NaturalGasSupplyChainDynamicsandParadigmShi7(s)*

David A. Boger, PMPSenior ConsultantSkipping Stone, LLCwww.skippingstone.com

*ParadigmShi,(PS)isachangefromonewayofthinkingaboutaparAcularsubjecttoanotherwayofthinkingaboutit.

ABriefBio

•  EducatedinEnergyRelatedIndustry–  AlleghenyCollege:BSGeology–  PennState:MSMineralEconomics

•  28YearCareerinRetailEnergy–  IndustrialEnergyServicesCompany–  Babst,Calland,Clements&Zomnir–  StrategicEnergyLLC–  DirectEnergyBusiness–  SkippingStone,LLC–  ???

•  NaturalGasMarkeAng,NaturalGasManagementConsulAng,EnergyOperaAons,ProductDevelopment,MarkeAng,BusinessProcessImprovement,ProjectManagement,CorporateTraining,CustomerService

NaturalGasSupplyChain

UpstreamDynamics

NaturalgasoriginatesfrommulApleresources

Non-conventional gas (Hydraulic Fracturing Process)

WidespreadDomesAcConvenAonalReserves

America’snextnaturalgasfronAeralsowidespread…..

PS

BakkenGasFlaring…

ShaleOilandGasabundantreservesespeciallyinEurope,Russia,China,S.America,N.Africa

PS

HydraulicFracturingProcesshassomehistory

•  Drillingtechniquefordevelopingand

recoveringoilandgasfromunconvenAonalreserves(Aghtsands,shale)

•  VerAcalandHorizontalwells•  Techniqueoriginsdatesbacktolate1860s

(DrakeWellEra)andlate1940s(Halliburton)

•  Jumpstartedin2003

•  EsAmatedthatup80%gaswellsdrilledinthenextdecadewilluAlizehydraulicfracturing

Howlowdoesthedrillinggo?

From:www.Fracfocus.org

Water* 5–8MMGallons

Sand 75K–300KLBS

Horsepower 1,500–10,000hhp

*WaterSources:surfacewater,groundwater,municipalwater,treatedwastewater,powerplantcoolingwater,recycledwater(flowback)

DrillingPerformanceConAnuestoImprove(MarcellusShaleRegion)

-  ImprovedProducAvity

-  Gas/OilAssoc

-  ImprovedTechnology

-  ImprovedTechnique

-  ImprovedEfficiencies

-  2012:142Rigs-  Improved

ProducAonperrig

USNaturalGasProducAonbySource(1990-2040)

Trill

ion

cubi

c fe

et

PS

Timesarea’changing…

“Andit’snotjustUkraine.Delega6onsfromotherEasternEuropeancountriesinthecrescentaroundRussiahavecometoPennsylvaniamany,many6mesinrecentyears,Mr.(Tom)Murphysaid,tolearntheexperienceoftheMarcellusShaleinhopesofdevelopingtheirownshaleplays”AnyaLitvak,PostGazepe,March18.2014

PSGa

s

Oil

Whatisnaturalgas?

Super–RichGas:

AsperRangeReso

urces;wetgasmeasureda

t1,350Btu

perMcforhigher;Conta

insacondensateco

mparabletoanatur

alformof

gasoline.

WetGas>1,200Btu/Mcf>DryGas

PS

GatheringandProcessingpreparesthegastopipelinequalitystandards

-  GasproducAonhasoutpacedgatheringandprocessingcapacity

-  Infrastructurebuildoutison!

-  PipelineyardsinDuquesne

UpstreamHeadlinerTopics….Supply Infrastructure Regulatory ServiceExpansion

Marcellus,UAcaandUpperDevonianShales,ConvenAonalSandstones(Medina)

GatheringPipelineandProcessingPlantbuildout

Act13–State&LocalZoningDrillingundertheParksDrillingunderAirportsDrillingunderCommuniAes

Engineering,Legal,Environmental,WaterTransport,WaterTreatment,SitePreparaAon,Drilling,Chemicals,NoiseReducAon,

DryGas,WetGas,Super–RichGasbuoyingproducAonlevels

Water/WasteWaterMgmt,GroundWaterProtecAon,AirEmissions,SiteConstrucAon/RoadImpact

