marcellus shale: business & job growth · marcellus shale coalition about us ‒ founded in...

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

2 | MARCELLUS SHALE COALITION

PA produces nearly 10% of the nation’s gas and ¼ of onshore domestic shale gas

MSC Members Produce 96% of All Marcellus Gas

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

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

THANK YOU Supply Chain 101

Shale Economic Spectrum

Industry Segments

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

UPSTREAM MIDSTREAM DOWNSTREAM

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

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)

Marcellus Multiplier

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 1st ‒ 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

A project of the Marcellus Shale Coalition

23 23 | MARCELLUS SHALE COALITION

www.marcellusonmainstreet.org

Online Business Directory

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

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


http://www.strongerinc.org/

Shale Gas – Global Opportunity


North America 1,931 trillion cubic feet

Opportunity and Competition


Private Investment


Source: Marcellus Center for Outreach and Research, 2013 Source: Survey of MSC Member Companies, 2013

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

Shale Development in Pennsylvania


Increases in Production


Paid by Natural Gas Industry

Overall taxes since 20061 > $1.8 billion

State and local taxes in 20112 $1.23 billion

Road construction investments since 20082 ~ $1 billion

Royalty payments to state in 20113

Susquehanna County in 2010

$107 million

$133 million

Permitting and enforcement fees to increase DEP personnel since 2009 4

$40.5 million

Impact Fee in first two years 5 > $400 million

Revenue for Pennsylvania


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)


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

Public Policy Landscape

Act 13 Impact Fee

34 | MARCELLUS SHALE COALITION Source: PUC

Impact fee allocation data rounded to nearest 1000

$216,409,200

$144,272,800

$17,500,000

$12,000,000

$7,500,000

$2,000,000 $2,000,000

$2,000,000 $1,500,000

$1,500,000

Impact Fee Allocations 2011 & 2012 $400MM+ Local Government

Marcellus Legacy Fund

Natural Gas Energy Development Program

Department of Environmental Protection

County Conservation Districts & Conservation Commission

Fish and Boat Commission

Public Utility Commission

Department of Transportation

PA Emergency Management Agency

State Fire Commissioner

Act 13 Impact Fee


Boroughs & Cities

$12MM

Townships $112MM

Counties $75MM

Excludes Marcellus Legacy Fund & Housing Affordability and Rehabilitation Fund

Impact Fee Payment 2011 & 2012 County and Municipal Government $200MM

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

Source: Philadelphia Inquirer, May 19, 2013

“Decoupling” of Oil and Gas Prices


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)

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

http://www.timesleader.com/stories/Company-plans-2-power-plants-fueled-by-gas,99548

NGV Market Penetration

Neighborhood Air Emissions

Neighborhood Air Emissions Base Case (Diesel) vs. CNG Case

42% Reduction

88% Reduction 91% Reduction

lbs.

/yea

r

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


Legend

Marcellus Shale Formation

Wet Gas Region

“Wet Gas” Region of Marcellus Shale

Sources: Pace Global; Equitable Resources, MarkWest, Atlas Energy, Range Resources, and Caiman Energy.


Average Composition in Wet Gas Region

Methane, 74.2%Ethane, 15.6%

Propane, 5.5%Iso Butane,

0.7%Normal

Butane, 1.4%Iso Pentane,

0.5%Normal

Pentane, 0.5%

Hexanes+, 1.1%

Liquids, 25.3%

Source: Pace Global; NiSource Gas Transmission and Storage Presentation to WVONGA Spring Meeting May 6, 2010 p.5


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)

Separation Oil, Gas, Water

Oil and/or Gas Reservoir

5,000- 16,000 ft deep

Well

Compression

Gas Treating, Processing and Fractionation

Water Injection Well

Natural Gas (Methane)

Home Heating/Cooking

Electric Power

LNG (Liquefied and shipped)

Industrial Boilers/Furnaces Interstate Gas Pipelines

Gas

Oil Water

Petrochemical Plants

Ethane

Propane

Oil Refineries

Butanes

Natural Gasoline

Unleaded Gasoline

Diesel

Asphalt

Jet Fuel

Other

Glad Baggies

Plastics

Alcohols

Styrofoam

Other Chemicals Propane, Butanes, Gasoline's

Home Heating, Cooking Transportation, Industrial fuel

CNG (Fleet Fuel, Buses, etc)

Interstate Oil Pipelines

Propane

Exploration and Production (Upstream) Gathering, Compression, Treating, Processing, Transportation (Midstream) Petrochemical and Refining (Downstream)

Segments of the Oil and Gas Industry

Gathering Pipelines

Source: MarkWest Energy Partners - 160,000 barrels of crude oil a day

The Ethane Factor


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

International Interest in the Marcellus


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).

THANK YOU!

marcellus shale: business & job growth · marcellus shale coalition about us ‒ founded in...

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