Global Shale Energy Development: Expanding

Economics, Trends, and Implications

New and Historic Energy Direction

with Shale • Increasing share of U.S. natural gas

production. 50%? 70%? (2040)

– Energy security

– Geopolitical

• Workforce

– E&P, manufacturing, and beyond

• Environmental benefits-power gen.

– GHG advantage over coal

– Strategic fit with renewables

• Balance of trade benefit –LNG export

• Opportunity for technical innovation

– Research to mitigate environmental and

commercial risk

Marcellus Center for Outreach and

Research • Research

– Down hole technical

issues

– Above ground risk(s)

• Air emissions

• Community impacts

– Socio-economic

• Agriculture, tourism

– Environmental

– Water – lifecycle impacts

– Workforce

– Business dev’l

– Regulatory

– Governance

Geopolitics

• Importance of energy increasing in global politics

– Russian/Ukraine dynamic

– Iran/Middle East less of focus?

• Increasing shale energy emphasis in EU nations

– 470 tcf estimated reserve (80% of U.S. estimates –EIA)

– Collectively --Parliamentary directives

– Individually --Poland/UK

• U.S. LNG policy –impact on Russian gas strategy

• Federal initiatives

– UGTEP program –State Dept

– Four continents

– Partnerships with DOE, EPA, Interior

– Federal trade mission programs --USTDA

U.S. vs. International

• Different scale

• Availability of equipment, trained crews, etc.

• Gas transmission capacity

• Markets

• Demand potential

– Power generation switching (coal to gas and back)

– Mexico and Canada

– Industrial use/petrochemicals –quick ramp up

• Ownership of minerals

• Technical data, i.e. seismic

Marcellus Center for Outreach and

Research • Outreach

– Stakeholder engagement

• Elected officials

• NGOs

• Industry

• Regulators (training)

• “Social License”

• General Public

– 64% polled favor but…

– A conversation about “risk”

– “Translating” the science

• Process

• Technologies

• Regulations

• Global experiences

• “Current moment”

Conveying Benefit vs. Risk

• What are the reasons for

producing the energy

– Demand for all energy

– Economic rewards

– New commercial and industrial

dev’l --utilization

– Workforce opportunities

– “Bridge” to something else

• Fossil vs. renewables

• “all the above” strategy

– Geopolitical opportunity

• Energy security

• Balance of payments

• What are the risks

– Separating possible

vs. probable risk with

all energy dev’l

– Wellbore integrity

– Water contamination

• Chemicals

• Methane

– Air emissions

– Health

– Gaps in research??

Unconventional Development in NE U.S.

Unconventional Gas Production in

Pennsylvania

NE U.S. Production Changes

• Northeast U.S.is largest

NG demand market in

North America.

• Estimated increase to

34bcf/d by 2035*

• Several in Bcf/d group

• Will displace pipeline

flow by 5.5+ bcf/d

• $4-5 for 5 years?

• Region will become net

gas supplier to other

regions of U.S.

– South

– Eastern Canada *Source: ICF International

Marcellus Production

PA Production Declines

Emerging Shale Targets

Marcellus Shale one of the largest

shale gas reservoir in the world with an

estimated 500 TCF of recoverable

gas…a 20-year supply for the entire US

Utica Shale

Utica Wet vs. Dry Gas

Regional Permitting

• Rigs

– Utica 43(OH)

– Marcellus 55(PA)

• Wells

– OH Utica 1092

– PA Marcellus 8000+

Utica Production

• Pipeline constraints

– Additional capacity

– Line reversal to NB/NS

– New political will?

• Record prices 1Q 14

• Increasing NG

demand

• Decreasing

coal/oil/nuclear

• Hydro from Quebec

• LNG?

• Historical change

Source: Range Resources

New Transmission Projects

• Western Marcellus

• Diamond East

– 2-3 bcf/d addition

– 450 miles of new pipe

• PennEast

– 1 bcf/d

– 100 miles

• Atlantic Coast

– 1-2 bcf/d

– 550 miles

Utica Midstream Build-out

NGL Gathering Capacity Demand

Larger/Permanent Investment

New Energy Dynamics with NGS

• Production vs. utilization

• Adding value to the commodity?