WasteDisposal,CementSupply,Trenching,PipelineManufacturing,

Shi7ingfocusofE&PCompanies:CoaltoGas,internaAonalinvestments,IPOs,RealEstategrowth

PushforaUniformSeverancetaxpolicy(PA,WV,OH)

Trucking,ShaleHotels,Machine/Equipmentrentals,Sewagetreatment,SiteremediaAonservices…

MidstreamDynamics

Naturalgasinterstatepipelinemapwithhighlydependentstates*

*Statesingreywhichareatleast85%dependentontheinterstatepipelinenetworkfortheirnaturalgassupplySource:EnergyInformaAonAdministraAon,FormEIA176"AnnualReportofNaturalGasandSupplementalGasSupplyandDisposiAon."

-210NaturalGasPipelines

-305,000Milesofpipe

-1,400CompressorStaAons

-49Import/ExportPoints(viapipe)

-8LNGImportFaciliAes

Historical“longitudinal”flowpapernofnaturalgas

Developing“grid”flowpapernsofnaturalgasPS

PushtoexpandPipelineCapacityFERC

Office of Energy Projects

Northeast Expansion (Tennessee) (1,200) Marcellus to Manhattan (Millennium) (675)

West Side Expansions (NiSource) (950) Continent to Coast (Portland Natural)(182)

Central New York Oil and Gas (250) North-South Connector (Millennium) (250)

South to North Project (Iroquois) (300) Northern Access 2015 - West Side Expansion (NFG) (175)

Niagara Expansion (Tennessee) (158) Atlantic Sunrise (Transco) (1,000)

Atlantic Bridge Project (Spectra) (600) Good Springs Pipeline (UGI Energy)(300)

Inergy Midstream (320) Tiaoga Access Expansion (UGI Storage) (250)

Lower NY Bay Lateral (Transco) (400) Connecticut Expansion (Tennessee) (72)

Pennstar (NiSource & UGI) (500) Wright Compressor (Iroquois) (375)

U2GC Project (Spectra) (425)

Mainline 68 (Questar) (50)

Opal Market Link (Northwest) (400) Tucson-Sasabe Pipeline (Mitsui) (770)

Nexus Gas (Spectra) (1,000) Appalachia to Midwest (TETCO) (300)

Straight Blackwell Expansion (Southern Star) (225) Dakota Pipeline (WBI Energy) (500)

East-to-West Project (Rockies Express) (700) Lebanon Lateral (ANR) (60)

Williston Basin (30) Lebanon Lateral 2014 (ANR) (350)

Glen Karn 2015 (ANR) (400)

Ozark Gas (200) South Texas Expansion (TETCO) (300)

SOLA Project (TETCO)(600) Elba Expansion (Elba Express) (650)

New Orleans River Corridor (Gulf South) (450) Southwest Louisiana Supply (Tennessee) (1,000) Gulf Markets Expansion Project (TETCO) (650) TEAM-South Expansion Project (TETC)) (300)

Louisiana Access Project (Texas Gas) (500) Destin Pipeline (380)

Dalton Expansion (Transco) (600) Renaissance Gas Transmission (Spectra) (1,250)

Kennesaw Pipeline (NiSource)(1,316) Tiger Exp (ETC) (600)

Major Pipeline Projects On The Horizon (MMcf/d) January 2010 to February 2014

21.96 BCF/D Total 1,723 Miles

PipelineProjectsintheworkstomoveNGLtoexisAng,distantrefineries

Source:PipsburghBusinessTimes,Oct.25,2013“AdvancedpipelineprojectscloudviabilityofShellcrackerbyMaliaSpencer

-  Five(5)NGLPipelineprojectstargetedfor2015

-  710,000barrels/daycapacity-  ConnectNGLProducAonto

exisAngcracking/refining-  Ethaneglut

-  TimetoMarket:

-  Pipeline:18–24months-  EthanePlant:4–6years

PS

GasStorageisvitalformeeAngpeakdemandandprovidingpricehedgingcapabiliAes

Propane Storage

LNG Storage

ABOVE GROUND BELOW GROUND

A–SaltCaverns;smallercapacity,quickcycleAme,33%gascushionD–DepletedOil/GasReservoirs;morecommon,largercapacity,tradiAonalcycles,50%gascushionC–NaturalAquifer;midwestconcentraAon,costlytodevelop,80%gascushionB–AbandonMines,E–HardRockCaverns

NaturalGasstoragecapacityconcentraAoncoincideswithtransportaAongrid

Aswintertemperaturesgoes,sodoeswithdrawalsfromstorage…….

