Energyzt

88 South Main Street

Cohasset, MA 02025

Telephone: 617-416-0651

Fax: 617-249-0478

E-mail: tanya.bodell@energyzt.com

www.energyzt.com

ENERGY TRENDS: WHY JOBS, CAPITAL INVESTMENT & TRADE ARE HEATING UP

Tanya Bodell, Executive Director, Energyzt

Once reigning as the King of Coal, the United States is now referred to as the “Saudi Arabia of natural gas.” The natural gas industry supports nearly 3 million jobs in the United States, and unconventional natural gas activity is projected to grow from 1 million of these jobs in 2010 to over 2.4 million in 2035. During the recession, the shale revolution was one of the largest job generators in the U.S., supporting nine of the top 11 fastest growing jobs in America. The electricity industry has played a pivotal role in absorbing excess supply generated by shale extraction. However, new sources of demand are required for these growth levels to be sustainable. This session examines global energy industry trends, changing interrelationships between energy sectors, the impact on capital investment and manufacturing, and discusses what is required for long-term sustainable growth in the U.S. and abroad.

Tanya Bodell is the Executive Director of Energyzt, a global collaboration of energy experts who create value for our clients through actionable insights. In this role, she oversees Energyzt’s advisory services, levering leading analytical capabilities, industry experience and expertise to help clients unlock value through informed business decisions. Using a multi-disciplined team of industry experts and integrated energy market models, Energyzt provides insights into the changing dynamics of electricity, natural gas, petrochemical, coal and rail industries to help companies create competitive advantage. She is based in Boston, Massachusetts.

Before joining Energyzt, Ms. Bodell was a Managing Director at FTI Consulting where she co- founded the Electricity Consulting Group. She previously served as the Vice Chair of the International Centre for Expertise at the Interational Chamber of Commerce, Vice President at Charles River Associates, and was a Principal at Putnam, Hayes & Bartlett (subsequently PHB Hagler Bailly), as a member of their energy consulting practices.

She has a Masters in Business Administration from the MIT Sloan School of Management, a Masters in Public Policy from the Harris School of Public Policy Studies at the University of Chicago, and an undergraduate degree in Mathematical Economics from Pomona College in Claremont, California.

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Energy Trends: Why Jobs, Capital Investment and Trade are Heating Up

AMT 2013 Global Forecasting & Marketing Conference

Presented by:  

Tanya Bodell, Executive Director

16 October 2013

2

Introduction

Energy markets are creating manufacturing opportunities and jobs

Objective: 

Review energy market trends and their impact on the U.S. economy and manufacturing industries

Agenda:

Energy markets

Capital expenditures

Global impacts

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ENERGY MARKETS

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Energy Markets / Energy Industry Value Chains

Oil, power, gas and petrochemicals are increasingly interrelated

Coal Extraction

Oil Fields

Wet gas  NGLs

Naphthas

Natural Gas Extraction

Refinery

Exports

Petrochemical Industry

Liquifaction Plant

Transport

Dry gas LNG

Propane/Ethane

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Energy Markets / U.S. Shale Plays and Remaining Reserves

The U.S. has active shale plays with extensive natural gas reserves

Source:  Map:  American Petroleum Institute; Remaining and undeveloped reserves by Advanced Resources International, Inc.http://www.adv‐res.com/pdf/A_EIA_ARI_2013%20World%20Shale%20Gas%20and%20Shale%20Oil%20Resource%20Assessment.pdf

Barnett72 TCF

Bakken19 TCF

Marcellus369 TCF

Utica111 TCF

Woodford77 TCF

Haynesville161 TCF 

Eagle Ford 119 TCF

Niobrara57 TCF

Shale PlayRemaining Reserves

Fayetteville48 TCF

6

0

2

4

6

8

10

12

14

16

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Natural Gas Futures Con

tract  (Dollars per M

illion BT

U)

Natural Gas

0

2

4

6

8

10

12

14

16

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Natural Gas Futures Con

tract  (Dollars per M

illion BT

U)

Natural Gas

Estimated Range of Marginal Cost of Production

Energy Markets / Natural Gas Pricing

Marginal cost of production supports a continued period of low prices 

Source:  Map:  American Petroleum Institute; Remaining and undeveloped reserves by Advanced Resources International, Inc.http://www.adv‐res.com/pdf/A_EIA_ARI_2013%20World%20Shale%20Gas%20and%20Shale%20Oil%20Resource%20Assessment.pdf

Henry Hub Natural Gas Prices

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Energy Markets / Factors that Could Increase Prices

Natural gas price impacts are likely to be locational

DEMAND:

