sharply with low gas
prices and coal plants
retirements (3 GW of
retirements from 2010
to 2014)
Ohio gas consumption by sector (Bcfd)
Bcfd
A32

90
Table of contents
A33
b. Natural gas
a. Modeling context
b. Outcomes
i. Reference
ii. High
iii. Low
iv. Comparison

91
Approximately 4% of US NGL resources are located in basin;
Since initial permits were issues in 2011, production has increased by 1000%+
Ohio processing capacity has doubled in the last two years; Ohio
fractionation capacity has quadrupled in the last year
Growth in wet gas production, which recently started in significant volumes in
Ohio, presents new challenges and opportunities for the state;
New liquids pipelines and wet gas processing plants could drive further
investment and job creation
If not built, limited infrastructure could suppress NGL prices and possibly
bottleneck wet gas production
Growing NGL production and depressed ethane and propane prices in the
region present another opportunity for Ohio to attract new businesses;
however, it faces strong competition from neighboring states and the US Gulf
region, where most of the petro-chemical industry is located
A34
A1c. OIL & GAS: HISTORICAL FACT BASE NATURAL GAS LIQUIDS

92
Natural gas liquids, associated with the production of wet gas, provide
feedstock for petrochemical products
Source: SRI; TECNON
Value chain - Natural gas, crude oil and associated liquids
Current focus
Wet gas well
Dry gas well
Gas
processor
Oil well
Gas
processor
Methane
Methane
Dry natural
gas
Fractionator
Ethylene
Propylene
etc.
Cracker
Other
products
Liquid Petroleum
Gases (LPG) &
Naphtha
Mixed
Natural Gas
Liquids
(NGLs)
Crude oil
Purity hydrocarbons
Ethane, propane
& butanes
Refinery
A35
A1c. OIL & GAS: HISTORICAL FACT BASE NATURAL GAS LIQUIDS Return to pg. 23

93
US NGL proved & probable reserves from gas extraction, 2014
Bb
Approximately 4% of US NGL resources are located
in
Primary Ohio basin
Bakken
0.9
Woodford
1.4
3.2
Othershale
11.0
28.4
Eagle
0.50.5
Marcellus
Conventional
Permian
1.0
0.6
Utica
Barnett
Niobrara
3.6
Other
1.3
Othertight
3.7
Total
0.7
A36

94
Ohio NGL production
MMb
Majority of NGL reserves in Ohio are located in Utica basin with production
ramping up since the first permits were issued in 2011
Proved & probable NGL reserves in Ohio
MMb
Source: Rystad Ucube (May 2015), EIA
1,174181,154
Marcellus TotalDevonianUtica Conventional
+1059% p.a.
13
0.1
1.4
2012
A37

95
MMb
US NGL production from natural gas processing (2013)
However, as of 2013, Ohio NGL production volumes accounted only for
0.1% of national output
938
Total
US
Others
164
OH
1
KY
5
WV
10
PA
19
CO
52
WY
53
NM
59
OK
99
TX
474
Source: EIA
Could
production
share grow
beyond
0.1% level?
A38

96
Ohio processing capacity has doubled in the last two years
Source: Bentek NGL Facilities databank
Processing capacity growth - Ohio National processing capacity 2014
Bcfe/d
3.5
WV
2.8
OK
TX
LA
25.6
8.6
Others
PA 0.8
WY
1.9
1.2
1.5
ND
OH 2.0
CO
4.0
50
17
8
7
6
4
3
2
2
4
XX% Proportion of
national capacity
~70% of
processing
capacity is on the
Gulf Coast but
Appalachia
especially Ohio &
West Virginia are
fast catching up
Within Appalachia,
there is a higher
concentration of
capacity within
West Virginia and
Ohio compared to
Pennsylvania
1.93
2014
0.97
20132012
0.05
2011
0.01
+533% p.a.
Bcfe/d
A39