PS

-  Recordcoldtempsresultedinrecordwithdrawallevels

-  RecordHeaAngdemand(residenAal/commercials)+Gas–FiredPowerGeneraAon+PipelineCapacityConstraints(NewEngland)

-  ProducAonlimitaAonsduetowellfreeze

ResulAnginaprojectedrecord2014storageinjecAonseason……

-  SummerAirCondiAoningloadscouldstraingassupply

-  IncreasedGas–firedPowergeneraAon+strongstorageinjecAonscoulddrivegasprices

PS

MidstreamHeadlinerTopics….

Infrastructure Regulatory

ServiceExpansion

Intrastate,InterstatePipelineCapacityExpansion

Gas&PowerIndustrySynching

GeophysicalSurvey,Mapping,RoadConstrucAon,RealEstateSales,PropertyManagement,

NGLPipelineCapacityExpansiontogetNGLtoexisAngrefineries

AirQualityMonitoring,WaterQualityMonitoring,DieselandGasolineSupplies,LabServices

Refinery/CrackingCapacitybuiltinSWPA,WV

MarkeAng,PR

DownstreamDynamics

LocalDistribuAonCompanies(LDC)comeinvariousorganizaAonalstructures

LDC Types:

•  Investor Owned (257): Publically traded, rates subject to PUC Regs and rate – setting guidelines

•  Privately Owned (104): Privately owned, rates subject to PUC Regs and rate – setting guidelines

•  Municipality (931): Owned by Municipal Government, rates set by municipal government

•  Cooperative (15): Non – Profit organization, limited profit sharing with members

Source:FundamentalsoftheU.S.NaturalGasSystem,PGSEnergyTraining,2011

BurnerTipCommercial/IndustrialCustomers(andotherend–usersofnaturalgas)

Whoconsumesnaturalgas?

ElectricPowerGeneraAon(31%)

Industrial(29%)

ResidenAal(19%)

Commercial(13%)

LeaseandPlantFuel(5%)

Pipeline&DistribuAon(3%)

NaturalGasVehicle(0.13%)

2013 U.S. Natural Gas Consumption by End Use (MMcf)

Source:EIANaturalGas2013AnnualReleasedDecember12,2013

Pennsylvaniacustomeraverageannualnaturalgasusage(mcf)

Gas fired power plants

use an average of

357,000 mcf of natural gas

per year, almost 9

times more than the average industrial customer.

ResidenAal,120

Commercial,1,071

Industrial,40,034

IndustrialandelectricpowersectorsleadU.S.growthinforecastednaturalgasconsumpAon

Trillioncubicfeet

PS

Over time the electricity mix gradually shifts to lower-carbon options, led by growth in natural gas and renewable generation

2

0

1

2

3

4

5

6

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

U.S. electricity net generation trillion kilowatthours

25%

19%

42%

13%

1%

Nuclear

Oil and other liquids

Natural gas

Coal

Renewables

2011 Projections History

17%

16%

35%

30%

1%

1993

53%

13%

19% 11%

4%

Source: EIA, Annual Energy Outlook 2013

Adam Sieminski, USNIC June 05, 2013

ForecastedelectricitygeneraAondrivenbyNaturalGasandRenewables

•  DeclineinCoal–firedgeneraAonapributedto:

•  PlantreArements

•  CompliancewithEPAMercury&AirToxicStandards(MATS)

•  WeakElectricitydemand(DemandMgmt.programs,improvedapplianceefficiencies)

•  AlternaAveFuelCompeAAon(Gas/Renewables)

PS

“TheincreaseinnaturalgasproducAonfromshaleintheUShasresultedina36%dropinpricespaidbymanufacturesbetween2006–2010”*

“about20%ofthecostofproducingatonofsteelrelatedtoenergycosts,anythingthatcanhelplowercostsisgoodfortheviabilityoftheindustry”**“naturalgaspricesinothermajor

economiesarecurrently2½to4AmeshigherthanUSnaturalgasprices”***

•  Manufacturing,energytakingbiggerrole,PipsburghBusinessTimes,DennisYablonsky,Jan2014

