Marcellus Shale: Business & Job Growth www.marcelluscoalition.org Twitter.com/marcellusgas Facebook.com/marcelluscoalition November 14, 2013
Marcellus Shale Coalition About Us Founded in 2008 300 members strong From producers to midstream to suppliers Our Focus Long-term development of resource Protecting the environment and responsible use of water resources Addressing landowner, government and public issues Benefits to our region s future PA produces nearly 10% of the nation s gas and ¼ of onshore domestic shale gas MSC Members Produce 96% of All Marcellus Gas 2 MARCELLUS SHALE COALITION
Pennsylvania Resource Potential* Proven 14 Tcf Unproven ~200 Tcf Unemployment Rate 7.6% *2010, EIA: Southwest Region
PA: Fast Facts Annual production: 2+ Trillion Cubic Feet (2013, Pa. Dept. of Environmental Protection) Number of wells: 8,982 (2011, EIA) Total Jobs: 239,474 (2013, PA Dept. of Labor & Industry) Tax revenue: $1.8 Billion (2012, Department of Revenue) Royalty Payments: $567 Million (2011) Bonus payments: $1.2 Billion (2012) Total investment per well: $5-7 Million (2012)
Pennsylvania Jobs, Pennsylvania Workers PA Department of Labor and Industry 231,969 employees in Marcellus and related industries as of 2013 Q1* Core industries were 35.0% higher in 2013 Q2 than in 2010 Q2* Core Industry occupations Crude Petroleum & Natural Gas Extraction ($110,119) Natural Gas Liquefied Extraction ($100,841) Drilling Oil and Gas Wells ($84,862) Support Activities of O&G Operations ($70,401) O&G Pipeline & Related Structures ($82,127) Pipeline Transportation of Natural Gas ($85,747) $83,300 average core industry wage ($34,800 higher than PA avg.)* *Source: Marcellus Shale Fast Facts, September 2013, PA Department of Labor and Industry 5 MARCELLUS SHALE COALITION
Pennsylvania Jobs, Pennsylvania Workers PA Department of Labor and Industry Ancillary Industries Non residential site preparation contractors ($53,191) Trucking (general freight, specialized freight) ($42,582-$51,771) Commercial & industrial machine and equipment repair ($54,323) Water Supply, Sewage treatment facilities, and infrastructure construction ($45,560-$66,741) Engineering Services ($79,147) $65,000 average ancillary industry wage ($16,500 higher than PA avg.)* *Source: Marcellus Shale Fast Facts, September 2013, PA Department of Labor and Industry 6 MARCELLUS SHALE COALITION
THANK Supply YOU Chain 101
Shale Economic Spectrum
Industry Segments UPSTREAM MIDSTREAM DOWNSTREAM Exploration and Production Gas Field Exploration Well Drilling and Hydraulic Fracturing Gas Recovery and Production Gathering and Gas Processing Gas Collection and Transportation Systems (Gathering Pipelines) Gas Processing (Dehy, Separation, Fractionation) Compression (Well Head, Gathering) Selling and Distribution Interstate and LDC Transportation Systems (Transmission and Distribution Pipelines Compression (Transmission) Regulation Metering
Natural Gas Job Phase Pre-drilling (Exploration) Geologic studies, permitting, water management, engineering/design, site preparation, environmental and safety compliance Drilling (Extraction) Pipeline, compressor, well facilities construction, Hydraulic Fracturing & completions, water management, environmental and safety compliance Production/ Reclamation Engineering, site reclamation, environmental and safety compliance Delivery to Market (transport, storage, marketing) NG Marketers, commodity traders, logistics, storage, accounting, risk management
Marcellus Multiplier Fast Facts $7+ million investment to produce each well 400+ individuals within nearly 150 different occupations needed to complete and produce gas from a Marcellus well (MSETC, 2010)
Site Construction & Preparation DESCRIPTION: Construct the well pad and access roads BUSINESSES INVOLVED: Site design professionals (aerial mapping services, surveyors and engineers), Construction and site development contractors (heavy equipment operators, haulers, laborers, electricians), Site preparation supplies (aggregate, fencing, mulch and fertilizer), Manufacturers (pumps, safety equipment, electrical, heavy equipment) FACT: 5,000 tons of aggregate per location, using full-time operation of dozer, excavator and roller
Well Construction DESCRIPTION: Casing and drilling of the well BUSINESSES INVOLVED: Heavy equipment operators and manufactures (Cranes, haulers, drill bits); steel and associated manufacturers; cement producers; chemical manufacturers; safety equipment manufacturers and suppliers FACT: 125 tons of locally produced cement per well FACT: 17,000 ft. of pipe needed for each well (steel casing and tubing); MSC member companies have invested hundreds of millions dollars to upgrade, expand or build new steel and pipe facilities in the region to meet shale gas industry demand