97
Location of processing plants - Appalachia
Appalachia regional gas processing plants have been developed in recent
years to support production from Marcellus & Utica
Source: Bentek NGL facilities databank
1 Only processing plants with capacity > 100Mcf/d included
Details of existing plants1
Appalachia processing has been bottlenecked
since 2012, especially more so in the winter,
due to increased natural gas demand
Processing plants are pre-manufactured and
require a lead time of 24 months for set up
Many of the new big processing plants are in
Ohio
Fractionation Location
Pennsylvania
Ohio
West Virginia
1
2
3
4
6
5
7,8,9
10
11,13,14,15
12, 16
17
Ohio
Pennsylvania
West Virginia
Hastings16
StateName
Penn Cryo8
Cadiz I & II3
Berne4
Majorsville I-V11
Mobley I-IV12
Fort Beeler13
Oak Grove15
Natrium I & II14
Renfrew9
Houston6
Seneca I-III2
Blueston I & II7
Hickory Bend5
Kensington I,II, III1
Sherwood I-V10
Kenova17
Owner
Capacity
Mcf/d
180
125
125
200
470
320
320
200
200
125
355
200
50
200
200
200
160
Year
2013
2013
2014
2011
2013
2011
2014
2013
2013
2009
2013
2012
2013
2013
2012
A40

98
Ohio fractionation capacity has quadrupled in the last year
Fractionation capacity growth - Ohio National fractionation capacity 2014
BBL/d
0
0.1
PA
Others
WV
0
KS
LA
TX
0.1
0
0
OK
0.5
0.1
OH
55
14
8
5
4
3
3
7
~70% of
fractionation
capacity is on the
Gulf Coast but
Appalachia,
especially Ohio &
West Virginia, are
quickly catching up
20142013
+437% p.a.
0.04
0.01
BBL/d XX% Proportion of
national capacity
A41

99
As a result, some of the mixed NGLs extracted from Ohio are currently
fractionated in Appalachia to satisfy regional demand
1 Excludes fractionators with capacity < 1Mb/d
Fractionation Location
Location of fractionation plants - Appalachia Existing plants1
Name
Capacity
Mb/dOwner State
1 180Hopedale I, II & III OH2013
Start
year
3 40Cadiz OH
135Harrison I, II & III OH20142
4 100Houston PA2014
5 97Keystone PA2013
7 59Natrium WV2014
8 43Moundsville I & II WV
Holden9 15 WV
Hastings10 14 2013 WV
6 40Majorsville WV2013
Pennsylvania
Ohio
West Virginia
1, 2, 3
9
5
6,7,8
10
A42

100
There has been significant growth in NGL pipeline infrastructure,
especially within Appalachia (1/2)
Source: Ohio Department Of Transportation database
New/Expansion
Pipeline growth in Ohio Miles by players, 2013
# miles
+35% p.a.
2013
996
2011
547
CAGR %
39
86
Name Miles CAGR (2011-13)
590 0
200 24
57 100
49 0
5 0
50 100
45 100
Interstate
Intrastate
InterstateIntrastate
A43

101
There has been significant growth in NGL pipeline infrastructure,
especially within Appalachia (2/2)
NGL pipeline map Ohio, Pennsylvania & West Virginia
OH
Details of pipelines
UEO NGL Pipeline
UEO Ethane Pipeline
UEO Propane Pipeline
AGS Centerline
SGG Centerline
NGL Pipeline
BRM Purity NGL Pipeline
BRM NGL in Service
BRM NGL Proposed
BRM Ethane Pipeline
Pennant NGL Pipeline
Williams NGL Pipeline
Williams Ethane Pipeline
Sunoco Logistics Pipelines
Mariner East
Mariner East Phase II
Mariner West
Mariner West
Sunoco Refined Products Pipeline
ATEX
Mark West NGL
Mark West Ethane Pipelines
TEPPCO
Source: Bentek NGL facilities databank; JobsOhio
1 Y-Grade - Mixed NGLs containing ethane, propane, butane and natural gasolines
Enterprise TE
Products
Ohio Valley
Ethane Pipeline
Name
Cadiz-Harrison
Pennant
Midstream
Seneca-
Harrison
Mobley-
Majorsville
Sherwood-
Mobley
Butler-Houston
Majorsville-
Hopedale
Majorsville-
Houston
Propane
Ethane
Product
Y-Grade1
Y-Grade
Y-Grade
Y-grade
Y-Grade
Y-Grade
Y-Grade
Y-Grade/
Ethane
Greensburg, PA
Marshall, WV
Origin
Harrison, OH
Mahoning, OH
Noble, OH
Wetzel, WV
Doddridge, WV
Butler, PA
Marshall, WV
Marshall, WV
Start of
operations
2014
2013
2015
2015
2012
2013
2013
2013
2012-13
Owner
A44