**Shaledevelopmentbigboostforsteelindustry,PipsburghBusinessTimes,JusAnCoyne,Oct.2013***Shalespursmanufacturing,PipsburghPostGazepe,Sirkin&Zinsker,March2014

NaturalGascostadvantagehelpsUSManufacturingcreatejobs,drivetheeconomyandcompetewiththe

world

FeedstockIndustries

HeatSourceIndustries

PS

AllgascustomersmustlearnhowtonavigateunpredictablepricevolaAlityandmanageinherentrisk

“TheNaAon’sgassupplywillexceeditsdemandby2017”*

*BenteckEnergyLLCat2013PennStateNaturalGasUAlizaAonConference

Trillioncubicfeet

PS

ExpandingLNGExportCapacityhascomplicaAons..•  Lengthysteps/AmetoobtainFederalapproval

•  25pendingpermits($7B-$10Bprojects)•  7thProject(Oregon)justapprovedbyDOE(pendingFERC

review)•  TargetoperaAonstostart2016•  Non–FreeTradeAgreementcountries

•  WorldPoliAcs;Russian/Crimean/Ukraineevents•  Russiasupplies1/3gastoEurope,MajorUkrainePipelines•  PoliAcalpushtoexpediteapprovalprocess

•  USManufacturesconcernedaboutpriceimpact

PS

DownstreamHeadlinerIssues….

DemandDrivers

PricingDynamics Regulatory

Gas–FiredPowerGeneraAon(20MW“micro”plants)

GasPriceSpikesinpipelinecapacityconstrainedregions

PaceofLNGFacilityApprovalandassociatedpoliAcalpressures

LNGExports–EuropeandBeyond

ElectricityPriceSpikesinPJM;gasneededforresidenAalandpowergeneraAon

PeoplesNaturalGasbuyingEquitableGas

CompressedNaturalGasTransportaAon&refuelinginfrastructureexpansion

NaturalGasSupplyChain

ParadigmShi7IsOn!

Appendix

-NYMEXBasics-NaturalGasMeasurementFundamentals

NYMEXBasics •  Trading Unit NaturalGasFutures:10,000millionBriAshthermalunits(MMBtu).•  Trading Months �

NaturalGasFutures:36consecuAvemonthscommencingwiththenextcalendarmonth(forexample,onOctober2,1998,tradingoccursinallmonthsfromNovember1998throughOctober2001).OpAons:12consecuAvemonths,plus15,18,21,24,27,30,33,and36monthsonaJune/Decembercycle.

•  Price Quotation �NaturalGasFutures:DollarsandcentsperMMBtu,forexample,$2.035perMMBtu.

•  Last Trading Day �NaturalGasFutures:Tradingterminatesthreebusinessdayspriortothefirstcalendardayofthedeliverymonth.

•  Delivery �SabinePipeLineCo.’sHenryHubinLouisiana.SellerisresponsibleforthemovementofthegasthroughtheHub;thebuyer,fromtheHub.TheHubfeewillbepaidbyseller.

•  Delivery Period �Deliveryshalltakeplacenoearlierthanthefirstcalendardayofthedeliverymonthandshallbecompletednolaterthanthelastcalendardayofthedeliverymonth.Alldeliveriesshallbemadeatasuniformaspossibleanhourlyanddailyrateofflowoverthecourseofthedeliverymonth.

•  Trading Symbols �NaturalGasFutures:NG

Month Settle 3/21/2014 Strip Avg,

Apr-14 4.313 Mar '14 - May '14 4.313

May-14 4.297 Apr '14 - Oct '14 4.339

Jun-14 4.329 Nov '14 - Mar '15 4.514

Jul-14 4.367 Apr '15 - Oct '15 4.061

Aug-14 4.366

Sep-14 4.343 Mar '14 - Feb '15 4.412

Oct-14 4.355 Calendar 2015 4.203

Nov-14 4.404 Calendar 2016 4.180

Dec-14 4.524 Calendar 2017 4.252

Jan-15 4.606 Calendar 2018 4.341

Feb-15 4.566 Calendar 2019 4.457

Mar-15 4.472 Calendar 2020 4.655 ICE NEXT DAY GAS PRICES:

