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Marcellus Shale Update Peter Terranova VP – Midstream Assets & Services
Marcellus Shale Update
Peter Terranova
VP – Midstream Assets & Services
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Agenda
Industry Activity
Competitive Advantage of Marcellus Shale
Advancement of Liquids Production
Economic Impacts
Regulatory/Legislative Updates
Demand Growth
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Industry Update
Permits
10,546 since 2008
Drilled Wells
5,255 since 2008
Operators
80 permitted operators since 2008
Production
Between 4.5 Bcf/Day and 7 Bcf/Day (Bentek Energy LLC)
Rig Count
95 rigs currently operating
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Drilled Wells & Permits
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Competitive Advantage for Marcellus Shale
Proximity to a large regional natural gas markets with significant future growth potential
Abundant reserves continue to grow as drilling efficiencies improve
Diversity of geographic extent and products ensures long term production
Several other plays above & below the Marcellus that appear to have compelling economics for future production
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Marcellus…A Game Changer
Source: EIA, Annual Energy Outlook 2012
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Superior Economics
Source: Range Resources January 2012
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Advancement of Liquids Production
The additional revenue generated by the processing of liquid byproducts allows drillers of “wet gas” to sell gas at lower prices while still experiencing a significant economic gain
This fact puts a target on areas with large quantities of wet gas
SW Marcellus: Pennsylvania/Ohio
Utica: Ohio
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Wet Gas Provides Excellent Economics
Source: Range Resources January 2012
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Impacts to PA Economy
*Source: “The Pennsylvania Marcellus Natural Gas Industry: Status, Economic Impacts and
Future Potential”, Penn State, July 2011
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Impacts to PA Economy
Significant investments must be made in order to keep up with natural gas growth and new unconventional production.
Regionally, the Northeast is projected to see $12.8 billion, $5.9 billion and $5.9 billion in total investment through 2035 in transmission infrastructure, gathering infrastructure, and gas plants, respectively.
A total of 214,000 Marcellus Related Jobs in 2011 Q1
27,000 New Marcellus Hires (core & ancillary) in 2011
18,000 new hires in 2011 Q2 and 9,000 in 2011 Q1
$76,036 average Marcellus wage
2075.9% increase in core jobs in PA’s Northern Tier
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Pennsylvania Act 13 (Impact Fee)
Signed on February 14, 2012
Imposes a gas well fee
Funds collected are split between covering local impacts of drilling and several state agencies for various reasons
PA PUC will be responsible for imposition, collection and distribution of fees
Possibility for repeal
There is currently a lawsuit challenging this act scheduled to take place between June 4 and 8 in Harrisburg
The plaintiffs contend that Act 13 unconstitutionally strips communities of their zoning and land-use planning rights
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Lower Price Projections Spur Development
Spot natural gas prices near ten year lows during winter 2011-2012
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Demand Driven Production
Projections for a long steady supply of cheap gas inspires consumer confidence and drastically increases demand for gas
Regionally, northeast demand growth from 11.3 Bcf per day in 2010 to 14.3 Bcf per day by 2020 and 17.9 Bcf per day by 2035.
Unconventional natural gas supplies will account for nearly all of the increased demand and are projected to account for two-thirds of the total gas supply mix by 2035
Midstream infrastructure must keep pace to avoid price volatility slower production rates, stranded gas supplies, and ultimately, slower economic development
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Growth of Natural Gas in Electric Generation
Pennsylvania Natural Gas Deliveries to Electric Power Consumers (MMcf)
0
50,000
100,000
150,000
200,000
250,000
300,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
MM
CF
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Implications for Consumers…$$ Savings $$
Power & Gas Price Relationship
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
2007
-120
07-4
2007
-720
07-10
2008
-120
08-4
2008
-720
08-10
2009
-120
09-4
2009
-720
09-10
2010
-120
10-4
2010
-720
10-10
2011
-120
11-4
2011
-720
11-10
2012
-1Po
wer
Pric
es (P
JM W
Hub
LM
P)
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
Gas
Pric
es (I
nsid
e FE
RC
M3)
GasPower
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Opportunity for Utilities in Pennsylvania
Consumer savings should help drive demand growth and new business
580,000 UGI Utilities gas customers are saving nearly $800 million per year at today’s gas prices versus two years ago
Conversion opportunities will continue to be prominent source of growth
On UGI Utilities, roughly 7,500 customers switched from oil to gas heating last year, saving on average $2,000 annually (total of $15 million annually)
Electricity cost saving is significant as generation moves from coal and oil to natural gas-Environmental benefits from cleaner combustion
Even greater savings if natural gas is used in place of electricity where possible
Lower utility costs improves the environment for doing businesses in PA; re-birth in manufacturing and industrial loads
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Auburn Line Extension
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Commonwealth Pipeline
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Utica Shale
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Electric Generation Fuel Outlook