102
Additionally, long-haul pipeline growth continues, connecting Appalachia to
the Gulf Coast, Sarnia and Marcus Hook NGL hubs
Details of pipelines
Owner Product
Capacity
Mb/d
Start of
operat-
ions Origin
Destina-
tionName
Ethane 125 (265) 2014 Houston,
PA
Mt.
Belvieu,
TX
ATEX
express
Ethane 50 (65) 2013 Houston,
PA
Sarnia,
ON
Mariner
West
Ethane/
propane
70 2014 Houston,
PA
Marcus
Hook,
PA
Mariner
East I
Y-grade 150 (400) 2018 Mercer,
PA
Mt.
Belvieu,
TX
Utica
Marcellus
Texas
pipeline
Operational
Propane/
Butane
275 2015 Scio, OH Marcus
Hook,
PA
Mariner
East II
Proposed
Long haul NGL pipelines from Marcellus & Utica
Mont
Belvieu
ATEX
Sarnia
Ontario
Mariner East I
Marcus Hook
Mariner
West
Mariner East II
UMTP
In-serviceAnnounced
Current (Expandable) capacityXX (XX)
A45

103
Increased flow of liquids from Midwest to Gulf has required water and rail,
as well as pipeline, transportation
Source: EIA
Crude oil and petroleum product movement from
Midwest to Gulf (PADD 2 to PADD 3) is growing over
time
Pipelines are the most common mode, but
waterborne and rail transportation increasingly
used
Growth in wet gas and oil production in the
Marcellus and other eastern supply basins,
movement of crude and petroleum products
from the Midwest (PADD 2) to the Gulf (PADD
3) have increased over time
With pipeline capacity constraints limiting flows
from Appalachian supplies to Gulf petro-
chemical plants, higher cost, alternative means
are used
With the start-up of ATEX pipe-line in 2014,
more volumes were sent by pipeline, displacing
some volumes sent by rail or water
0
100
200
300
400
500
Movement
Million barrels
132007 09 11 121008 2014
Rail PipelineWaterborne
A46

104
Waterborne movement from Midwest has coincided
with growth in Appalachian production
Pipelines are the most common mode, but
waterborne and rail transportation increasingly
used
Waterborne movement on tankers and barges, typically the next most
efficient alternative after pipelines, has grown with Appalachian production
Source: EIA, Reuters (Analysis: As Mississippi oil barge arbitrage window shuts, another opens)
Mont
Belvieu
Increasingly, tankers and barges flowing down
the Mississippi River have allowed more
product from the Midwest to reach Gulf facilities
Waterborne transportation is roughly 30% less
costly than rail for transporting petroleum
products
14
10
6
3
1
000
0
5
10
15
0
10
20
30
40
50
60
70
80
90
Waterborne Movement
Million Barrels
20141312111009082007
Appalachian Production
Bcfd
Marcellus/UticaWaterborne
A47