Transportation & Logistics DESCRIPTION: Moving materials to and from the well site BUSINESSES INVOLVED: Rail, barge and trucking companies and operators; asphalt producers; road grading and paving contractors; sand and water suppliers; GPS and spatial analysis services FACT: 180 rail cars of sand used for an 8-well pad site (smaller footprint w/ more production) FACT: 300 truck loads of recycled water are needed for a new well
Water Management DESCRIPTION: Water supply and management BUSINESSES INVOLVED: Manufacturers and assemblers (tanks, pipe, steel coil, pumps); chemical manufacturers and suppliers; water and sand suppliers; transportation companies and CDL operators FACT: Shale Gas industry has led to startups and expansions of Pennsylvania companies including mobile treatment equipment for water recycling FACT: MSC Member Company invested $500,000 to upgrade Johnsonburg Municipal Authority s public water distribution system
Pipelining & Processing DESCRIPTION: Construction of gathering lines to connect well pads to Compressor Stations and gas distribution systems; Construction and operation of Compressor Stations BUSINESSES INVOLVED: Engineering and site design services (aerial mapping, surveyors and engineers), Construction services (heavy equipment operators, haulers, laborers, electricians), Site preparation supplies (aggregate, fencing, mulch and fertilizer), Steel, vessel, and compressor engine suppliers, designers and manufacturers FACT: More than $1 million invested for each mile of gathering line FACT: More than $1.3 billion invested in pipeline and processing (PSU, 2010)
Well Site Completion & Maintenance DESCRIPTION: Restoration of the well pad and maintenance of the producing well(s) BUSINESSES INVOLVED: Solar panel and metering device manufacturers; landscaping companies; top soil suppliers; road aggregate suppliers; fencing suppliers FACT: 14,000 Pine and Oak Trees planted for 6.23 miles on edge of ROW in state forests located in Clinton and Lycoming Counties (Williams Companies),
Commitment to Sourcing Locally Historic opportunity for this generation and beyond Public acknowledgment of the need and benefits to sourcing and hiring locally Supports economic growth Makes good business sense
How do you enter the Supply Chain? Understand the Industry Culture Contractual Nature Compliance Component Vendor Requirements Know your product/service Offer solutions Network & build relationships Meet and exceed expectations
Understand the Priorities Safety 1 st Federal, State, and Company: mandatory health and safety training and testing for employees Prime Contractors & Subs must be compliant Geographically dispersed worksites < 1 year at each site Continuous Operations 24/7 Non-traditional hours Weather exposure Travel required
How do you fit? Contractor/Sub-contracting: Prime Contractor holds contract with operator Sub-contractor hired for a particular service/deliver product On-Site Services Safety sensitive functions completed on or within close proximity to the well, facilities, or pipeline (i.e. drill contractor, well service operations, welder, vacuum truck, roustabout, dirt contractor, etc.). Material supply or other services provided to a site but not hands on work (i.e. supply company, delivery service, etc.) Off Site Services
How do you get in? Contractor Compliance Programs Risk Management Tool ISNetworld Veriforce PEC Premiere Vendor Enrollment Company specific requirements Master Service Agreement (MSA) Contract that includes most of the terms that govern future transactions Contracting Opportunities Long term, Bid event, RFQ, One time
Online Business Directory www.marcellusonmainstreet.org A project of the Marcellus Shale Coalition 23 MARCELLUS SHALE COALITION
Opportunities
Recommended Practices Ongoing From the very basic: Tips for those hunting near active areas of development the universally relevant: Acknowledging the need and benefits to sourcing and hiring locally Promoting small, disadvantaged businesses Ensuring companies know the rules of the road Underscoring community safety as top priority to the highly technical: Pre-Drill Water Supply Surveys, Responding to Stray Gas Incidents, Water Pipelines, Pipeline Boring 8 published 20 more in development 25 MARCELLUS SHALE COALITION