Increased load due to industrial reshoring (e.g., petrochemical plants)

Offset by policy shift to energy efficiency and demand response programs

SUPPLY: 

Coal plant retirements

Offset by renewables, excess gas‐fired generation capacity and transmission investment

FUEL INPUTS: 

Increased exports into world markets

Offset by increased production

2014-2017

2015-2017

2018 - 2020

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Energy Markets / International Investment in U.S. Shale

International players are looking to learn and apply

Source:  US Energy Information Administration, April 8, 2013, http://www.eia.gov/todayinenergy/detail.cfm?id=10711

International Joint Venture Investment In U.S. Shale Plays (2008 – 2012)

Billion Dollars

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CAPITAL EXPENDITURE

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More than $3.2 trillion in  investment projected for shale

Source:  IHS Global Insight,  “The Economic and Employment Contributions of Shale Gas in the United States,” Prepared for America’s Natural Gas Alliance, December 2011, http://fuelfix.com/blog/2012/06/13/shale‐boom‐to‐fuel‐1‐4‐million‐jobs‐by‐2015‐study‐says/

U.S. Five Year Cumulative Totals of Capital Expenditure in Shale Gas($Millions)

CAPEX / Projected Shale Gas Investment

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2012 energy‐related manufacturing orders were 10% of market share

Source:  AMT – The Association for Manufacturing Technology, Prepared by Eric LeMasters, October 3, 2013, SIC Codes 33313 (Mining and Oil and Gas Field Machinery Mfg) and 33361‐99 (Engine, Turbine, and Power Transmission Equipment Mfg)

National Distribution of Manufacturing Technology OrdersTo Energy‐Related Industries (2012)

CAPEX / Manufacturing Orders Tied to Energy

Barnett72 TCF

Antrim5 TCF

Marcellus369 TCF

Utica111 TCF

Woodford77 TCF

Haynesville161 TCF 

Eagle Ford 119 TCF

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Chemical industry investment to accelerate in next few years

Source:  American Chemistry Council. Shale Gas, Competitiveness, and New US Chemical Investment: An analysis based on Announced Projects, May 2013 

Shale‐related US Chemical Industry Investment

Total Expected Investment 2010 ‐ 2020: $71.7 billion

CAPEX / Chemical Industry Investment

Electrical, 4%

Instrumentation, 8%

Piping & valves, 5%

Process equipment, 26%

Engineering services, 9%

Building construction, 10% Non residential

construction, 38%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2010

-12

2013

2014

2015

2016

2017

2018

2019

2020

Inve

stm

ent

(Bill

ion

s o

f 20

12 D

olla

rs)

Capital Investment Break‐out

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CAPEX / Chemical Industry Job Creation

Source:  American Chemistry Council. Shale Gas, Competitiveness, and New US Chemical Investment: An analysis based on Announced Projects, May 2013 

Plus another 300,000 permanent payroll positions by 2020

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Limited combined cycle investment in the near‐term

Capital Investment in Natural Gas Combined Cycle Power Plants

CAPEX / Natural Gas Power Plants

Source:  US Energy Information Administration

180

182

184

186

188

190

192

194

2013

2014

2015

2016

2017

2018

2019

2020

Inst

alle

d c

ap

aci

ty (

GW

)

Natural Gas Combined Cycle Capacity2013 ‐ 2020

New capacity to meet load

requirements

New capacity to replace announced coal plant

retirements

Source: Institute for Energy Research, http://www.instituteforenergyresearch.org/2011/10/07/ier‐identifies‐

coal‐fired‐power‐plants‐likely‐to‐close‐as‐result‐of‐epa‐regulations/

Anticipated Coal Plant Retirements2012 ‐ 2017

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Chemicals and plastics are the sectors benefitting most from shale gas

Source:  Resources for the Future. Sector Effects of the Shale Gas Revolution in the United States, July 2013 

Direct Output Gain in Manufacturing Industries Due to Shale Gas

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0

10

20

30

40

50

60

70

80

90

100

Ch

emic

als

Pap

er

Pla

stic

an

dR

ub

ber

Gla

ss

Iro

n a

nd

Ste

el

Alu

min

ium

Fou

nd

ries

Fab

rica

ted

met

al

Sh

are

Ou

tpu

t G

ain

Ou

tpu

t G

ain

$B

illio

ns

Output gain

Share of output gain

CAPEX / Other Industries

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CAPEX / Other Sectors

Aluminum/Steel– Increased demand for drilling equipment

– Lower energy costs

Fertilizers – U.S. is the fourth‐largest producer of ammonia in the world, despite 40% 

reduction in capacity after 2000

– About 70 percent to 90 percent of the estimated production cost by nitrogen‐based fertilizer producers (Pirog and Ratner 2012)

