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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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 2
I. About PLG
II. Energy Booms
III. Products and Logistics Flows
IV. Utica Logistics Conclusions
Content
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 3
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 4
Energy Booms
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 5
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 6
North American Shale Plays
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 7
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 8
Products and Logistics Flows
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 9
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 10
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 11
Hydraulic Fracturing
Equipment Staging Area
Source: JPTOnline.org
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 12
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)
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 13
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 14
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 15
» 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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 16
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 17
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 18
Utica Logistics Conclusions
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 19
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.
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 20
» 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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 21
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
PLG Consulting Logistics / Engineering / Supply Chain Delivering Solutions for Competitive Advantage 22
Thank You!For follow up questions and information, please contact:
Taylor Robinson, President+1-508-982-1319 / trobinson@prologisticsgroup.com
This presentation will be available at:
WWW.ProLogisticsGroup.COM
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