105
Extensive freight railroad system in the US enabled
petroleum product movement from the Midwest to
Gulf in recent years
Rail, the last major transportation alternative, has grown in past several
years to meet surge in Appalachian production
Source: Moving Crude Oil by Rail ( Association of American Railroads)
Rail movement is a high cost alternative, but
railroads provide additional capacity and
flexibility
Rail was only used after pipeline and
waterborne capacities were used
Although rail is more costly than pipeline or
water movement for petroleum products, rail
has some advantages:
Rail facilities can almost always be built or
expanded much more quickly than pipelines
Railroads offer market participants
enormous flexibility to shift product quickly
to different places in response to market
needs and price opportunities
Unit trains with sometimes more than 100 cars
consisting of a single commodity to carry up to
85,000 barrels of oil which can be loaded or
unloaded in 24 hours
Over the past few years, railroads have
invested hundreds of millions of dollars on
tracks, locomotives, terminals, and more to
enhance their ability to transport crude oil.
0
50
100
Rail Movement
Million barrels
132007 09 11 121008 2014
A48

106
Export from Ohio is primarily by rail or combination of rail and water
Source: Center for Transportation Analysis in the Oak Ridge National Laboratory
Most of petroleum product movement from Ohio was by
rail
Although Ohio has access to rivers, rail
is the primary mode for moving
petroleum product to the Gulf region
Ohio has good access to the two largest
Class I railroads in the eastern U.S.
(CSX and NS)
Some liquids are transported using
multiple modes; product is loaded on rail
cars at a processing plant and sent to a
barge terminal for shipment to Gulf
plants
6
22
15
0
4
8
12
16
20
24
Estimated petroleum product exports (2015)
Million Barrels
TotalRail Multiple
modes
0
Other
A49

107
US ethane demand has struggled to keep pace with supply leading to
Source: Bentek NGL supply-demand data
US ethane demand supply balance
MMb/d
10
8
6
4
2
0
18
16
14
12
2014
18
13
14
12
12
2011
11
Total supply Steam crackersRejection
Supply-demand difference Exports
3
700
16
100
CAGR %
A50

108
and fallen in step with that of natural gas
US crude, ethane and natural gas prices
$/MMBtu
Source: EIA; Platts; Bloomberg
0
4
8
12
16
20
24
201420132012201120102009 20152008200720062005
WTI crude
Natural gas
Ethane
Wide spread in 2008
driven by crude oil price
spike (supply/ demand
imbalance) while ethane:
Oil link was still strong
Ethane price
begins to delink
linked to natural
gas prices
A51

109
In the Midwest, falling ethane prices have negatively impacted supply
transfer to the Gulf Coast while increasing rejection in the region
Midwest1 ethane supply-demand balance
MMb/d
0
0.5
1.0
1.5
2.0
2.5
4.0
3.5
3.0
2014
4
13
3
12
4
2011
3
Supply-demand differenceTotal supply Exports to Gulf CoastRejectionPetrochemicals
8
-14
16
36
1 Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Ohio, Oklahoma, Tennessee, and
Wisconsin
Fall in supply driven by fall
in imports from other PADDs
Ethane fractionation spread from
Midwest to Mt. Belvieu
$/MMBtu
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
2014201320122011
CAGR %
A52

110
Announced cracker projects in Ohio and surrounding Appalachia
could increase regional demand for ethane in the future
Source: ICIS Magazine, American Chemistry Council, JobsOhio discussion
Factors that
make Ohio
attractive for
future projects
Cheap ethane
Site
availability
Attractive tax
structure
Description/
Plant type
Ethylene
Capacity,
MT
Stage of
development
Projected
start year of
operationPlayer
Ethylene complex
Monaca, PA
1.5 MT Permit
obtained, FEED
2018
Ethylene complex
Parkersburg, WV
1.5 MT Feasibility
study
>2019
Ethylene complex
Belmont County, OH
1.0 MT Feasibility
study
2021
A53

111
Increasing exports and petrochemicals have helped balance propane
supply and demand, but prices have fallen sharply in recent times
US propane demand by end-user group
-6
14
4
50
12
8
16
10
4
14
2
0
6
18
2014
16.4
15.3
12 13
11.8
12.9
2011
Exports
Steam cracker
Petrochemicals
Residential & commercial Total supply1
supply-demand difference
1 Includes imports
MMb/d
12
US propane price
$/b
0
10
20
30
40
50
60
70
2011 201420132012
CAGR %
A54