Rail – Already serving as “pipelines on wheels”

– Provide near term flexiblity to bring product to market

– Replacing lost capacity from reduced coal‐fired generation

Natural gas vehicles– Fleets and heavy duty trucks

– Requires significant infrastructure

Impact on other sectors could be muted by offsetting forces

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GLOBAL IMPACTS

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Global Impacts / Worldwide Shale Basins

The U.S. has a significant share of assessed shale gas and oil reserves

Global Shale Gas and Oil Basins

Source: Advanced Resources International, Inc., Prepared for the U.S. EIA, June 2013,http://www.adv-res.com/pdf/A_EIA_ARI_2013%20World%20Shale%20Gas%20and%20Shale%20Oil%20Resource%20Assessment.pdf

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Global Impacts / Oil Prices Impacted by World Events

Volatility in global oil prices are driven by geopolitical events

Source:  BP Statistical Review 2013

20

0

2

4

6

8

10

12

14

16

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Natural Gas Futures Con

tract  (Dollars per M

illion BT

U)

Natural Gas

Estimated Range of Marginal Cost of Production

Global Impacts / Oil and Gas Relationship Disrupted

Shale plays have disrupted oil and gas price parity in the U.S.

Source:  EIA, Natural Gas Futures Contract 1, http://www.eia.gov/dnav/ng/hist/rngc1M.htm and NYMEX Futures Prices,  http://www.eia.gov/dnav/pet/pet_pri_fut_s1_m.htm

0

20

40

60

80

100

120

140

160

0

2

4

6

8

10

12

14

16

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Cushing, OK Crud

e Oil Future Con

tract  (Dollars per Barrel)

Natural Gas Futures Con

tract  (Dollars per M

illion BT

U)

Crude Oil

Natural Gas

Prices of Natural Gas and Crude Oil in the U.S.

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Global Impacts / U.S. Drilling Response

Rig count has responded to the bifurcated oil and gas markets

Source:  Baker Hughes Rotary Rig Count, Reported in Natural Gas Intelligence Press, Inc.,  US Oil and Gasfor the week ending October 4, 2013  http://intelligencepress.com/features/bakerhughes/

Natural Gas versus Oil Rig Count

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The oversupply of NGLs are finding new markets overseas

Global Impacts / Increasing Exports of NGLs

Source:  US Energy Information Administration, http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MPPEXUS1&f=M and http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MLPEXUS1&f=M

U.S. Exports of NGLs and Derivatives

0

2,000

4,000

6,000

8,000

10,000

12,000

Thou

sand

sBa

rrels p

er M

onth

Liquified Petroleum Gases 

Pentanes Plus

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23

Global Impacts / LNG Export Markets are Attractive

World LNG Estimated October 2013 Landed Prices ($US/MMBtu)

Source: Waterborne Energy, Inc. Updated September 5, 2013 

LNG export markets create global demand for U.S. gas supplies

24

Source: FERC, http://www.ferc.gov/industries/gas/indus‐act/lng/lng‐proposed‐potential.pdf

Global Impacts / LNG Export Terminals Being Approved

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Key Takeaways on Energy Trends

Energy markets are becoming increasingly inter‐related, disrupting traditional relationships and reforming new ones

Shale plays are a potential game changer for the U.S.

– The country is poised to become the largest oil and gas producer in the world

– Estimated natural gas reserves are extensive  

– Natural Gas Liquids already are in oversupply

– Impact of LNG exports under heavy discussion 

Capital expenditures are pouring into:

– Energy sector 

– Petrochemical sector

Global impacts could motivate greater investment, providing demand growth in the medium and long‐term  

Perception is reality

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Key Questions to Ask Yourself

Are you going to be reactive or proactive? – To date, most companies have been reactive – responding to shifting demand for their 

products and services– Signs of a more strategic approach are emerging

Engagement of strategic consultants Lobbying spend “Independent” economic studies More tactical decision‐making

What can you do to defend your existing position and gain new market share?

– Market share is shifting with energy markets– Lost market share in one sector can be recovered in others– Domestic markets are expanding abroad and overseas jobs are coming back– U.S. firms have a first mover advantage with respect to the rest of the world

Who are your allies? Your partners? Your enablers? Your clients? – Big business interests already are assessing their situation and staking their positions– It is important to know how these positions impact you– New business relationships can forge unlikely alliances

How do I maximize my probability of success?

Know your market, target your customers and grow

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