• Large energy consumers – Industrial

– Power

– Domestic/Cross-border

– Transportation

– Petrochemicals/Fertilizer

• New industrial renaissance? – “reshoring” of manufacturing

– Manufacturing costs 15% cheaper than Germany or France

– Implications for Asian trade?

– Increased investment in U.S.

• Chemical Industry – 17,000 direct jobs, 395,000 indirect jobs

– $100B capital investment w/$132.4B increase US economic output

• Ethylene Production – Capacity increase 30% increase (2011 to 2017)

– 5 new facilities (Dow, Shell, Chevron, Formosa, Sasol)

U.S. Energy Pricing

LNG Export

• Emerging capacity to export the commodity

– 4 permits issued for Gulf Coast

– Cove Point approved 9/14

– Jordan Cove 3/24/14

– Alaska permitted again

– Western/Eastern Canada

– 10+ bcf/d current. High level??

• Economics favorable?

– Pricing

• Spot, long-term contract, oil-linked

– Competitive environment

-East Africa, Australia, Canada, Qatar

• Federal permitting

– Political will increasing

– Geopolitical implications

• End markets

– Europe, Asia, Chile, Europe, Baltics

Canada

• British Columbia looking to be Canada’s

“Alberta” for nat gas

• Western Canadian gas looking to find home

– Asia

• Eastern markets finding Marcellus gas

– Maritimes?? Quebec??

– Exports of Marcellus via NE and Goldboro NS

• Export options

– NS/NB –regional supply/Marcellus

– Increasing supply in Newfoundland –mostly

offshore

Canadian Imports/Exports

Gas Exports to Mexico

Power Gen Trends

• Coal and NG trading spots for top U.S. power gen fuel – permanent??

– 9 new natural gas power plants planned in Pennsylvania

– 8,000 total megawatts

• 15% of coal gen offline by ‘16

• 20 yr low in CO2 emissions – mainly market driven

– regulatory impacts

• New residential heat trends – 43% gas

– 44% electric

• Greater onshore production – Reduced offshore extreme

weather price impacts

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Bradford Lycoming Tioga

20

00

80

41

1

24

71

16

00

84

1

47

67

54

19

21

30

43

21

74

05

57

30

81

50

66

70

84

96

78

00

87

32

40

88

Rai

l Tra

ffic

(#

cars

)

Counties

2008

2009

2010

2011

2012

2013

Rail Car Traffic

PA Shale Economic Impacts

According to PA Department of Labor through 2012:

• Approximately new 20,000 jobs in "core-related” industries (direct jobs)

• Approximately 200,000 jobs supported partially by industry

As of 4Q 2013 PA collected: • Approx. $800M in well impact fees by end

of 2014

• Approximately $2 billion in taxes from 2006-2012

Questions: • Externalities covered?

• Current tax protocols correct?

• Larger “public” share?

• Local jobs? Trained?

• Durability over time?

• Local business growth?

Challenges

• Lack of broad awareness

of energy use/need

• “Social license” to operate

in communities

– Impacts of social media

• Zoning and land use court

challenges

• Choke points in supply to

critical areas --NE U.S.

• Right of way access going

forward

• Governance/transparency

• Infrastructure needs in

roads, bridges, rail,

airports in rural areas

• Trained workforce

– Institutional capacity

– Lag in training vs.

demand –skill sets

• Cyber security concerns

• Political will

– Long-term energy policy

– Local/State/Federal levels

– $$$

Constraints?

• New regulatory oversight

– Federal vs. state state vs. state(NY/MD – PA/OH/WV)

– Regional initiatives –induced seismicity

– Water disposal

– Air emissions –fugitive methane

– Oil trains –20% of U.S. crude(1.6 M barrels/day)

• Taxation

– Severance in PA

• Size of company

– BP’s new shale unit

– Nimbleness?

OCTOBER 14-15, 20144TH ANNUAL NATURAL GAS UTILIZATION CONFERENCE

Hilton Garden Inn Southpointe, PA

WWW.2014UTILIZATION.ORG

PRESENTED BY

www.marcellus.psu.edu www.shaletec.org www.naturalgas.psu.edu

Contact Info:

Thomas B. Murphy

Director

Penn State Marcellus Center for Outreach and Research

320 EES Building

University Park, PA 16802

tmurphy@psu.edu

+1 (570) 916-0622 cell

+1 (814) 865-1587 office