Plg black gold9-13-12

PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 111

Logistics in the Utica Shale

Development

Prepared for

Black Gold Ohio

Columbus, OH

September 13, 2012

PLG Consulting


I. About PLG

II. Energy Booms

III. Products and Logistics Flows

IV. Utica Logistics Conclusions

Content


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

Oil GasBaker Hughes Rig Count

Horizontal Well Production*

Year Drilled Producing

2011 33 4

2012Forecasted

160 193

2013Forecasted

650 843

2014Forecasted

1,075 1,918

» Estimated jobs

created/supported by

2014* 65,000+ total

28,000+ field development

and supply chain

* Ohio Shale Coalition As of: September 7, 2012


Products and Logistics Flows


NaturalGas

• Proppants

• Chemicals

• Clean water

Materials

• Drilling Rigs

• OCTG (Pipe)

• Cement

Equipment

Shale Oil and Gas Supply Chain

Upstream

Exploration

Production

(Well Site)

Midstream Downstream

Refining

Fuel

Gasoline Distillates

Crude

Oil

Crude/

Gas

Mixture

Chemical

Feedstocks

Process

Product

Logistics Flow

Transportation

Processing

Gathering

Jet Fuel Residuals


Chemical

Feedstocks

Natural Gas & Petrochemical

Supply Chain

Consumers

Petrochemicals

Aromatics AmmoniaMany Others

Olefins

Ethylene Propylene Butylene

Polymers

Polybutadiene Polypropylene Polyethylene

Manufacturing

Intermediates become consumer and

industrial products

Natural

Gas Power Generation

Industrial Use

Consumer Use

Petrochemical

ProcessingRefinedCrude

Products

Process

Product

Logistics Flow


Hydraulic Fracturing

Equipment Staging Area

Source: JPTOnline.org


Upstream Transportation

Requirements

Source to Transloading Transloading to Wellhead Site

Material Railcars

Proppants 40

Pipe 5

FracturingChemicals

2

Clean Water and Cement

Sourced Locally

Total 47

Material Trucks

Proppants 160

Pipe 20

Fracturing Chemicals

8

Clean Water and Cement

~1000

Total ~1200

Leaving Site Trucks

Waste Water ~500

Oil and Natural Gas Pipeline, Rail, Truck

Volumes Per Single Well Site (Based on 30 stages/well site)


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

» 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

Refinery

Ohio Region of Utica Play


» Construction of new

pipeline systems for

access into new markets NEXUS gas pipeline ties in the

Midwest and beyond

Utica Natural Gas Markets

» Utilize existing gas

transmission system to

supply local markets Well-developed pipeline system

Pipelines may be reconfigured or

added to improve gas flow

Current Gas Pipeline Network NEXUS Proposed Route


Marcellus/Utica will create an opportunity

for a more cost-competitive chemical

feedstock supply chain

» Marcellus and Utica are expected to

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

* Source: Townsend Solutions and American Chemistry Council

Potential for Downstream

Processing In the Region

Monaca, PA

Proposed Shell

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.


» 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

Utica Pros and Cons


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 / [email protected]

This presentation will be available at:

WWW.ProLogisticsGroup.COM

mailto:[email protected]

http://www.prologisticsgroup.com/

Plg black gold9-13-12

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