112
Propane exports out of US from the Midwest have increased significantly
in line with national trends
Midwest1 supply-demand balance
MMb/d
5.0
4.0
3.0
2.0
1.0
0
0.5
1.5
2.5
3.5
4.5
5.5
2014
5
13
5
12
5
2011
5
Exports to Gulf Coast
Exports to North East
Exports (out of US)
Residential & Commercial
Steam crackers2
Supply-demand difference
Total supply
-23
72
5
4
1 Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Ohio, Oklahoma, Tennessee, and
Wisconsin
2 Drop in demand in 2014 due to debottlenecking of Westlake cracker at Calvert City, KY (conversion from propane to ethane)
0
3
CAGR %
A55

113
Several propane dehydrogenation projects have been announced
in the Gulf Coast to increase petrochemical demand for propane
Propane
Dehydro-
genation
plants
State
Capacity
MMlbs/y
NGL Demand
Mb/dCompany Start up year
Sunoco Logistics PA TBD
Dow Chemical TX 29 20151,650
C3
Petrochemicals
TX 45 20152,581
Enterprise
Products
TX 29 20161,650
Formosa Plastics TX 23 20161,320
Williams AB 19 20161,100
REXtac TX 660 12 2016
A56

114
Announced plans for increase in LPG export terminal capacity will help
handle increasing export demand for propane
LPG
Export
terminals
Company Name of project State
Export Capacity
Mb/d Start up year
40 2015PAMarcus Hook Expansion ISunoco Logistics
17PAMarcus HookSunoco Logistics
120 2013TXEnterprise Expansion IEnterprise
83 2013TXGalena Park Expansion Phase ITarga
50 2015TXEnterprise Expansion IIEnterprise
200 2015TXMariner SouthSunoco Logistics
130TXEnterpriseEnterprise
50TXGalena ParkTarga
8 2015VAChesapeakeDCP Midstream
30WAFerndalePetrogas
235 2016PAMarcus Hook Expansion IISunoco Logistics
67 2014TXGalena Park Expansion Phase II (a)Targa
17 2014TXGalena Park Expansion Phase II (b)Targa
233 2015TXEnterprise Expansion IIIEnterprise
2015LAEnLinkEnLink Midstream
37 2018ORPortland Propane TerminalPembina Pipeline
100 2015TXInglesideOccidental Chemical
Current
Expansion
New build
A57

115
Table of contents
A58
b. Natural gas
a. Modeling context
b. Outcomes
i. Reference
ii. High
iii. Low
iv. Comparison

116
The US has a significant crude oil resource base across shale and
conventional sources; however, Ohio accounts for less than 1% of current
crude oil reserves
Utica Shale reserves contain a large proportion of Gas, NGLs and
condensates compared to crude oil, greater than a 10:1 ration
Ohio has seen production in crude oil & condensate increase dramatically
as dry gas extraction has grown, although absolute volumes remain
comparatively low to other states
crude and condensate extraction market is fragmented and is
dominated by small to mid-sized independents who have continued to
increase acreage positions
A59
A1d. OIL & GAS: HISTORICAL FACT BASE CRUDE & CONDENSATE

117
The US has significant crude oil resource base, both shale and
conventional, with Ohio accounting for < 1%
Bb
US crude oil proved & probable reserves, 2014
Source: Rystad Ucube (May 2015)
Primary Ohio basin
Total
60.81.4
Other
Othershale
0.52.4
Othertight
Eagle
7.3
Bakken
11.1
26.6
7.1
Utica
2.30.1
Conventional
Niobrara
Permian
Woodford
Barnett
1.6
0.4
A60

118
Utica reserves composition and size relative to US
MMboe
Utica Shale reserves contain a large proportion of condensates with little oil
5,904376
725
1,296
3,507
Condensates TotalOilNGLsGas
8.0 2.90.64.63.4
% of US reserves
Utica Shale is rich
in NGLs and
condensates
Oil makes up
only 6% of the
total Utica
reserves
Non-gas
hydrocarbons
make up 41% of
the Utica reserves
A61

