McKinsey & Co. Report: Ohio Energy Competitiveness

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  • Ohio Energy Competitiveness

    Technical fact baseSeptember 2016

    www.OhioBRT.com

    This document is prepared for the use of members of the Ohio Business Roundtable. It does not constitute legal, accounting, tax, or similar professional advice normally provided by licensed or certified practitioners. The information provided is preliminary and shall not be fully relied upon as the complete and final product. No part of this document may be circulated, quoted, or reproduced for distribution without prior written approval from the Ohio Business Roundtable. No part of this document may be circulated, quoted, or reproduced externally to the members of the Ohio Business Roundtable, and any requests for additional use or release must be pre-approved by Ohio Business Roundtable

  • 1

    This document can be used to support and provide depth to the findings of the Ohio Energy Competitiveness overview document

    Purpose

    conclusions in an extensive fact base Link facts, data, and assertions from the overview directly to their sourceProvide additional depth on the topics covered in the overview documentCommunicate insights about important

    competitiveness not covered in the overview

    How to use this document

    The overview contains links to the appendices with supporting factsLinks to the appendices reference specific facts cited on the page and additional insights on a given topicThe future outlook sections of the appendices explain the methodology for projections made in the overviewThe future outlook sections also provide deep dives on specific tax and regulatory concerns (e.g., severance tax)

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    This technical backup document covers a fact base for two broad topics

    Oil and gas

    Power

    Defining energy competitiveness Approach to fact base

    Ability to extract reserves (oil, gas)Ability to deliver resource to high-demand regionsAbility to attract and maintain industrial investments that benefit from reserves

    Analyze four resource types: natural gas, natural gas liquids (NGLs), crude, and condensateDevelop historical and future perspective across entire value chain: extraction, transportation and utilization

    Low-cost: Power prices in range of benchmark statesReliable: Able to effectively meet load at all times, including peak demand periodsStable and predictable: Ability to predict power prices within an acceptable range of uncertainty for investments, with acceptable volatility (compared to competitive states)

    Develop historical and future perspective according to three aspects of power generation: pricing, supply and demandUtilize specific benchmark and competitor states to understand relative performance

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    Contents

    Energy Competitiveness Report

    Appendix B: Electric power

    Appendix A: Oil and gas

  • Ohio Energy CompetitivenessCONFIDENTIALThis document is solely for the use of members of the Ohio Business Roundtable. It does not constitute legal, accounting, tax, or similar professional advice normally provided by licensed or certified practitioners. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from the Ohio Business Roundtable. The information provided is preliminary and shall not be fully relied upon as the complete and final product. No part of this document may be circulated, quoted, or reproduced externally to the members of the Ohio Business Roundtable, and any requests for additional use or release must be pre-approved by Ohio Business Roundtable.

    Pre-read document for BRT Annual Meeting of December 15, 2015

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    The OBRT energy competitiveness initiative has been a collaborative year-long effort that has focused on three key objectives

    CEO Steering Committee Gary Heminger, Chair; Nick Akins, Chuck Jones, Bob Schottenstein, Mike Thaman and Tim Timken

    through the present day

    changing energy landscape

    Align on themes and recommendations to move Ohio forward

    OBRT energy project objectives

    Working Team Marathon PetroleumAEPFirstEnergyDuke EnergyTimkenSteel

    Owens CorningM/I HomesNiSourceMcKinsey & Company

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    Guiding principles for the work

    Drive economic benefit for Ohio

    Encourage competition

    Ensure smarter regulation

    Invest in infrastructure

    competitiveness, rather than being solely reliant on federal policies to set the agenda

    by fully capturing the fair share of value from energy sources, driving job growth in the state, and supporting an innovative workforce with the necessary skills across the value chain

    by avoiding measures that discourage energy source investments and ensuring that policies and regulations do not discourage any specific technology or fuel-source

    by streamlining the permitting process and establishing

    investments in energy assets

    by removing impediments to the alignment of infrastructure investments with future energy production and demand

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    Unpacking our three

    Key questionsObjective

    the years? What impact is the development of the Utica Shale having on the State?

    prices evolved compared to competitor states?

    How will the production of gas, oil, and liquids in the Utica Shale advance over the next 15 years?What infrastructure and regulatory structures will facilitate the strong production, transportation, and use of hydrocarbons in the years ahead?

    between now and 2030?

    What are the key hurdles that Ohio must overcome to remain energy competitive?

    and other key stakeholders to move the State forward?

    Understand the evolution

    sector through the present day

    Use potential future scenarios to

    changing energy landscape

    Offer themes and recommendations to make Ohio energy competitive

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    has featured prominently in public and policy discourse over the past year

    Clean Power Plan (CPP) aims to reduce power market emissions 32% below 2005 levels by 2030

    Ohio lawmakers sent

    severance taxproposal to a study committee to analyze potential impacts

    The SB 310 study committee

    renewable energy freeze should continue indefinitely

    The Ohio Clean Energy Initiative has been certified by the ballot board for the November 2016 election

    Cleveland State University shale study maps the opportunities for shale gasdevelopment in Ohio

    The Kasich Energy Plan aims to update

    fit with the evolving shale gas and electric power landscape

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    Purpose of this document

    Written for a CEO-level audience, with varying levels of exposure to and experience with the energy space

    Overview of the major energy trends impacting Ohio and proposal for a path forward, reflecting only the highlights of the analysis

    Companion document to detailed fact pack

    Objectives

    Understand the evolution

    through the present day

    Use potential future scenarios

    changing energy landscape

    Offer themes and recommendations to make Ohio energy competitive

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    Executive Summary (1/2)Ohio sits on an immense opportunity to benefit from abundant and low-cost shale gas

    A huge volume (~24 trillion cubic feet) of inexpensive and accessible wet and dry gas exists in the Utica basin, where ~98% of gas is still to be extractedExtraction costs in the Utica basin are lower than many other basins and projected to drop

    Increased production and emerging downstream industries are already beginning to capture this value, and new investments in infrastructure and adjustments in regulation are needed to maximize potential

    annual GDP and sustain nearly 138,000 jobsThe electric power landscape is fundamentally shifting in Ohio, driven by trends that are shaping the national power landscape

    Power demand has declined over the last 5 years, and is expected to remain relatively flat for next 10-15 years, driven by increased energy efficiency and adoption of distributed resourcesOhio is now part of a larger regional power system, PJM, and continues to be a net importer of power as Ohio-based assets retireMix of power supply for Ohio has been and will continue to shift toward natural gas, renewables and distributed energy resources that could displace coal generationPolicy and regulatory landscape continues to be in flux with major outcomes (e.g., SB310, Clean Power Plan) that will eventually have a tangible impact on pace of transition in Ohio

    This document is solely for the use of members of the Ohio Business Roundtable. It does not constitute legal, accounting, tax, or similar professional advice normally provided by licensed or certified practitioners. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from the Ohio Business Roundtable. The information provided is preliminary and shall not be fully relied upon as the complete and final product. No part of this document may be circulated, quoted, or reproduced externally to the members of the Ohio Business Roundtable, and any requests for additional use or release must be pre-approved by Ohio Business Roundtable.

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    Executive Summary (2/2)

    In order to respond these power and gas dynamics and position the state as an energy leader, Ohio will need to mobilize across 6 priority themes:

    Meet the evolving needs of the power market for customers and developers

    Build out energy infrastructure

    Improve the ease of doing business in energy in Ohio

    Ensure adoption of renewables and advanced energy technologies are market based

    Drive economic impact from energy competitiveness

    This document is s