Industry Improvements State Review of Oil & Natural Gas Environmental Regulations (STRONGER) a national non-profit organization dedicated to assessing states regulations and assisting in strengthening them PA DEP Oil and Gas program is well-managed, professional and meeting its program objectives. Water management through recycling / reuse and technological innovations that have improved just in the last 5 years. CNG (field gas) / LNG - powering rigs, onsite equipment and vehicles - dedicated natural gas engine to power a rig = nitrogen oxide (NOx) emissions reductions by up to 64 tons per year / up to 65% cost savings Center for Rural PA Study >40% of 1.2 million private water wells do not meet safe drinking water standard, separate from industry activity Another 20% percent of wells contained pre-existing methane support water well standards across the board, only PA & Alaska lacking 26 MARCELLUS SHALE COALITION
Shale Gas Global Opportunity North America 1,931 trillion cubic feet 27 MARCELLUS SHALE COALITION
28 MARCELLUS SHALE COALITION Opportunity and Competition
Private Investment Through 2010-2012 over 4,500 wells drilled resulting in approximately $31.5 billion private investment 2013 projection: $13.5 billion Leasing and bonuses Exploration Drilling and completion Pipelines and processing Royalties Source: Marcellus Center for Outreach and Research, 2013 Source: Survey of MSC Member Companies, 2013 29 MARCELLUS SHALE COALITION
30 MARCELLUS SHALE COALITION Shale Development in Pennsylvania
31 MARCELLUS SHALE COALITION Increases in Production
Revenue for Pennsylvania Paid by Natural Gas Industry Overall taxes since 2006 1 > $1.8 billion State and local taxes in 2011 2 $1.23 billion Road construction investments since 2008 2 Royalty payments to state in 2011 3 Susquehanna County in 2010 Permitting and enforcement fees to increase DEP personnel since 2009 4 ~ $1 billion $107 million $133 million $40.5 million Impact Fee in first two years 5 1 Fox News, July 23, 2013 2 On-going Survey of Marcellus Shale Coalition Members 3 Pennsylvania Department of Conservation and Natural Resources, 2011 4 Pennsylvania Department of Environmental Protection, 2013 5 Pennsylvania Public Utility Commission (2007-2011 grandfathered wells plus 2012 assessment) 32 MARCELLUS SHALE COALITION > $400 million
Public Policy Landscape Act 13 Act 13 of 2012 amends Title 58 of the Pennsylvania Consolidated Statutes (Oil and Gas Act of 1984) Impact Fee - Per well fee assessed and collected on unconventional wells Municipal Uniformity Authority to enact uniform development standards at the municipal level was challenged and this provision uncertain until State Supreme Court issues a decision. Substantial revisions to environmental protections for both surface and subsurface activities including but not limited to: Increased record keeping for transportation of waste water fluids Source reporting for air contaminant emissions Strict spill prevention requirement during drilling and hydraulic fracturing Increased permitting, siting, and protection of water supplies Well control emergency response 33 MARCELLUS SHALE COALITION
Act 13 Impact Fee $2,000,000 $2,000,000 $2,000,000 $7,500,000 $12,000,000 $17,500,000 Impact Fee Allocations 2011 & 2012 $400MM+ $1,500,000 $1,500,000 Local Government Marcellus Legacy Fund Natural Gas Energy Development Program Department of Environmental Protection County Conservation Districts & Conservation Commission Fish and Boat Commission $216,409,200 Public Utility Commission $144,272,800 Department of Transportation PA Emergency Management Agency 34 MARCELLUS SHALE Source: PUC COALITION Impact fee allocation data rounded to nearest 1000 State Fire Commissioner
Act 13 Impact Fee Impact Fee Payment 2011 & 2012 County and Municipal Government $200MM Boroughs & Cities $12MM Counties $75MM Townships $112MM Excludes Marcellus Legacy Fund & Housing Affordability and Rehabilitation Fund 35 MARCELLUS SHALE COALITION
Savings for Consumers Heating / Electricity Generation EIA: Family of four in an 1,800 sq. ft. home can save about $1,500 a year, or 60%, by switching to gas. Natural gas vehicles Consumer products Combined heat and power applications Feedstock for industries and other liquids use 36 MARCELLUS SHALE COALITION Source: Philadelphia Inquirer, May 19, 2013
Decoupling of Oil and Gas Prices 37 MARCELLUS SHALE COALITION
U.S. Power Generation Monthly coal- and natural gas-fired generation equal for first time in April 2012