119
Ohio has seen production in crude oil & condensate increase dramatically,
although absolute volumes remain comparatively low to other states
Texas
Pennsylvania
Louisiana
Oklahoma
West Virginia
Ohio
351314
255209189
+17% p.a.
3,164
2,532
1,984
1,4491,169
+28% p.a.
2019
765
+42% p.a.18
14
12910
+15% p.a.
52
32
141313
2010 2011
+41% p.a.
201420132012
188197194189184
0% p.a.
20142010 2012 20132011
Source: US Energy Information Administration
Oil and condensate production by state 2011-2015
Mb/d
Mb/d
Mb/d Mb/d
Mb/d
Mb/d
A62

120
Extraction market is fragmented and is dominated by small to mid-sized
independents who have continued to increase acreage positions
Major Ohio drillers
4
30
46
89
142
161
190
370
720
780
1043 630,000
1,000,000
67,000
NA
346,000
210,167
NA
NA
NA
NA
NABeldon and Blake Corporation
PDC Energy
Annual oil production (Mb)
3575
Company Acreage
Total
Source: Press Search
A63

121
Ohio has seven pipelines capable of carrying 1144 Mb/d of crude to the four
refineries in state
Map of existing crude oil pipelines into Ohio, 2014 Details of pipelines
Player
Refinery
connectedPipeline
Total
Capacity
Mbd
Enbridge BP-Husky
Toledo
1 Line 17 101
Marathon Husky Lima3 Line 83 249
Enbridge N/A2 Line 79 80
Marathon Marathon
Canton
4 Line 84 84
Sunoco Husky Lima5 Mid
Valley 1
240
Sunoco BP-Husky and
PBF refineries
6 Mid
Valley 2
240
Sunoco BP-Husky and
PBF refineries
7 Eastern
Pipeline
150
1144
Illinois
Michigan
Ohio
Stockbridge
Guernsey
Freedom Junction
Toledo
Detroit
Canton
2
1
3
6
7
Lima
Patoka
Longview, TX
5
4
A64

122
Announced pipelines will increase transmission capacity for condensates
Player Pipeline Origin Destination
Capacity
kbd Status
Marathon Corner-
stone
Pipeline
Cadiz, OH Canton, OH 25 2016Marathon
Canton
Refinery
connected
Enlink
Midstream
Partners
ORV
Condens
ate
Pipeline
Guernsey,
OH
Washington
county, OH
50 2015N/A
A65

123
Ohio has very little refinery presence compared to states such
as Texas & Louisiana in the US Gulf Coast
26TX
3,40019LA
5,500
231WV
6265PA
5445OK
Capacity
Mb/dPlayer Type of Plant
160BP -
Husky
RefineryToledo
170Husky RefineryLima
88Marathon RefineryCanton
175PBF RefineryToledo
Location
5934OH
State
#
refineries
Capacity,
Mb/d
Ohio refineries, 2014US refinery capacity by state, 2014
A66

124
Table of contents
b. Natural gas
a. Modeling context
b. Outcomes
i. Reference
ii. High
iii. Low
iv. Comparison
A67

125
-conventional dry gas production is in
line with other major gas producing states
Source: DOE Office of Fossil Energy; American Petroleum Institute, RFF Report
Pennsylvania West Virginia New York Texas WyomingOhio
Site
preparation
Well
establish-
ment
Fracturing
regs
Wastewater
treatment
Gas
dispersion
500 625 100 200 350100
Building setback limits (feet
from building)
Water setback limits
(feet from water source)
1000 1000 2000 None 5050
50 30 75 12050
Cement quality restrictions Specified Specified Specified Specified NoneSpecified
Depth regulations
(feet from surface)
Cement surface requirement Yes Yes Yes Yes YesYes
Water withdrawal permission
Frack fluid disclosure required Yes Yes Proposed Yes YesYes
Some fluids Some fluids Some fluids Some fluids Some fluidsAll fluids
Freeboard requirements Yes Yes Yes No NoYes
Frack fluids require
sealed tanks
Wastewater transport permits Recordkeeping Recordkeeping
Permit &
Recordkeeping
Permit &
Recordkeeping
Permit
No, but
Authorized
Discretionary Discretionary Restricted Restricted BannedRestrictedVenting banned
Restriction on flaring during
production
Discretionary Discretionary Restricted Restricted NoneRestricted
Permit &
Recordkeeping
Permit
Permit &
Recordkeeping
Permit
Permit &
Recordkeeping
Permit
Regulations
More stringent
A68
A1e. OIL & GAS: HISTORICAL FACT BASE TAX & REGULATORY