Henry Hub 4.3155 Dominion-South 4.0680 TCO 4.3651

Market Commentary: The natural gas market seems to have

written off remaining winter weather concerns for now, with

prices having trended lower as the week has unfolded despite the

fact that storage has broken below 1.0 Tcf for the first time since

2003. Things opened up slightly higher this past Sunday night as

expectations for yet another period of much below normal

weather were priced in, but an early rally up into the high 4.50’s

proved to be the high print for the week, and we have drifted

steadily lower over the past several days. That is a similar trend

to what was experienced last week, just from a lower high to a

lower low for this week, and today’s low print just below 4.29

marked a fresh two-month low as depicted in the below 60-

minute chart from CQG. The EIA reported a withdrawal of 48 Bcf

NYMEX APR '14 NG 60-MINUTE CHART 03/14/2014 – 03/21/2014

from storage in the report released yesterday, which was slightly

lower than the forecast and failed to incite significant buying

interest, despite the fact that storage now stands at just 953 Bcf

and the deficit to last year is almost that large, with a current

reading of 932 Bcf under where we were for the same day in

2013. The below graphic from the EIA helps to illustrate just how

far storage has fallen over the past several months, with the blue

line plotting this year’s storage, which is now well below the prior

5-year low (the 5-year range is shaded in grey). The transitioning

nature of the natural gas industry has been widely reported on

and seems to even be understood by a substantial portion of the

WORKING GAS IN STORAGE VERSUS 5-YEAR RANGE (EA)

general public thanks to significant coverage by the media, but it

is still helpful to see things expressed visually, and the next

Snyder Brothers Inc., Gas Marketing 1 Glade Park East, P.O. Box 1022

Kittanning, PA 16201 Ph: 724-548-8101

Fax 724-545-8243 www.snyderbrothersinc.com

As of Week Ending: 3/14/2014 Build/(Draw)

Current Storage 953 Bcf (48)

Surplus/(Deficit)

Last Year Storage 1,885 Bcf (932) Bcf

5-Year Avg. Storage 1,829 Bcf (876) Bcf

graphic from a SocGen report (wherein they source the EIA) helps

to illustrate the shift in where our natural gas comes from, with

the growing area in black representing shale gas output, the

orange area represents tight gas, onshore conventional is in grey,

and offshore GoM production is represented in brown, and that

sector has seen its influence decrease drastically over the past 15

years or so, prior to which it made up as much as 30% of the US

total. The final graphic shows the sharp increase in NG

production out of the Bakken play in North Dakota, with the dark

blue area representing marketed production, while the light blue

area plots gas that ends up being flared off due to a lack of

takeaway capacity, so it is worth keeping in mind that it is not only

the Marcellus that is supply constrained, and that graphic serves

as a reminder of the capacity for domestic growth that remains.

Source: Societe Generale/EIA

This information is provided as a courtesy to our customers and should not be construed as advice regarding the purchase or sale of exchange-traded futures or options contracts. This report is based upon factual information obtained from sources believed to be reliable, but their accuracy is not guaranteed. Reliance upon this information for decisions is at the sole risk of the reader. CONFIDENTIALITY NOTICE: This electronic message contains information which may be legally confidential and or privileged and does not in any case represent a firm ENERGY COMMODITY bid or offer relating thereto which binds the sender without an additional express written confirmation to that effect. The information is intended solely for the individual or entity named above and access by anyone else is unauthorized. If you are not the intended recipient, any disclosure, copying, distribution, or use of the contents of this information is prohibited and may be unlawful. If you have received this electronic transmission in error, please reply immediately to the sender that you have received the message in error, and delete it. Thank you.

NaturalGasMeasurementFundamentals

Volume

CCF = 100 cubic feet MCF = 1000 cubic feet

Energy

Therm = Amount of energy produced by one CCF Dekatherm (DTH) = 10 Therms

Conversion Volume x BTU Factor *

or

Energy/BTU Factor*

* A British Thermal Unit (BTU) is the amount of heat energy needed to raise the temperature of one pound of water by one degree F.

BTU Factor supplied by the utility; Typically ~1.03

Example: 1,000 MCF X 1.03 = 1,030 DTH

1,030 DTH / 1.03 = 1,000 MCF