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Prepared for

Shale Energy Supply and

Downstream Opportunities for

Businesses in NE Ohio

Youngstown, OH

November 7, 2012

PLG Consulting

I. About PLG Consulting

II. Recent Energy Booms

III. Shale Energy 101

IV. Economic Opportunities for OH & PA

V. Resulting Business Opportunities

Content

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» Boutique consulting firm specializing in logistics, engineering, and supply chain Established in 2001

Over 80 clients and 200 engagements

Significant shale development practice since 2010

» Headquarters in Chicago USA, with team members throughout the US and with “on the ground” experience in: North America / Europe / South America / Asia / Middle East

» Consulting services Strategy & optimization

Assessments & benchmarking

Transportation assets & infrastructure development

Logistics and Supply Chain operations

M&A/investments/private equity

» Specializing in these industry categories: Energy

Bulk commodities (Proppants, Chemicals, Plastics)

Manufactured goods

Private Equity

I. About PLG Consulting

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» 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

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II. Energy Booms

Logistics cost and supply chain execution are even more critical

in shale development

Logistics Cost as a Percentage

of Product Cost

» Frac sand is highly sensitive to logistics costs relative to past energy “booms”

» As frac sand costs are decreasing, rail freight rates are increasing

Ethanol 8%

Wind

turbine 12%

Frac sand 58%

Source: PLG analysis 5

Total Landed Cost Breakdown of Frac Sand

($180/ton)

Best Frac sand comes from WI & MN

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» “All sand is not created equal”

» WI & MN sand is:» Round

» Uniform in size

» Almost pure quartz

» Extremely hard

» Serves as an optimum proppant

» What is a proppant? It props

open the fissures in the shale

Source: Federal Reserve Bank of Minneapolis, July 2012

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III. Shale Energy 101

North American “Shale Plays”

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Bakken & Eagle Ford

are largest “shale plays”

so far…What can we

learn from them?

Marcellus & Utica

are large plays with

great location and

tremendous potential

Shale Economic Impact to ND

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OH PA

WV

ND

• Per capita income rose from 38th to

17th among all states since 2000

• Oil investments driving significant

improvements in state and local

infrastructure development

North Dakota Oil Production

Two Technology Breakthroughs:

Horizontal Drilling & Hydraulic Fracturing

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Great YouTube video by

Marathon on fracing:

Http://www.youtube.com/watc

h?v=VY34PQUiwOQ

Natural

Gas

• Proppants

• Chemicals

• Clean water

Materials

• Drilling Rigs

• OCTG (Pipe)

• Cement

Equipment

Shale Energy 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

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Hydraulic Fracturing

Equipment Staging Area

Source: JPTOnline.org

Frac Tanks/Fluid Storage

Chemical Trucks

Blender

Sand Storage

Unit

Pump Trucks

Data Van

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Hydraulic Fracturing Materials

Inputs and Logistics – Per Well

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Materials

Chemicals

Clean Water/

Cement

Proppants

OCTG (Pipe)

Source to

Transloading

2

Local source

40

5

Transloading to

Wellhead Site

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~1,000

160

20

47 Total

Railcars

~1,200 Total

Truckloads

Oil / Gas/ NGLs

Truck, Rail,

Pipeline

Waste Water

~500 Total

Truckloads

Chemical

Feedstocks

Midstream / Downstream

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 Flow14

Key Logistical 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

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IV. Economic Opportunities

for OH & PA

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Traditional Plastics Supply Chain

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Component

Manufacturing

Lordstown

Assembly Plant

Imported crude

via vessel

Resins

ship

via railRefineries

Resin

Plants

Cracker

“I just want to say one word

to you…Plastics…There’s a

great future in it. Think

about it.”

-The Graduate, 1967

Potential Plastics Supply Chain

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Gas Wells

CrackerResin

Plants

Lordstown

Assembly

Plant

Component

Manufacturing

0

500

1000

1500

2000

2500

Asia USHistorical

Saudi USRecent

$/T

on

HDPE Calculated Cost

Sources: CMAI, TopLine Analytics, and Alembic analysis, 2012

» Low cost natural gas with local processing would give this

region a tremendous material and manufacturing cost

advantage

Gas Demand Growth Potential

Opportunities – LNG & Others

» LNG export is a cost leverage play

» Infrastructure & Regulatory Issues

Requires fractionation and liquefaction to transport efficiently.

There are 4 LNG import terminals in the Northeast that could be modified for export

Marcus Hook, PA has great export potential

Federal government must approve exporting LNG. Several companies have applied for

export permits.

» Emerging technology & applications

Compressed Natural Gas (CNG) as transportation fuel

Converting natural gas to diesel or gasoline (Cairns City, PA)

Exporting byproducts – propane, ethelyne, resins19

0

3

6

9

12

15

US

$

$10

$3.50

$4-7

$7.50-

$10.50

$13

Impact of Crude Oil in Utica

20Source: EIA

Utica crude would first

displace foreign crude in

this region and have

logistical cost advantage

vs. Bakken.

Utica has the potential to

produce 100 to 180 million

barrels of oil annually.

Source: EAI, Inc.

V. Resulting Business

Opportunities

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Shale Development Activities

» Exploration and Preparation

Land acquisition

Engineering – Civil, Mechanical

Legal

Construction

Infrastructure build-out – roads, rail,

roads, pipelines, bridges, buildings

» Drilling

Transportation – transloading,

trucking

Fresh water management

Brine water processing &

transportation

Equipment maintenance

» Production

Transportation

Equipment Maintenance

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Shale Regional Development

Business Opportunities

» Engineering

» Construction

» Material supply & handling

» Real Estate

» Temporary Housing

» Hotels

» Restaurants & Supermarkets

» Catering/On-site food supply

» Medical support

» Vehicle rental & repair

» Equipment rental & repair

» Machine parts

» Temporary labor

» Work clothing, shoes, PPE

» Construction material salvage

» Fuel – gas, diesel, propane

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Direct Employment: ~20% of all jobs created

Indirect & Induced Employment: ~80% of jobs created

Will this boom actually occur?

» Not a matter of “if” but “when”…. Natural Gas & Crude is here

Proven technology to find it

Geographically advantageous

Great transportation infrastructure in place

» “When” depends on these factors…. US Natural Gas Prices

Gas processing & pipeline capacity

Cracker & resin factories in region

LNG export timing & amount

Finding fracing “recipe” for Utica crude oil

Global crude oil price

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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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