126
Overview of existing regulations for shale gas production
Regulation over the exploration and production of shale gas in the United States is
conducted by state authorities
In recent years, states with shale oil and gas have created specific rules and
guidelines to maintain safety standards and environmental protection
Each state defines the minimum safe distance between wells and water sources,
buildings, urban areas and other features of the state
Casing and cementing is highly variable, in most cases casing and cementing is
required near water sources. Rules over the type of cement also apply
Despite being controversial, regulation over fracturing fluid disclosure is still
heterogeneous. Several states require detailed information on the utilized fluids, while
others allow companies to maintain the confidentiality of their operations
Several regulations apply to both conventional and unconventional wells
States regulate water withdrawal through general state laws, which apply to all
industries, and not just oil and gas
Open pits and storage tanks must follow safety guidelines to prevent contamination
of nearby water sources. Generally, regulation focuses on freeboards and pit liners
Wastewater transportation is tracked, but disposal options vary among states
Flaring is allowed in all states, while venting is more regulated. In both cases, states
try to minimize the amount and effect on the environment
A69

127
Setback restrictions: Most states, including Ohio, have setback restrictions
between wells, buildings and water sources
Source: Office of Fossil Energy; RFF Report
The American Petroleum Institute
(API) best practices encourage
separating well activity from both
buildings and water. However, each
state has individual perspectives on
the required distance
Building setback regulations may vary
based on local conditions. In Ohio and
Colorado, high density or urbanized
areas tend to have larger setbacks
Many states provide reductions or
exemptions from their setback
restrictions, often contingent upon
signatures from the affected
landowners
Most states have setback restrictions
for water sources to avoid water
pollution
The Environmental Protection
Agency has yet to find evidence on
water pollution caused by shale
production; however, the agency is
conducting new studies on the subject
500
Maryland
200
West Virginia
500
Pennsylvania
1,000
308
625
Wyoming
North Dakota
350
Michigan 300
Texas
Tennessee 200
200
100
Ohio
New York
50
1,000
300
100
2,000
100
1,000
1,000
Setback restrictions from
buildings, Feet
Setback restrictions from
water sources, Feet
States with the largest number of gas wells in the US
No restrictions
No restrictions
US Average
Overview
A70

128
Well testing: Several states, including Ohio, require predrilling water well
testing to evaluate the potential impact of an incident
Source: Bloomberg; Factiva; RFF Report
1 Colorado, Nebraska, Illinois, Ohio, West Virginia, Virginia and New York
Use
Predrilling water well testing establishes the baseline water quality for an area prior
to drilling activity
In case groundwater is found to be polluted after drilling, the baseline results are
important evidence for determining whether contamination is related to drilling activity
Specifications
Although the radius for testing varies greatly from 0.09 miles (Virginia) to 1 mile (North
Dakota, Nebraska and Oklahoma), the average radius is 0.44 miles for testing
Although the majority of states do not require predrilling testing, seven states1 do
require testing before drilling activity takes place
Examples
Ohio regulation requires operators to test water wells within 300 feet of a proposed
gas well in urbanized areas, while in other areas sampling must occur within 1,500 feet
of a proposed horizontal well
In addition, Ohio has mapped the entire ground-water system, as an additional risk
management measure, to ensure ground-water is protected
In early 2014, the Environmental Protection Agency was unable to find considerable
Duke
University conducted a parallel study, and found considerable amounts of the
substance. Residents have blamed operators, instead of conducting defining
independent studies
A71