CHP Attracting Public Sector Attention Combined heat and power (CHP) plant: A plant designed to produce both heat and electricity from a single heat source. The term is being used in place of the term "cogenerator". Commonwealth Recycled Energy Economic Development Alliance Promoting Marcellus Shale Gas Fired Combined Heat & Power (CHP) 39 MARCELLUS SHALE COALITION
PA Power Plants Vienna, Va.-based Moxie Energy plans to build new combustion-turbine plants, each capable of providing power to 750,000 homes, in Asylum Township, Bradford County, and Clinton Township, Lycoming County More conversions from coal to natural gas image tva.com 40 MARCELLUS SHALE COALITION
NGV Market Penetration
Neighborhood Air Emissions Neighborhood Air Emissions Base Case (Diesel) vs. CNG Case 42% Reduction lbs./year 88% Reduction 91% Reduction
Dialogue & Education MSC Pennsylvania Roadmap Study MSC s contribution to nationwide NGV conversation Only 150,000 NGVs in U.S. with millions worldwide 17 new fueling stations for fleets Begin with fleet conversions and urban infrastructure focus to achieve better air quality, lower noise, lower cost $5 million reduction in annual fuel costs for PA fleet operators A direct impact on nearly 1,300 PA jobs A reduction of NOx emissions, particulate matter emissions, and greenhouse gas emissions 43 MARCELLUS SHALE COALITION
Wet Gas Region of Marcellus Shale Legend Marcellus Shale Formation Wet Gas Region Sources: Pace Global; Equitable Resources, MarkWest, Atlas Energy, Range Resources, and Caiman Energy. 44 MARCELLUS SHALE COALITION
Average Composition in Wet Gas Region Propane, 5.5% Iso Butane, 0.7% Methane, 74.2% Liquids, 25.3% Ethane, 15.6% Normal Butane, 1.4% Iso Pentane, 0.5% Normal Pentane, 0.5% Hexanes+, 1.1% Source: Pace Global; NiSource Gas Transmission and Storage Presentation to WVONGA Spring Meeting May 6, 2010 p.5 45 MARCELLUS SHALE COALITION
Gas Processing Gas Dehydration, Separation and Fractionation Northeast Marcellus is dry Southwest is wet (contains more Natural Gas Liquids) Gas processing is required to condition production gas to proper pipeline quality for end users Dehydration removes saturated water entrained in production gas (typically to below 7 lbs/mmcf) Cryogenic processing separates the NGLs from the production gas lowering the BTUs to proper levels (980 1100 BTU/cf) Fractionation separates the NGLs into individual marketable products (ethane, propane, natural gasoline)
Segments of the Oil and Gas Industry Exploration and Production (Upstream) Gathering, Compression, Treating, Processing, Transportation (Midstream) Petrochemical and Refining (Downstream) Oil, Gas, Water Well Gas Water Injection Well Separation Water Gathering Pipelines Compression Oil Natural Gasoline Gas Treating, Processing and Fractionation Butanes Propane Natural Gas (Methane) Ethane Propane Interstate Gas Pipelines Petrochemical Plants Home Heating/Cooking Electric Power Industrial Boilers/Furnaces LNG (Liquefied and shipped) CNG (Fleet Fuel, Buses, etc) Home Heating, Cooking Transportation, Industrial fuel Glad Baggies Plastics Styrofoam Alcohols Interstate Oil Pipelines Propane, Butanes, Gasoline's Other Chemicals Unleaded Gasoline Oil and/or Gas Reservoir 5,000-16,000 ft deep Oil Refineries Diesel Jet Fuel Asphalt Other Source: MarkWest Energy Partners - 160,000 barrels of crude oil a day
The Ethane Factor 48 MARCELLUS SHALE COALITION
Shale and manufacturing About 1/3 of all of the energy used in the USA consumed by manufacturing Lower feedstock and energy costs could reduce energy costs by $11.6 billion annually through 2025 Price Waterhouse Coopers (Dec. 2011) "Shale Gas: A renaissance in US manufacturing?" Companies returning to USA: 1. Dow Chemical 2. Formosa Plastics 3. Chevron Phillips Chemical Co 4. Bayer Corp 5. Westlake Chemical 6. Shell Oil; CF Industries 7. Santana Textiles Boston Consulting Group estimates international companies to invest at least $50 billion through the end of decade on projects that take advantage of low-price natural gas 49 MARCELLUS SHALE COALITION
International Interest in the Marcellus 50 MARCELLUS SHALE COALITION
Energy Independence Source: U.S. Energy Information Administration Note: Petroleum production includes crude oil, natural gas liquids, condensates, refinery processing gain, and other liquids, including biofuels. Barrels per day oil equivalent were calculated using a conversion factor of 1 barrel oil equivalent = 5.55 million British thermal units (Btu).
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