129
Cementing: Regulations vary greatly between states, and may differ among
fields in each state
Source: RFF Report; Midwest Energy News
``
Overview States with casing type regulations
Not considered in map Regulated cement typeThe American Petroleum Institute best
practice is that selected cements, additives
and mixing fluid should be laboratory tested
in advance to ensure they meet the
requirements of the well design
Ohio has adopted both the API and ASTM
standards for cementing
The most commonly-used cement in the US
is Portland Class A cement
Cement type varies by well and operator. It
depends on the geological formation and
other conditions
Cement is classified based on the following
characteristics
Compression resistance
Cement type
Cement circulation around the casing
Ohio has seen <1% correction of cementing
works -- need fixing or additional work due to
deficiencies in the application of cement --
compared to a 1-5% median.
A72

130
Cement casing: Circulation is highly regulated in the United States, and
applies to both vertical and horizontal wells
Source: US Energy Department of Energy; RFF Report; Propublica 1 Colorado, Oklahoma and Texas
`
`
`
`
Regulation relevant to vertical and horizontal wells
Casing zones and cement programs in shale gas
wells
Production
Intermediate
Surface
Most states require surface casing, the outermost layer of casing, to be cemented all the way to the
surface, along with an outer conductor casing (or conductor pipe)
All states that do require such cementing do so explicitly in their statutes or regulations
Cementing in this zone is usually not
mandatory, but may be required through
permitting process
Several states1, specify a distance above the
shoe to which intermediate casing must be
cemented. The distance ranges from 200 to
600 feet above the shoe 500 feet for Ohio
Eight states regulate intermediate casing
cementing depth via their permitting
processes
Alabama and Ohio use a performance
standard: operators are required to isolate and
protect groundwater of hydrocarbon zones
Arkansas and New York require production
casing to be cemented to the surface which
inserts some risk for cement cracking with a
potential for reduced leak control
API states that best practice is to cement
production casing to at least 500 feet above
the highest formation for vertical wells (and
1000 feet for horizontal) above where
fracturing performed
A73

131
Water: Consumption regulated through local water withdrawal laws, and not
under industry-specific rules
Source: Energy Information Administration; RFF Report; National Petroleum Council; Environmental Protection Agency
Main shale gas production areas and the water resources
used for their production
Niobrara
Cody
Gammon
Excello-
Mulky
Marcellus
(256)
Devonian
Chattanoog
aConasauga
Floyd-
Neal
Haynesville/
Bossier
(251)
Woodford/
Caney
Barnett
(118)
Eagle Ford/
Pearsall (> 100)
Woodford
(42)
Avalon
Bend
Pierre
Lewis
Mancos
Hilliard-Baxter-
Mancos
Antrim
New
Albany
Utica
Horn River Shale
(40)
Montney
(152)
Bakken
Granite
Wash
Fayetteville
(20)
Hermosa
Mowry
Orange: States with the
largest amount of liquids
Under development
Exploration
Production
Permit, registration &
reporting over threshold
Not considered
Regristration & reporting
over threshold
Permit required
over threshold1
10%
42%
40%
8%
Water withdrawal regulations
% of states
Overview
1 California, Montana, Wyoming, Utah, Colorado, New Mexico, Texas, Oklahoma, Kansas, Nebraska, South Dakota, North Dakota, Arkansas, Mississippi,
Georgia, Virginia, Pennsylvania, New York, Michigan and Maryland
Several states have discussed drafting rules specific
to the shale industry about water withdrawal, but few
have passed such regulation. Water withdrawal is
regulated under general regulations
In Ohio, different withdrawl levels drive different
regulations. Additionally, Ohio does have
permitting withdrawls
Most states require general permits for surface
and/or underwater withdrawals, many of them only
require them after a specified threshold
Consistent with best practices, Ohio requires interface
with appropriate water management agencies, who
work with companies to shift location of water source
A74

McKinsey & Co. Report: Ohio Energy Competitiveness

McKinsey & Co. Report: Ohio Energy Competitiveness

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